Bureau of Agricultural Economics, Canberra, ACT 2600
Soil acidification is defined as occurring when the pH level of the soil falls below 7. Serious problems arise when the pH falls below 5.5. The acidifying process occurs naturally, at a very gradual rate, in many Australian soils, particularly in the lighter textured soils, in the high rainfall districts and in areas where pastures of subclover and ryegrass are dominant. The process of acidification is, however, exacerbated by the effects of intensive agricultural practices (Porter, 1981) such as pasture improvement, fertiliser applications, and cropping rotations.
The acidification of soils in the past ten years has been identified as the cause of the declines in crop yields, pasture stocking rates and legume production on more than 17 million ha of Australia’s prime southern farming land (Coventry, 1985). The area includes 7.5 million ha in central and southern New South Wales, 5 million ha in Victoria and nearly 2 million ha in Western Australia. The reasons given for this relatively recent emergence of acidification as a serious problem is that it is thirty to fifty years since large parts of Australia have been sown to improved pasture, and the cumulative effect of the subsequent continuous animal and plant production is only now becoming apparent. The causes of soil acidification and suggested remedial action have been well documented in the literature (see, for example, Helyar, 1976; Lee, 1980; Cregan, Hirth and Conyers, 1986; and Cregan, Scott and Cumming, 1986) and will not be elaborated on here.
From an economic perspective, it is important to determine whether the physical presence of acidification is evidence of an economic problem requiring government action. In this paper some of the factors influencing farmers’ decisions, which in turn affect the level of acidification, are discussed. This is followed by an outline of the Bureau’s proposed research project on acidification.
An Economic Approach To Acidification
Because land has the characteristics of a common property resource and public good, society often wishes land to have particular attributes with respect to the amount of open space, the amount of native wildlife, the quality and quantity of land for recreational activities and the amount of degraded land. However, the characteristics of land are generally the result of private decisions, reflecting private goals and desires. As a result, society’s desires are not always satisfied. Private land users and society’s acceptable levels of acidification could diverge, indicating that there may be a case for government intervention. This divergence may be attributable to the external costs associated with the private use of land resources (spill over effects associated with outcomes of private decisions, whereby costs or returns are not borne totally by the individual), the side effects of government policies, and information deficiency on the part of land users.
Footnote: Research on this project was supported by a grant from the Wool Research Trust Fund and the Australian Meat and Livestock Research and Development Corporation
External Effects Of Land Management Decisions
An economic problem exists when a particular issue (for example, soil acidification) is not addressed by normal market forces, or when there are policy impediments to achieving efficient resource allocation decisions. The failure of producers and consumers to act in their own self-interest to achieve an efficient outcome is known as ‘market failure’ in the economics literature. This concept is used by economists in assessing land degradation, despite some criticisms of its usefulness in practice (see Quiggin, 1986 for example).
Market failure may occur when a conflict of interest exists between private profit makers (producers) and the community at large. This conflict may arise due to the presence of externalities, possible divergence between private and social rates of discount and the potential irreversibility of the acidification process. For the purposes of this paper the focus is on the externality argument. For example, it may be that soil acidification resulting from the management practices of individual landholders imposes costs not only on these landholders but also on other groups in the community beyond the farm gate - this is called an ‘externality’. It this is the case, the market may have failed to provide incentives which encourage land users to consider the full repercussions of their individual land-use practices. In economists’ terms, this means that the private and social optimal levels of acidification diverge.
If external costs are present in the case of acidification, this provides prima facie evidence of an economic problem which may require government intervention to correct. Whether such intervention is economically justified, however, depends on the benefits of intervention relative to the costs of that intervention.
Costs Of Soil Acidification
In order to determine whether the physical presence of acidification is symptomatic of an economic problem, it is essential to identify and quantify the costs which acidification imposes, and the costs of preventing and/or restoring acid soils. Costs associated with acidification may be categorised into two broad groups: on-farm (private) costs and off-farm costs.
