Valuing nature in our economies (w/ Adan Martinez Cruz)

Environmental economist Adan L. Martinez-Cruz (Senior Lecturer at the Swedish University of Agricultural Sciences), argues that markets are a fundamental aspect of human society. He suggests that assigning a monetary value to natural resources can provide environmental benefits and create economic incentives to achieve them. In this episode, we discuss concept of non-market valuation, consider whether nature has inherent value, and examine whether markets are the best way to ensure fairness in the cost of food for both consumers and producers.

For more info, transcript and resources, visit: https://tabledebates.org/podcast/episode69

Guests

• Adan L. Martinez-Cruz, Environmental Economist at Swedish University of Agricultural Sciences

Episode edited and produced by Matthew Kessler and Ylva Carlqvist Warnborg. Music by Blue dot sessions.

Transcript

Matthew

Can we put a dollar value to an alpine forest?

Adan

Human societies will not exist without the markets.

Matthew

How much money would you assign to the value of pollinating insects? Or the open ocean? Or wetlands?  

Adan

Without interaction among themselves, the most isolated societies develop themselves religion, develop themselves markets. Think about markets as this institution that is very human.

Matthew

In the late 1990s, a team of scientists and economists dared to answer the question - what would be the value, the price tag, of all the ecological systems and services that support life on Earth? Their answer -  33 trillion USD/year.

Matthew

So we’ve already answered the question, can we put a price on nature - the next question is: should we? Is that actually the best way to protect these ecosystems, or is it harmful to think of our society, and dare I say our souls, to commodify nature in this way? Or in this global economic capitalist system, do we have no other choice?

Adan

How much of your parking spots would you be willing to give up, if we turn them into green spaces?

Matthew

Welcome to Feed, a food systems podcast presented by TABLE. I’m Matthew Kessler. In this episode we speak to an economist who makes the case that valuing nature in our economies can yield net benefits for the environment while providing incentives and payments to those who act as nature’s custodians.

Adan 

I am Adan Martinez Cruz. I am an environmental economist.

Matthew 

What specifically drew you to the field of economics?.

Adan 

Scarcity. I try to study two other careers before. But I didn’t have enough money to complete them. And then the place where I went to study economics in Mexico. Provided full tuition, full scholarship. The only thing that you had to do is to sell your soul to economics. So I was willing to sell my soul to study economics.

Matthew

It was a rational decision.

 Adan

It was a very rational decision that I took.

 Matthew

Adan Martinez Cruz is a senior lecturer at the Department of Forest Economics at the Swedish University of Agricultural Sciences in the Umeå campus. He is the coordinator at the Faculty of Forest Sciences of SLU Global, an initiative that engages researchers across the Global South.

So the thing that we're exploring today is how we value nature, and specifically how we value nature in our economies. So it's fantastic to speak to an environmental economist to approach this complicated question. Let me just start with the basic question. How do economists value nature?

Adan

Economists value nature for any product or service or good that we are interested through markets. People may wonder why the obsession with the markets. Well, the best, easiest way to say this is chemists have their petri dish where they go and study the behavior of these microbes. Well, our petri dish is the markets. We see people interacting in the markets and without interfering in their interaction, which is part of the important component here. We observe people exchanging goods. And there is where we, under certain assumptions, under certain theoretical assumptions, conclude people and in general society assign this value to this specific good, because we see them exchanging it in the market.

Matthew

So economists can assess the value of a good or a service by seeing how valuable it is to people. Prices are often set by supply and demand, and how much people are willing to pay for these goods. But how does that apply to the services that nature provides?

Adan

We do actually have tools to value nature or other services or other goods, with something that we call non-market valuation. When we don't have the markets to value the nature or other services, we have come up with this set of tools that simulate a market. And then through the market, we infer how much people assign a value to the services by making them go through trade-offs.

Matthew 

Can you give an example of a good or service that's traded in the market, and one that isn’t traded in the market, to sort of clarify the differences between those two?

