Risks and returns from soil conservation: evidence from low-income farms in the Philippines

Abstract

Abstract This paper examines risks and returns associated with soil conservation on hillside farms in the Philippines. Stochastic efficiency analysis is combined with a heteroskedastic regression model to assess the impacts of contour hedgerows on low-income corn farms. Regression analysis indicates that, over time, contour hedgerows can improve yields up to 15% compared with conventional practices. The analysis also provides weak support for a hypothesis that hedgerows are variance reducing. However, results show that the reduction in yield variability afforded by hedgerows is modest, and that yield variability may increase by as much as 5% as hedgerow intensity rises. Tests for stochastic dominance show that, compared with the conventional tillage system, hedgerows do not constitute an unambiguously dominant production strategy. Stochastic efficiency with respect to a function is used to identify a range for the coefficient of relative risk aversion within which hedgerows dominate conventional tillage. Results suggest this range would be rather high; hedgerows dominate the conventional cropping strategy only for decision-makers with relative risk aversion coefficients in the range 3–5.5. Implications for soil conservation adoption in low-income settings are discussed.