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Step 6. Appraise the alternatives: environmental, economic and social analysis

The evaluation carried out so far has been essentially in terms of physical suitability. An assessment has been made of whether different kinds of land use can be undertaken on a sustained basis.

In Step 6, the effects of each alternative use are appraised in environmental, economic and social terms.

Obviously, these aspects have not been ignored: they generally guided the identification of promising options at Step 4. Now, those that passed this first test are formally appraised against the selected criteria. In this step, it is essential to examine land-use proposals from the standpoint of the capabilities and incentives of individual land users.

Box 8
Measuring the worth of a land-use system

Gross margin. The market value of the produce minus the variable costs that are attributable directly to the product (in the case of an agricultural crop - seeds, fertilizer, fuel, water, labour, hired machinery, etc.).

Net margin. Gross margin minus the fixed costs of production (for example, depreciation of farm equipment, buildings, water distribution, soil conservation works).

• Results of gross margin or net margin analysis can be interpreted in several ways:

- Which is the best land for each crop or land-use type?
- Which is the best use for each land unit?
- Will a proposed change be profitable?

• Partial farm budgeting, calculating only the effects of any proposed changes in land use, is a simple way of projecting the farm-level effects for representative farmers. The difference between net income accruing under a present and an alternative land use is usually referred to as "returns". Investment, maintenance and other costs needed to bring about desired changes in land use are referred to as "costs" .

• Where capital investment is involved - for example in land improvements that will lead to a stream of benefits over a long time - discounted cash flow analysis can be used to place the costs and benefits on a comparable basis, i.e. their present value. Money earns interest so its value increases over time. In the same way, income promised in the future is worth less than the same income now, and its present worth can be calculated by the reverse of interest, called discounting. The interest rate assumed for discounting is called the discount rate.

• Discounted cash flow analysis of all benefits and all costs to their equivalent present value produces three measures of the worth of a stream of income which can be used to compare land development options with alternative opportunities for investment:

Net present worth. The present worth of benefits minus present worth of costs.

Benefit: cost ratio. The present worth of benefits divided by the present worth of costs.

Internal rate of return. The rate of discounting at which the present worth of benefits becomes equal to the present worth of costs.

Plate 5: Environmental problems from capital works. The Volta Dam, Ghana - Large engineering projects create dramatic local environmental changes but may also have far-reaching indirect impacts. A reduction in the sediment load of the Volta River has changed the pattern of coastal erosion and sedimentation more than 100 km away

One way of doing this is to model the performance of different options and their effects on representative land users. A word of caution is necessary: quantitative data are not necessarily better, more reliable or more accurate than qualitative data. Sophisticated models need a lot of data and make assumptions that should be clearly understood before the models are applied to particular problems. There will be many cases where a qualitative judgement is more appropriate.

Environmental impact

The land suitability evaluation has already classified as "not suitable" any land use that continually degrades the land. An analysis of environmental impact goes further. It compares what will happen under each alternative system of management in terms of the quality of life of the whole community and takes account of effects both within and beyond (off-site effects) the planning area.

In-depth knowledge of physical, chemical and biological processes and how these interact with society is needed to foresee the likely environmental impact of a specific land-use system. Often, the impact of a particular activity may be long term or several stages removed from the primary cause of the problem. For example, in Sri Lanka coastal erosion and flooding have been caused by the exploitation of protective underwater coral barriers for lime production. In West Africa, current coastal erosion has been attributed to big dams, built on major rivers over 20 years ago, which have intercepted the supply of sediment to the coastal zone (Plate 5).

Following are examples of the environmental effects to be considered:

Soil and water resources. Hazard of soil erosion, landslides and sedimentation; security of water supply and water quality within and beyond the planning area.

Pasture and forest resources. Degradation of rangelands, clearance or degradation of forests.

Quality of wildlife habitat. Structure and composition of forests, grasslands and wetlands; critical areas needed to maintain wild plant and animal communities, including germplasm conservation; side-effects of terrestrial developments on wetland ecosystems;

Scenic and recreational value for tourism and leisure industries. Tolerance of the disturbance associated with leisure, and compatibility with other land uses.

Economic analysis

In Step 5, land suitability is expressed either in qualitative terms (highly, moderately and marginally suitable, or not suitable) or in quantitative physical terms (e.g. crop or timber yield). By comparing the production and other benefits with inputs in terms of money, an extra quantitative measure of land suitability is provided (see Financial and economic analysis, p. 81).

An underlying assumption of financial and economic analysis is that market prices, established in competitive markets, reflect social values. Where there is no competitive market for a resource, which is often the case with renewable land resources and family labour, some other measure of worth has to be found.

Financial analysis looks at profitability from the point of view of a farmer or other private investor, by comparing the producers' revenues with their costs. Farmers will not practice a land use unless, from their point of view, it pays. Financial analysis can answer some immediate, practical questions:

• Is this crop, or land use, the most profitable option?
• Where can this crop be grown, or land use practiced, most profitably?

Economic analysis estimates the value of a system of land use to the community as a whole. For example, if prices to the producer are reduced by taxes or held at an artificially high value by subsidies, these taxes or subsidies have to be eliminated to arrive at a shadow price for production. Costs have to be treated in the same way.

Where there are clear economic consequences of environmental effects, for example the reduction of sediment in rivers, the money value to the community can be estimated and included in economic analysis.

