Economic evaluation of ecosystem services as a

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be collected and destroyed to interrupt infestation cycles (Kalshoven 1981,. COFENAC 2002). This requires a more intensively managed system with a.
Economic evaluation of ecosystem services as a basis for stabilizing rainforest margins? The example of pollination services and pest management in coffee landscapes Roland Olschewski1∗ , Teja Tscharntke2 , Pablo C. Ben´ıtez3 , Stefan Schwarze4 , and Alexandra-Maria Klein2 1

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Institute of Forest Economics, University of G¨ ottingen, B¨ usgenweg 5, D-37077 G¨ ottingen, Germany Agroecology, University of G¨ ottingen, Waldweg 26, D-37073 G¨ ottingen, Germany Department of Economics, University of Victoria, PO Box 1700 STN CSC, Victoria BC V8W 2Y2, Canada Institute of Rural Development, University of G¨ ottingen, Waldweg 26, D-37077 G¨ ottingen, Germany

*corresponding author: Roland Olschewski, phone: +49 (0)551 39 8714, fax: +49 (0)551 39 3420, Email: [email protected]

Summary The determination and evaluation of ecosystem services provides crucial information for a comprehensive strategy to preserve near natural habitats such as rainforest margins. We show results of an economic evaluation of coffee bee pollination services and pest control in two distinct tropical regions: a low human-impact area in Indonesia with continuous near natural forests neighboring agroforestry and a high-impact landscape in Ecuador with almost no forest fragments left. We evaluate bee pollination services comparing forest destruction scenarios, where coffee yields depend on forests providing nesting sites and foraging habitats for bees and present three novel approaches: first, we show how net coffee revenues depend on pollination services of adjacent forests considering berry weight in addition to fruit set, thereby providing a more comprehensive evaluation. Second, we combine our findings on pollination with an assessment of pest management affecting coffee production. Third, we determine net welfare effects of land-use changes including the fact that former forestland is normally used for alternative crops. In both regions, crop revenues exceed coffee pollination values, generating incentives to convert forest margins even if owners would be compensated for pollination services. Tscharntke T, Leuschner C, Zeller M, Guhardja E, Bidin A (eds), The stability of tropical rainforest margins, linking ecological, economic and social constraints of land use and conservation, Springer Berlin 2007, pp 265-278

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The promotion of certified “biodiversity-friendly” coffee is a feasible option to maintain shade-coffee systems for conservation purposes. This is of special importance in high-impact areas where only small forest fragments remain. We conclude that a comprehensive economic analysis is necessary to adequately evaluate rainforest preservation for the enhancement of ecosystem services within a mosaic of competing land-use systems. Keywords: bees, coffee-berry-borer, ecosystem services, pest management, certified shade coffee , cost-benefit analysis

1 Introduction Tropical landscapes often consist of a mosaic of different land-use systems. The importance of such a landscape composition to ecosystem services has recently been shown for coffee landscapes, where pollinator activity and coffee fruit set increased in agroforestry sites adjacent to forest fragments (Ricketts 2004, Klein et al. 2003a,b). The preservation of rainforest margins and related ecosystem services such as pollination and pest control can only be addressed adequately if the local (habitat) management is considered in the context of the surrounding landscape matrix (Daily et al. 1997, Kremen et al. 2004, Kremen 2005). Within such a mosaic, biodiversity conservation through land-use systems on private land is becoming a pressing environmental policy issue (IISD 2005). The economic evaluation of these services can provide information for a comprehensive strategy to preserve natural source habitats of plants and animals invading agricultural systems (Tscharntke et al. 2005). Although highland coffee, Coffea arabica L., is known to be self-compatible, recent studies have shown that bee pollination increases fruit set and berry weight, whereas the occurrence of pea-berries is reduced (Manrique and Thimann 2002, Roubik 2002, De Marco and Coelho 2003, Gillison et al. 2004, Klein et al. 2003a, Ricketts 2004). Many bee species depend on natural habitats such as forest fragments (Heard and Exley 1994, Ghazoul et al.1998, Cunningham 2000, Aizen and Feinsinger 2003, Chacoff and Aizen 2006 , e.g., it was shown that coffee fruit set (De Marco and Coelho 2003, Klein et al. 2003a, Ricketts 2004, Ricketts et al. 2004) and yield of other crop species like atemoya, macadamia, longan, and canola increases when natural rainforest patches are adjacent to these agricultural systems (Blanche and Cunningham 2005, Blanche et al. 2006, Morandin and Winston 2006). In consequence, natural forest ecosystems play an important role for bee pollination services. The determination of their economic value is one aim of the present article. In the case, where natural habitats are destroyed and decreasing pollination services lead to lower revenues, coffee growers might be forced to reduce their costs by diminishing their management activities. This behavior bears the danger of provoking additional negative economic effects because the occurrence of pests and diseases might be encouraged. The coffee berry

