**2. Methods**

This study was conducted in the Province of Manitoba in Canada. Manitoba, Alberta and Saskatchewan make up the Canadian Prairie Provinces. The Canadian prairies stretch from south-eastern Manitoba to northwestern Alberta [6].

#### **2.1. Concept of value of good/service**

Since ecosystem services are a combination of market-based commodities (food and fiber) and non-commodity based goods, their valuation needs to be comprehensive to capture all of these values. Two types of economic valuation are most commonly used: market price method, and non-market valuation. These methods are based on three types of approaches: (1) Revealed willingness to pay; (2) Imputed willingness to pay; and (3) Expressed willingness to pay [22].

Market-based valuation is an example of revealed willingness to pay. People's willingness to pay results in a demand function for that good/service. Here consumers have revealed a preference captured by the curve *DD'* for a given ecosystem service or ecological good or service (Figure 3). If that good or service is sold through a market, there would be a price established through interaction between buyers and sellers, shown by *PP'*. Similarly the supplier of that good/service would incur certain expenses and willing to offer that good/ service only if it covers its cost of producing it. Adding all the sellers' offers for that good/ service results in a supply curve for it marked as *SS'*. The area *DP'P* is the benefit to the consumers, called consumer surplus and can be used as the value of that good/service through the use of that ecological good/service. In contrast, the area *PP'S* is the value accruing to producers of that good/service (shaded are in Figure 3), and is equated to be the value of that good/service to them. In the context of grassland, the commercial products are not consumed directly by people, the only relevant value is that to producers.

are an important genetic resource and provide material for animal and plant breeding and biotechnology [13]. Grasslands are also an important source of biochemical substances that have important medicinal uses [17]. Animal products, such as skins and shells, and flowers from grasslands are important ornamental resources [18]. Thus, the multifunctional role of grasslands provides an important argument for the protection of grasslands as either managed

Ecosystem services through generating ecological goods and services have a value to society, as they contribute to human welfare, both directly and indirectly, and to economic viability through the sustainability of healthy ecosystems [19]. Most goods and services provided by grasslands are not paid for directly and are often overlooked in land-use decision-making processes, resulting in either over-exploitation or inefficient use of grasslands [9]. Establishing an economic value for grassland goods and services increases perception of the importance of grasslands and can lead to improvement in land use in terms of improved grassland manage‐ ment, conservation and protection [9]. Valuation of grasslands can also form the basis for grassland damage assessment and compensation systems [20]. One report on temperate grasslands [20] notes that, although the role of goods and services from temperate grasslands has long been identified as important, the quantitative valuation of such Goods services has not received much attention. A similar sentiment has been expressed through a survey of producers (farmers and ranchers), where recognition of grassland ecosystem services by producers was found to be low – only 25% had awareness of the term 'ecological goods and services' while another 22% indicated some familiarity [21]. To fill this void in past research, this study was undertaken to (a) provide a strategy for assessing the economic value of goods and services from grasslands, (b) identify variables that influence the value of grassland goods and services, and (c) identify gaps in knowledge which require more information to improve

This study was conducted in the Province of Manitoba in Canada. Manitoba, Alberta and Saskatchewan make up the Canadian Prairie Provinces. The Canadian prairies stretch from

Since ecosystem services are a combination of market-based commodities (food and fiber) and non-commodity based goods, their valuation needs to be comprehensive to capture all of these values. Two types of economic valuation are most commonly used: market price method, and non-market valuation. These methods are based on three types of approaches: (1) Revealed willingness to pay; (2) Imputed willingness to pay; and (3) Expressed willingness to pay [22]. Market-based valuation is an example of revealed willingness to pay. People's willingness to pay results in a demand function for that good/service. Here consumers have revealed a preference captured by the curve *DD'* for a given ecosystem service or ecological good or

or natural ecosystems.

150 Agroecology

the valuation process.

south-eastern Manitoba to northwestern Alberta [6].

**2.1. Concept of value of good/service**

**2. Methods**

**Figure 3.** Concept of Consumer and Producers Value of a good/service

Unfortunately many ecological goods and services are not traded through market place. However, for valuation purposes, it is not necessary that an ecosystem service be bought and sold in a market in order to measure its monetary value. What is required under these circumstances is a measure of how much of their purchasing power (dollars) people are willing to give up to enjoy that ecological good/service. Using their revealed willingness to pay, one can use techniques such as Hedonic Pricing method, Travel Cost method or Productivity method to establish a value of the good/service in question. Here the value of a good/service is determined indirectly from the data generated by the marketplace capturing actual market based transactions.

