This blog discusses Pay: Establishing payments for watershed services that provides guidance on how to improve water security by establishing rewards or payments for ecosystem services provided by a given water resource. Providing appropriate payment to land and water managers to maintain or restore watershed services is an innovative way to improve water security.

Water-related services can include producing agricultural products, supporting ecosystem functioning, regulating water flows, and providing cultural and recreational attributes. Pay presents how such services can be valued and measured and provides an overview of the various components of an effective payment scheme for watershed services.

Total Economic Value (TEV) is a common framework for valuing ecosystems. It uses two categories – use and non-use values. Use values can be:

Direct use value – mainly derived from goods that originate directly from the watershed

Indirect-use value – mainly derived from services that the surrounding ecosystem provides

Non-use values are derived from benefits from preserving the watershed and ecosystem in its natural state. These can be either keeping something in existence (existence value) or preserving the ecosystem or watershed for future generations (bequest value).

Valuations are an important basis for negotiations but in the end the values will be determined by negotiations between parties.

Designing a payment scheme should be centered on creating market-based incentives to change management choices that optimize the benefits of the watershed.

Like other documents in the WANI toolkit, Pay focuses on shared benefits and values of ecologic resources From a ecosystem perspective. It outlines how to identify and value watershed services, design a payment scheme, identify and engage stakeholders and negotiate agreements, establish rules and governance frameworks and monitor progress and share learning across different stakeholders.

Pay also describes the following payment schemes:

Private – direct payments to service providers, purchase of land or sharing of costs among private entities

Cap-and trade – trading of water permits among users with an overall cap of water withdrawal and pollution

Certification or eco-labeling – environmental and social attributes are included in the costs of a traded product

The needs and capacities of the various stakeholders must be recognized as well as clear linkages between upstream land and water use, and downstream benefits.

Pay outlines elements of an agreement – services provided, compensation, monitoring and compliance, and governance and management. It also presents the need for clear and enforceable rules and transaction mechanisms and that these must operate within a wider framework of laws, policies and customary arrangements.

Finally, Pay explains the importance of incorporating social learning to continually monitor progress and prioritize efforts. The social learning process should be accessible to all well-informed stakeholders and include a feedback loop that can lead to continuous improvement to the overall payment scheme.

To review the WANI toolkit and related documents please visit: http://www.iucn.org/about/work/programmes/water/resources/toolkits/

The first WANI toolkit document that I presented in my December 21^st blog was Rule: Reforming water governance that provides guidance on understanding and developing basic principles of good water governance and necessary elements of a strong water governance program. My January 6^th blog on Negotiate: Reaching agreements over water presents practical steps on how to negotiate effective multi-stakeholder agreements on water rights and governance.

This blog discusses the WANI toolkit document Share: Managing water across boundaries that focuses on gaining the cooperation of several nations to establish water allocation and governance programs for international water bodies. As with the other WANI guidance documents, this piece stresses the benefits of engaging stakeholders with an interest in the subject water bodies throughout the process of establishing water rights, allocation and management plans.

It presents how an integrated water resource management approach - coordinating the management of water, land and related resources in the watershed basin - often leads to more sustainable, efficient and equitable agreements and programs.

Transboundary institutional and regulatory frameworks are the backbone of transboundary water management programs but national programs that work with other cooperative nations, are needed for implementation. This requires that each nation incorporate its obligations and objectives of the treaty into laws that are supported by monitoring and enforcement mechanisms. Strong governance overarching all parties is critical as is continuous knowledge sharing, monitoring and adjustments - if necessary - to ensure long-term success.

IUCN's guidance promotes focusing on benefit sharing - allocating the benefits derived from the various uses of water, rather than the water itself. While politics will often be intense during water sharing negotiations, focusing on the myriad of benefits can provide a framework for structuring costs and benefits in a flexible and fair manner. It can also provide a flexible framework that promotes the consideration of alternative use patterns and a range of possible cooperative agreements.

Share: Managing water across boundaries introduces four types of benefits from cooperative approach to negotiations:

• Type 1: Providing benefits to the river - cooperation enables better management of the watershed ecosystem.
• Type 2: Yielding benefits from the river - efficient cooperative management and development of shared rivers.
• Type 3: Reducing costs because of the river - lessens tensions between competing land owners that can have cost benefits.
• Type 4: Generating benefits from the river - greater overall cooperation among states beyond the boundaries of the water body.

Each type has its challenges and opportunities but they all focus on the positive outcomes that can lead to each party having a clear, vested interest in developing a benefit sharing agreement model and possibly avoiding unnecessary conflict.

