1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTESustainable Land and Watershed Management (SLWM) practices in the Blue Nile: A systems evaluation Emily Schmidt, Paul Chinowsky, Sherman Robinson, Ken Strzepek IFPRI ESSP-II Towards what works in rural development in Ethiopia: Evidence on the impact of investments and policies December 13, 2013 Addis Ababa1

2. Background The SLWM programs implemented are designed to: Decrease erosion and increase agricultural yields Improve rural household welfare Important to understand the linkages among: Agricultural production increases Corresponding output price changes Labor allocation Household income effects in program areas Previous research suggests that maintenance of SLWM structures in rural Ethiopia is limited 3. Analyses in study Hydrological Model Economic ModelExogenous FactorsSystems Model 4. Systems model Multi-market model that is modeled in GAMS Simulates the effects of SLWM investments on: agricultural production producer and consumer prices household income Models different production systems by slope type Compares different investment simulations in order to identify optimal investment strategy. 5. SLWM InvestmentsSoil BundsStone terracesWood check damStone check dam 6. Area in Blue Nile Basin with similar land characteristics of Mizewa watershed 7. Design of Systems Simulations A series of SLWM simulations are compared to the calibrated base: 1. Calibrated base simulation with imposed downward trend (Schmidt & Tadesse, 2012; Holden and Shiferaw, 2002)2. Terraces built on middle and steep slopes (MST)3. Calibrated base simulation with fertilizer application 4. MST with fertilizer application 5. MST with fertilizer application and 50% reduction in transportation costs 8. Simulation Results: Production Total Maize Production in watershedMillion Tons3 2.5 2 1.5 1 0.5 0Base MST * Fertilizer Base MST and Fertilzer MST, Fertilizer, and -50% transport cost 9. Average production and price by slope in FogeraBase with MST* FertilizerBase Maize (million tons) Steep 0.07 23.9% Mid 1.08 22.8% Flat 0.15 -0.7% Maize price (1000 birr/ton) Fogera 1.11 -8.8%Fertilizer, M ST, -50% Fertilizer transport and MST cost61.2% 59.9% 60.0%98.5% 94.8% 57.9%100.0% 96.3% 59.3%-22.8%-30.7%-25.2% MST increases production by 23 24% Pairing fertilizer with MST almost doubles production An increase in production (supply) with no increase in demand causes prices to fall 10. Average household income 0.8 Base0.7 0.65MST0.6 0.55Fertilizer Base0.5MST and Fertilizer0.45*MST = Middle and Steep Terraces20302027202420212018201520120.4 2009Thousand birr / HH0.75MST, Fertilizer, and -50% transport cost 11. Simulation Results: Income by slope type Year 2030 HH income (1000 birr/person)BaseFertilizer, MST, -50% Fertilizer Fertilizer transport MST* Base and MST costsSteep0.51-4.4%7.2%9.5%14.3%Mid0.620.1%10.1%20.9%28.7%Flat = Middle and Steep Terraces 0.51 -3.1% *MST5.8%-1.0%2.0% 12. Benefit cost of policy options to incentivize SLWM sustainability Change in Household Consumption (NPV) 0Marginal benefit of government investment (NPV) -Government Cost (NPV of cost) -Marginal Benefit: Cost --2.5-0-7.5 22.9 20.110.0 -6.95 0 01.5 -22.92.82.11.421.71.60.91.821.11.10.891.2Simulation 2009-2030 Household 3% discount rate Consumption (billion birr) (NPV) Base 94.2 Land Investments Terraces on middle and steep slopes (MST) 91.7 MST with government transfer 101.7 Fertilizer increase 117.1 Fertilizer increase and MST 114.3 Road Investment Scenarios (w/ fertilizer and MST) Transport cost decrease 50% 117.1 Transport cost decrease 30% 115.9 Transport cost decrease 20% 115.3 13. Conclusion Producer benefits of only SLWM do not outweigh the costs Do not compensate foregone off-farm labor opportunities Do not increase output enough to compensate for price falls More profitable for producers (within the 20 year timeframe) to invest in fertilizer and allow the land to continue to degrade 14. Conclusion A more comprehensive investment approach may be necessary to ensure that SLWM is maintained. SLWM + fertilizer Government transfer (BC ratio 1.5) Improved roads (BC ratio 1.2 1.8) Successful SLWM programs must take into account the social benefits (improved land, decrease consumer prices), but also private income gains in order to incentivize rural farmers to maintain SLWM structures