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borer (CBB), Hypothenemus hampei Ferrari (Coleoptera: Scolytidae), is the most important insect pest affecting coffee world wide (Le Pelley 1968). CBBinfestation rates vary considerably between five and 100 percent depending on coffee regions and harvesting time. Higher rainfalls and highly shaded sites positively influence the pest insect (Vijayan et al. 1999, Wegbe et al. 2003). Fecundity of CBB is reported to be higher in overripe berries than in unripe and ripe berries (Mathieu et al. 1999). This means that management and harvesting methods play an important role when trying to combat CBB infestation. We determine infestation rates and evaluate the economic impact of an improved pest management. In this article, we present three novel approaches: first, we analyze the impact of reduced pollination services on net revenues due to forest destruction adjacent to coffee agroforestry taking berry weight in combination with fruit set into account. Second, we determine net welfare effects of destroying rainforest margins including the fact that former forestland is normally used for alternative crops. Third, we combine our findings on pollination with an evaluation of coffee management regimes. Furthermore, we compare the results of our study areas in Sulawesi (Indonesia), characterized by a low human impact and the neighborhood of a continuous near-natural rainforest, and southern Manab´ı (Ecuador) as a high-impact area with a highly fragmented landscape, to show to which extent pollination values depend on the surrounding landscape matrix. Finally, we show possible consequences of shade-coffee certification for conservation purposes.

2 Methods The ecological data were collected in agroforestry systems of the low humanimpacted area in Central Sulawesi (Indonesia) at the south-eastern border of the Lore-Lindu National Park. The sites were selected in a way that forest distance was not correlated with shade density. In each agroforestry system flower-visiting bee species were counted and fruit set after open pollination was determined on four distinct branches of different coffee plants (for detailed information see Klein et al. 2003a). Additionally, we randomly collected 50 ripe and 50 overripe berries per site. In the laboratory, all ripe berries were freshly weighted and mean values per site were calculated. Furthermore, we dissected the ripe berries to determine CBB-infestation rates. The proportion of overripe berries on coffee plants was estimated based on the counting of all green, ripe, and overripe berries on coffee plants in two different 10 m² plots per site. Additionally, we estimated the proportion of overripe berries lying on the ground in the same two 10 m² plots per site. Furthermore, to ensure the explanatory power of the sampling size, we collected all ripe and overripe berries of five coffee plants in apparently not infested sites, and in fact no berry borer infestation could be found.

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For our economic analysis we assumed that coffee growers strive for a maximization of their net revenues, defined as the difference between revenues and costs. A decrease of pollination services caused by ongoing destruction of adjacent forest margins has impact on profits in two ways: first, reduced yields lead to lower gross revenues if the market price remains constant, and second, variable harvest and transportation costs decrease. Data on Indonesian yields, prices, and production costs were collected through household surveys (for details on the sampling procedure see Zeller et al. 2002). In order to compare the economic impact of our ecological findings in different landscapes, we choose southern Manab´ı in Ecuador as a second study area, which is characterized by a high degree of landscape fragmentation with a small number of remaining forest fragments. Our economic analysis is based on published findings in both Latin America (Le Pelley 1968, Ricketts 2004) and Indonesia (Klein et al. 2003a) that the ecological mechanisms for coffee pollination services and CBB infestation are similar in both regions. In Ecuador we determined net revenues through an economic survey of coffee farmers combined with time series analysis of our study region (SICA 2003). In addition, we conducted an economic analysis of the local coffee markets in both regions to predict possible price changes. Based on our ecological results concerning average fruit set and berry weight, we used scenarios to determine the regional net welfare effect when former forest land is converted to alternative crops. Furthermore, we showed the impact of increasing pest infestation rates, in the case where coffee systems are extensively managed and determined the conditions under which certified shade-coffee production would be economically attractive to small-scale coffee growers.

