biodiversity and investments made in forest conservation. Even companies that are not directly associated with biodiversity extraction have expressed their desire to invest in biodiversity protection to improve public relations. Coca Cola’s participation in the purchase of a private protected area in Belize and Ford Motor Company’s support for biodiversity conservation in Mexico’s El Triunfo Biosphere Reserve provide good examples.
In some sectors companies are looking beyond the threats, towards market opportunities associated with changing consumer concerns. Ecotourism companies have been front runners20. Organic cocoa and coffee manufacturers and retailers have made more recent inroads. To allow companies to translate their positive environmental deeds into market rewards, various certification and labelling schemes have been developed. Moreover, by joining forces with international NGOs, private companies have managed to reduce market development costs. Montana Coffee, Café Ibis and Starbucks have, for instance, cashed in on Conservation International, The Nature Conservancy and
Rainforest Alliance’s willingness to pay start-up costs and market research. In some cases, donor support (e.g. GEF, USAID) has been forthcoming. The growth in willingness to pay is stimulating supply-side initiatives. In this review seven cases stand out:
• Costa Rica’s introduction of INBio;
• Earth Sanctuaries Ltd.’s effort to capture willingness to pay through a stock market listing in Australia;
• China’s Four Forest Parks’ listing on the Shanghai stock market;
• Australia’s State Forest New South Wales’ investment in designing biodiversity credits to capture consumer surplus;
• Western Australia’s search for bioprospectors to invest in drug exploration; • the Belize government’s imposition of a range of charges on biodiversity
beneficiaries, e.g. tourists and forest users, to feed into its Protected Areas Conservation Trust; and most recently
• Ghana’s efforts to establish a debt-swap window whereby it can standardise the sale of debt-for-nature and other swaps.
Where there are clear users of biodiversity, suppliers have also been more aggressive. This is in part a response to improvements in techniques to exclude non-payers, new methods for commoditising biodiversity protection services and falling transaction costs.
Finally, it is worth pointing to the few instances where markets have been driven by government regulation. The Netherlands system of compensatory investments to offset biodiversity damage and Brazil’s proposed systems of reserve requirement offsets are good examples (see Box 10). In both instances,
20. While ecotourism companies mainly market landscape beauty (see Section 6), in many cases they have played on their biodiversity benefits to gain a market edge.
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governments have introduced markets to minimise the costs of achieving environmental goals.
International agreements relating to trade in biodiversity do not appear to represent major drivers in market development. This may change as national governments implement commitments under the CBD and the World Trade Organisation’s Agreement of Trade-Related Intellectual Property Rights. Both agreements seek to clarify property rights over genetic resources. The CDB assigns ownership of genetic resources to individual countries, with the national government able to allocate property rights as it sees fit. In contrast, members of the World Trade Organisation are pushing for the extension of private intellectual property rights to genetic resources. Whichever approach dominates, the establishment of property rights over biodiversity is likely to spur market development.
In sum, to date markets have been predominantly driven by demand in the West. This trend, however, is shifting as demand becomes more widespread amongst developing country citizens and their governments and, significantly, as suppliers become more market savvy. There are potentially significant returns to be made by those that invest in supply-side development and gain first-mover advantages. Moreover, as experience is gained on how to launch supply-side initiatives, new entrants may be able to cut costs and leapfrog incumbents. While suppliers have become more proactive, governments are also being increasingly aggressive. This is especially true as authorities begin to
operationlise their commitments under international treaties such as the CBD, and seek new mechanisms to achieve environmental objectives at least cost.