If market based transactions are not available, ecosystem valuation can be based on two other types of approaches: Imputed willingness to pay, and Expressed willingness to pay. These approaches are typically classified as non-market valuation. In the first approach value of an ecosystem service can be imputed from the actions people are willing to take to avoid the adverse effects that could be experienced if that service was lost. Damager Cost Avoided, Replacement cost, and substitute cost are common methods included in this category of nonmarket valuation. The expressed willingness to pay is through asking people directly what they are willing to pay for an ecosystem service based on a hypothetical scenario. Contingent valuation and Contingent choice methods are included in this category. To undertake nonmarket valuation, data need to be collected through primary surveys which tends to be costly.

### **2.2. Process of valuation of Manitoba grassland ecosystem services**

The valuation process of grassland goods and services involved several steps. Firstly, detailed information on Manitoba grasslands was collected based on grass type (native, naturalized or tame/seeded), land use (hay, pasture and other) and ownership (private, crown and nongovernmental organizations). Tame/seeded grassland was defined as those grasslands which have been cultivated within the past eight years, and are frequently used as part of the crop rotation [23]. Naturalized grasslands are areas that were under cultivation or were seeded to forage and subsequently reverted to grassland, approximately eight to 15 years since last cultivation [23]. Native grasslands were defined as areas that have never been broken, or have been re-established as grassland for such a length of time that native conditions have been restored, more than 15 years since last cultivation [23]. Collection of detailed information on grasslands was followed by identification and valuation of goods and services that could be expected from Manitoba grasslands, as listed in Table 1.

Although a longer list of ecosystem services has been proposed in literature, 21 ecosystem services were identified as being relevant to grassland ecosystems. Of these ten services were excluded from estimation for reasons related to either lack of importance or non-availability of information. The remaining eleven services included all four ecosystem functions. Provi‐ sioning services included forage production from grassland, a commercial product for which markets do exist. Under regulating services, six services were identified, including carbon sequestration (thereby affecting gas regulation function), nutrient cycling, water regulation, soil erosion control, soil formation, and water treatment. Recreation and aesthetics was identified as the major cultural service of the grassland ecosystem, whereas refugium services were identified under the supporting services category.

Challenges and Opportunities in Estimating the Value of Goods and Services in Temperate Grasslands… http://dx.doi.org/10.5772/59899 153

to give up to enjoy that ecological good/service. Using their revealed willingness to pay, one can use techniques such as Hedonic Pricing method, Travel Cost method or Productivity method to establish a value of the good/service in question. Here the value of a good/service is determined indirectly from the data generated by the marketplace capturing actual market

If market based transactions are not available, ecosystem valuation can be based on two other types of approaches: Imputed willingness to pay, and Expressed willingness to pay. These approaches are typically classified as non-market valuation. In the first approach value of an ecosystem service can be imputed from the actions people are willing to take to avoid the adverse effects that could be experienced if that service was lost. Damager Cost Avoided, Replacement cost, and substitute cost are common methods included in this category of nonmarket valuation. The expressed willingness to pay is through asking people directly what they are willing to pay for an ecosystem service based on a hypothetical scenario. Contingent valuation and Contingent choice methods are included in this category. To undertake nonmarket valuation, data need to be collected through primary surveys which tends to be costly.

The valuation process of grassland goods and services involved several steps. Firstly, detailed information on Manitoba grasslands was collected based on grass type (native, naturalized or tame/seeded), land use (hay, pasture and other) and ownership (private, crown and nongovernmental organizations). Tame/seeded grassland was defined as those grasslands which have been cultivated within the past eight years, and are frequently used as part of the crop rotation [23]. Naturalized grasslands are areas that were under cultivation or were seeded to forage and subsequently reverted to grassland, approximately eight to 15 years since last cultivation [23]. Native grasslands were defined as areas that have never been broken, or have been re-established as grassland for such a length of time that native conditions have been restored, more than 15 years since last cultivation [23]. Collection of detailed information on grasslands was followed by identification and valuation of goods and services that could be