Share: Managing water across boundaries provides case studies and discusses how best to develop a benefits sharing focus in practice. Some recommendations are to identify critical stakeholders and engage them at the right time during the process, focus on equity of beneficial outcome, and establishing of supporting mechanisms and institutions. Some benefit sharing mechanisms include knowledge sharing, developing a strong project design, revenue allocation and financial arrangements, and institution and policy development.

Share: Managing water across boundaries presents an approach to stakeholder mapping and engagement. Levels of engagement can range from information sharing, consultation, participation and development partners with agreed upon objectives, outputs and goals. It discusses the different stages of transboundary water management processes: initiating stage, institutional management, programme implementation and investment in water management works.

Share: Managing water across boundaries then discusses how to develop necessary legal frameworks and institutions and finally implementing cooperative transboundary water management programs.

To review the WANI toolkit and related documents please visit: http://www.iucn.org/about/work/programmes/water/resources/toolkits/

 This is my second blog in a series to present highlights from the International Union for Conservation of Nature's (IUCN's) Water and Nature Initiative (WANI) toolkit. The WANI toolkit is aimed at helping communities improve water governance programs

My first blog on the WANI toolkit posted November 26^th presented Rule: Reforming water governance. It provides guidance on understanding and developing basic principles of good water governance and necessary elements of a strong water governance program.

The focus of this blog - WANI's Negotiate: Reaching agreements over water - builds on the basic principles of water governance and presents practical steps on how to negotiate effective multi-stakeholder agreements on water rights and governance.

Lasting and effective agreements that address complex water issues are best achieved through constructive engagement and open and cooperative forms of negotiations. The complexity of water governance issues can include identifying and determining the value of ecosystem services, creating incentives and financing mechanisms, what capacity exists versus what is ultimately needed, how to hold responsible parties accountable to the terms of the agreement, and establishing water allotments that sufficiently fulfill all stakeholders' needs, among other issues. Negotiate: Reaching agreements over water addresses the following concepts of local water governance negotiations:

• Competing priorities and uncertainties make water allocation decisions complex
• Environmental flows as a governance tool to support water allocation decisions
• Constructive engagement catalyses water solutions that are durable
• Good water governance generates adaptive capacity

Negotiate: Reaching agreements over water begins by making the case for consensus based, multi-stakeholder negotiations - primarily that engagement of all key stakeholders from the onset will likely create more workable solutions they would not otherwise achieve. It frames water agreement negotiations on the concept of 4Rs of negotiations - rewards, rights, risks and responsibilities. For example:

• The rewards associated with different options across all stakeholders.
• The involuntary and voluntary water-related risks.
• Water-related rights.
• The various water-related responsibilities of State and non-State actors.

By identifying the 4Rs for each stakeholder group that depends or has an interest in the water being negotiated, the importance of the subject water source is discussed and negotiated in a holistic manner. This helps all stakeholders understand the needs of and the importance of solutions that are mutually beneficial to all affected stakeholders.

Consensus-based negotiations are best conducted through a process that involves convening appropriate stakeholders, establishing responsibilities and objectives, deliberating and establishing agreement priorities and implementing and monitoring the agreement. The resultant strong and effective partnerships will improve the long-term implementation of the agreement.

Developing multi-stakeholder water governance is a long-term process that involves continued engagement and negotiations. It unpacks constructive approaches such as Multi-Stakeholder Platforms (MSPs) and Consensus Building, and finally focuses on the diversity of agreements that can be produced to create more effective long-term water allocation and use agreements. MSPs are forums that focus on

• Sharing knowledge, experiences and perspectives
• Generating and exploring options
• Informing and shaping negotiations and decisions

They create an open forum where differences are recognized and all parties gain a better understanding of complex issues. The MSPs are most effective when they are open to all vested stakeholders. This is best assured by mapping stakeholders who impact or are impacted by the allocation of rights to the subject water source.  These stakeholders can be prioritized by their influence on or impact related to the 4Rs of negotiation - e.g. entities who currently have direct responsibilities over or rights to the source of water and those who would be impacted by changes to water use or allocation.

The value of Consensus Building has many benefits including focusing on mutual gains by focusing on interests and negotiating across multiple issues, it often prioritizes scientific data over self-interests and is aimed at reaching mutually acceptable agreements that all parties can and will implement.

Water agreements will require continued monitoring and adjustments over time. The partnerships and processes developed through the above mentioned concepts will likely result in lasting positive exchange and cooperation among all participating stakeholders.