3 Results 3.1 Pollination services Our economic survey in Sulawesi shows that an extensively managed coffee system adjacent to forests generates an average annual yield of 269 kg of cleaned and dried coffee beans per hectare. Based on a regression analysis this quantity was assumed to represent a 100-percent yield reflected by a combination of maximum fruit set (85,22%) and maximum berry weight (1.65g/berry) (for further details see Olschewski et al. 2006). Net revenues sum up to USD 100 per ha, when considering an average price of USD 0.48 per kg. We estimate the economic value of pollination services taking into account that coffee fruit set (Klein et al. 2003a) as well as berry weight are negatively correlated with forest distance. This implies a stronger reduction of pollination services as fruit set is reduced and the resulting fruits have a lower weight. At a maximum distance of 1500m, the combined effect results in a 45% reduction of yields per hectare, whereas considering fruit set alone would give a yield decrease of 29%, only. Net revenues diminish by 47% from

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Fig. 1. Net coffee revenues in relation to forest distance in Indonesia and Ecuador. Calculated as revenues minus costs combining fruit set and berry weight impact (compare Olschewski et al. 2006)

USD 100 to 53 per ha (see Figure 1). Additionally, we calculated the marginal net revenue decrease when forest distance increases step by step by 100m and found that the main effect on yields (about 55% of the overall reduction) takes place within a distance of 400 meters from adjacent forests (Olschewski et al. 2006). According to Ricketts (2004), similar effects of forest distance occur also in other tropical coffee regions such as Latin America. This motivated us to compare the economic results of our Indonesian low-impact study area with a highly fragmented region in Ecuador. Here, coffee is usually not cleaned but sold as dried berries without further processing. This results in an average coffee yield of about 850 kg per hectare. Taking the Ecuadorian long-term average price of USD 0.2 per kg of dried coffee berries into account (SICA 2003) net revenues sum up to USD 53 per hectare. At a maximum distance of 1500m, yields decline by 45%, whereas net revenues are reduced by 93% from USD 52 to USD 3 per ha, i.e., by far more than expected when looking at the yield reduction, only. Note that as yields decline, variable harvesting and transportation costs are reduced, too, but due to a more intensive management (with a higher percentage of fixed costs for cleaning, pruning and shadow control) compared to Sulawesi net revenues decline at a higher rate. As a result, increasing distance to forests leads to a substantially diminished attractiveness of coffee production. Additional calculations based on the even lower average coffee prices over the last five years resulted in negative net revenues per ha, forcing many coffee growers to reduce management intensity or to switch to other land-use systems like maize or rice.