Although a longer list of ecosystem services has been proposed in literature, 21 ecosystem services were identified as being relevant to grassland ecosystems. Of these ten services were excluded from estimation for reasons related to either lack of importance or non-availability of information. The remaining eleven services included all four ecosystem functions. Provi‐ sioning services included forage production from grassland, a commercial product for which markets do exist. Under regulating services, six services were identified, including carbon sequestration (thereby affecting gas regulation function), nutrient cycling, water regulation, soil erosion control, soil formation, and water treatment. Recreation and aesthetics was identified as the major cultural service of the grassland ecosystem, whereas refugium services

**2.2. Process of valuation of Manitoba grassland ecosystem services**

expected from Manitoba grasslands, as listed in Table 1.

were identified under the supporting services category.

based transactions.

152 Agroecology


**Table 1.** Goods and services from natural ecosystems and methodology of estimation adopted.

Two methods were used to value identified goods and services from the Manitoba grassland ecosystem. A market-based approach was used for goods and services that are traded in the open market. For goods and services that are not traded on the open market, studies that have attempted to value ecosystem goods and services in similar eco-zones were reviewed, and using benefit transfer, values obtained from these studies were applied to non-market goods and services in Manitoba grasslands. Benefit transfer, which in other cases is called environ‐ mental value transfer, is related to the process by which a value or demand function of a characteristic or a set of environmental characteristics obtained from each valuation method in a location (original location) can be used to evaluate environmental values in another location (location transfer).

Using the estimates obtained from previous studies to evaluate the costs (or benefits) of new projects, environmental laws or other policies, is common to cost-benefit analysis and public decision making. Benefit transfer approaches are generally recommended and applied by the various institutes for economic valuation of environmental effects. Moreover, because of resource constraints and cost effectiveness, benefit transfer is recommended [24]. In fact, analysts can rarely provide the conditions and facilities of original studies. Therefore, when performing a complete study, transfer studies may provide an economical method to guidance of a researcher [25].

Sometimes the benefit transfer approach is not essentially considered as a methodology, but simply considered as transfer of estimates from one location to other location [25]. Some authors [26] believe that transfer studies involve all advanced skills required to the main research. Therefore, transfer analysts should have high judgment and innovation power of manipulating the existing data and provide results to decision-makers. They should also clearly show the relative roles of data and assumptions and help decision makers to understand the intrinsic uncertainty resources of estimates. Despite the widespread use of this approach, few professional studies exist on how the transfer of data and estimates should be done for grassland ecosystems.

In this study, the benefit transfer approach was used but was also subjected to a sensitivity analysis to account for market price fluctuations or uncertainties in benefit transfer values from other studies. The total economic value of Manitoba grasslands was obtained by summing economic values of market and non-market goods and services.

#### **2.3. Market-based valuation**

Under market-based valuation, a link between the environmental (ecosystem) service (and ecological goods and services generated by it) and society's preference is developed. If the good is commercial in nature, it is bought and sold through the marketplace. Its demand reflects social preference (or value). If market price for a certain grassland service in the marketplace exists, the price is directly used to evaluate the goods and services [27]. Marketbased valuation was used to assess the value of perennial forage production, carbon seques‐ tration, and nutrient cycling.

#### *2.3.1. Perennial forage production*

Data on grassland area, forage yield and forage prices were obtained from consultations with individuals with in-depth knowledge of Manitoba grasslands (Bill Gardiner, MAFRI; Glenn Friesen, MAFRI; Rick Andrews, Ducks Unlimited Canada; Wybo Vanderschuit, Riding Mountain National Park) and other sources [23]. The yield of native and naturalized hay was estimated to be 3.92 t/ha/yr whereas that for tame/seeded hay was estimated to be 5.91 t/ha/yr (Glenn Friesen, Manitoba Provincial Forage Specialist, personal communication). The tame/ seeded hay yield is the average of the alfalfa and alfalfa-grass yields. It was assumed that grass hay yields were comparable to alfalfa/grass hay yields. The yield for forage seed production (0.38 t/ha/yr) was the average of the yield in 2005 and 2006 [24]. The price (2004-2008 average) utilized for native and naturalized hay was \$0.042/kg (Glenn Friesen, personal communica‐ tion). Grass and alfalfa/grass hay grown on tame/seeded grasslands was valued at \$0.055/kg and \$0.075/kg, respectively. Forage seed was valued at \$1.10/kg (average price for 2005-2006). Native and naturalized pasture was valued at \$34.37 ha/yr and tame/seeded pasture was valued at \$101.33 ha/yr (Glenn Friesen, personal communication). Energy production, an important direct value of forages, was not included in the valuation of Manitoba grasslands as there are currently no facilities for biofuel production from grass in Manitoba. In fact, perennial grasses that can be used to produce cellulosic ethanol are not yet grown on a commercial scale [11].