Efficient, equitable and sustainable water management is essential for social equity, economic development and the avoidance of political unrest. The International Union for Conservation of Nature (IUCN) has worked with 80+ partner organizations across the world to develop water management partnerships through its Water and Nature Initiative (WANI) with the aim of helping organizations improve water governance programs. IUCN has developed a tool kit that consists of several documents that:

• support learning on how to mainstream an ecosystems approach in water resource management;
• are aimed at practitioners, policy-makers and students from NGOs, governments and academia; and
• build on practical case studies to show how key principles of sustainable water management are implemented in river basins.

The first WANI toolkit document that I would like to discuss is Rule: Reforming Water Governance. It discusses and presents the benefits of the following principles of good water governance:

• depends on political will and government's capacity to develop, maintain and enforce its governance program,
• needs policies, laws, institutions, regulations and enforcement mechanisms, and
• should be built on the process principles of: transparency, certainty, accountability and public participation.

A government's ability to create and implement an effective water governance program depends on its capacity to do so. It must have strong leadership from authoritative bodies, adequate resources, established mechanisms (e.g. judicial process, incentives) and allow for continuous improvement as the needs, beneficiaries and other conditions change over time.

A policy is a living blue print that sets forth it purpose, vision, scope and the responsibilities and rights of the policy's stewards and beneficiaries. To support the policy, laws should be developed to create predictability and flexibility with respect to regional boundaries, stakeholders, and implementing mechanisms - whether penalties and incentives. These elements should be develop transparently and should promote inclusion of key stakeholders such as water users and community members. The legal framework should provide clear direction on requirements or expectations and ensure accountability among responsible parties.

Water is best governed at the watershed level but must also align with national and regional frameworks while still protecting the rights of individual beneficiaries.

Rule: Reforming Water Governance identifies international treaties and types of water policy arrangements (e.g. authoritative, pluralistic-liberal, decentralized-communitarian) as well as discuss basic principles of good water governance and how they work together to work within different realities and settings. It presents case studies to illustrate how water governance capacity, policies, laws, institutions and mechanisms (regulations contracts, etc.) work together and can be adjusted to become effective in different realities.

Water governance incorporates systems-political, social, economic, and administrative-to develop and manage water resources and delivery to different members of society. Elements of a strong water governance program should include mechanisms and processes through which all involved stakeholders communicate their needs, exercise their legal rights and mediate their differences to develop fair and equitable water programs.

Agriculture is a major water user and is therefore likely to be impacted by potential future changes to water allocation and access. Issues of great importance to the cotton industry include:

o   Allocation of water resources for application in agriculture and industry (textile processing)

o   Access to efficient water delivery and irrigation systems

o   Pricing

o   Increased regulations or reporting

A strong governance program would guide the decision-making process, regulation creation, and execution, operation, and monitoring of all aspects of a water program. Water governance can exist at a local (watershed) level, national level, or regional (transboundary) level. The interconnections between these different governance programs should be considered to optimize their effectiveness and integrity. Communities may benefit from having a national Integrated Water Resource Management system that considers and addresses all aspects of a water program.

It is important to establish the water governance systems and mechanisms in the short-term because it will likely be more difficult and contentious as resources become more scarce, demand increase and lesser reliability of weather patterns (rainfall) due to climate change.

In future blogs, I will continue to explore water governance with a focus on introducing tools and systems that can be used to develop water governance programs and system.

Questions

- What, if any, efforts are being made within the cotton industry to evaluate, improve or develop water governance programs that protect the cotton industry's water allocation and rights?

- What are examples of strong governance programs that address local watersheds but work within a defined national or regional water governance framework?

Organisation for Economic Co-operation and Development (OECD) analysis identifies three layers of risk faced by farmers:

• Normal risk is frequent but that is typically managed at the farm or household level - for example, small variations in price or yield.
• Potentially insurable risks have intermediate levels of frequency and magnitude of losses such as hailstorms.
• Catastrophic risks are infrequent, but cause great damage for many farmers - flooding, drought or disease outbreaks, for instance.
  

The management of some of these risks should involve not only the farmer but also other stakeholders whose interests are also affected by the event and/or the farmer's ability to manage such risks (e.g. governments, buyers).

Many organizations often approach risk management in agriculture in a linear and compartmentalized manner. The risk is often assessed by the farmer, who then determines a strategy to manage these using mechanisms available to him. Policymakers might then look at the identified risk and strategy from the farmer's perspective rather than considering the broader context. For example, a risk such as price volatility could cause difficulties for the farmer, and with cotton futures can help minimized this risk but only if designed and governed effectively.

