Ecosystem Services & Biodiversity (ESB)

Incentives & Support

FAO supports both public and private stakeholders to define the best incentive schemes. It assists countries to improve the alignment between conservation and production policies and investments.

What are incentives?

Strategies used by public and private sector to encourage farmers to protect or enhance ecosystem services beneficial to them and others.

Understanding the need for incentives

Agriculture is deeply linked with nature. As a result, famers are usually stewards and beneficiaries of ecosystem services – along with other stakeholders around them.

However, the protection and enhancement of most ecosystem services in agriculture require an active contribution from farmers. “Ecological infrastructure” practices such as terracing, afforesting, agroforestry and conservation tillage are necessary – but farmers are not the only beneficiaries, and often operate under very slim profit margins that give them little time or resources to invest in  building ecological infrastructure that benefits a wider community. They need a reason to embark on these activities.

Existing markets do not value ecosystem services because these services are seen as public goods, instead of valuable products that could cease to be in supply if not properly managed.

Without incentives, both in the long and short term, farmers will not be able to invest the time and money required to develop new techniques and overcome typical adoption barriers – be they technical, cultural or financial.

Examples of incentives required when adopting sustainable practices

When first adopting sustainable practices, farmers may need to invest in the rehabilitation or upgrading of their land and water management structures. They may have to set aside sensitive land and forest areas. This may require access to credit or funds for labour, more intensive management or support to address income gaps from lower yields.

Once these investments pay off in higher yields or new crops – thanks to better water retention or soil fertility – farmers may need assistance to make the most of this new situation and sell the additional produce. Incentives and support in this case could include access to markets to sell goods.

If the areas that have been set aside cause continuous costs, there needs to be a permanent compensation for continuing to maintain them, for greater societal benefits. This could be provided either through subsidies or new income-generating activities like ecotourism.

Mixed incentives

Usually, successful schemes combine several different types of incentives. Incentives for ecosystem services are diverse, ranging from regulatory (permits, laws, quotes) to voluntary (certification, labelling). They can be governed by private or public actors. Payments for ecosystem services are a way to incentivise farmers.

Rio Rural Development Program in Brazil mix of incentives

In the State of Rio de Janeiro, small farmers face a hard task to comply with forest and water-protection laws and generate income in a limited farm land. To support them, the Rio Rural Development Programme integrates both regulatory and productive incentives to simultaneously improve agricultural productivity and conservation practices:

  • Short term incentive: Improve fodder and dairy breeds so farmers need fewer animals, assistance to zone the farm and implement conservation practices.

  • Long term incentive: Invest in storage and processing, combined with improved access to markets.

This way, farmers can increase their revenue per hectare and eventually the compliance with the forest and water-protection laws will also yield ecosystem service benefits in the farm.

Linking stewards of ecosystem services with their beneficiaries

This kind of support and integrated planning has a cost but is allowing for a truly sustainable agriculture. Incentives link beneficiaries with stewards. This means linking communities, private businesses, NGOs and governments with stewards of the land like the farmers in the example above. These incentives cover all the ways to possibly create an agreement between the service providers and the beneficiaries. They ensure that the service is delivered.

Integrated and locally relevant incentive packages

The design and implementation of an adequate incentive package requires locally adapted arrangements and framework conditions.

The Rio Rural Development Programme: integrated planning and financing

The Rio Rural Development Programme in Brazil acts as an umbrella initiative under which several agriculture and rural multi-sectoral development programmes join forces. Together they provide incentives for flexible compliance of forest and water protection laws. This combines:

  • Public programmes investing in improved livestock breeds, pasture management and improved fodder, access to marketing and rural credit.

  • Private companies contributing to forest conservation and rehabilitation, as part of their compensation of negative environmental impacts, and to rural enterprises for their corporate social responsibility.

  • Water user fees financing waste water management technologies and soil conservation measures.

  • State and municipal governments implementing a Payement for Ecosystem Services (PES) mechanism, based on transferring funds from state tax on circulation of goods and services directly, to small farmers that implement private forest reserves.

  • Conservation NGOs facilitating the creation of farm forest reserves.