On-farm costs of soil acidification arise from falls in productivity (Cregan, Sykes and Dymock, 1979) - that is, from the income foregone as a consequence of low crop yields or unproductive pastures. In some instances of acidification this means that the most profitable enterprise before acidification has been replaced by a less profitable land use, involving a significant opportunity cost. These costs can be quantified, albeit crudely given that economic research on acidity is only in its preliminary stages. (Estimates of acidification costs are presented later in the paper). Certain on-farm costs to alleviate the acidification problem can be quantified with a greater degree of certainty and accuracy - for example, the extra cost of applying lime.
It is difficult to know and indeed to quantify off-farm costs imposed by acidification. For example, the problem could become so severe as to render productive land useless for agricultural activities. Clover decline on acid soils, for instance, is characterised by bare patches. This reduction in ground cover increases the potential for runoff and soil erosion, which, if realised, would impose external costs on other landholders through the siltation of dams or damage to roads (Anon., 1984). However, there has been no documented evidence in support of this example. It is also possible that the leaching of nitrogen associated with acidity results in the pollution of streams, thereby imposing environmental costs. However, the effect is indirect and difficult to relate solely to acidification.
It remains to be shown, therefore, whether acidification imposes any significant external costs. Unless such evidence can be produced, no obvious economic grounds exist for government intervention on this basis.
Divergence between private and social land-use practices can also occur when government policies aimed at improving the performance of the market in relation to one issue actually impede market efficiency in relation to another. This appears to be the case with existing fertiliser policies and the control of soil acidification.
Intermittent government input subsidies since 1931 have encouraged the use of nitrogenous and phosphatic fertilisers. It now appears that the increased use of nitrogenous fertilisers and superphosphate has contributed to the acidification of some of Australia’s soils (Porter, 1981). Subsidised superphosphate may also have encouraged the expansion of agriculture into marginal areas (Costin and Coombes, 1982) thereby affecting previously non-acidic soils. Thus, input subsidies directed at the expansion of agricultural production may have had unanticipated effects on the level of acidification. Blyth and Kirby (1984) also argue that government intervention in the form of income stabilisation and commodity price support schemes is often implemented without sufficient consideration or even knowledge of the consequences for land degradation.
It has been suggested (see, for example, Godyn and Cregan, 1984) that primary producers could be assisted, through government subsidies on lime or through government loans, in coping with the acidification problem. The argument is that a relatively long financial recoupment period exists from the time lime is applied until the problem is controlled. Given that cash flows during this period would be severely limited as a result of the reduced productivity of the soil, many producers would have difficulty in meeting the costs of applying lime (since lime is relatively expensive in Australia compared with the cost in other countries and must be applied in large quantities to be effective.
The rationale behind this argument is that government assistance which reduces input costs will overcome these financial problems and encourage farmers to rectify the external costs of their private decisions. However, such a policy of public subsidisation of liming on privately operated land is difficult to support on economic grounds and may indeed be counterproductive in its effects in the long run. The reasons for this were discussed earlier in this paper.
The problems associated with providing an input subsidy were spelled out by the BAE (1984) in its submission to the IAC fertilisers inquiry. In the context of the acidification issue, a uniform input subsidy generally:
- treats symptoms rather than causes;
- rewards bad managers more than good managers; and
- provides incentives for good managers to adopt poor management practices.
A subsidy on lime may compensate managers for past exploitive practices while doing little to prevent future exploitive practices. Subsidised lime may well result in the application of lime becoming cheap relative to the adoption of alternative managerial and agricultural non-acidifying practices. This could have the suboptimal result of encouraging the use of lime in preference to encouraging the modification of those agricultural practices which are responsible for exacerbating the problem in the first place.
In a report on government assistance for fertiliser users (Easter, Robinson and Moir, 1982) the Bureau indicated that the main beneficiaries of an input subsidy are large producers. While a cut-off point on the payment of a subsidy could be implemented in order to reduce discrepancies in the distribution of assistance (by limiting the benefits available to high income producers), it was suggested that a maximum tonnage has the effect of encouraging small scale producers to remain in production at the expense of larger scale producers and this may involve costs in terms of economic efficiency. Further, it was argued that it is difficult to justify the retention of fertiliser bounties using welfare grounds as a basis. It seems reasonable to carry over these conclusions to the current debate on soil acidification.
