Key Messages 
  • This case study examines adaptation options for the seaweed farming industry in the Zanzibar islands located in the United Republic of Tanzania. It presents strategies to aid decision-makers in analysis where data around prices, costs and future impacts from climate change are uncertain.
  • Shorter-term uncertainties – e.g. related to prices, costs or appropriate discount rates – can be incorporated by working with price ranges or by employing sensitivity analyses. Longer-term, more fundamental uncertainties bring in to question the viability of certain adaptation options altogether, and require a more fundamental consideration of uncertainty in the approach to adaptation. In this case, it is advisable to improve a standard cost-benefit-analysis with a more flexible analytical approach, such as Real Options Analysis or decision trees.
  • In a two-stage decision making process, a future decision point is first identified. Investments in production can be made in the short- and medium-term, while at the same time investments in information can be made as a basis for a decision about the longer-term strategy. This two-stage process can be adopted in many adaptation contexts that are reliant on evidence of future climate change that is not available at present.
  • The case study provides strong evidence for the importance of non-market values, including avoided environmental and health damages if current practices are discontinued, but also environmental co-benefits of adaptation options.
  • The case study also highlighted gender impacts as an important distributional dimension in the assessment of different adaptation options. With distributional weights included in economic valuation, the appraisal demonstrates how a political consideration can be included quantitatively alongside other costs and benefits.

Context

This document presents insights from a case study on different options to adapt seaweed farming in the Zanzibar islands to the impact of a changing climate. Seaweed is a main export product of the Zanzibar economy, and seaweed farming a major source of employment in rural coastal communities, particularly for women. In fact, seaweed farming represents one of the only income sources for women in coastal villages. A recent government census estimates over 20,000 farmers currently active in Zanzibar.

As an economic activity, seaweed farming is particularly vulnerable to the impacts from climate change – some of which have already begun to affect the industry. A main threat is from higher sea surface temperatures, which have been identified as a cause of the so-called ice ice disease, killing seaweed plants before they can be harvested. Past increases in sea surface temperatures have already been associated with a significant reduction in the farming of cottonii seaweed: while this variety is economically more attractive (due to its higher carrageenan content, it attracts higher prices on the world market), farmers have been unable to harvest healthy cottonii seaweed due to an increase in disease thought to be linked to rising sea surface temperatures. Therefore, farmers have resorted to a different variety – spinosum, which has a lower carrageenan content and therefore commands a lower price, but is more resilient to higher sea surface temperatures. However, above a level of 40°C seaweed farming may become infeasible, which would lead to an elimination of the industry. The loss of cottonii as a viable off-bottom crop and the potential future loss of spinosum in warmer waters pose an essential economic threat to the region, in which many coastal villagers depend on the seaweed industry for their income and livelihood.

In addition to the threat from higher sea surface temperatures, there is also the threat of more frequent extreme weather events and changes in weather patterns: strong winds and waves are estimated to break off up to 50% of a seaweed crop in stormy seasons, while longer rainy seasons prevent drying of seaweed, requiring farmers to forego a full 45-day cycle of seaweed growth.

Policy and methodological developments 

The case study investigated different ways in which seaweed farmers could respond to the threat of rising sea surface temperatures, and assessed the costs and benefits of the different options. The investigated options included a variety of deep-water floating raft farm methods to replace the current off-bottom shallow water method. In this way, seaweed crops are moved to deeper waters where temperatures are lower and more stable and sediment is less present at the level of the seaweed plants. In addition, a programme to gather information on temperature changes around the islands was investigated as an additional measure. The information from this programme would then be used to inform long-term strategic decisions. In appraising the floating raft farm options, 35-year cost benefit analyses were calculated under a number of discount rates, including official European and international rates as well as higher commercial lending rates.

