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A cost-benefit analysis (CBA) is a systematic approach used for estimating the benefits and costs (or strengths and weaknesses) of different projects versus their alternatives. These include business investments and the construction of dams or roads. In essence, a CBA helps determine the most cost-effective approach to obtaining a given benefit at the lowest cost. It can also be used retrospectively to learn, improve, and compare a course of action or to analyze benefits compared to the cost of a decision, project or policy.

At the International Center for Tropical Agriculture (CIAT), CBAs are used to i)  determine if an investment or a decision is economically sound for farmers, and, if economically sound, ascertain if – and by how much – its benefits outweigh the costs, as compared to business-as-usual practices, ii) provide a basis for comparing agricultural investments to the expected costs of each investment with its total expected benefits. With this in mind, the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), led by CIAT, developed an idea aimed at enhancing institutional capacities and developing a systematic program and projects relating to Climate-Smart Agriculture (CSA). CSA stems from the need to provide innovative solutions to the complex trade-offs between increasing agricultural production, enhancing the quality of production, increasing resilience to climate and other environmental factors, and promoting low-emissions agriculture. Under this alliance, and financed by the International Fund for Agricultural Development (IFAD), a CBA tool – both online and offline versions –  was recently developed and made available for use by all free of cost.

The approach involved extensive household surveys and collection of data from stakeholders on costs and benefits associated with these practices, as well as market information and the lifecycle periods. The information was used to prepare the retrospective cost-benefit analysis. The collected information was also used to construct the practice history before and after the introduction of improved livestock management practice and to assess the effect of the improved practice on crop and livestock yield and their associated costs. The approximate area under the three practices was estimated, and this helped compute the expected environmental changes (i.e., carbon sequestration), even from an ex-post perspective. The environmental impacts were then translated into monetary terms using values for sequestered carbon per hectare per year. The information was also used to determine whether the practices were beneficial at both private and social point of view.

Photo credit: blogpost by Sylvia Pineda and Stanley Karanja Ng'ang'a.