Adan  

The example I like to provide in this context is the honey. Honey is traded in the market. We all buy our honey. And we usually pay a price for that honey, without thinking too much about the fact that the beekeepers actually also produce another good, another service, which is the reproduction of the bees. The bees pollinate crops, fields that benefit crop production. So that benefit, that service that the beekeepers provide to the farmers is usually out of the market. No one pays them for that additional service. We are talking about something that is co-produced, if you think about it. At the same time that the beekeeper produces honey, and goes and sells it in the market, it produces ecosystem services. That so far is not too obvious that someone is paying for.

Matthew 

Another reason you might want to understand the value of ecosystem services is in the aftermath of an environmental disaster. For example, in an oil spill, you can make the case in court that the polluting company should be responsible for this dollar amount of ecological damage.

Right. So what role do consumers have, do people have, in dictating the price of these different goods?

Adan 

Actually, that's a good question in this context, because using again the honey market. You can think that if we as society care about the specific goods or services, the way to compensate the producer is through the market.

By buying that product, they encourage the production of that product. So the consumer has the most essential role in the economy in that respect. Sometimes we think of the producer as the one that decides what to produce. Of that thing that he or she is going to produce is going to be environmentally friendly.

Matthew
Adan argues here that, let’s say you’re a private producer, and you’re very committed to climate change and to environmental services - but even if you are very committed, you would still face more costs in your production. And those costs wouldn’t necessarily be covered when you sold your product.

Adan

Even the most committed producer cannot decide by himself or by herself to provide the ecosystem service. While if the producer sees the compensation in the form of slightly more revenue than the costs of producing, then the consumer is setting the incentives for the production of the ecosystem services.

Matthew 

So as someone who isn't an economist, like myself, might be wondering, what would a world look like, without markets? Some people from the outside might think that markets are actually quite unfair in how they create these say two different markets for people who can afford goods and who can't afford goods. So then they might advocate for, oh, let's just have a world without markets. What would that world look like?

Adan 

We actually as economists believe we have the evidence on our side. Human societies and other societies will not exist without the markets. At the very beginning, the transactions were direct, you usually go and look for someone who can produce shoes. And you carry out your half a cow around the city around the village, knocking at the door of people asking for shoes, right? 

If you think about this already a market, it's just that it's a very inefficient market, the markets as we know them right now bring efficiency to the exchange without having to knock at the door of every single other person in the city, to know, to explore whether they have what they have needed in that very moment. Think about the market as this institution that is very human.

The way I like to explain to my students is they are these very important similarities in how human societies evolve. Without interaction among themselves, the most isolated societies develop themselves religion, develop themselves, markets, develop themselves alcohol, for instance, that's one I'd like to emphasize, right? We humans can produce alcohol, out of cactus, out of rice. Well, we humans created markets, because inherently we like - currency is embedded in the human nature - we like efficiency. We like to use our time in many things, and then when we realize how, why am I spending a lot of time looking for the one that is going to be able to produce my shoes, then that's when humans realize we need to find a common denominator that illustrates how much wealth each person holds. And that's when we came up with the market as we know it now, that depends on the coins. The coins reflect the wealth that you have accumulated how much you can pay for something else. So the short answer will be without the markets right now, we will not be able to enjoy as much as we enjoy.

Matthew 

Also; markets are efficient and fairer than if people with power could just dictate the terms of everything. It wouldn't be an equal playing field if there were specific individuals or groups setting up those prices.

Adan

When you go and buy a kilogram of eggs, it's good that you don't have the power to say how much you want to pay for them. And it is good also that the company selling them to you don't doesn't have the power, it is less obvious that the company doesn't have the power. But in general, if there is competition, in both sides - in the supply, and in the demand side - no one has an extraordinary amount of power to determine the prices. That is fairer. 