From an economic point of view, whether a subsidy is justified on efficiency grounds depends on two key points. The first is whether there is a divergence between the outcome of decisions taken by producers acting in their own best interests and those desired by the community as a whole (such divergences were discussed earlier). The second concerns the size of the net benefits to be gained from the subsidy and whether there are alternative uses of public funds which may have better rates of return.
Given the existing state of knowledge on soil acidification, it is apparent that further information and research is required to enable a full evaluation of the positive and negative effects resulting from the introduction of a lime subsidy.
The third area where government intervention may be warranted is where there is less than full information available upon which to make optimal production decisions.
It is rare that land users ever possess complete information about the causes of acidification, the effects of certain land-use practices and the methods of treatment and prevention of acidification. However the lack of complete information and knowledge does not necessarily provide a case for government intervention. Where it is profitable for individual land users to obtain the required information, either on their own behalf or through others such as private research companies, the market should be left to operate freely. If this is not the case, there may be grounds for provision of research and extension services.
It appears that there is an extensive scientific research effort being undertaken on soil acidification at present and that farmers can readily obtain monitoring devices and scientific or technical information to aid management decisions. This indicates that it may be possible for private organisations and individuals to at least identify and monitor soil acidity on their own behalf, although further information is still required on the causes and cures of acidification.
Despite this research effort, to date there have been no studies which quantify the cost of acidity to Australian agriculture, either in aggregate terms or at the farm level. Nor have there been any studies which investigate the longer term costs of delaying preventive or remedial action. Such information would assist in quantifying the benefits and costs of proposed government policies. Further, without this information it is difficult for farmers to identify the economically optimal time to take remedial steps against acidification, given that the farmer may not see a direct pay-off from taking remedial action in the short term.
At the farm level, producers are acutely aware of the problem of rising input costs. However, it appears that they remain largely unaware of the role that acidification can play in reducing farm productivity. Nor are they fully aware of the cost of delaying treatment of the problem in cases where acidification is working progressively deeper into the subsoil - that is, approaching irreversibility.
Farmers aiming to maximise returns are currently prevented from doing so partly because of a lack of complete information on the extent of soil acidity and its cost implications. In addition, although the relevant technologies appear to be available, it may be that the information costs associated with detection and management for a specific site are quite high. Since it does not appear likely that private organisations will fill the gap or alleviate high information costs, the Government’s major role may be to provide that information, through research and extension, to enable farmers to make optimal managerial and production decisions. These decisions include when and how to respond to soil acidification or, more importantly, how to defer the onset of acidification by revised managerial and agricultural practices.
At minimum, the quantification of the economic magnitude of the problem would assist in research resource allocation decisions made by scientists. Further funds for acidification research, the benefits of which would accrue to both producers (in making management decisions) and to the Government (in the formulation of policies), should be granted in the light of the estimated economic costs. Thus there remains a role for government research (supported at least in part by producer funds) to provide an estimate of the costs of acidification. The magnitude of the estimate would indicate whether there was the need for further research and the direction of that research.
The information provided to land users must be directed toward treating the cause of the problem - that is, toward influencing management practices. Producers must be made aware of alternative land management techniques and their costs of adoption and operation, as well as the consequences of ignoring acidification in terms of declining farm incomes. The distribution of such information may best be handled by State or regional authorities, given that acidity is a site-specific problem. Large scale aggregative studies of the economic costs of acidification, as could be undertaken by an economic research agency, are useful in defining the magnitude of the problem. However, for efficient public policy and for effective land-use decisions, cost information is also required at the regional and/or farm level. To say that acidification is costing each farmer on average $x is misleading, given that the extent of the problem varies between and within individual farms. The need to adopt specific on-farm solutions has been advocated by Coventry (1985) from the Rutherglen Research Institute, who suggests that ‘constant soil testing and monitoring of the problem on each property is necessary since no blanket recommendation will cover all farms
Because of the information requirements, the optimal strategy for government may be to provide a subsidy, not on lime as has been suggested, but on research which will facilitate more economically rational decisions in relation to acidification. The role for the Commonwealth Government via the National Soil Conservation Program is to identify the gaps in soil acidification research and to encourage projects in areas not currently addressed. There is a strong case for research into soil acidity, given the economic importance of sown pastures to Australian agriculture and given the rates of productivity decline currently being attributed to soil acidity. The benefits of research into acidification would be widely distributed, as the findings would be applicable to the majority of temperate mixed farms and intensive grazing farms, as well as tropical cropping and mixed farming enterprises.
