Some Basic Economics of Soil

Iain Fraser is Professor of Agri-Environmental Economics at the University of Kent’s School of Economics. His research interests cover various aspects of agricultural, environmental and resource economics. Since September 2012 he has been an editor of the European Review of Agricultural Economics.

It is probably assumed by many that we know the value of soil. In certain ways we do. For example, the value of soil can be taken to be a function of multiple uses such as the agricultural crops grown. But this simplistic view assumes that the optimal management of soils only needs to consider the opportunity cost of current land management and the associated benefits. However, there are many benefits associated with optimal soil management that are not captured by the market and as such these benefits are “ignored” when decisions about optimal management are made.  More to the point it means that the “prices” we currently observe regarding land values that implicitly include soil are sub-optimal and almost certainly leading to an inefficient mis-allocation of resources. 

Why are some of the benefits of optimal soil management not captured by the market? 

Soil is an economic resource and commodity in its own right. It has direct value, for example, as topsoil, peat, and other soil products. Soil also has value as a basic input into the production of agricultural output. But there are a host of other societal economic values not captured in land values or agricultural output including climate and water regulation, waste recycling, as well as option values that exist for resources such as the gene pool in soil from which society can derive economic resources such as antibiotics.   

Are these non-market benefits large? 

A simple example helps answer this question. Within UK soils it is estimated that some 10 billion tonnes of carbon is stored, an amount greater than 50 times the UK’s current annual greenhouse gas emissions. If we are to believe the increasing estimates of the costs associated with climate change then the optimal management of the soil clearly has large benefits for society. 

The challenge, therefore, becomes ensuring that soils are valued comprehensively and that these values are visibly placed in a context that allows policy makers to take account of them. Such change will allow for a meaningful differentiation between the value of land and soil. This is an important change that needs to occur as the value of soil is currently subsumed and most certainly distorted by the existing value of land.  

In addition, it needs to be realised that the ecosystem function value of soil can decline and even be exhausted as a result of existing land practices that are able to maintain agricultural output. There is a pressing need to realign economic incentives such that we ensure the balance in what we want and value from our soils, by correctly aligning monetary incentives for the myriad of soil services besides production. 

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