Understanding climate change beliefs and adaptation subsidies: Evidence from cocoa farmers in Ghana
While direct subsidies for adaptation are more effective than subsidies for outputs produced by adapted farms, information campaigns to correct climate change beliefs are more effective when combined with the latter.
Climate change increases the tension between environmental protection and poverty reduction across many parts of the world, including sub-Saharan Africa. Extreme weather and other climate-related events have increased the volatility in yields and exacerbated income shocks for farmers. How can we effectively incentivise adaptation to address both poverty alleviation and carbon emissions reduction in low- and middle-income countries?
Environmental conservation programmes and sustainable certification programmes are popular tools. Conservation programmes, like the payment-for-ecosystem-services (PES), offer conditional cash transfers for pro-environment activities, such as tree planting. Certification programmes, such as the Rainforest Alliance, provide price premiums for certified sustainable agricultural products, notably in the coffee and cocoa sectors, which see growing global demand for eco-friendly products.
However, it is hard to compare the effectiveness of these two programmes without considering individual beliefs. Different beliefs about climate change risks and integrating adaptation tools into production can cause divergent responses to different subsidies. It is also unclear whether information campaigns can effectively change population beliefs and achieve better environmental outcomes when combined with subsidies.
Our study explores this issue by comparing a standard PES subsidy and an output-based subsidy in incentivising smallholder cocoa farmers' adaptation using a lab-in-the-field experiment in Ghana. We also explore the role of individual beliefs by leveraging a narrative-based information treatment. We validate the lab results with a real-life subsidy programme.
Why focus on Ghana's cocoa sector?
Cocoa production is highly vulnerable to climate change and is declining globally. Ghana, the world's second largest cocoa producer, relies heavily on cocoa, which employs 17% of the labour force and contributes 3.5% to the GDP. Moreover, shade management – planting trees around farms for shade - is a key adaptation strategy that stabilises yields and enhances ecosystem services, making it an ideal setting to compare different subsidies.
Two alternative subsidies for shade management and information nudging
We conducted a lab-in-the-field experiment to compare two types of subsidies - input and output subsidies and to examine the additional impact of information nudging given subsidies in driving smallholder farmers’ adaptation responses.
The experiment took place in 30 communities in the Nkawkaw and Sefwi Bekwai districts in Ghana, involving 1905 cocoa farmers. We collected information on these farmers’ shade and farming practices and prior beliefs. They were then randomly divided into five treatment groups:
- Control: No subsidy or information intervention.
- Input subsidy: Farmers received a lump-sum payment for planting shade trees. The payment increases with the level of shade provided.
- Output subsidy: Farmers received price premiums for cocoa beans harvested from shaded farms. The premiums increase with shade level, linking the incentive to output harvest.
- Input subsidy and information: Farmers received the input subsidy and additional information about climate change risks and shade tree benefits.
- Output subsidy and information: Farmers received the output subsidy and the same additional information.
Table 1: Four-tier input and output subsidy schedule in the lab game
Lab-in-the-field game setting
Respondents made independent decisions on shade management and subsidy enrollment using their real-world experience. Respondents played two games on hypothetical one-acre cocoa plots. Rewards were based on realised gains, including cocoa harvests, planting costs, enrolment costs and subsidies, from one randomly chosen game.
Findings
Heterogeneity in shade practices and beliefs
Farmers' practices and beliefs about shade management varied significantly. Despite a uniform recommendation from the Ghana Cocoa Board, farmers' actual practices vary, with an average of 9 shade trees per acre. Moreover, we find heterogeneity in perceived optimal shade levels - the number of trees they believe maximises cocoa harvests, with a median of 15 trees per acre.
Figure 1: Distribution of current shade practice – shade trees per acre
Impact on forest shade tree planting (lab-game decisions)
Farmers in the input subsidy planted 8.3 more forest trees per acre (82% increase), while those in the output subsidy planted 7.6 trees per acre (75% increase). For comparison, those in the control group planted an average of 10 trees per acre. Interestingly, this difference is influenced by beliefs: farmers anticipating more droughts planted fewer trees under the output subsidy due to expected lower subsidy rewards, while farmers believing harvest peaks at lower shade levels showed a larger increase in tree planting.
Figure 2: Impact on forest tree planting (lab-game result)
Role of information nudging
Information nudging significantly enhanced tree planting under both subsidies, with a greater impact when paired with the output subsidy. It led to an increase of 1.4 trees per acre with the input subsidy and 2.4 trees per acre with the output subsidy, closing the gap between the two subsidy groups.
Impact on farmer income
Both subsidies increase total income by 20% in the lab game. The output subsidy resulted in larger income gains under normal weather and smaller gains under harsh weather compared to the input subsidy, although the total income impacts were not statistically different.
Validation through Green Ghana Programme
Incentivised subsidies for shade and information nudging in the lab game can translate into farmers’ relevant responses in the real world. We examine the lab-treatment effects on farmers' requests for tree seedlings in the Green Ghana Programme in collaboration with the Forestry Commission of Ghana.
Lab-game findings were validated in the Green Ghana Programme, where farmers' requests for tree seedlings partially reflected their lab-game decisions. Input-based subsidy participants requested more seedlings. Information nudging is more effective when combined with the output subsidy, increasing seedling requests and actual pickups.
Policy implications
Our study demonstrates both input- and output-based subsidies show potential for achieving environmental sustainability and poverty alleviation. Yet, the effectiveness of output-based subsidies hinges on farmers' correct beliefs about climate risks and willingness to incorporate adaptation strategies.
These findings highlight the importance of accounting for individual beliefs and local contexts when designing adaptable agro-environmental policies. Tailoring information campaigns to align with the target population’s comprehension level and local institutional capacities is essential for effective policy uptake and impact. It is increasingly crucial in a global landscape marked by rising climate risks, uncertainty, and persistent information gaps, particularly for those climate-vulnerable farmers with limited access to reliable information resources.
Moreover, robust monitoring systems are necessary to improve local enforcement of sustainable programmes. These systems ensure transparency and equitable distribution of benefits among the broader community, fostering inclusive and effective environmental sustainability initiatives.