This document summarizes a presentation on evaluating land management practices under fertilizer subsidies or carbon sequestration compensation in Kenya. The presentation addresses research questions on the best ways to organize input support systems, the role of subsidies and integrated soil fertility management, and whether carbon sequestration markets could provide additional revenue streams. Key points discussed include requirements for agricultural carbon markets such as verifiability, additionality, and permanence. Indicative findings show impacts of sustainable land management practices on yields and revenues as well as net present values of integrated soil and landscape management practices. The presentation concludes by discussing the role carbon revenues could play in supporting integrated soil fertility management and addresses future research directions.

1. Evaluating land management practices under fertilizer subsidy or carbon sequestration compensation in Kenya By Paswel Marenya International Food Policy Research Institute Seminar Presentation at World Agro forestry Center-Nairobi May 14, 2010 With others at IFPRI: Yanyan Liu Ephraim Nkonya Jose Deustua Rossel Paul Thangata

2. Research Questions What is the best way to organize input support systems for smallholder agriculture? Are Subsidies the ‘New Normal’ as a final hope for improved input use in Africa? Are subsidies not rather expensive? What role is there for integrated soil fertility management (ISFM)? Can the production of a global public good (carbon sequestration) offer extra revenue streams thereby relieving pressure on subsidy budgets?

3. Outline Introductory Background Key features and requisites for agricultural carbon markets Some tentative economic indicators for further analysis Implications and future directions Your Inputs

4. Introduction Carbon sequestration in the agriculture sector refers to the capacity of agricultural lands and forests to remove carbon dioxide from the atmosphere. Carbon dioxide is absorbed by trees, plants and crops through photosynthesis and stored as carbon in biomass in tree trunks, branches, foliage and roots Eventually forming soil organic matter (SOM) SOM is an important variable in soil health It improves soil structure, the soil is capable of absorbing water faster, retaining more moisture, and resisting erosion by wind and rain. soil organic matter also acts as receptacles and reservoirs of nutrients. provides carbon needed by soil microbial communities for metabolism.

5. Introduction The amount of carbon stored in soil organic matter is influenced by the addition of carbon from dead plant material among other things By employing farming practices that involve biomass retention: farmers may be able to slow or even reverse the loss of carbon from their fields.

6. Examples Establishing crops in the residue of previous crops, which are purposely left on the soil surface. Cover crops and manures Land restoration and land use changes that encourage the conservation and improvement of soil, water and air quality Converting marginal cropland to trees or grass maximizes

7. The value of soil carbon: Potential benefits foragriculture ‘Creating farm and forestry systems with strong incentives for growing soil carbon could well be at the center of climate stabilization’ Mazza (2007) As with any farm produce, farmers need a market for the sequestered carbon as well as a price that will make it profitable to grow. From a broader social context, the questions of who will purchase this new output and what is a fair price are also of private and public importance.

8. Putting a Value on Sequestered Carbon Carbon Tax entities that emit greenhouse gases or use carbon-based fuels will have an incentive to switch to alternatives adopt practices that would lower their level of GHG emissions. Cap and Trade by creating a new property right — the right to emit with limitations and ability to trade these rights. groups that exceed caps must purchase offsets from other entities that emit less than their allowance or from entities that sequester carbon. Subsidizing Positive behavior Farmers can receive incentives to adopt new practices or receive support to maintain such practices.

9. Requisites for Agricultural Carbon Markets Verifiability The Chicago Climate Exchange (CCX) divided the United States into zones and allocated specific levels of carbon sequestration to each acre farmed in a particular zone under continuous no-till practices The CCX does not verify the actual carbon storage as a result of the practice change, but only monitors that the practice is maintained during the life of the contract.

11. Requisites for Agricultural Carbon Markets Additionality Additionality refers to the issue that a farmer can only offer and be paid for an offset for a new sequestration of carbon, not for a practice or a system of production already in place. Permanence For farmers to provide carbon offsets they must be willing to make long term, or even permanent, changes in not only practices but perhaps whole systems of production What happens after a farmer decides to change practices and potentially reverse sequestration?

12. Comparing Agricultural and Forest Carbon Markets Both have considerable uncertainties surrounding verifiability and monitoring Agricultural carbon has superior appropriat-ability (more secure private claims to sequestered carbon) Pilot projects in agriculture can offer insights into private incentives and carbon sequestration The potential spatial scale covered by agricultural carbon is much larger Admittedly transaction costs for agricultural carbon markets may be steeper

13. Methodology Simulations using a DSSAT crop modeling To generate yield streams under various treatments over a 30-year horizon Generate soil carbon under these treatments Valuation of yield streams from DSSAT Calculating net present values (NPVs) Differences in revenues and costs (labor and fertilizer) Econometric tests

14. Some Indicative Findings: Impacts of Sustainable Land Management

15. Some Indicative Results on the Impacts of Sustainable Land Management

19. Some Indicative Findings: NPVs of Some ISLMs (US$)

20. Some Indicative Findings: NPVs of Some ISLMs (US$)

22. Econometric Indications

23. Key Messages and Future Directions for Research A diverse revenue source may help in supporting adoption of intensive NRM and ISFM Or better prices for current outputs can also do that The escalation of costs for the high input ISLMs may overtake yield and revenue growth Econometric tests begin to suggest there is a discernible negative impact of Climate change on yields Intensive organic and inorganic inputs mitigate these effects somewhat In this research we want to investigate the role of carbon revenues in supporting ISFM This is important to support the needed ISFM investments needed to face an uncertain climate future and sustain reasonable productivity

24. Thank You Questions and Comments Welcome