Soil ecosystem services and farmers’ economy: is our future natural capital at risk?

Dr Mark Brady AgriFood Economics Centre Department of Economics

Swedish University of Agricultural Sciences (SLU) mark.brady@slu.se

Valuing soil as natural capital

•  TOTAL VALUE of soil capital can hardly be overstated; an infertile soil feeds no one.

•  INCREASE in global food production technology driven; −  new breeds of high yielding crops, −  substantial inputs of artificial fertilizers and chemicals −  Simplification/specialization of cropping

•  BUT intensive agriculture tends to −  degrade soil biodiversity −  Result in declines in soil organic matter and soil fertility −  diminish the soil’s ability to perform its basic functions −  Driver of global environmental change

•  COMPLEXING what is the effect on the value of soil as natural capital?

Approach to valuing soil as capital

•  Conceptually simple: standard financial economics

Approach to valuing soil as capital

•  Conceptually simple: standard financial economics •  In practice requires linking ecology and economics

Production func - crop yield - fertilizer input

Annual farm profit Soil capital value

Change in physical soil natural capital

Carbon: the currency of soil ecosystem services

•  Soil capital: is any component or property of a soil that can enhance its power to produce ecosystem goods or services

•  A strong relation exists between amount of soil organic carbon (SOC) and e.g. –  crop yield (Lal 2010)

–  biomass –  nutrient retention –  water holding capacity –  bio-control

•  SOC is a proxy for stock of soil natural capital

Lal, R. (2010). "Beyond Copenhagen: mitigating climate change and achieving food security through soil carbon sequestration." Food Security 2(2): 169-177.

Production functions to link crop yield to soil natural capital

•  From four long-term field experiments in Europe; a)  Askov in Denmark, b)  Broadbalk at Rothamstad in England, c)   Bad Lauchstaedt in Germany and d)  Scania in Sweden

•  Estimated yield response functions for winter wheat using data on –  Yield (kg/ha) –  Fertilizer N (kg/ha) –  SOC content (% soil C)

Effect of changing soil natural capital (SOC) on wheat yield

Effect of 1% change in SOC on annual fertilizer input, yield and profit

Valuing soil natural capital

•  Decisions that affect annual flows of services have the characteristic of an investment decision

•  To evaluate an investment decision calculate the present value (PV) of the expected future profit

•  Marginal value or price of soil natural capital is calculated as: –  the change in PV of profits given 1% change

in SOC

Economic efficiency: allocate resources to maximize welfare

marginal valuation or pricing

Fig. Supply and demand for soil natural capital

Scarcity    →  High  value  

Abundance  →    Low  value  

Pscarce

Price

Pabund

The value of soil natural capital as affected by time preferences

Discount    rate   Askov   Broadbalk   Lauchstaedt   Skåne  

Marginal  value  of  soil  capital   0%   58   34   142   151  

3%   40   24   99   106  €/ha  

9%   23   13   56   60  

Uncertainty about the future?

WM (World Markets RE (Regional Enterprise) GS (Global Sustainability) LS (Local Stewardship)

Abildtrup, J., E. Audsley, et al. (2006). "Socio-economic scenario development for the assessment of climate change impacts on agricultural land use: a pairwise comparison approach." Environmental Science & Policy 9(2): 101-115.

Effect of future prices on value of soil capital

•  A 1% increase in price of

Wheat 0.66–0.76%

Fertilizer 0.03–0.31%

increase in value of soil capital.

Optimizing conservation of soil C

3  4  5  6  7  8  9  10  11  12  

0.75   1.25   1.75   2.25   2.75   3.25  

Yield  t/ha

 

%  soil  Carbon  

Sweden   Denmark  

England   Germany  

0  

50  

100  

150  

200  

0.75   1.25   1.75   2.25   2.75   3.25  Nitrogen  kg/ha  

%  soil  Carbon  

Sweden   Denmark  

England   Germany  

Optimal yield Optimal fertiliser use

Maximum profit as a function of natural capital

200  

400  

600  

800  

1000  

1200  

1400  

1600  

1800  

0.75   1.25   1.75   2.25   2.75   3.25  

Maxim

um  profit  €/ha  

%  soil  Carbon  

Sweden   Denmark   England   Germany  

Conservation of soil organic carbon: is an investment in natural capital

•  Long-term benefits –  higher yields –  less artificial fertilizer (more eco-services) –  higher profits

•  Problem: Farmers’ degrading soil capital faster then desirable from society’s perspective –  policy needed to reward farmers for conserving soil

carbon and hence soil capital

“Take care of the pennies and the pounds will take care of themselves”

Many thanks for your attention!

The project receives funding from the European Community’s Seventh Framework Programme (FP7/THEME 6 Environment including Climate change) under grant agreement No 21177921-9-2009.

”Conflicting demands of land use, soil biodiversity and the sustainable delivery of ecosystem goods and services in Europe”