Matthew

Maybe you’ve heard Winston Churchill’s quote: “Democracy is the worst form of Government except all those other forms that have been tried from time to time.” What I’m getting at here is, is that the same way to think about markets? Is it the best tool we’ve got despite being incredibly flawed? Because there are real power imbalances in how markets are set up. Combine that with greed, and a lack of full information, the inequalities will present themselves.

But I think what Adan is emphasising  here is that despite these flaws, consumers have a lot of power in deciding what is being produced and in what ways those products are being produced. And that markets are actually the mechanism that makes these exchanges as fair as possible.

Next up we tackle our main question. Why would you put a price tag on nature?

Adan 

The misunderstanding usually is that we as economists want to price nature, so that we create a market for nature to be traded. I will say that the main reason to value natural resources is to estimate the benefit that society obtains from preserving nature or services that nature provides. The important most essential reason is we simulate markets. Again, because those are our laboratories, to infer how much people value the good that is not traded in the market currently, and inform policymakers. You must consider implementing policies to preserve it, to conserve it, because then if you carry out a cost benefit analysis, it is very likely that the costs of preserving these goods, this part of nature is lower than the benefits.

Matthew

So I think that's helpful to say that economists work to estimate the value of different goods and services. But it doesn't necessarily mean they're trying to put a price on it.

Adan

That's right.

Matthew

But let's make the case for it. Why would you put a price on nature?

Adan  

That gets me back to my example of the bees. And the honey. You might find a lot of beekeepers, that are as of today very interested in increasing or preserving ecosystem services of pollination. For that, they likely will need to make sure that a series of production practices are in place. And that usually increases the cost of the producer. So the producer - the way to think on the producer who is committed with to environmental services, he or she are making a cost-benefit analysis, and you as a consumer can help him or help her in that cost-benefit analysis, because in the benefit component, they could now say, “Oh, if I receive a higher price for the honey, that keeps these environmental services, then I can afford to keep those environmental services.” That is one example where I as an environmental economist, will suggest certain measures that will lead to an increase in price of honey, so that the producer can keep providing pollination services.

Matthew  

One critique - when you put a cost on nature, it works towards commodifying it and treating it and seeing it very differently. Do you see nature as having an inherent value that you know an intrinsic value that can't be quantified through cost?

Adan 

Definitely. There is no doubt about it.

If you put me as an economist, as a simple economist, and then in the same room, you put a philosopher or an ecological economist, and all sorts of people who are specialists in different disciplines, we are going to agree on that. There will not be disagreement, that will be the easiest beginning of a conversation across disciplines. We cannot deny that nature has an inherent value. My departure point is that animals, plants and all other beings have an inherent right to exist. We have the limitation of being humans, and therefore, in itself, the value, the concept of value is anthropocentric. And the assignment of value is anthropocentric.

Matthew

So economists have come out with that limited, but useful tool to estimate values, as they’re expressed by humans. But unfortunately, since we can’t communicate with other beings in nature, we can’t ask them what value they would assign.

Adan

Something that is very important to clarify is that a value estimated for the entire existence of nature, that is something that is not useful for public policy or for decisions. A very important concept in economics is marginality. The usual question that a policymaker, as a representative of a society ask himself or herself is, “should I give permission to cut one hectare of forests so that someone builds housing or so that someone produces agricultural products?”

Matthew
Let’s take the Amazon forest as an example to illustrate marginality. Cutting the first hectare of the Amazon probably made sense; so the answer could be, “well, yes - it was worth it, because the loss was less than the benefits provided, in terms of material for housing or crop production.” 

Adan

And then you are going to keep moving the frontier. There is going to be a moment when the answer to the question is no - the benefits that society gets from coding the next hectare are not larger than the costs of cutting that hectare. So the decision is marginal. And it's contextual in that respect, because the first hectare, or the second hectare, or the third hectare depends on where we are talking about the Amazon, or the tropical forests in Chiapas in Mexico, or a forest here in the north of Sweden. So the value of the entire Amazon, is not very useful, is much more useful to engage in marginal thinking, what society gains from cutting the next hectare? Is it worth it? And that's how we usually think in terms of these decisions.