A fundamental challenge for the case study was dealing with uncertainty – both related to climate change scenarios and their impacts, and to an uncertain economic outlook. Longer term uncertainty in the seaweed farming sector stems from ambiguous climate futures past 2040. Climate projections past this point suggest temperature increases of varying magnitudes, depending on the emissions pathway assumed. The low emissions scenario projects temperature increases that remain in a viable range for growing at least one species of seaweed in Zanzibar. However, under a higher emissions scenario temperatures would exceed the threshold for both spinosum and cottonii seaweed varieties by 2075. In the case of a high-emissions future, returns from investments in seaweed farming may fall to zero if sea temperatures exceed the threshold for all varieties. In this scenario, medium- and long-term pursuit of adaptation options investigated in the cost-benefit analysis may not provide a positive economic return – instead, diversification and exit strategies would be needed for those communities reliant on seaweed farming. Since the uncertainty around climate sensitivity cannot be resolved, policymakers cannot reliably project the viability of seaweed farming past mid-century. Beyond this point, rather than comparing the short-term costs and benefits of different options, it is more appropriate to plan for alternative outcomes using flexible decision-making tools such as Real Options Analysis or decision trees.

The uncertainty of climate change impacts and their effect on seaweed farming is compounded by the economic uncertainty of how seaweed prices will evolve. Global seaweed prices differ across species of seaweed, depending on the export market for each type of seaweed. While demand for cottonii remains high, very few farmers in Zanzibar are able to produce any of this species without losing the entire harvest to disease. Instead, spinosum is primarily grown and faces a much more volatile market. Current prices for spinosum are amongst the lowest in five years, causing some farmers to exit the industry. But as many do not have alternative income sources, they continue to grow seaweed at minimal profit.

In comparison to the baseline, the case study investigated the following adaptation options:

  • Adaptation Option 1. Farm spinosum off of deep-water floating rafts. This adaptation option assumes that farmers abandon current off-bottom farming practices in favour of growing seaweed on floating rafts in 2-3 meters of seawater. This method has been shown to be more productive in seaweed harvested, as compared to off-bottom growing methods.
  • Adaptation Option 1.1. Farm cottonii off of deep-water floating rafts. This option assumes the same switch from off-bottom to deep-water floating rafts as the previous option, but substitutes the more valuable cottonii species for spinosum. Because of lower sea surface temperatures in deeper waters, floating-line farms are able to support cottonii, even in areas where it is not possible to grow the species using the off-bottom farm method.
  • Adaptation Option 1.2. Farm cottonii off of deep-water floating rafts with net enhancement. This option is responsive to the observed loss of up to 50% of seaweed grown on floating rafts during storm periods, in which heavy winds, rains and waves destroy the crop growing on raft farms. An enhanced raft design using PVC pipes and fishing nets has been tested and shown to reduce storm loss to 10% of normal crop levels.
  • Adaptation Option 1.3. Farm cottonii off of deep-water floating rafts with greenhouse drying facility enhancement. This option responds to losses in seaweed harvest during rainy seasons. Farmers report leaving seaweed on lines in the water when rains come during stormy seasons, as the standard drying process requires sunshine to dry harvested seaweed on beaches. Observed losses to date amount to an entire farm cycle, or one-eighth of annual income. The use of sheltered greenhouses to dry seaweed would allow for harvest during rainy seasons and reduce contamination in farmed product.
  • Adaptation Option 2. Invest in climate information infrastructure to inform future decision points. Separate from farming method options, this investment presents the costs of gathering data on sea surface temperature around the Unguja and Pemba islands. Short-term investments in information include the installation and maintenance of sea surface temperature loggers around Pemba and Unguja. The additional value that local temperature loggers can provide is in understanding whether and how different areas around Zanzibar respond to climate change. If temperature increases appear to be following a high-emissions scenario, it may be more beneficial in the long term to consider exit and diversification strategies for seaweed farmers in certain areas.