Comparisons of financial with economic analysis can highlight the need for policy changes. A particular land use, for example high stocking rates on communal grazing land (which is free to the producer), may be degrading pastures and soils, thus destroying land resources. If financial analysis shows the use to be advantageous from the farmers' point of view, it is likely to continue, however environmentally or, in the longer term, socially damaging it is. Economic analysis should take account of damage to land resources and the consequent lowering of their productivity. Policy changes will be needed to make a socially desirable kind of land use equally advantageous to the farmer. Similarly, financial analysis may demonstrate that farmers do not have an incentive to produce a surplus for sale. If government policy requires increased production, a change of pricing policy may be an effective way to provide incentives to achieve the desired change.

Limitations of economic analysis

Economic analysis is easier where there is general agreement on social values and development goals and where there are freely competitive markets. It is complicated where there are distortions of the market or where development brings unintended side-effects, such as pollution or the loss of communal resources, e.g. access to grazing or fuelwood. It is the job of the planner to identify these side-effects and to assess their economic costs.

A serious limitation of economic analysis is that it is biased in favour of quick-yielding investments. The technique of discounted cash flow analysis, which is used to convert costs and benefits arising in the future to present-day values, has the effect that benefits accruing more than about 25 years in the future have virtually no present value at discount rates greater than 10 percent (Figs 10 and 11). This makes it difficult to justify long-term investments, especially in forestry. The choice of discount rate has more effect on the value of any long-term agricultural or forestry development than the predicted yields of crops or timber.

Finally, costs and prices can change within a few years and projections of their future levels are risky. For example, it may be found that oil-palm is a more profitable crop shall rubber at present-day costs and prices but, by the time these crops are producing, the position may have reversed. There is no easy solution to this problem. For perennial crops or forestry, it may prove better to adopt land uses that perform best in physical terms, rather than seeking short-term price advantages. Economic calculations must be updated periodically during the planning period.

Strategic planning

Strategic planning must take a medium- to long-term view to avoid closing options for the future. Land-use policy must take account of land suitability, the current economic situation, the production and services obtainable in relation to the expected future needs and the possibility of meeting demands from elsewhere.

Land with severe physical limitations usually offers few viable options. Land-use planning is more difficult for land that is well suited for many different uses. Besides physical and economic suitability, one needs to know the critical importance of land for specified uses. This means estimating not only whether a particular area is physically suitable but also whether it is important that this specific area of land should be used in a particular way. Examples are protected sites for the preservation of rare plant communities or the prevention of urban encroachment on to prime farmland.

This issue can be addressed by first devising realistic alternative scenarios of future needs and then comparing estimates of the potential production with the target production. If a target can be met easily, no particular area of land is likely to be critical for that use and, therefore, flexibility of land use is high. But if most of the physically suitable land will be needed to meet the target, all such land is critical and flexibility of land use is low.

Figure 10: Current worth of $1000 received in future years at different discount rates

Figure 11: Current worth of a benefit of $1000 received ten or 20 years hence at different discount rates, compared with present costs

Social impact

The most profitable land use for each parcel of land can be calculated in financial and economic terms but this does not fully represent the effects on the community. Social impact analysis studies the effects of proposed changes on different groups of people. Particular attention should be given to effects on women, ethnic minorities and the poorest sections of the community.

There are no fixed procedures for assessing the social impact of a proposed change of land use. The social purpose of the land-use plan should be laid down at the outset and the impact of each system of land use can be judged against this goal. Examples of social factors that might be considered are:

Population. Its projected size, distribution and age structure; the desirability or otherwise of migration.

Basic needs. Food security, lessening of risk (e.g. in planning subsistence production as compared with cash cropping).

Employment and income opportunities. For example, mechanization may have been considered as a means of achieving lower production costs but this could lead to unemployment.

Land tenure and customary rights. For example, grazing and water rights.

Administrative structure and legislation with in which planning must operate.

Community stability.

Understanding how present land-use decisions are made is essential in order to understand the full economic and social implications of any proposed change. Farming systems analysis can provide an integrated view by taking the farm family as the decision-making unit. The case will often be that, what appears to be the optimum land use when viewed from a district level, is impracticable at the farming system level. This is because individual families have to satisfy their needs from their own farm, which will not include all kinds of land nor the same proportions as the district or catchment as a whole.

Interface of land-use planning with rural development planning

Often, a change in land use will require investment in physical infrastructure (roads, storage and processing facilities) and services (marketing, credit, veterinary). New or enlarged settlements also need infrastructure and social services, such as water supply, health and education services. These social gains from a rural development plan may compensate for benefits that have to be foregone, such as the restriction of communal grazing. In this respect, land-use planning merges with rural development planning while changes in land use may support improved facilities for the community.

Step 6

Responsibility: planning team

• The following studies refer first to individual combinations of land use with land units that have been classed as suitable in physical terms and, second, to alternative combinations of land use that are being considered in the plan.

- Environmental impact assessment: soil and water resources, pasture and forest resources, wildlife conservation, resources for tourism and recreation; off-site effects.

- Financial analysis: are the proposed land-use types profitable for the farmer or other land users?

- Economic analysis: what is the value of the proposed changes to the community, within and beyond the planning area? Are there areas of land of critical importance (for production or conservation) for certain uses?

- Social impact: what effects will the proposed changes have on different sections of the community, especially women, minority groups and the poor?

- Strategic planning: how do the proposed changes in laud use affect wider aspects of rural development planning, including national goals?

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