Matthew 

On the other hand, deep ecologists, people who would really put the right to nature first - might even have a strong argument against cutting that first hectare. And many cultures and religions across the world maintain this deeper relationship with nature. And they think about the aesthetics and the ecological value beyond human life. And also the fact that many aspects of nature are not replaceable or not renewable. I asked Adan if we were trading nature in the marketplace, would that fundamentally change our human relationship with the natural world?

Adan

That is such an interesting, important question. My own take is that the markets do reflect our relationship with nature, already, we do not change our relationship, because we assign monetary values. We are already assigning those values. Remember, the monetary component is only because it helps us in communicating to each other. It’s a common denominator. You could always say, well, the society values preserving this hectare of nature, this many parking spots, for instance, right. One question that we could do, and we actually do it in one exercise with colleagues in Switzerland is for people in a given neighbourhood, we are asking them how much of your parking spots will you be willing to give up if we turn them into green spaces?
And as you may guess, it provided an excellent example of trade-offs. Because people will be paying in this specific case with parking spots, not with money. So what I'm trying to say here is by them being willing to not give up all the parking spots, they are already telling us what is their relationship and their prioritisation of the services that nature provides. For them, for the human, there is some sort of balance between how much green do we want to have, and how much of other services do we want to have? So the markets in themselves already help us to understand that relationships.

Matthew
This is not to say, that all humans have the same relationship with nature. Generally speaking, Western societies are not the role models here. But there are societies that have a relationship with nature where humans are willing to provide more conservation to their fellow species.

Adan
Even in those societies there are markets. Because even when you respect the fellow animals, you will need to eat them. So in that respect is that there is a trade-off to make, and there is still the motivation and the justification to explore values in those societies. The important thing is that those values will be different than our values in the western societies, which basically will translate in a very simplistic way, in the following way. We will be less willing to provide the additional dollar for preservation in the western societies versus in societies where they have a more respectful relationship with nature.

Matthew 

And perhaps even a difference between urban and rural communities too.

Adan 

Exactly people living in rural communities have a much more respectful relationship with nature than we growing up in crazy Mexico City, where probably the lack of interaction with nature actually is not helping.

Matthew

You're working on several projects in the Yucatan Peninsula in Mexico, where we see different efforts to value nature in our food systems. So one project is on compensating beekeepers to pay for their pollination and services and not just their honey, can you describe what the best case scenario is for implementing this project and seeing it through.

Adan

In the case of their beekeepers in the Yucatan Peninsula in the state of Campeche. We just finished a study that focus on the production side. We ask the beekeepers in Campeche. How much will they need the price of a kilogram of honey to be in exchange for them to implement a series of practices that will be monitored through blockchain. So that the consumer could verify that those practices are implemented. And the practices that we consider were practices that will increase the likely ecosystem services, it will increase pollination, it will increase the health of the bees, it will be a way to improve and enhance ecosystem services. And the good news is actually this project has been supportive, in the sense that, the policymakers in Campeche are very interested. So we are about to have conversation with them to present the results. And they may take up on the government responsibilities to engage to incentivize producers to implement those measures.

Matthew
That’s the producers’ side of it – but then there’s also, of course, the consumers…Will they be willing to pay for the ecosystem services? 

Adan

In this specific case 90% of the honey that is produced in Campeche, and sold in the European market. So the second stage of this study will try to ask you. And you're a representative sample of consumers here in Europe, if they will be willing to pay an extra amount for honey that will be traceable, via a blockchain producing in Campeche.

Matthew 

Thanks to the advancements in technology such as the blockchain, the traceability of production processes through the value chains is now as transparent as it can get. No need anymore for certifications or special labels.

