A T M Nurul Amin

1
Economic and Financial Aspects of Solid Waste
Management

• by
• A T M Nurul Amin
• Professor
• Urban Environmental Management (UEM)
• and
• Graduate Education Coordinator
• CIDA-AIT Southeast Asian UEM Applications
  (SEA-UEMA) Project
• School of Environment, Resources and development
  (SERD)
• Asian Institute of Technology (AIT) Bangkok,
  Thailand

Prepared for presenting in the professional
Training Program on Integrated Solid Waste
Management, Siem Reap, Cambodia, 4-5 July 2005.
2
CONTENTS
3
I. INTRODUCTION

• Distinction between financial and Economic
  Analysis
• Financial analysis focuses primarily on market
  price-bases calculations and cash flows.
• Economic analysis should include the total
  economic value of the effects that development
  projects have on the environment, whether they
  are not reflected in the market place.
• Economists often use shadow or accounting
  price to arrive at a projects economic value.

4
I. INTRODUCTION (Contd)

• In the context of SWM, the financial analysis is
  related to
• cost-revenue calculation. Financial analysis
  of composting
• comprises budgeting, cost accounting,
  investment, cost recovery and cost reduction.
• Economic analysis is related to opportunity cost.
  In the case of SWM, it encompasses cost
  (cost-centers, types of cost and unit cost of
  processes) and benefits (cost-savings) of
  alternatives such as small, medium and
  centralized composting.

5
I. INTRODUCTION (Contd)

• Identification of Cost Components
• Major cost components are
• - Capital cost (CC)
• - Operation and maintenance cost (QM)
• (often also referred as recurring cost)
• CC include cost for fixed capital cost such as
  land machinery, equipment
• QM include depreciation, personnel and labour
  cost, fuel/energy cost, supplier.

6
I. INTRODUCTION (Contd)

• Tangible and Intangible Costs and benefits

7

• Table I Elements of Cost and Benefit of Waste
  Reuse in Urban Agriculture

8

• Table I Elements of Cost and Benefit of Waste
  Reuse in Urban Agriculture (Contd)

Source Srang-iam (2002, p.20).
9
I. INTRODUCTION (Contd)

• An Example of Accounting Component in financial
  and Economic Analyses of Waste Reuse in Urban
  Agricultural

10

• Table III Accounting Components in Financial and
  Economic Analysis of Waste Reuse in Urban
  Agriculture from
• Household, Municipal and Societal
  Perspectives

Note The cost of composting incurred to farm,
i.e. initial investment, labor, transportation,
with the exception of molasses, is excluded in
the framework. It constitutes so little that it
can be negligible. Source Srang-iam (2002,p.65).
11
I. INTRODUCTION (Contd)

• For cost benefit analysis, all stream of costs
  and benefits?on-site, off-site, marketed
  non-marketed need to be identified.
• In this respect, the concept of avoided cost is
  also important. An avoided cost is counted as a
  benefit.

12

• Table 4 Financial and Economic Cost and Benefit
  of Waste Reuse in Vegetable Cultivation
  Perspectives of Farm Households, Municipal
  Government, and the Society (unit/ rai/ year)

13

• Table IV Financial and Economic Cost and Benefit
  of Waste Reuse in Vegetable Cultivation
  Perspectives of Farm Households, Municipal
  Government, and the Society (unit/ rai/ year)
  (Contd)

Source Srang-iam (2002, 68).
14
I. INTRODUCTION (Contd)

• Some Other Basics
• Adoption of a supply-demand framework and
  identification of supply and demand determinants.
  For example for estimating demand function of
  compost fertilizer multiple regression analysis
  is usually used.
• Cost-benefit analysis with regard to SWM needs to
  conduct analysis from
• -Farm household perspective
• -Municipal perspective
• -Societal perspective

15
INTRODUCTION (Contd)

• Farm Perspective
• Waste reuse can bring urban cultivation some
  benefit in terms
• of profitability and health. The reduction of
  chemical inputs
• resulted from use of waste-derived product not
  only reduce the
• production cost, but also farmers health risk
  from chemical
• use.
• Urban farms that reuse waste can gain directly
  from increased
• gross margin and rate of return to capital as
  well as reduced
• risks of loss owing to price variation of
  agricultural produce.
• Preferable gross margin occurs mainly from
  reduction of
• production cost, particularly that of chemical
  inputs. The
• profitability of farm can also be derived from
  revived soil. This
• corresponds to the concept of organic farming.
  The nourished
• soil would lead to more balanced farm ecosystem,
  which
• gradually increases farm production.