Agricultural risks are not independent but linked to one another and are part of a system that includes all available instruments, strategies and policies designed to manage risk. Using our example of price volatility, a price hike may have been caused by drought and a price fall by overproduction - themselves both risks that a farmer must manage. A farmer should have the ability and access to use a range of strategies, mechanisms and tools to manage these risks as effectively as possible given the various conditions he faces.

In both of these situations, the government could intervene by creating mechanisms that protect the farmer - and market - from such direct or indirect risks.

A holistic approach to risk management that focuses on the interactions between different types of risks, the strategies undertaken by farmers, and the whole set of government policies that impact on risk management.

On October 14^th I had the honor of presenting at a seminar entitled "Challenges for a Sustainable Textile Industry" that was organized by the Taiwan Textile Federation (TTF) and the International Cotton Advisory Committee (ICAC). The event ran alongside the Taipei Innovative Textile Application Show (TITAS), which ran from 13^th-15^th October.

Presentations were very informative and ranged from the man-made fiber supply and demand trends, advances in cotton production technologies, innovation in textile processes, to name a few. Participants included TITAS participants, cotton supply chain professionals, and ministries of foreign affairs, amongst others.

I discussed what I see as a trend towards more vertically aligned supply chains to support the promotion and use of sustainable cotton by retailers and brands. I framed my presentation on the Better Cotton Initiative (BCI) because it is designed for mainstream use and uptake and its support by global brands, cotton industry associations and supply chain actors.  BCI is a global, multi-stakeholder initiative that aims to promote measurable improvements in the key environmental and social impacts of cotton cultivation worldwide to make it more economically, environmentally, and socially sustainable.

BCI was also fresh on my mind because the week prior BCI offered US stakeholders an opportunity to learn more about BCI and its supply chain system. During the BCI workshop participants heard first hand from various members of the supply chain - from an Indian BCI farmer and a cotton ginner to a trader and BCI retailers such as Levi Strauss & Co and H&M.

The BCI workshop participants included retailers such as Gap Inc., William Sonoma, Nike and Kohl's, ABRAPA (Brazilian Association of Cotton Producers) and organizations such as As You Sow, Cotton Incorporated and U.S. National Cotton Council, among others. Other supply chain actors have recently BCI.

The level of interest, support shown and range of participants at these two workshops indicate that virtually all members of the cotton supply chain are interested in sustainability. This is encouraging as I continue to be a proponent of industry-level support so that the image of cotton as a responsible and sustainable fiber is strengthened. However, industry-wide support will not likely take root for many years. In the meantime, we need vertical supply chains that more easily, efficiently and transparently link sustainably grown cotton through the supply chain to a brand or product.

With this said, what really struck me at the Taiwan seminar is the sole question that was asked - "if global brands are going to develop vertical supply chains, won't this shut out the smaller actors?"  I think this was an excellent question - and is one that I try to address through Cotton's Revolutions governance blog and resource library.

Many initiatives implement one of the following three common CoC systems: physical segregation, mass balance and book-and-claim. The following is a brief description and some advantages and disadvantages of each.

Physical segregation:  Certified products are physically segregated from non-certified products at every facility along the supply chain. Cotton description and ownership documentation accompanies the material at all stages.  Example: organic cotton.

Advantages:

• The only system that traces the final cotton back to a certified sustainable source.
• It is preferred by many non-governmental organizations because the sustainable attributes are linked with the cotton throughout the chain.
• Because documentation accompanies the segregated cotton, data verification should be easier than in other systems.

Disadvantages:

• It is incompatible with the bulk of existing cotton trade and processes.
• The extra processing, segregation, storage, and documentation requirements create a distraction from each supply chain actor's core business, can cause delays in processing, and may lead to additional charges to customers.

2.     Mass balance: The amount of certified cotton sourced and sold by each supply chain actor is tracked. However, the certified cotton and sustainable certificates do not need to be sold together. Certified cotton does not need to be segregated from non-certified cotton.

Advantages

• Its credibility may be perceived to be higher than a book-and-claim system as there is a closer physical connection between the certified cotton and the certificate.
• No physical infrastructure investments are required.

Disadvantages

• Requires administrative tracking at each stage of the supply chain, resulting in a more cumbersome system that increases costs and resource burden.
• Falsification of documentation and claims can occur at every stage in the supply chain, increasing the cost and resources required to validate claims.
• Data verification will be more cumbersome in non-segregated portions of the supply chain.