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3.2 Economic impact of deforestation on pollination services Based on our findings concerning fruit set and berry weight, we calculated the economic impact on coffee sites with increasing distance to a 100 ha circular forest area. For this purpose, the coffee area around the forest is divided into four 100m wide concentric circles (adding up to 192 ha), where net coffee revenues depend on forest distance (Olschewski et al. 2006). We took this as a reference scenario for comparison with the effects of forest destruction, and assumed in a first step that a 100m wide area of forest margins is destroyed, i.e., the forest area diminishes from 100 to 68 ha. In Sulawesi, average net revenues of the adjacent coffee area are reduced by 7% from USD 86 to 80 per ha due to increasing distance to the remaining forest. In Manab´ı, net revenues decline from USD 38 to 31 per ha, which reflects a reduction of about 17%. Finally, we considered the extreme situation that the forest area of 100 ha is completely destroyed. In this case we assumed that coffee sites receive only minor pollination services from other forest patches in about 1000m distance. Complete forest destruction reduces average net revenues by 28% to USD 61 per ha in Sulawesi, whereas in Manab´ı, the decline is about 70% to USD 11 per ha (Olschewski et al. 2006). In case that the forest is not destroyed, the value of pollination services can be calculated by assigning the avoided coffee net revenue loss to the forest area conserved. In contrast to the substantial differences in country specific relative changes determined above, the absolute value of pollination services is similar in both countries. Deforestation of the first 100m (32 ha) would reduce total net revenues in the adjacent coffee area from USD 16,347 to 15,214 in Sulawesi and from USD 7,005 to 5,825 in Manab´ı. In both cases, the pollination service value is about USD 35 per ha of forest. Converting the last 22 ha of forest would lead to a pollination services loss of USD 47 per ha of forest in Indonesia and USD 49 in Ecuador (Olschewski et al. 2006). To determine the impact of coffee yield and price volatility on our results, we conducted a sensitivity analysis and found that a price variation of ±10% causes a pollination value change of about ±15% in Ecuador and ±12% in Indonesia. Coffee yield changes lead to similar effects. 3.3 Net welfare effect of deforestation including alternative crops When determining the value of forest patches for coffee production we assumed that an existing forest area is partly or entirely destroyed. The resulting net revenue reductions were assigned to the deforested area and the respective value per hectare reflects the positive economic effect of pollination services when maintaining the forest. This procedure neglects that the former forest land will generally be used for crop production or pasture and, thus, income will be generated, which would be forgone if the forest was maintained. Consequently, the net income reduction of farmers in the coffee area (192 ha) has to be compared with the net income increase generated on the deforested land (32, 58, 78 or 100 ha, respectively). For this purpose, we conducted

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cost-benefit analyses of alternative land uses like maize, rice and pasture. In both countries, we found that the best alternative land-use systems exceed the value of pollination services lost by forest destruction. In Sulawesi, net revenues of maize (USD 160 per ha) are substantially higher than the average pollination service value of USD 47 per ha forest land. The same holds for Manab´ı as far as maize (USD 108 per ha) is considered (Ben´ıtez et al. 2006). In contrast, alternatives like rice or pasture, which only achieve levels between USD 57 and 53 per ha, are closer to the average value of USD 49 per ha generated by pollination services of forests. Adding up the reduced net coffee revenues and the additional net crop revenues after deforestation leads to a positive net welfare effect in both study regions. In Sulawesi, net welfare in the overall area increases by 69% from USD 16,347 to 27,697, in Ecuador by 84% from USD 7,005 to USD 12,911 (Olschewski et al. 2006). 3.4 CBB infestation and harvest management A more extensive management of coffee systems is a rational strategy of coffee growers faced with declining revenues: the cost reduction leads to a new profit maximum on a lower level. But this isolated vision seems to be short-sighted and might generate unexpected results, if further important aspects are not taken into account. Our results show that the percentage of infested coffee berries correlates with the percentage of overripe berries hanging on as well as lying under coffee plants. CBB-infestation increases with increasing proportion of overripe berries on the coffee sites. The proportion of infested berries in 50 randomly sampled ripe berries significantly increases with the proportion of overripe berries on coffee plants sampled in 10 m² (Figure 2A). In consequence, an extensive management bears the danger of increasing infestation rates, whereas selective harvesting of ripe berries and collecting overripe berries fallen off the plant reduces infestation rates and, thus, generates higher yields per ha. Additionally, we examined a possible impact of adjacent forests on the infestation rates. As shown in Figure 2B, we did not find a correlation between the proportion of infested berries and forest distance, which means that we can exclude a contrary effect between pollination services and CBB infestation with respect to forest distance.