16
INTRODUCTION (Contd)

• Farm Perspective (Contd)
• However, waste reuse leads to more intensive use
  of labor in
• farm that might not be favorable from in the
  farmers
• perspective. More labor required in the tasks
  associated with
• application of waste-derived product results in
  lower rate of
• return to labor. It is however still justified in
  view of the fact that
• urban farmers are usually low-income group in the
  city. These
• farmers are likely to engage in waste reuse
  activity to earn
• more income, though it is not worth from the
  additional labor
• cost viewpoint.

17
INTRODUCTION (Contd)

• Municipal Waste Management Perspective
• Compared with those of farm households, both the
  financial
• and the economic benefit from reducing cost of
  municipal waste
• management accrued to municipal government are
  quite small.
• In other words, waste reuse in urban agriculture
  does play an
• insignificant role in waste reduction.
  Nevertheless, it can
• reduce waste management cost responsible for
  municipal
• government in relation to those of waste
  generators. It is
• because the small amount of waste reduction does
  contribute
• to some cost-savings of waste management agencies
  but does
• not contribute to any reduction of waste
  collection fee.

18
INTRODUCTION (Contd)

• Municipal Waste Management Perspective (Contd)
• For accommodating the linkage between UA and MWM,
  two-
• level interventionary strategy is suggested. At
  the farm level,
• the strategy should be to (i) facilitate waste
  reuse practice,
• (ii) encourage direct marketing, and (iii)
  strengthening of
• farmers cooperation. At the city level, the
  required strategy
• will be to (i) promote urban agricultural
  practice, (ii) institution
• building for waste-based food produce, and (iii)
  provide
• incentives for waste reuse should be performed
  for the
• persistence of UA, the enlargement of WRUA
  extent, as well
• as for the reflection of beneficial values of
  WRUA in farmers
• monetary benefit.

19
INTRODUCTION (Contd)

• Municipal Waste Management Perspective (Contd)
• Despite existence of waste reuse in agricultural
  production,
• this practice in the urban fabric is not yet
  considered for
• municipal waste management, though it can
  potentially divert
• enormous quantities of organic waste from citys
  municipal
• waste stream. Its promise as a waste reduction
  strategy is
• rooted in the benefit accrued to urban farmers
  that likely to
• encourage more waste reuse and subsequently more
• contribution to municipal waste management.

20
INTRODUCTION (Contd)

• Societal Perspective
• Waste reuse in urban agriculture yields
  substantial benefit to
• the society. It however offers the society more
  tangible benefit
• in agricultural production in term of quality of
  produce than in
• municipal waste reduction as its ultimate goal.
  Despite
• decrease in quantity of yield, the benefit from
  quality of produce
• far outweighs the loss of production. The
  analysis also
• suggests the significance of the benefit derived
  from hygienic
• quality. Without this being taken in to account,
  the value of
• waste reuse in urban agriculture could be
  unfavorable to the
• society.

21
Case I
22
Case I Cost Comparisons of Composting Option by
Using Material Flow Analysis (MFA) in Solid Waste
Management for Dhaka, Bangladesh

• This case base on a study of financial assessment
  of solid
• waste management particularly for composting
  options with
• the help of Material Flow Analysis (MFA) in an
  urban area
• of Dhaka City (Asaduzzaman, 2005), seeks to
  illustrate the
• kind of sound financial analysis needed by
  municipality
• authors for informed decision-making on urban
  solid waste
• management (SWM).

23
Case I (Contd)

• On the basis of the present practices of solid
  waste management and what are the possible option
  and initial assessments of the mass flow and cost
  flow, three alternative scenarios of composting
  appear to be
• Small scale composting plant in the neighborhood
  assuming the present management practice.
• Medium scale composting plant in the community
  assuming an improved primary collection system.
• Large scale composting at the landfill site.

