Financial Analysis for Improving River Water Quality through Introduction of Organic Agriculture

Xiaoling Zhu and Hio-Jung Shin
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Xiaoling Zhu: Department of Agricultural and Resource Economics, Kangwon National University, Chuncheon 24341, Korea
Hio-Jung Shin: Department of Agricultural and Resource Economics, Kangwon National University, Chuncheon 24341, Korea

Sustainability, 2021, vol. 13, issue 5, 1-15

Abstract: With scientific awareness of the main source of water pollution from conventional agriculture along the Dagu River Basin, Qingdao, China, this study aims to identify economic efficiency in introducing an environmentally friendly agricultural policy instrument. For more exact financial analysis, considered were benefits obtained by residents and farmers from water quality improvement and conversion cost from conventional to organic agriculture. A bivariate probit model was used to estimate the mean willingness to pay (WTP) for improving the water quality of the river and determinants affecting residents’ WTP were identified. Empirical results show that mean WTPs are CNY 5.71 (USD 0.83) and CNY 26.47 (USD 3.84) per month per household, respectively. The opportunity cost of volunteering activity hours is CNY 222.77 (USD 32.39) per month per household. Application to the residents of Qingdao would obtain aggregate total benefits from improving the river water quality of CNY 7.54 billion (USD 1.09 billion)- CNY 8.23 billion (USD 1.19 billion) per year. Farmers’ profit obtained by value transfer and price index adjustment is CNY 46.61 billion (USD 6.75 billion) from organic agriculture, which is more profitable. After the implementation of organic agriculture policy, therefore, the total benefits of farmers and residents are much higher than the total cost of conversion to organic agriculture. The study results could provide a preponderant economic indicator to policy decision makers for water quality improvement projects.

Keywords: river water quality improvement; contingent valuation method; willingness to pay; opportunity cost; value transfer; organic agriculture (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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