Indonesia mangrove restoration.

Mangroves Have a Higher Economic Value Than Shrimp Ponds in Indonesia

By Gordon Smith, Eric Hyman

Half of the world’s total mangrove deforestation since 2000 has been in Indonesia, where the main driver has been conversion for shrimp ponds. A new cost-benefit analysis by the USAID-funded Climate Economic Analysis Development, Investment, and Resilience (CEADIR) Activity sheds light on the financial and economic value of mangrove conservation. Income losses from mangrove-supported activities eventually outweigh shrimp revenues in the converted areas.

When the carbon storage benefits of mangroves were included, the economic analysis favored mangrove conservation, with higher values than partial conversion for shrimp ponds. The economic advantages of mangrove conservation increased with changes in three key assumptions: 1) higher social costs of carbon (the economic damage from greenhouse gas emissions); 2) lower discount rates (the annual percent decrease in the value of money over time); and 3) a longer time period for the analysis.

The study focused on Bintuni Bay and Mimika District in Papua and West Papua in Indonesia. These locations have some of the largest intact areas of mangroves in the country and relatively little mangrove deforestation. They also have relatively large proportions of indigenous ethnic groups, a special autonomous governance status, and high biodiversity. Bintuni Bay has a mangrove harvesting concession for wood chips that has operated at a sustainable extraction rate since 1988.

The cost-benefit analysis considered two scenarios: 1) the baseline mangrove conversion rate of 0.05 percent per year for human settlements and infrastructure, and 2) conversion of an additional 0.75 percent of the mangrove area per year for shrimp ponds.

CEADIR gathered data on the financial costs and benefits of local activities supported by mangroves through a survey of 120 households. These activities included near-shore fishing, farming, hunting and gathering, wood harvesting, and mangrove palm products for roofing materials and food and beverages. Shrimp ponds in former mangrove areas have a usable life of only 10 years or less.

Looking forward over a 50-year period at a high discount rate (12 percent per year above the inflation rate), the financial value of partial conversion of mangroves for shrimp aquaculture was only 2–4 percent higher than mangrove conservation. This small difference could easily be offset by the uncounted benefits mangrove forests provide by acting as biodiversity hotspots, as well as spawning and nursery areas for deep sea fish.

The financial benefits were lower for shrimp aquaculture than mangrove conservation at lower discount rates (the 3 percent and 7 percent per year rates that the U.S. Government uses in domestic cost-benefit analyses). Mangrove conservation was also financially preferable at the 12 percent discount rate over a 100-year time period.

The economic analysis also valued the carbon storage benefits of mangroves at social costs of carbon ranging from $5 to $25 per metric ton of carbon dioxide equivalent. At the low end ($5/ton social cost of carbon and a 12 percent discount rate), mangrove conservation had a 5.5 percent higher economic value than partial conversion for shrimp ponds. At the high end ($25/ton social cost of carbon and 3 percent discount rate), the economic benefits from mangrove conservation were 18–22 percent higher than partial conversion for shrimp ponds over a 100-year period.

CEADIR also examined the effects of including probability distributions for many key assumptions, using a Monte Carlo Analysis that varied assumption values over 10,000 simulation runs. Even without the carbon storage benefits, mangrove conservation was more valuable than partial conversion for shrimp ponds in 23–37 percent of the model runs at the 12 percent discount rate. When carbon storage benefits were counted, mangrove conservation was more valuable than partial conversion for aquaculture in nearly all model runs. The financial value of aquaculture was very sensitive to the risks of lower profits per hectare of shrimp ponds and a shorter useful life for the ponds.

The two study areas had a very low historical risk of cyclones and tsunamis, unlike many mangrove areas in Indonesia and other countries. To make the findings more relevant for other locations, CEADIR considered the effects of including an annual risk of 0.5 percent for cyclones or tsunamis and probability distributions for the value of statistical lives lost and housing damage when a cyclone or tsunami occurred.

The Monte Carlo Analysis found little likelihood that the economic value of conversion to shrimp ponds would be higher than mangrove conservation at a social cost of carbon of $5/ton or more. Including the additional impacts of mangroves on reducing human mortality and housing damage from cyclones and tsunamis for other locations did not affect the financial or economic results very much.

Due to insufficient data, this analysis did not value other ecosystem services from mangroves, such as water quality improvements or biodiversity conservation. Inclusion of additional ecosystem service values would further increase the economic superiority of mangrove conservation over shrimp aquaculture in the study areas.

For more information, download A Cost-Benefit Analysis of Mangrove Conservation Versus Shrimp Aquaculture in Bintuni Bay and Mimika, Indonesia.

Strategic Objective
Adaptation, Integration
Adaptation, Ecosystem-based Adaptation, Carbon, Coastal, Indigenous, Land Use, Sustainable Landscapes, Water and Sanitation

Gordon Smith

Since 1994, Gordon Smith, Ph.D., has worked on mitigating greenhouse gas emissions by changing land use. He has expertise in multiple aspects of forest management and forest ecology relevant to sustainable land use that sequesters carbon in lands or avoids greenhouse gas emissions. In addition to working on forest carbon sequestration, Dr. Smith has worked on reducing emissions from deforestation and forest degradation (REDD+), soil carbon, manure management, fertilizer nitrous oxide, and soil methane. He is the Director of Ecofor LLC, which works on program design and implementation of greenhouse gas emission mitigation and adaptation policies and activities involving land use, and is the Technical Lead for the Sustainable Lands component of the USAID Climate Economic Analysis for Development, Investment and Resilience (CEADIR) project.

Eric Hyman

Dr. Eric Hyman is an Economist in the USAID Economic Growth, Education, and Environment Bureau’s Economic Policy Office.  Dr. Hyman was previously Economist and Environmental Officer at the U.S. African Development Foundation and Chief of Program Evaluation at EnterpriseWorks Worldwide/Appropriate Technology International.  He has a Ph.D and M.R.P in Environmental Planning from the University of North Carolina at Chapel Hill and a B.A. in Economics and Environmental Science from the University of Virginia.

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