24
Case I (Contd)

• Afterwards, costs and revenues of these options
  have been
• identified separately and compared. The study
  revealed
• that the small and medium scale composting are
  financially
• viable from the commercial viewpoint. The net
  benefits of
• these two scenarios respectively are 3,596 and
  48,349.
• In both of these options, the benefit -cost ratio
  is also
• greater than 1 is 1.13 and 1.59 respectively. In
  the case of
• the centralized composting, the net benefit is
  negative
• (-71,768.19) and benefit cost ratio is 0.88 which
  is less
• than 1, therefore this composting plant is not
  financially
• feasible (Table 1).

25
Case I (Contd)

• From the calculation of the baseline cost, it was
  found that
• solid waste management costs of the study area
• (Dhanmondi Residential Area) are about 255073
  (in 2003),
• whereas the conservancy tax collection was
  118054 which
• is almost 2.16 times lower than the cost. It was
  found that a
• small (4 ton capacity/day) and a medium (14 ton
• capacity/day) scale composting in the
  neighbourhood can
• reduce the SWM cost by 7.26 and 38.64
  respectively
• whereas a centralised plant with the capacity of
  200 ton/day
• can reduce the landfill cost by 79. It is also
  found that
• small and medium scale composting is
  labor-intensive while
• the centralized composting is highly capital
  intensive.

26
Case I (Contd)

• Table 1 Financial Analysis of Composting

27

• Table 1 Financial Analysis of Composting
  (Contd)

28

• Table 1 Financial Analysis of Composting
  (Contd)

Figures in parentheses denote percentages
Capital costs were converted to annualized
capital cost over the lifespan of the
plants. Source Based on Asaduzzaman, 2005.
29
Case II
30
Case II Urban agriculture as a municipal waste
reduction strategy A study of commercial farms
in Suan Luang District, Bangkok Metropolis

• Adaptive form of urban agriculture (UA) has been
  emerging
• concurrent with the decline of traditional
  agriculture in the
• Bangkok metropolis region. The emerging UA,
  shifting
• towards intensive and short-term use of land, is
  generally
• found on the marginal land in the urban fringe.
  Farmers
• living in such areas usually realize the
  opportunities of the
• urban setting of their living environment in
  marketing as well
• as utilizing municipal waste. These practices of
  farmers in
• the urban fringe offers a good example of
  decentralized
• composting based on municipal organic waste of
  large
• cities like Bangkok.

31
Case II (Contd)

• This case, based on a study (Srang-iam,2002),
  shows the kind
• of economic and financial analysis required to
  assess the
• potential of composting in promoting sustainable
  waste
• management practice in cities of developing
  countries which
• generate huge amount of organic waste suitable
  for
• composting. Database of the analysis are from a
  survey that
• was conducted on commercial vegetable farms in
  Suan Luang
• District. The study explored the demand and
  supply of waste
• reuse in the selected community. The survey
  results indicate,
• despite not much current demand, the prospects of
  substantial
• demand for waste-derived product induced by
  benefit from
• hygienic food produce. The present demand does
  lead to
• utilizing urban waste, but only of certain types
  and sources.

32
Case II (Contd)

• The farmers in Suan Luang area utilize large
  portion of
• municipal waste in addition to farm waste in
  composting, given
• it is easily accessible. The investigation of
  waste reuse also
• displays individual practice of waste reuse by
  urban farmers,
• without cooperation throughout the process
  collecting, treating,
• and composting.
• The cost and benefit analysis of waste reuse in
  urban
• agriculture (WRUA) reveals considerable benefit
  accrued to the
• society. Despite little contribution to municipal
  waste
• management (MWM), the amount of benefit accrued
  to farmers
• who reuse waste allows it to become a promising
  strategy in
• waste reduction. However, this potential cannot
  be fully utilized
• if large portion of benefit remains untapped by
  urban farmers.

33
Case II (Contd)

• Accounting Cost and Benefit
• Cost and benefit of waste reuse can be
  categorized as primary
• and secondary. Primary cost and benefit are
  accrued to
• stakeholders themselves, whereas secondary ones,
  often
• referred as externalities, affect the society.
  The cost and
• benefit items associated with waste reuse in
  urban agriculture
• are identified as show in Table 1.
• All cost and benefit streams could not however
  include in the
• final calculation of cost and benefit. It was
  restricted to
• quantifying of only tangible cost and benefit.
  However, the
• other elements should not be totally excluded or
  overlooked in
• justifying waste reuse in urban agriculture.