The different options were then assessed in an extended cost-benefit analysis, which included both financial and economic analyses. The financial analysis compares the costs of the different options to the private market benefits, i.e. increased seaweed yields. The economic analysis also includes non-market costs and benefits. Non-market values for the baseline scenario include 1) economic benefits from the additional revenue generated by export sales after farm-gate prices are accounted for and 2) distributional benefits from the creation of income for rural women. In addition, the different adaptation options also give rise to different non-market benefits. These included avoided health costs associated with off-bottom farming, avoided disruptions of marine ecosystems stemming from frequent movement across shallow seabeds,  avoided impacts on coastal mangrove forests (otherwise used for foraging for wood to use as stakes for seaweed lines), avoided impacts of seagrass destruction (as a side-effect of off-bottom farming), as well as the value of fish bycatch that is attracted to the floating raft farms.

To compare the results, the net cash flow was calculated over a 35-year period for the baseline scenario and each adaptation option using a low (3.5%), intermediate (10%) and high (16%) discount rate. Finally, financial and economic Internal Rates of Return (IRR) are generated for the baseline scenario and each adaptation option. This number represents the return on resources invested into the project (costs), presented as a comparison to returns on the same resources if they were invested elsewhere. Benefit-cost ratios for each option are also calculated to represent economic and financial returns on investment.

The study found positive returns, both in the form of financial returns and in terms of the social welfare generated from all adaptation options included in the analysis. That said, the baseline scenario itself (continuing to farm spinosum seaweed using the off-bottom method) showed a strong and positive dynamic, with positive net present values and a high internal rate of return.  The baseline IRR is already 353% if only the financial costs and benefits are considered, and 1036% if all economic costs and benefits (including non-market values) are included. This is echoed in a favourable benefit-cost-ratio of 5.1:1 for financial costs, and more than 14:1 for economic costs. Compared to this, the financial return of the different adaptation options is either almost as large (Options 1.1, 1.2) or significantly lower than the baseline – but still highly positive (Options 1, 1.3). This is somewhat different when the scope of the analysis is extended and economic costs and benefits are included: in this case, the internal rate of return is of a similar magnitude for all options, with two options (1.1, 1.2) generating slightly a higher return than the baseline, and two others (1, 1.3) slightly lower.

Table 1. Assessment results for different adaptation options.

 

IRR (financial NPV)

IRR (economic NPV)

Baseline Scenario

353%

1036%

Adaptation Option 1

166%

988%

Adaptation Option 1.1

347%

1078%

Adaptation Option 1.2

348%

1072%

Adaptation Option 1.3

295%

998%

Main implications and recommendations 

One key takeaway from this case study is the importance of non-market values in climate adaptation interventions. Across all scenarios, appraisals including non-market costs and benefits present much higher returns than financial cash flows alone. This indicates that the adaptation options generate significant social value. Economic, environmental and social benefits of all interventions provide ample opportunity for productive public investment in the sector.

A second takeaway concerns the importance of adequately incorporating distributional aspects. While global damage assessments have long recognised inequities in climate impacts across regions in the world and between national income groups, they have been less prominent in local analyses. This case study highlighted gender impacts as an important distributional dimension in the assessment. With distributional weights included in economic valuation, the appraisal demonstrates how a political consideration can be included quantitatively alongside other costs and benefits.

A third takeaway is the need for flexibility in a two-stage decision making process. The case study represents a situation where different climate projections lead to very different realities for the seaweed sector. A Real Options Analysis approach demonstrates how investments in improving local information unavailable from climate models can improve a future decision. By identifying a future decision point, investments can be made in the short- and medium-term time frames while preparing information to aid in a later decision. This multi-stage process can be adopted in many adaptation contexts that are reliant on evidence of future climate change that is not available in the present time.

In terms of implementation of any of these options, a practical recommendation is that a financial mechanism will likely be necessary to fund the up-front costs of investments (in particular boats to access and service the floating rafts). Seaweed farmers have limited access to capital and seaweed buyers lack confidence in their own ability to recover long-term investments in specific farms. Thus, there is a risk that investments into adaptation – no matter how beneficial from a private financial or social economic perspective – would not take place, since funding is not available to cover the up-front costs. Community-based savings and credit cooperatives (SACOs) may provide a demonstrative model for community investment at the level required by these interventions.