### *2.3.2. Carbon sequestration*

attempted to value ecosystem goods and services in similar eco-zones were reviewed, and using benefit transfer, values obtained from these studies were applied to non-market goods and services in Manitoba grasslands. Benefit transfer, which in other cases is called environ‐ mental value transfer, is related to the process by which a value or demand function of a characteristic or a set of environmental characteristics obtained from each valuation method in a location (original location) can be used to evaluate environmental values in another

Using the estimates obtained from previous studies to evaluate the costs (or benefits) of new projects, environmental laws or other policies, is common to cost-benefit analysis and public decision making. Benefit transfer approaches are generally recommended and applied by the various institutes for economic valuation of environmental effects. Moreover, because of resource constraints and cost effectiveness, benefit transfer is recommended [24]. In fact, analysts can rarely provide the conditions and facilities of original studies. Therefore, when performing a complete study, transfer studies may provide an economical method to guidance

Sometimes the benefit transfer approach is not essentially considered as a methodology, but simply considered as transfer of estimates from one location to other location [25]. Some authors [26] believe that transfer studies involve all advanced skills required to the main research. Therefore, transfer analysts should have high judgment and innovation power of manipulating the existing data and provide results to decision-makers. They should also clearly show the relative roles of data and assumptions and help decision makers to understand the intrinsic uncertainty resources of estimates. Despite the widespread use of this approach, few professional studies exist on how the transfer of data and estimates should be done for

In this study, the benefit transfer approach was used but was also subjected to a sensitivity analysis to account for market price fluctuations or uncertainties in benefit transfer values from other studies. The total economic value of Manitoba grasslands was obtained by summing

Under market-based valuation, a link between the environmental (ecosystem) service (and ecological goods and services generated by it) and society's preference is developed. If the good is commercial in nature, it is bought and sold through the marketplace. Its demand reflects social preference (or value). If market price for a certain grassland service in the marketplace exists, the price is directly used to evaluate the goods and services [27]. Marketbased valuation was used to assess the value of perennial forage production, carbon seques‐

Data on grassland area, forage yield and forage prices were obtained from consultations with individuals with in-depth knowledge of Manitoba grasslands (Bill Gardiner, MAFRI; Glenn

economic values of market and non-market goods and services.

location (location transfer).

154 Agroecology

of a researcher [25].

grassland ecosystems.

**2.3. Market-based valuation**

tration, and nutrient cycling.

*2.3.1. Perennial forage production*

The economic value of carbon sequestration was based on sequestration estimates from the Pilot Analysis of Global Ecosystems (PAGE) [5]. The PAGE carbon sequestration estimate for grasslands ranges from 100 to 300 t/ha/yr, with mid-latitude grasslands having lower carbon sequestration than high- and low-latitude grasslands [9]. This study adopted a carbon sequestration value of 105 t/ha/yr for valuation of Manitoba grasslands, as suggested to be appropriate for Canadian grasslands [28]. Due to lack of data on rate of carbon sequestration for various types of grasslands, the same level was assumed for all grasslands in Manitoba. Total amount of carbon sequestered by Manitoba grasslands was estimated at 250.5 million t/ yr (Table 2). About 64% of this amount is sequestered by tame or seeded pastures, and another 35% by native pastures in the province.