34
Case II (Contd)

• Farm household using bio-extract derived from
  organic
• waste composting can obtain benefit from reducing
  use of
• chemicals in production, more specifically,
  fertilizers and
• pesticides. The reduction of chemical use can
  save the
• input cost as well as the labor cost used for its
  application
• of reduced quantity. Moreover, it can also
  suggest benefit
• from more hygienic food produce obtained from
  less
• chemical-intensive production. Such benefit from
  
• hygienic quality of farm produce is reflected in
  its higher
• values.
• Additional waste used in producing bio-extract
  also
• means reduced operational cost of MWM. In case
  of
• Bangkok, less amount of waste per time can
  subsequently
• prolong the life of landfill, which is equal to
  per unit of
• fixed landfill cost.

35
Case II (Contd)

• Table 2 Elements of Cost and Benefit of Waste
  Reuse in Urban Agriculture

36

• Table 2 Elements of Cost and Benefit of Waste
  Reuse in Urban Agriculture (Contd)

Source Srang-iam (2002, p.20).
However, the reduction of chemicals in production
may result in decreased farm yield. The cost
from such decrease does not only affect farm
households, but also affect societal
productivity. Furthermore, additional cost may
incur from obtaining, producing, as well as
applying bio-extract.
37
Case II (Contd)

• Database
• Households selected questionnaire respondents
  survey to
• get data on farm production costs and returns
  were
• classified into two groups those using
  bio-extract and
• those not using bio-extract in farm production.
• Five households belonging to each group were
  asked to
• give information about their costs and returns in
  vegetable
• production. The respondents were identified
  purposively to
• ascertain unique farm management and environment
  to
• avoid intervention of undesirable factors. Farm
  profile and
• practice survey were carefully identified to be
  able to
• compare the effect of waste-derived product with
  chemical
• inputs on the farm production.

38
Case II (Contd)

• Method of Analysis
• The cost and benefit analysis of waste reuse was
  based on data
• on farm level. As such, analysis of farm
  performance constituted
• basis of deriving cost and benefit from waste
  reuse in urban
• agriculture. These associated values owing to
  waste reuse were
• obtained by comparing farm operating cost and
  return of the two
• groups of production with and without waste
  reuse.
• Since the concern was not with farm profit,
  rather with farm
• performance, the difference between gross returns
  and operating
• costs was the focus. Gross margin was considered
  as the key
• indicator of farm performance. The effect of
  waste reuse in farm
• production can be derived by comparing the gross
  margin of farm
• production using and not using bio-extract. The
  differentiated
• values of costs and returns were then put into an
  analysis
• framework according to the concerned
  perspectives. The
• framework of cost and benefit analysis is
  provided as Table 2.

39

• Table 3 Accounting Components in Financial and
  Economic Analysis of Waste Reuse in Urban
  Agriculture from
• Household, Municipal and Societial
  Perspectives

Note The cost of composting incurred to farm,
i.e. initial investment, labor, transportation,
with the exception of molasses, is excluded in
the framework. It constitutes so little that it
can be negligible. Source Srang-iam (2002,p.65).
40

• Table 4 Financial and Economic Cost and Benefit
  of Waste Reuse in Vegetable Cultivation
  Perspectives of Farm Households, Municipal
  Government, and the Society (unit/ rai/ year)

41

• Table 4 Financial and Economic Cost and Benefit
  of Waste Reuse in Vegetable Cultivation
  Perspectives of Farm Households, Municipal
  Government, and the Society (unit/ rai/ year)
  (Contd)

Source Srang-iam (2002, 68).
As evident in the result of financial and
economic analysis, the cost and benefit as
perceived by individuals might not correspond to
the actual economic ones. This issue is dealt
with separately according to different points of
view farm households, municipal government, and
the society.
42
Case II (Contd)

• Societal Perspective
• Waste reuse in urban agriculture yields
  substantial benefit to
• the society, as revealed by cost and benefit
  analysis Table 3. It
• however offers the society more tangible benefit
  in agricultural
• production in term of quality of produce than in
  municipal waste
• reduction as its ultimate goal. Despite decrease
  in quantity of
• yield, the benefit from quality of produce far
  outweighs the loss
• of production. The analysis also suggests the
  significance of
• the benefit derived from hygienic quality.
  Without this being
• taken in to account, the value of waste reuse in
  urban
• agriculture could be unfavorable to the society.

