In densely populated rural areas where family farming is the main livelihood, pressure on soils and water increases every season. Without conservation measures, soil fertility is washed away into rivers, and with it, the family’s food security for the following seasons. But this is a problem not only for the farmer. Land degradation also affects other water users further downstream, increasing water treatment costs and reducing water flow during the dry season. As fields lose productivity, pressure on remaining forests increases and their conversion to new cropland is more tempting, despite forest protection laws. With forest loss, global biodiversity and carbon storage further deteriorates, and we all pay the price.
Ultimately, sustained pressure on the natural system may lead to environmental migration and add pressure on teeming urban areas.Thinking globally and acting locally takes on a whole new meaning when we see farmers as managers of our ecosystem services. Voluntary mechanisms offering long-term incentives to these men and women who are responsible for our ecosystems are becoming more and more common around the world, and are generally referred to as Payments for Ecosystem Services (PES).

Agriculture provides more than food and fiber. The farmers, herders, and forest managers who manage the world’s land-based ecosystem services make decisions that reverberate throughout society at the local, national, and international level. To adopt more sustainable practices, these caretakers of the land need an integrated incentive package that combines capacity building with access to rural finance and higher value markets. They also require a path to participation in the design of these policies and programs. But financing such an integrated approach is costly and requires investment from a wider range of stakeholders.

Agreeing on sustainability

A PES contract is an agreement between agriculture practitioners (such as farmers, herders, forest users) and other sectors of society that have vested interests linked to their activities to assure the continued provision of ecosystem services. These agreements can be local affairs—for example, between a water bottling company and the farmers around its spring, agreeing to reduce pollution beyond the levels mandated by law. Another model includes national programs where forest owners receive incentives to map and conserve remnant forest patches in their farms; in exchange, farmers receive technical assistance to improve productivity in their current farmland, to reduce the risk of expansion through deforestation. In these national programs, hydropower companies or tour operators contribute funds to invest specifically in their region of interest.

These and other initiatives are experimenting with a variety of governance systems at different scales worldwide. While their respective goals differ, they all aim at partnering with the private sector for long enough to allow the ecosystem to reveal improvements in its services. In some countries where agriculture is highly productive, national PES programs act as incentives to bring farmers closer to complying with existing pollution control, biodiversity, and water protection laws, eventually expanding beyond that. In developing countries, these projects often pilot new legislation, demonstrating the need for locally earmarked water-fee investment in watershed management or tourism benefit-sharing to compensate for the costs of wildlife conservation.

A place at the table

PES teams’ jobs are hardest at the start, from the moment it’s time to set the negotiating table for the various actors in the lansdscape. At this stage, getting the ministry of agriculture to understand the concerns of the ministry of environment, or water supply companies to explain their concerns to the mining industry, is arduous. In developing countries, simply bringing these actors together has been an achievement in itself. Once this happens, PES also requires cross-sectoral dialogue. This allows public authorities to work more closely with the private sector, exploring legal options to allow for private co-financing of their development programs, and benefiting from their less risk-averse attitude to testing new approaches and technologies.

Within the private sector, Nespresso, Coca Cola, and Danone are examples of companies that have added PES to their portfolio of socially and environmentally responsible investments. Nespresso, together with NGOs and government partners, assists the coffee producers taking part in its AAA Sustainable Quality Program in improving quality and productivity. Farmers who join the AAA program agree to adopt good agricultural practices, such as preservation of biodiversity, water management, or prevention of soil erosion, so they can sustain long-term production in a preserved environment.

Similarly, Coca Cola and its water bottling businesses around the world have engaged with conservation NGOs, universities, and national programs to increase water infiltration and offset their water footprint. The soy and corn farmers who participate in this initiative benefit from a cash incentive to adopt conservation agriculture and the consequent improvements in soil water retention and productivity increase. Danone invests in forest rehabilitation and renewable energy as a contribution to its carbon neutrality goals. The communities in the Sundarbans that have joined the program benefit from new mangrove nursery business and from the restored ecosystem function of the mangrove, which is acting as a nursery and feeding ground for fish.

Many of these private initiatives are heavily funded and highly technological—but they remain extremely local, covering only a few dozen households. The challenge lies in upscaling these solid initiatives to cover larger areas at lower cost. FAO’s contributions at this stage include sharing lessons from field experience in its member countries, facilitating cross-pollination of ideas, and distilling key PES governance models to facilitate wider replication of good practice.

PES around the world

Water trust funds are one of the most successful instruments to facilitate public-private investments in PES. In Latin America alone, there are 44 funds at different stages of development, and The Nature Conservancy (TNC) is now expanding its experience with these into Africa and Asia. While current funding is still mostly public—from legally required contributions like water fees or compensatory environmental investments—this type of instrument can also accommodate voluntary investment from the private sector. Finding a channel to pool public and private funds is one of the key obstacles in the first phases of most PES agreements, and this is key for catchment-wide, long-term land and water management strategies.

In Italy, the province of Perugia is partnering with Syngenta to ensure that the farmers receiving agri-environment payments from the European Commission to further protect and enhance the environment on their farmland actually create quality habitats for pollinators. By using the advised seed mix proportion, purchased from any seed dealer, and following the management protocol advised by Syngenta, the farmers can actually deliver the environmental service they are receiving subsidies for: pollination, a crucial service of the agriculture ecosystem to farm productivity. Subsequent landscape beautification is another valuable asset that agro-ecosystems contribute to regional tourism.

But some of the most promising PES stories remain unwritten. For example, in Kenya, even after several years of negotiation, and despite the willingness of Kenya Electricity Generating Company Limited, targeting a share of the water fees being collected in the upper part of the Tana River to reduce sedimentation in the river has not yet been possible. Culprits include overlapping and outdated water fee regulations that have discouraged additional investment from the hydropower company.

To assure that PES achieves its potential, governments must open channels for the private sector to invest. On the other side, the private sector needs to be willing to partner with institutions whose business practices might be unlike theirs. Cultivating a common strategy will pay off in the long run. After all, we are all part of the same ecosystem.

The author would like to thank FAO Land and Water Division colleagues who contributed to the development of this article, including Mohamed Bazza, Nicoletta Forlano, and Martijn Sonnevelt.