The hidden economics of nature

By Pavan Sukhdev

For the politicians of this world who keep fighting over territories, who try to differentiate between us or draw dividing lines, I would challenge them to look at a video of the Earth’s rainfall system, and tell me - what borders do you see? It’s a simple answer: there are none. There is only one global system, powered by three beating hearts: the Amazon rainforest, Sub-Saharan Africa, and the Indonesian archipelago. You might call them the rainfall factories of our planet. And they represent a perfect example of the hidden economics of nature.

Take the Amazon Rainforests for instance. The north-eastern trade winds, as they go over the Amazonas, effectively gather water vapour, around 20 billion tonnes per day, which eventually precipitates in the form of rain across the La Plata Basin. This rainfall cycle - or rainfall factory - effectively feeds an agricultural economy of around 250 billion dollars per annum in Latin America.

There is only one global system, powered by three beating hearts: the Amazon rainforest, Sub-Saharan Africa, and the Indonesian archipelago

The question arises, however: how much do Uruguay, Paraguay, Argentina, and indeed the State of Mato Grosso in Brazil pay to the State of Amazonas for that vital input to their economy?

The answer is nothing, exactly zero.

While huge value is being delivered by the Amazon rainforest and its rainfall cycle, there is no price being paid in exchange. Why? Because price is what you pay, and value is what you receive - and nature does not send any invoices. That is the economic invisibility of nature.

But it's not just about the Amazonas, or indeed about rainforests. No matter what level you look at, whether it's the ecosystem level, the species level or the genetic level, we see the same problem again and again.

Price is what you pay, and value is what you receive - and nature does not send any invoices. That is the economic invisibility of nature

At the species level, estimates show that the approximate total value of pollination provided by bees for crops is around 200 billion dollars, close to a tenth of the total value of agricultural crops. But when was the last time you received an invoice from a bee for “Pollination Services”?

Or if you look at the genetic level, most of the medicines we use today were found first in a rainforest or a reef, and then those molecules replicated to scale in a factory.

Every layer of nature is giving us something of value - most of it for free. And that's part of the problem. Our mindset as a society nowadays does not recognise public wealth. We are so mesmerised by the magic of markets that we fail to understand value unless it is expressed in economic ($) terms and traded in some marketplace. And while some of us may inherently understand the value of nature, our systems, unfortunately, do not. The result is that decisions are being made at a policy level, at an executive level, and at a microeconomic level, which are completely oblivious of the huge value being exchanged all the time - the natural basis of our economy. This is the real challenge.

That brings me to two key questions for today: What insights can we get by “making the invisible visible”? What actions can these insights inform, and by whom?

As part of a study for The Economics of Ecosystems and Biodiversity (TEEB) project, we looked at what part of the economy is strongly dependent on nature in Brazil, India, and Indonesia, what fraction of GDP this represented and the connection between the economics of nature and the lives of the poor. Even though ecosystem services – benefits that flow from nature to humanity for free – were not very big in percentage terms of GDP – 10, 16, 21 percent respectively – if we measured how much they were worth to the poor, the answers were more like 90 percent, 84 percent, and 79 percent. So the results were clear - if we destroy nature, we destroy the livelihoods of the poor.

This is a key insight because you can't really have a proper model for development if, at the same time, you destroy, or allow the degradation of, the most important asset for that development - ecological infrastructure that ensures the supply of essentials to poor rural communities.

The reason we are losing nature boils down, in my mind, to one basic problem: our inability to perceive the difference between public benefits and private profits.

There's an example from Thailand where we found that because the value of a mangrove is not that much – it's about $600 over that of a nine-year horizon used for measurement – compared to its value as a shrimp farm instead ($9,600 of farm profits) so there has been a gradual trend to deplete the mangroves and convert them to shrimp farms. But, if you look at exactly what those profits are, almost 8,000 of those dollars are, in fact, subsidies. Furthermore, if you account for how much it costs to restore the land back to productive use once salt & chemical deposition have had their effects, that answer is more like $9,300. And then if you value the invisible benefits of the mangrove in terms of the storm protection, fisheries and fish nurseries, that answer becomes more like $12,000. So, if you use the holistic lens of public wealth and not just the lens of private profits, you get a completely different answer, which is that, clearly, mangrove conservation makes more economic sense than destruction.

Insights like these explain the danger of viewing everything purely from a lens of “private profits”. Because of the invisible economics of nature, you forget to account for huge “public losses” and make one wrong decision after another. This is a global story that manifests in many ways across our food systems and our fisheries, but it points to solutions. For example, instead of our current system of industrialised farming, which uses significant chemical fertiliser and pesticide inputs, Natural Farming is found to offer better solutions that do not harm nature, use less water, sequester carbon, and do not damage human and soil health. The Community-managed Natural Farming system in Andhra Pradesh, which is now practised by over 600,000 farmers, is a proven way of providing higher yields and profits to farmers and healthy food to people with none of the serious damages caused by Chemical Farming.

Will good economics solve everything? I'm afraid not. But these few examples illustrate the importance of understanding and acting upon the invisible economics of nature. In doing so, we can better understand the costs of “business as usual” and create the right conditions and policies to mitigate the longer-term damage to nature, the true wealth of future generations.

(Pavan Sukhdev is a noted environmental economist. The column is abridged from the first “Darryl D’Monte Memorial Lecture” delivered by him under the auspices of the Mumbai Press Club, Marathi Patrakar Sangh and the Forum of Environmental Journalists in India)