43
Case II (Contd)

• Farm Perspective
• Waste reuse can bring urban cultivation some
  benefit in terms
• of profitability and health. The reduction of
  chemical inputs
• resulted from use of waste-derived product not
  only reduce the
• production cost, but also farmers health risk
  from chemical
• use.
• Urban farms that reuse waste can gain directly
  from increased
• gross margin and rate of return to capital as
  well as reduced
• risks of loss owing to price variation of
  agricultural produce.
• Preferable gross margin occurs mainly from
  reduction of
• production cost, particularly that of chemical
  inputs. The
• profitability of farm can also be derived from
  revived soil. This
• corresponds to the concept of organic farming.
  The nourished
• soil would lead to more balanced farm ecosystem,
  which
• gradually increases farm production.

44
Case II (Contd)

• Farm Perspective (Contd)
• However, waste reuse leads to more intensive use
  of labor in
• farm that might not be favorable from in the
  farmers
• perspective. More labor required in the tasks
  associated with
• application of waste-derived product results in
  lower rate of
• return to labor. It is however still justified in
  view of the fact that
• urban farmers are usually low-income group in the
  city. These
• farmers are likely to engage in waste reuse
  activity to earn
• more income, though it is not worth from the
  additional labor
• cost viewpoint.

45
Case II (Contd)

• Municipal Waste Management Perspective
• Compared with those of farm households, both the
  financial
• and the economic benefit from reducing cost of
  municipal waste
• management accrued to municipal government are
  quite small.
• In other words, waste reuse in urban agriculture
  does play an
• insignificant role in waste reduction.
  Nevertheless, it can
• reduce waste management cost responsible for
  municipal
• government in relation to those of waste
  generators. It is
• because the small amount of waste reduction does
  contribute
• to some cost-savings of waste management agencies
  but does
• not contribute to any reduction of waste
  collection fee.

46
Case II (Contd)

• Municipal Waste Management Perspective (Contd)
• For accommodating the linkage between UA and MWM,
  two-
• level interventionary strategy is suggested. At
  the farm level,
• the strategy should be to (i) facilitate waste
  reuse practice,
• (ii) encourage direct marketing, and (iii)
  strengthening of
• farmers cooperation. At the city level, the
  required strategy
• will be to (i) promote urban agricultural
  practice, (ii) institution
• building for waste-based food produce, and (iii)
  provide
• incentives for waste reuse should be performed
  for the
• persistence of UA, the enlargement of WRUA
  extent, as well
• as for the reflection of beneficial values of
  WRUA in farmers
• monetary benefit.

47
Case II (Contd)

• Municipal Waste Management Perspective (Contd)
• Despite existence of waste reuse in agricultural
  production,
• this practice in the urban fabric is not yet
  considered for
• municipal waste management, though it can
  potentially divert
• enormous quantities of organic waste from citys
  municipal
• waste stream. Its promise as a waste reduction
  strategy is
• rooted in the benefit accrued to urban farmers
  that likely to
• encourage more waste reuse and subsequently more
• contribution to municipal waste management.

48
Case III
49
Case III Economic Analysis of Composting as
Municipal Waste Recycling and Reuse Strategy

• This case, based on a study (Haq, 2004), of
  composting as a
• waste recycling and reuse strategy for Lahore
  (one of the two
• mega-cities of Pakisthan), highlights the
  essential economic
• analysis required for assessing the strategys
  potential and
• financial viability. The study adopts a supply
  demand
• framework for waste based composting and a cost
• comparison of composting and land filling.
  Data base was
• survey results from a semi structured
  questionnaire, focus
• group discussion , interviews of key personnel
  and visual
• imaging.The questionnaire surveys were conducted
  in two
• areas namely Union Councils 17, 18, 19 and 20 in
  urban
• areas and in Minhala village to represent the
  supply and
• demand sides respectively for waste based
  compost.

