Comparative study between the contingent valuation and opportunity cost methods for rural producer’s payback adhered to the conservative water program of Igarapé, Minas Gerais, Brazil

Abstract

The National Water Agency approved in 2015, in the municipality of Igarapé, Minas Gerais, Brazil, the Conservative Water Program, called Guardian of Igarapés with a financial contribution of R$699,740.00 to be allocated to infrastructure, only. In 2016, the first payment was made for the water supply service to Igarapé farmers in Minas Gerais from the Ecological ICMS and the Municipal Environment Fund. Twenty two producers benefited from values ranging from R$355.09 to R$7,930.00, annually, according to criteria established in Notice 01/2015. This remuneration was calculated based on the opportunity cost method, which disregards the value of water from Batatal Stream. For this reason, this paper aims to compare two environmental valuation methods: The Opportunity Cost and the Contingent Valuation Method, to verify which is the best method to compensate the farmers. The Contingent Valuation Method considers the value of water use and has been shown to be more advantageous in remunerating rural producers at R$645.92/month, for a total of R$178,273.70/year.