3.     Book-and-claim: Certified cotton is completely decoupled from sustainability certificate. Certified cotton would freely flow through the supply chain, just as conventional cotton does.

Advantages

• The trade of sustainability certificates does not affect the trade of physical cotton, which has clear benefits to market players and market penetration.
• Auditing and data verification would be easier and more reliable than multiple sites as required under a mass balance or physical segregation systems.
• Provides access to certificate market for small farmers who may not have any local demand for sustainable cotton or logistics for export.

Disadvantages

• There are no guarantees that the cotton used for cottons actually originates from a sustainable farm.
• Because of the need for a credible Issuing Body, setting up a book-and-claim system will require both time and high start up costs.

In order to minimize these risks, rigorous control must exist for each - and between - systems. A system, or selection of systems, should be designed to create a level playing field for all supply chain actors and benefit the environment, farmers, and the industry.

Questions

What systems or processes exist in the cotton supply chain that can serve as a starting point or foundation for a CoC system?

What additional processes or systems could be installed to minimize fraud or corruption potential of the CoC system or claims?

Should the cotton industry establish a central clearinghouse through which all certified cotton are registered , better enabling enforcement and claims reconciliation?

 It is possible for the cotton industry to prepare for climate change's impacts.  It would be wise for the indsutry to evaluate risks and identify priority concerns as well as opportunities to mitigate the most significant risks. An end buyer may want to identify and/or partner with strategic suppliers and local organizations to help strategic sourcing regions develop plans to sustain or adapt to climate change impacts as appropriate.

Climate change impacts

Climate change impacts affecting one segment of the supply chain can ultimately affect all segments of the cotton supply chain and its actors. Small-scale farmers are the most vulnerable supply chain actors, and their ability to adapt to climate change will be vital.  Yet, they are the least equipped to adapt.

Several regions and nodes of the cotton supply chain will be affected by climate change. For example, South and Southeast Asia (e.g., Bangladesh, Cambodia, Vietnam), key garment manufacturing regions for United States (US) apparel companies, are projected to experience greater frequency and intensity of floods and storms. Additionally, the IPCC projects that agricultural productivity will decline in sub-Saharan Africa and India, both of which are significant sources of cotton used in garment manufacturing.

Climate change will directly affect the cotton production stage of the supply chain as a result of changes in temperature, precipitation, and extreme events. Additionally, climate change will pose indirect impacts on the fabric mill, garment manufacturing, and consumer stages of the cotton supply chain through changes in the availability, timing, quality, and demand of water.  All of these impacts will likely be more severe in water stress regions.

Some areas most affected and various resilience-building opportunities for various segments of the chain include:

Questions

What steps are industry members taking to understand and respond to climate change impacts?

Should the cotton industry support knowledge sharing, best practices and technologies to address pending impact of climate change?

Can industry begin to help the most vulnerable develop resilience to climate change?

Water is a basic human right, a critical need for healthy ecosystems and vital to many industries. Society water uses include agriculture, industry and urban services.  Water is important to the cotton industry - from production to processing and product use. Without strong water governance - especially in cotton production and processing regions - the industry can face limited access to this necessary input.

Water governance incorporates systems - political, social, economic, and administrative - to develop and manage water resources and delivery to different members of society.

Agriculture is a major water user and is, therefore, likely to be impacted by potential future changes to water allocation and access. Issues of great importance to the cotton industry include:

 o   Allocation of water resources for application in agriculture and industry (textile processing)

o   Access to efficient water delivery and irrigation systems

o   Effluent quality

o   Pricing

o   Regulations

Different water users may have conflicting interests from others. Water governance allow all involved stakeholders, including citizens and interest groups, communicate their needs, exercise their legal rights and mediate their differences to develop fair and reasonable water programs. A water governance program should include regulations, policies, protocols and monitoring, enforcement and reporting systems.

Water governance programs should also address important but culturally sensitive issues such as transboundary water and women and gender impacts. A strong governance program would guide the decision-making process, regulation creation, and execution, operation, and monitoring of all aspects of a water program - at regional, national and local levels.

It is important to establish the water governance systems and mechanisms in the short-term because it will likely be more difficult and contentious as resources become more scarce, demand increase and lesser reliability of weather patterns (rainfall) due to climate change.

 Questions

Given the importance of water for the production and processing of cotton, should the cotton industry work with governments in key production and processing regions, especially those in water stressed regions, to develop strong water governance programs that ensure equitable allocation to the cotton industry?