50
Case III (Contd)

• Usually, the factors affecting the demand of
  composting are
• cost and benefit from recycling, characteristics
  of soil, crop
• and seasons, socio-cultural attitude of the
  societies, cost of
• compost and compost market. The supply side
  factors are
• public participation and waste separation at
  source,
• government policies towards waste recycling and
  existence
• of government policies and regulation.

51
Case III (Contd)

• The supply side investigation reveals that the
  all important
• waste separation at source for composting
  potential to be
• realized is still not a well established
  practice. The
• questionnaire, however, survey suggests that
  motivation for
• waste separation at source is very high 77
  percent of
• households do view this positively .Of whom 71
  percent are
• willing to separate waste under certain
  conditions and six
• percent are willing to separate without any
  condition.

52
Case III (Contd)

• The survey results suggest that waste separation
  in Lahore
• can indeed be increased if waste collection
  system is
• improved, appropriate waste bins are provided,
  separate
• organic waste collection is ensured and public
  education is
• provided to increase responsibility on
  environmental
• protection by waste separation at the household
  level. All
• this points to if appropriate laws are enforced,
  required
• policies and programs are designed and
  implemented, and
• public awareness campaigns are launched, the
  supply side of
• compost will work and about 416,318 tons of
  compost can be
• produced per year.

53
Case III (Contd)

• Investigation of demand side suggests, the demand
  for
• compost on the village side is quite high 77
  percent of farmer
• respondents showed their willingness to buy
  compost with
• certain conditions and 7 percent showed their
  willingness to
• buy compost without any condition. The
  respondents who are
• not willing to buy compost under any condition
  stated their
• self-sufficiency in animal manure as the main
  reason. They
• are the respondents who have a large number of
  animals and
• use their manure to enrich their crops with
  nutrients. The
• demand for the compost can be increased further
  if price is
• kept lower and convenient availability is
  ensured. Many
• respondents want to make trial before using the
  new
• produced compost. Other influencing factors
  include the
• proper guidelines for using compost and its
  better quality.

54
Case III (Contd)

• The demand of 2754 tons per year of compost in
  the model
• village was determined by regression analysis (
  Haq,
• 2004,p.117-122). The demand becoms quite
  comparable
• with the supply of organic waste if the demand is
  determined
• for all villages around the periphery of Lahore.
• Taking the compost plant capacity as thousand
  tons per day
• and sanitary landfill site as suggested by the
  National
• Engineering Service Pakistan (NESPAK), the
  approximate
• cost comparison of the two disposal options
  (compost Plant
• and sanitary Landfill) is presented in Table 1.
  One important
• consideration while calculating costs of these
  two disposal
• options is that composting should be considered
  as a solid
• waste disposal method but not as an income
  generating
• business.

55
Case III (Contd)

• From the cost comparison, we can see that the
  cost of the
• windrow composting using manual or
  semi-mechanized
• composting system is quite comparable with
  sanitary landfill.
• The capital cost of installing the
  semi-mechanized
• composting system is lower than the sanitary land
  filling but
• the operational cost is almost equal for both
  options, but the
• labor cost in quite high in case of composting (
  see Table 1).
• The compost selling at the rate of Rs. 1500 per
  ton will
• generate an annual income of Rs. 450,000,000
  which can
• turn the overall cost of composting to be lower
  than the
• sanitary land filling.

56

• Table 5 Cost comparison between Landfills an
  Composting

57
Case III (Contd)

• Strategies appear to be necessary for the
  promotion of
• compost are (1) waste separation at the
  household level, (2)
• product quality control and pricing, (3)
  production and facility
• issues and specification of end users, (4)
  promotion and
• marketing, (5) sales and distribution.
  Stakeholder cooperation
• (national and local government, NGOs, residents,
  concerned
• organization and SWMD-Solid Waste Management
• Department) also seems a major consideration for
  the
• implementation of these strategies.

58

• Table 5 Cost comparison between Landfills and
  Composting (Contd)

59

• Table 5 Cost comparison between Landfills and
  Composting (Contd)

1NESPAK, 2004 calculated the land area
requirement for landfill site. 2POL 3http//www.
fao.org/DOCREP/003/V8490E/V8490e13.htmB.3.520
Capital-recovery20 factor 20 equal-payment
20 series. Source Haq (2004)
60
Thank you