3.4 Biodiversity market evolution
Markets develop in different ways in different contexts, and the speed with which they evolve reflects their interactions with existing institutional and power structures. Where powerful stakeholders resist implementation, market development may be held up, or even reversed, e.g. Del Ora’s experience in Costa Rica (see photo below). Where markets build on and complement existing institutional structures they are more likely to evolve unhindered. Take for instance Conservation International’s “conservation concession” being piloted in Guyana. The attraction of this commodity, is its simplicity and its convergence with local forestry laws. Guyana, like many developing countries, issues logging concessions to timber producers in its National Forest. The introduction of a conservation concession requires no adjustments to Guyana’s Forestry Law, no changes to its monitoring and enforcement structures and poses no obvious threat to existing power structures. Rather, it is designed to fit into the current institutional environment, whilst offering a mechanism for biodiversity protection to generate revenue.
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Simple land acquisitions used by the World Land Trust in the Philippines as well as Coca Cola Foods Inc. and the “Adopt-an-Acre” programme in Belize is another system which avoids hurdles associated with setting up new market structures. Similarly, the sale of shares in Earth Sanctuaries Ltd. takes advantage of an existing market platform – the Australian stock exchange – and
purchasers’ familiarity with equity investment.
Yet, designing markets to complement existing local institutional arrangements may not always be possible. New markets often require new laws, regulations and infrastructure. Changes affect stakeholders in different ways. The more sophisticated the market, the longer the process is likely to be. The establishment of Brazil’s proposed reserve requirement offsets (see Box 10), for instance, will demand new legislation permitting trading, regulations relating to the trading mechanism, agencies to monitor and enforce trades and a trading platform. While more sophisticated markets require greater planning and investment, and face a greater risk of failure due to resistance, they may generate higher rewards. Likewise, too much effort working around existing structures may produce a market that suits nobodies’ needs and that reinforces inequitable
Some innovative private deals in marketing biodiversity services do not reach maturity despite the willingness to collaborate from the parties involved. In the case of Del Oro, a private orange juice company based in Costa Rica, a deal with the Guanacaste Conservation Area was eventually abandonned due to resistance from competitors and internal problems that eventually led to court intervention.
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power structures. Where markets are disruptive, they may offer a catalyst for positive change. A balance must be found. Identifying what this balance is, however, requires careful analysis and stakeholder consultation as a basis for calculating relative costs and benefits and probabilities of failure.
Given the importance of context, drawing out guidelines on steps for
establishing a market for biodiversity is extremely difficult. An attempt is made to highlight broad stages in market development below:
• Generation of demand– e.g. through awareness building related to the value of the service and marketing exercises.
• Definition of commodity and supply – identification of a proxy that is closely tied to the service and activities that will deliver this commodity.
• Definition and establishment of payment mechanism – e.g. intermediary- based transaction, retail-based market or pooled transaction.
• Establishment of any supporting institutions– e.g. community-based organisations, trading platform, monitoring and enforcement systems • Implementation/payments
• Feedback and improvement – revision of the payment mechanism or the introduction of new commodities to overcome identified problems.
Not all these steps are always followed. Nor is this order necessarily adhered to. Some steps may be undertaken simultaneously, e.g. the definition of commodity and payment mechanism, or the identification of a payment mechanism to suit supply, while others may be reversed, e.g. the identification of supply prior to investment in marketing.
In terms of what this means for policy-makers, there is significant potential for governments and others to play a positive role. Apart from acting as a market participant on the demand or supply side, governments have a critical role to play in establishing supporting institutions, including new legislation, regulations and monitoring and enforcement systems. Governments can also level the playing field in which markets operate to ensure markets offer equitable solutions, e.g. through a process of empowering weaker participants.
3.5 What biodiversity markets mean for welfare
and poverty
None of the cases reviewed provide a detailed and systematic cost-benefit analysis of the transactions they describe. Those that review impacts focus on benefits and rarely undertake financial calculations. Little effort is made to analyse the distribution of these benefits. Instead ad hoclists of economic, social and environmental benefits are produced, often dispersed through the text. The lack of attention to costs reflects the fact that the cases tend to be described by market proponents, rather than independent parties. Moreover, in many cases intended (rather than actual) impacts are emphasised. For instance, because payment systems aim to improve biodiversity conservation, the environmental impacts are assumed to be beneficial. Few cases describe field