Sustaining the regular flow of water from mountain forests is important for downstream stakeholders in seasonally dry tropical countries, and a watershed payment for ecosystem services (PES) scheme that links rural ecosystem service providers to urban water users through economic transfers may help to maintain water supply and forest habitat. A CARE/WWF project in the Uluguru Mountains of Tanzania has established a pilot watershed PES scheme. We trace the development of this scheme and outline its initial impacts. Memoranda of Understanding between companies in Dar es Salaam (the downstream water users) and farmers in the mountains provide the framework to deliver tangible financial benefits to local people, help change patterns of land use and potentially improve water quality. A number of lessons learned from this project are relevant for similar schemes elsewhere in the region. Overcoming the various challenges is essential for expanding the current pilot project to a scale where it delivers measurable changes in water quality for downstream users.

Agriculture affects both quantity and quality of water available for other uses and under current production systems, the impact is often negative. Adopting sustainable land management (SLM) practices can foster more efficient water use and increase agricultural productivity, while reducing environmental risks from water pollution and regulating flows serving downstream communities. However, farmers face barriers to adoption of such practices, especially lack of technical capacity and high upfront costs associated with SLM implementation, which is particularly important where land managers are poor. Drawing on a case study from Tanzania, this article discusses how an emerging policy tool-Payments for Environmental Services (PES)-can bridge this gap by providing technical assistance and financial support, thereby lowering the SLM adoption barriers and investing in an appropriate legal and institutional framework for long-term financing and expansion of SLM to improve watershed management.

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