Adan
The advantage, I say of using the new technology is that now we don't need those intermediaries. In this case, the consumer can directly use the phone to trace back how the honey that they are about to buy was produced, and that increase efficiency in the market.

Matthew

I think that's also a trend to the sort of added value associated with the story of the food, anything. It will be interesting to see, the second half of your study if consumers do actually confirm that. Or they're mostly protecting their wallets, which is also a very legitimate explanation.

Adan 

That's always an option. And just a little bit of optimism is there are a few studies focus on European consumers for European products, where they have shown interest for traceability. Let's see if they are also interested in for traceability on a product that comes from elsewhere because that is also a relevant component here, the origin of the product.

Matthew 

And we had a whole podcast season on how global or local our food should be, which very much connects to the values behind this and not just the evidence.
In another project, environmental economist Adan Martinez Cruz is monitoring several programs that offer payments for ecosystems services to farmers and landowners. They’re incentivized not to pollute waterways and not to cut down forests. He’s looking at these programs and seeing if they're improving or maintaining these ecosystem services. So – is this a good system?

Adan

Now, the cool thing of this approach is we are providing information to the policymaker to take a decision on behalf of the society because you do want as a society to keep these programs as long as they are producing outcomes and positive results. And you do want as a society to potentially change incentives or change the conditions of the incentives. Providing information to policymakers is essential.

Matthew

Another thing related to some of the payment for ecosystem services is who has access? What communities are more regularly involved with NGOs, perhaps one community has a long relationship and the next door community doesn't, perhaps they're getting a value for the services that the other community isn't and there are certainly ways to kind of scale out these initiatives, but it puts perhaps, neighbouring communities on an unequal playing field. 

Adan 

Thank you for bringing that up. I will say the limitation that economists face is that we are good at suggesting the essential elements of creating a market, how to put it in practice. We are kind of cynical in that respect and we say, “Oh, well, that is public policy experts to do it.” So once we come up with the - let's call it right value, right amount of incentives. It is responsible of us to say okay, they’re policymakers, public policy experts help us create a market where we are going to avoid inequalities where we are going to guarantee that all members of a community involved will receive their check. And that for sure we are not very good at as economists that we have to say.

Matthew

I’m actually what you’re thinking right now. Are you convinced of the argument put forward by this environmental economist, that inferring the value of nature through markets can actually be helpful both from an anthropocentric view and from that of “nature itself”? Or is there too much of a gap between theory and practice?

Wrapping up this episode, I ask Adan to share a few really successful case studies regarding payments for ecosystem services. He mentions two - and you can check them out on our website – one is in Chiapas Mexico; and the other one in Costa Rica. 

Adan

Costa Rica has been very successful at ecotourism. Actually, I should say it was a payment for environmental services pioneering, taking advantage of the fact that people want to experience their nature. So they preserve it at the corresponding costs for the tourists. And they provide payment for environmental services to their farmers and forests owners.

Matthew

Adan says that the success of both the case studies - in Costa Rica and in Chiapas - have to do with leadership; both in the local communities and at the national level.

Adan

Here there is an opportunity to create a market. The leadership of the people involved from the ground, is essential for that market to take off. Without that leadership. We are created artificial institutions that are not going to take off.

Matthew  

Adan Martinez Cruz. Thank you so much for coming to Uppsala and speaking with us today.

Adan  

Thank you so much for inviting me.

Matthew

Thanks to you for listening. Do you agree more with the philosopher or the economist on how we should value nature, or do you see some merit in both of their arguments? Send us an email or voicememo to podcast@tabledebates.org.

You can read more about Adan Martinez Cruz’s research and ongoing projects on our website. This episode was edited by Ylva Carlqvist Warnborg and myself Matthew Kessler. Music by Blue Dot Sessions. TABLE is a collaboration betweens the University of Oxford, Wageningen University in the Netherlands, Swedish University of Agricultural Sciences, University of the Andes in Colombia, National Autonomous of Mexico and Cornell University in the US. Speak to you next week.