There is considerable evidence that the cost of government subsidies for rural research can be recouped (Marsden, Martin, Parham, Ridsdill Smith and Johnston, 1980). The same cannot be said for the subsidisation of lime purchases by land users, which would require large government expenditure and is likely to be recurrent, open-ended and even increasing. It is also possible that the distributional effects associated with lime subsidisation may be unacceptable on equity grounds.
The BAE’s Research Project
The Bureau of Agricultural Economics, through its regional programming model, has the facility to quantify the costs of acidity on a national, State and regional basis. A few details of the model are presented in the appendix to this paper.
The Bureau has initiated a research project on soil acidification in Australia, as part of its 1986-87 work programme. This project is supported by funds from the Wool Research Trust Fund and the Australian Meat and Livestock Research and Development Corporation. The objective of this study is to estimate the costs of soil acidity to Australian agriculture and its effects on farm productivity.
The project has three stages. Stage 1 involves updating the Bureau’s regional programming model. This proposed update includes the use of:
- revised constraints in terms of available resources;
- current prices and costs of inputs; and
- revised and expanded technical coefficients relating to yields and production data.
In Stage 2, the updated model will be used to estimate the costs of soil acidity measured by reduced farm productivity and reduced production options. These costs can be estimated by comparing net farm income derived from soils unaffected by acidification with net farm income from soils of different levels of acidification. Only broad orders of magnitude of the economic costs involved will be able to be determined by this approach.
Preliminary runs of the model in its present form have indicated the general magnitude of costs incurred as a result of acidification. Estimates obtained indicate the possible reductions in aggregate net farm income on an annual basis. The regions used (as indicated on the map) generally included areas identified as being acidic. If acidity caused (say) a 1 per cent decline in improved pasture productivity in the High Rainfall Zone, then the net income loss in a year would amount to $3m. Similarly, a 1 per cent decline in improved pasture productivity in the Wheat-Sheep Zone would lead to a $6m reduction in aggregate net farm income each year. Also, in the wheat area of south-eastern Australia, a 1 per cent reduction in yield would result in a loss of $15m a year. Thus the estimates suggest that, should acidification cause a modest decline in soil productivity of 1 per cent, substantial costs amounting to around $24m a year could be generated.
Stage 3 of the project will involve the identification and investigation of the various strategies available to Australian pastoral and cropping enterprises to combat and/or prevent soil acidification on a regional basis, with the objective of maximum cost-effectiveness. This part of the project will include an assessment of the economic impact and implications of the various strategies. That is, the pay-offs to agriculture from the strategies will be quantified.
In order to achieve the objectives of the project, including the updating of the regional programming model, the Bureau requires a variety of data on the incidence and effects of acidification from farmers, from regional officers of State Departments responsible for agriculture and from scientists. For example, the following information is required:
• decreases in crop output per hectare and per district as a result of acidification;
• incidence and degree of reduced legume nodulation;
• declines in pasture carrying capacity;
• declines in the quality of finished stock;
• changes in enterprises or activities;
• reductions in crop or pasture options;
• changes in inputs to offset acidification;
• full details of the ‘worst scenario’ - that is, cases where acidification has reduced fertile land to barren waste with a high risk of soil erosion;
• the scientifically optimal time at which remedial action (for example, liming) is warranted;
• the rate and cost of optimal liming; and
• the costs and benefits of employing alternative agricultural practices to prevent or reduce acidification (as detailed in the literature by Peter Cregan, Riverina-Murray Institute of Higher Education), such as modifying traditional fallowing, using deep-rooted pasture and crop species, changing growth patterns and crop development to minimise stored soil moisture, and using organic-derived fertilisers rather than ammonia-based ferti1isers.