4 Discussion Our results show that the value of pollination services might be underestimated when referring to fruit set only and excluding the additional effect on berry weight. In contrast, studies might overestimate this value when calculations are based on yields or gross revenues instead of net revenues. Furthermore, the net welfare effect of land-use changes has to be taken into account,

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Infested coffee berries per site (%)

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Fig. 2. Mean percentage of infested berries in 50 randomly sampled ripe berries in relation to (A) Estimated proportion of overripe berries on coffee plants calculated √ in 10 m² per agroforestry system: asin( y/100) = 0.28 + 2.55 log(x+1), F = 129.43, √ R = 0.92, N = 24, P > 0.0001; (B) Distance to the continuous forest: asin( y/100) √ = 2.35 + 0.02 x, F = 0.15, R = 0.08, N = 24, P = 0.7028

which includes revenues of alternative crops on former forest land. Finally, we show the impact of a more extensive coffee management on CBB infestation in case that land owners are faced with declining pollination services due to deforestation. 4.1 Combined effect of fruit set and berry weight In contrast to previous pollination service studies on coffee (Roubik 2002, Klein et al. 2003a, Ricketts et al. 2004), we did not exclusively focus on fruit set or berry weight, but combined our findings concerning fruit set and berry weight and related them to net revenues in an integrated approach. Note that

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a variation in soil fertility might have an impact on yields, too. This effect would possibly have an influence on berry weight, if at all. However, a separate analysis without taking berry weight into account showed a similar relation between forest distance and fruit set, which motivated us not to include soil fertility as a decisive factor in our analysis. Calculations based on fruit set alone may either over- or underestimate pollination service values. An overestimation might result from the assumption that fruit set corresponds directly to the quantity of coffee beans harvested later. However, Ricketts et al. (2004) showed that - combining fruit set and seed mass - an adequate pollination on sites far from forest would increase coffee yields by 20.8%, in contrast to 11.5% when using fruit set, only. Combining both effects results in yield estimates that build a broader basis for the evaluation of pollination services. However, as shown below, a comprehensive evaluation procedure should include quite some more aspects than just multiplying the respective yields by market prices. 4.2 Net revenues and market price changes Coffee growers are interested in net revenues (i.e., profits) rather than gross revenues, because the former reflect the actual net contribution to the households’ income (Gobbi 2000). This should be taken into account when evaluating bee pollination as an ecosystem service (Ricketts et al. 2004). In our Indonesian case, an analysis based on gross revenues would lead to average pollination values of USD 43 to 57 per ha of deforested area (depending on scenario), which reflects an overestimation of about 23%. In Ecuador, the distorting effect would be even stronger and result in pollination values of USD 57 to 76 per ha deforested area, i.e., about 57% higher than in case of a calculation based on net revenues. Additionally, the final effect on the producers’ profits depends on the demand side of the product market, where possible price changes have to be considered. In an early article, Southwick and Southwick (1992) emphasized this aspect, which, nevertheless, is often neglected when analyzing the positive impact of pollination services (see Ricketts et al. 2004). Although coffee is a commodity traded on a global level and changes in the supply of a small country will not influence the global coffee price, local prices could still be affected: in case that more and more coffee growers reduce their supply when faced with declining revenues, the traded quantity decreases, which might lead to a price increase on the local market (Kevan and Phillips 2001). Our market analyses showed that coffee markets in our study regions can be characterized as local monopsonies with many producers on the supply side, most of them holding coffee sites of less than five hectares and contributing just a small part of the traded quantity. On the demand side there is often only one single buyer, who has the power to set the price and buys coffee beans or berries directly from producers at the farm gate. We found that

