Flow and rent-based opportunity costs of water ecosystem service provision in a complex farming system

Unsustainable land uses present many challenges for securing ecosystem service provision. It is also difficult to estimate the cost of a transition to more sustainable land-management practices for individual landholders. The main cost to landholders is the opportunity costs, the income foregone when changing land use for continued or enhanced ecosystem service provision. Thus accurate estimation of opportunity costs and understanding their distribution are crucial starting points for determining the economic viability and design of any payment for ecosystem services (PES) scheme. We compare two opportunity cost approaches and examine the distribution of these costs for improving drinking water quality in a complex farming system in a Honduran forest catchment. Data for both approaches was collected through a survey applied to upstream catchment landholders. Our results indicate that the direct flow approach and the proxy rent approach provide comparable and consistent opportunity cost estimates. The mean net flow return ha-1 was US$1410, but this estimate was skewed, mainly by exceptionally high coffee returns and negative returns of land uses making a loss. This estimate would imply spending over US$2 million per annum for water conservation, but a revised estimate comes to US$257,057 per annum. Opportunity costs were found to vary according to differences in land use and landholder characteristics. High value cash crops upholding the local economy, such as coffee, entail much higher opportunity costs than for example cattle grazing. These results suggest that discriminate PES payments, that vary according to opportunity costs and thus discriminate between land uses and landholders, are essential. Water quality at our case study site could be managed sustainably by a scheme focusing on high-impact land uses with lower opportunity costs and closer to water sources.