Benefit Cost Analysis as a Tool

3.1. Use of Benefit/Cost Analysis for SIT

To further assist public entities and/or private organizations and companies that are considering investment in the production or release of insects, benefit/cost analyses represent a valuable quantification and planning tool (Enkerlin and Mumford 1997, Mumford 1997, Larcher-Carvalho et al. 2001, Mumford et al. 2001). Whether applied to eradication or suppression programmes, such analyses provide consistency, objectivity, flexibility, inclusiveness and comprehensiveness at the decision-making stage.

Consistency and objectivity are ensured by permitting the same approach to be taken when comparing the overall balance of benefits and costs of the SIT integrated in different approaches, including conventional ones. The direct and indirect benefits and costs of each option can be quantified and compared using the same methodology.

When analysing the potential of the use of sterile insects within an AW-IPM programme, decision makers and stakeholders are faced, as demonstrated above, not simply with the choice of whether to proceed or not but several scenarios from which to select. Benefit/cost analyses provide the flexibility required to evaluate these options. For example, whether to use imported sterile flies, to use imported eggs for insect production or to build a local rearing facility. Different time horizons can also be analysed and returns calculated for different periods. Costs of sterile insects, programme areas, host ranges, host maturation times, intensity of damage, and discount rates can all be varied to analyse the viability of projects.

Different economic indices, such as net benefits and net present value can also be used to estimate likely economic success. Additionally, recent economic analyses have been developed using probabilistic models, with Monte Carlo simulation, to account for the uncertainty in many elements. These models provide information on the likelihood of success of a project given, for instance, uncertainty about the intensity of damage or control levels achieved (Larcher-Carvalho and Mumford 2002).

3.2. Stakeholder Model to Enhance the Analysis

Incorporating a stakeholder model provides useful information for programme planning. By identifying the key stakeholders (public authorities, private organizations, farmers, consumers, civil society), and analysing their interests and the potential impact the programme may have on these, the study of the programme's viability is strengthened (Lindquist 2000). It indicates potential supporters (governmental authorities and research institutes) and potential opponents (pesticide industry, farmers outside programme area). It also becomes possible to apportion the different classes of benefits to different stakeholders, and thus the inclusion of different interests in the decision-making process. Such a model would assists, for example, in identifying possible sources of funding and partnerships that could be put in place. A further advantage of benefit/cost analyses is that they are comprehensive, i.e. technical, commercial, regulatory, social and ecological factors can be taken into account.

Costs of the SIT in AW-IPM are becoming more clearly defined as the number of programmes around the world increases, but still need to be evaluated in relation to the operational choices made. Amongst the direct benefits, the key elements include higher control effectiveness, reduction in residual losses (i.e. losses despite control), access to new markets and increased market value of commodities.

3.3. Indirect Benefits as Part of a Comprehensive Economic Analysis

Direct benefits do not provide the full picture, and therefore the more recent inclusion of indirect benefits in the analyses permits those interested in investing to understand the full potential. While difficult to estimate accurately, their inclusion allows a better understanding of the overall costs and benefits and the relative distribution of public and private returns to be made. Indirect benefits consist mainly of reduced environmental and health costs, but can also include more intangible benefits, such as the societal value of scientific capacity-building and of nature conservation.

For example, in analysing the SIT programme for Mediterranean fruit fly suppres sion on the Madeira Islands, the health and environmental costs of using organophos-phate pesticides were also calculated (IAEA 2005). These costs correspond, to a great extent, to the indirect benefits, which derive mostly from the reduction in pesticide use. Therefore, quantifying the indirect benefits corresponds to quantifying the indirect costs of pesticide otherwise known as pesticide externalities.

Pesticides are inputs for an economic activity - agriculture - and use the environment as a sink for pollution. The costs of using the environment in this way are called externalities since they represent a cost of an economic activity, which is not included in the price of the product (Pimentel, this volume). It is very important to quantify these externalities to ensure that activities that are costly to society as a whole are not encouraged even if the private benefits are high (Pretty et al. 2000). For that reason, several methods have been used to quantify pesticide externalities. Since all have advantages and disadvantages, for the Madeira economic analysis two of these approaches were followed (IAEA2005). The first (the financial method) attributed a financial cost to the externalities of pesticides, while the second estimated people's willingness to pay for food without pesticides using the contingent valuation method.

3.3.1. Financial Method The financial method consisted of extensive interviewing of local experts and farmers to collect data on the costs incurred by society when dealing with the externalities caused by pesticides. This approach does not value the externality but uses society's expenditure in dealing with that externality as a proxy (Pretty et al. 2000).

Using this method, the indirect benefits quantified included the costs incurred by public and private authorities in monitoring pesticides in the environment (water and soil) and in food, and the treatment or prevention costs incurred in restoring the environment and human health. One important element was the cost of managing waste, such as pesticide container recycling programmes. The results of such analysis can assist public authorities not directly involved with projects, such as environmental ministries, in deciding how much the use of sterile insects would enhance their environmental policies. They also inform water management authorities on potential benefits for their own operations. Since the tightening of European Union legislation regarding pesticides in drinking water has increased monitoring expenses, the indirect benefits analysis informs water authorities of the large savings that could be made through reduced pesticide use.

Alongside the reduction (or elimination) of these costs on the Madeira Islands were added the benefits arising from the opportunities created for organic farming (or integrated pest management), and for preserving the traditional agricultural landscapes. Quantification of these benefits assists ministries of agriculture and European institutions, which finance the preservation of traditional agricultural infrastructures, in establishing whether the SIT is worthwhile. This quantification may also be relevant to environmental organizations, which, in Madeira, advocate the establishment of agricultural reserves.

In terms of health costs, the acute effects of pesticides on farmers and their household members, their impact on consumers' health, as well as the costs incurred to restore public health, were also considered in the Madeira case study. These data will be important for decision-making by health authorities and consumer associations.

Social benefits of know-how and capacity building in the scientific technical arenas brought about by the programme are another important class of benefits. These benefits may be captured in the form of added prestige by education ministries and science and technology institutions.

3.3.2. Contingent Valuation This method is based on the assumption that what people want should be the basis for benefit measurement. One way to identify what people want is to analyse how they respond when presented with choices regarding goods and services. A positive preference will show in the form of a willingness to pay for them. This is one way of representing the value of goods and services and thus allows an estimation of benefits. Based on this method, a survey was conducted to quantify the maximum amount respondents would be willing to pay for organic and locally produced fruits and targeted two groups of people: the local community and tourists.

The willingness to pay for organic products represents the value people are willing to pay for fruits with lower pesticide residues and for more environmentally friendly production systems. The values of the willingness to pay for fruit produced locally, reflects the value given to fruit quality (respondents associated locally produced fruit with better quality), and also to the social, environmental and economic values attributed to fruit production on Madeira.

Consumers' willingness to pay for organic and locally produced fruit may be used by national authorities to inform policy and decision-making regarding, for instance, support for local production. Tourists' willingness to pay for these products provides information to the tourist industry on the benefits they could collect by supporting agricultural development projects. This is particularly important in Madeira due to the large role the tourist industry plays in the regional economy.

As highlighted by Mumford (2004), the uncertainty associated with the calculation of indirect benefits is high. However, the combination of techniques, rigorous data collection methods and probabilistic analysis, increases confidence in the results. Benefit/cost analyses incorporating the valuation of indirect benefits constitute an important instrument for project appraisal. They are equally important for developing partnerships and raising contributions from public and private institutions and organizations, which are indirect beneficiaries. The values obtained also provide an important guideline to establish cost recovery schemes for such projects.

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