**Table 2.** Calculation of level of carbon sequestration.

Valuation of the carbon sequestered by grasslands is not a simple matter since it is not traded in a fully functional market place. A close approximation to a market is the Chicago Climate Exchange where in 2009 carbon was trading at US\$2.10 per ton. Converting it using current exchange rates leads a value of \$2.67 per ton in Canadian funds. This resulted in a total value of \$668.8 million. However, during the past, exchange rates between US and Canadian dollar have fluctuated. In addition trading value of carbon at the Chicago Climate Exchange has also fluctuated from \$1.60 to \$2.15 per ton in US dollar. To see the change in the value of carbon sequestration, a sensitivity analysis was undertaken. The value of carbon sequestration ranged from \$508 to \$683 million per year (Table 3). On account of higher level of carbon sequestration, value of non-native grassland was higher ranging from \$326 to \$438/ha/yr compared to native grassland. If one argues that rate of sequestration or its unit value as shown in these tables can vary, further sensitivity analysis needs to be undertaken, which is presented in a later section.


1 Lowest trading price between 2003-2010 at Chicago Climate Exchange.

2 The exchange rate on April 21, 2010.

**Table 3.** Sensitivity analysis of total value of carbon sequestration in Manitoba grasslands.

#### *2.3.3. Nutrient cycling*

The value of increasing soil nitrogen was determined as a product of estimated amount of nitrogen accumulation in the soil, area of grassland and the value of the accumulated nitrogen. Utilizing a 10:1 ratio of carbon to nitrogen accumulation [29] resulted in accumulation of 0 t nitrogen ha/yr in native grassland, and 0.047 and 0.056 t nitrogen ha/yr in naturalized and tame/seeded grassland, respectively. The accumulated nitrogen was valued at \$1.32/kg, the value of urea fertilizer. This resulted in a value for nutrient cycling of \$81.47/ha.

#### **2.4. Non-market-based valuation**

Most goods and services in grasslands are not traded in the marketplace and require valuation techniques that reflect their existence outside the market system [27]. Techniques for the valuation of such non-market goods and services have been discussed above. Most of these techniques are time-consuming and require considerable resources to complete. Selection of benefit transfer as the method of choice in this study was based on cost-effectiveness and previous application in the valuation of ecosystem goods and services. Benefit transfer is widely applied in the economic valuation of non-market services, often as part of cost-benefit analysis of a new project that has environmental impacts. A legitimate use of benefit transfer should meet the following conditions: a) population of both regions should be similar, b) goods and services in all locations should have about the same characteristics, and, c) initial estimated values should be current because preferences change over time [30].

The benefit transfer values utilized in this study were obtained mainly from two studies [14, 24] and are listed in Table 4. The first study [14] used four case studies from different agricul‐ tural regions across Canada to assess the ecological goods and services provided by the natural capital within settled areas. The case studies estimated that the net value of conserving or restoring natural areas varied from \$65/ha/yr in the Upper Assiniboine River Basin in eastern Saskatchewan and western Manitoba, \$142/ha/yr in the Mill River Watershed in Prince Edward Island, to \$195/ha/yr in the Grand River Watershed of Ontario. The transfer values from this study [14] were, in turn, obtained from a report [31]. The second study [24] undertook an evaluation of the economic value of New Jersey's wetlands, marine ecosystems, forests, urban green space, beaches, agricultural land, open fresh water and riparian buffers. The transfer values from this study were only used in situations where no Canadian values exist.

Other important sources of benefit transfer values relevant to the Canadian prairies [32-34] were consulted and appropriate values were selected for this study. Benefit transfer was used to value water regulation, waste treatment, soil erosion control, soil formation, recreation, and wildlife habitat (refugium). The value of water regulation in Manitoba grasslands was calculated from total grassland area (2,385,660 ha) using the benefit transfer value of \$5.14/ha/ yr (Table 4). Benefit transfer values for soil formation (\$10.70/ha/yr) and erosion control (\$13.34/ha/yr) were transferred from two studies [24, 35] (Table 4). Waste treatment was estimated utilizing a benefit transfer value of \$64.52/ha/yr (Table 4). The value of cultural services was transferred from reference [14]. The value of refugium was transferred from a study [34] which estimated willingness to pay for prairie grassland conservation for burrow owl (an endangered species) in Southern Alberta at approximately \$34.07/rural household (Table 4).

In determining the preferred value to be transferred to this study, values derived from a similar eco-zone of grassland in Manitoba were used. In general, values transferred from North America grassland were preferred to the global grassland. Similarly, Canadian grassland values were preferred over the North America grassland. If a choice was available, values from Western Canada were preferred over those from Eastern Canada.
