ANALYSIS
Promoting agricultural technologies with positive environmental effects: Evidence on tree planting in Indonesia

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Abstract

In the presence of market inefficiencies and missing information, agricultural technologies have often been introduced via subsidies to accelerate diffusion and spur adoption. Yet, for agricultural technologies that mainly generate positive environmental effects, it is not clear how subsidies affect adoption, maintenance, and additional investments. This study introduces native tree seedlings through two different distribution mechanisms to foster tree planting in an oil palm hotspot in Indonesia. In treatment one, oil palm farmers receive information about native tree planting and three different native tree seedlings for free (subsidy treatment). In treatment two, oil palm farmers receive the same information and the opportunity to buy three different native tree seedlings through an auction (price treatment). The results show that conditional on receiving the seedlings the uptake of the technology is similar between the two treatments, suggesting that there is no strong selection effect in the price treatment. For the full sample, the subsidy treatment is associated with higher tree planting activities. The farmers in the subsidy treatment apply less maintenance to their trees, but the number of surviving trees is still higher than in the price treatment. Finally, the subsidy treatment tends to be associated with lower additional planting efforts.

Introduction

In many low-income countries, governments have recognized the adoption of welfare-enhancing technologies as a relevant objective for development. In cases where markets do not work efficiently, for example, due to missing information or high transaction costs, farmers often face difficulties to access new agricultural technologies (Aker, 2011; Jack, 2013b). To overcome barriers associated with market inefficiencies and missing information, in-kind subsidies have been used as a way to accelerate diffusion and spur adoption of innovations (Carter et al. 2021). Subsidies can be useful in the presence of high uncertainties regarding the potential private benefits of the respective technology, allowing the recipients to experiment with the technology and get to know it. This can be especially relevant, if besides private benefits, the technology generates substantial environmental benefits to society at large. Yet, there has been a debate in the literature on whether technology promotion through in-kind subsidies is an effective means to promote uptake and whether it is sustainable in the long run (Carter et al., 2021; Ricker-Gilbert et al., 2011).

According to Aker (2011) and Romero et al. (2019), the provision of relevant information can successfully promote the adoption of agricultural technologies in low-income countries. However, respective studies mainly focus on technologies where the decision to adopt is motivated by productivity increases for adopters, like the adoption of enhanced management practices (Van Campenhout, 2019), improved seeds (Asfaw et al., 2012), and fertilizer applications (Duflo et al., 2010). Yet, for agricultural technologies that mainly aim to generate positive environmental effects, such as tree planting, information provision alone may not be sufficient to motivate adoption. Related research on health products that benefit society at large shows that adoption rates tend to be low in the absence of subsidies, which is likely due to high price elasticities of demand (Cohen and Dupas, 2010; Bensch and Peters, 2017; Berry et al., 2020; Ashraf et al., 2010). Research on different mechanisms to promote tree planting so far is scarce; notable exceptions are Jack (2013a), Jack et al. (2015), and Rudolf et al. (2020), providing evidence that in-kind subsidies can increase the adoption of native tree planting.

When market access is limited, it may not be clear from a policy perspective, whether it is more effective to improve market access or distribute the technology at a subsidy. Facilitating market access may lead to an increase in the uptake of the technology to the extent that farmers appreciate and value the private benefits associated with the technology, i.e., if their willingness to pay is equal to or above the market price. The market mechanism will then select for those farmers who have a high valuation of the technology and are more likely to use and maintain it. In contrast, if the technology is distributed for free or at a highly subsidized rate, the valuation of the technology of the average recipient is expected to be lower, potentially resulting in low adoption and use rates. In this context, previous literature has expressed concern that subsidies might reduce the use and maintenance of the technology (Dupas, 2014). In the context of tree planting this is relevant, because even if initial adoption is higher under subsidized distribution, trees can only generate positive externalities if they survive in the long run, which requires maintenance. Few studies so far have explicitly looked at tree survival in this context, and found mixed results for different subsidy measures (Jack, 2013a; Jack et al., 2015; Rudolf et al., 2020).

Finally, the provision of in-kind subsidies to spur technology adoption has also been criticised for potentially diverting demand away from commercial markets (Ricker-Gilbert et al., 2011). If the technology is offered for free or at a highly subsidized rate, future investments of adopters might be delayed (Kremer and Willis, 2016) or negatively affected due to price anchoring (Köszegi and Rabin, 2006; Omotilewa et al., 2019). Yet, if in-kind subsidies indeed help to overcome information barriers to adoption and are offered during a limited time period to support learning-by-doing, they may eventually increase long-term investments in the technology. This is considered more likely in the case of technologies such as cooking stoves and water filters, where adopters have ample time to experience the positive benefits, before investing in the renewal of the technology (Dupas, 2014). For technologies such as native tree planting, benefits are often only experienced after many years. It is therefore unclear, whether subsidies would encourage further investments, or rather be associated with crowding effects (Rode et al., 2015).

In this study, we introduce native tree seedlings through two different distribution mechanisms and assess the adoption of native tree planting, as a maintenance-intense agricultural technology with positive environmental effects. The study is implemented with small-scale oil palm farmers in Sumatra, Indonesia, where the rapid expansion of oil palm monocultures has had devastating effects on biodiversity. In a first treatment, oil palm farmers received information about native tree planting and were then given market access to native tree seedlings through an auction (price treatment). In a second treatment, oil palm farmers received the same information about native tree planting and three native tree seedlings for free (subsidy treatment). In the statistical analysis, we assess the effects of the subsidy treatment in comparison to the price treatment on the number of trees planted, maintenance applied, and the number of trees still alive six months after the intervention. We also test for potential crowding effects by looking at additional planting efforts.

The rest of the paper is organized as follows: Section 2 describes the ongoing land use transformation in Jambi, Indonesia, and develops our conceptual framework. Section 3 introduces the research design, describes the treatments, and the econometric framework. Section 4 presents the results, which are further discussed in section 5. Section 5 also concludes.

Section snippets

Study context

Our research was implemented in Jambi Province on the island of Sumatra, Indonesia. In the last two decades, Indonesia has experienced a rapid expansion of oil palm plantations, and has advanced to the largest exporter of palm oil worldwide (Rist et al., 2010; Gatto et al., 2015). Between 2000 and 2018, the oil palm area has increased from four million to twelve million hectares (BPS-Statistics Indonesia, 2019), implying large-scale land-use transitions (Villamor et al., 2015). The Province of

Sampling and data collection

Our research was implemented in the lowland region of Jambi Province, where we conducted our survey in the three oil palm growing districts Muaro Jambi, Batanghari, and Sarolangun. These are the three districts in Jambi Province, where the oil palm area has expanded the most between 1995 and 2011 (Euler et al., 2016). We randomly selected 12 villages, including both local villages as well as villages established under the transmigration program (See Fig. 1). Subsequently, we randomly selected

Descriptive results

Panel B of Table 2 presents descriptive statistics of tree planting outcomes from the follow-up survey. From the 9786 trees distributed in our treatments, a total of 385 trees (39.4%) had been planted at the time of the follow-up visit.7

Discussion and conclusion

In this study, we introduce native tree seedlings to oil palm farmers through two different distribution mechanisms and assess the effects on native tree planting, maintenance, tree survival, and additional planting efforts. In the subsidy treatment, farmers are provided with information on native tree planting and a bundle of three native tree seedlings for free. The effects of the subsidy treatment are compared to the price treatment, in which farmers receive the same information as well as

Funding

This study was funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) – project number 192626868 – in the framework of the collaborative German-Indonesian research project CRC 990.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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