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supply reductions corresponding to our deforestation scenarios are unlikely to have an impact on local coffee market prices (Olschewski et al. 2006). However, deforestation on a larger scale might cause prices to increase due to a stronger supply reduction; in that case, a calculation based on constant coffee prices would overestimate the net revenue cutbacks caused by reduced pollination services. 4.3 Regional net welfare effects Destroying forests adjacent to coffee systems reduces pollination services. This effect has been evaluated by previous studies (De Marco and Coelho 2003, Klein et al. 2003a, Ricketts et al. 2004), however, it is often neglected that former forest land will not be abandoned but is normally used for other crops or pasture. Our study takes possible revenues of such alternatives into account in order to calculate the regional net welfare effect of land-use changes. Provided that the alternative crop production is sustainable, our results show that it is reasonable for landowners to convert their forest land to other crops, because forest conservation would lead to a welfare loss (Olschewski et al. 2006). If we assume that the farmers have the right to convert forest land, negatively affected coffee growers could think of compensating them for maintaining the forest. However, the respective payments would not be sufficient to change the land owners’ behavior: an incentive for deforestation remains. Note that this conclusion is based on the (local) pollination service value, alone. Taking additional (global) ecosystem services of forests, such as biodiversity conservation, into account could lead to the result that forest conservation would generate a welfare improvement. In that case it has to be determined, how an operational payment scheme could be implemented, which combines both local and global services. 4.4 Shade-coffee certification Given this situation, the question arises whether coffee systems themselves can take over conservation tasks within a landscape mosaic. Biodiversity-rich land-use systems like extensive agroforestry under complex shade are often practiced by smallholders in developing countries (Perfecto et al. 1996), using small patches of land to diversify their income sources (Oxfam America 2005). However, the recent price decrease on the world coffee market has caused many producers to abandon their coffee fields and convert this land to produce economically more attractive crops (O’Brian and Kinnaird 2003, Ben´ıtez et al. 2006, Oxfam America 2005). Philpott and Dietsch (2003) and Dietsch et al. (2004) show that shaded coffee systems can contribute significantly to conservation goals, especially when combined with organic and fair trade certification. Organic certification norms include the selective harvesting of ripe berries, the collection of berries fallen

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off the plant and the recycling of production residuals in form of organic fertilizer. This procedure is suitable to prevent plants from CBB infestation, where berries should be harvested selectively when ripe, and overripe berries should be collected and destroyed to interrupt infestation cycles (Kalshoven 1981, COFENAC 2002). This requires a more intensively managed system with a higher labor input. In our study regions, about 8 additional working days per hectare and year have to be taken into account, and, as a consequence, net revenues per hectare would decline from USD 100 to 92 in Sulawesi, whereas in Manab´ı a more drastic reduction of net revenues from USD 52 to 28 would take place. Our results show that fulfilling certification requirements causes a relatively low net revenue decline of about 8 % in Sulawesi, whereas in Manab´ı net income decreases by 46 %. In both cases, farmers would have no incentive to intensify their coffee management as long as coffee yields and prices remain constant. To avoid net income reductions (assuming constant coffee prices), the additional pest control would have to increase coffee yields by at least 6 % (from 269 to 285 kg per ha) in Indonesia, and by 23 % (from 853 to 1050 kg per ha) in Ecuador. According to our findings, the respective yield increase could be achieved by reducing the infestation rate under the assumption that the above described precautionary harvest management is applied (compare Figure 2A). However, Perfecto et al. (2005) argue that an additional high price premium that goes directly to the producers would be necessary to make conservation through shade-coffee systems a viable option for land owners. This goes a long way with the results found by Ben´ıtez et al. (2006) who compare land uses including price and yield risks. They conclude that without considerable payments by certification programs, it would be questionable whether biodiversity-rich shade-coffee systems could be prevented from being converted to economically more attractive land uses.

5 Conclusions As a natural habitat of bee populations, forests provide pollination services to adjacent coffee areas. The value of these services can be determined by comparing forest destruction scenarios with a reference situation, where coffee yields depend on the distance to forests. We found that the main economic impact, measured as net revenues per ha, takes place within a distance of 400 m to forest patches, and is highly influenced by the management system. Our scenarios in both countries show that most land-use alternatives generate higher net revenues per hectare than the value of pollination services assigned to the deforested area. Consequently, from a landowner’s point of view, there is a strong incentive to convert forests into cropland. Even a payment for ecosystem services, if based on pollination services alone, would hardly be sufficient to reduce pressure on forest margins.

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Given this situation, conservation on privately owned and used land becomes more and more important. The production of certified shade coffee shows a possible solution for coffee growers confronted with the impact of adjacent forest sites destruction, infestation problems and falling world coffee market prices. In comparison with traditional production systems, special management norms generate higher costs, but at the same time yields and revenues can be increased. This creates incentives for landowners to maintain their shade coffee production systems and to conserve their ecological functions within a landscape mosaic, which are of special importance in highly fragmented areas where only small patches of natural forest remain.

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