Government involvement in the correction of soil acidification has been discussed in this paper on the basis of whether such intervention is justified on economic grounds. Economic principles advocate government involvement if the market has failed to give rise to an economically acceptable level of acidification, thereby leading to a divergence of social and private costs. Current scientific research suggests that the market is not maintaining a socially acceptable level of soil acidity and that the problem is in fact increasing. However, there is very little research on the economically acceptable level of soil acidification.
While the public subsidisation of lime purchases by land users has been advocated by some researchers, on economic grounds the introduction of a subsidy will depend on the relative benefits and costs of such intervention.
Before effective government policy decisions can be made, both the scientific and economic aspects of soil acidification need to be researched fully and the resultant information made available to decision makers. To date, the focus of acidification research has been on the scientific and technical aspects, although a greater understanding of acid soil causes and cures (that is, the dynamics of subsoil acidification) is still required. The basic information could be obtained from further research by the CSIRO and universities. But the costs and benefits of further public involvement in the provision of technical information on acidification need to be assessed in the light of the estimated economic costs of the problem. The information and economic research required to assess the importance of soil acidity at the farm level have been described in this paper.
1. Anon. (1984). The restoration and maintenance of productivity on acid soils in southern Australia. Submission under the National Component of the National Soil Conservation Program.
2. BAE (1984). Assistance for the Consumption and Production of Fertilisers, A BAE Submission to the IAC, November 1984, AGPS Canberra.
3. Blyth, M. and Kirby, M. (1984). The impact of government policy on land degradation in the rural sector. BAE paper presented at the 54th ANZAAS Congress, Canberra, 14-18 May.
4. Costin, A.B. and Coombes, H.C. (1982). ‘Farm planning for resource conservation’. Search 12(12), 429-30.
5. Coventry, D. (1985). ‘Acid soils threaten prime farmland’. National Farmer, No. 30, Melbourne, 21 March - 3 April, p.43.
6. Cregan, P.O., Sykes, J.A. and Dymock, A.J. (1979). ‘Pasture improvement and soil acidification’. Agricultural Gazette of New South Wales 90(5), 33.
7. Cregan, P.D., Hirth, J.R. and Conyers, M.K. (1986). ‘Amelioration of soil acidity by liming and other amendment’, in A.D. Robson, J. Yeates and W.M. Porter (Eds). Soil Acidity and Plant Growth, Academic Press, Melbourne (in press).
8. Cregan, P.O., Scott, B.J. and Cumming, R.W. (1986). ‘Liming problem acid soils’. Agfact P1.4.1, New South Wales Department of Agriculture, Sydney.
9. Easter, C.D., Robinson, C.J. and Moir, B.N. (1982). Government Assistance for the Consumption of Nitrogenous and Phosphatic Fertilisers, BAE Occasional Paper No. 71, AGPS Canberra.
10. Godyn, D.L. and Cregan, P.D. (1984). Report on acid soils: IAC inquiry into fertilisers. Department of Agriculture, Wagga Wagga.
11. Helyar, K.R. (1976). ‘Nitrogen cycling and soil acidification’. Journal of the Australian Institute of Agricultural Science 42(4), 217-21.
12. Lee, B. (1980). ‘Farming brings acid soils’. Rural Research 106, 4-9.
13. Longmire, J.L., Brideoake, B.R., Blanks, R.H. and Hall, N.H. (1979). A Regional Programming Model of the Grazing Industry, BAE Occasional Paper No. 48, AGPS Canberra.
14. Marsden, J.S., Martin, G.E., Parham, D.J., Ridsdill Smith, T.J. and Johnston, B.G. (1980). Returns on Australian agricultural research. A joint IAC-CSIRO benefit-cost study of the CSIRO Division of Entomology, Canberra.
15. Porter, W.M. (1981). ‘Soil acidification - the cause’. In Proceedings of the Acid Soils Affair’, Australian Institute of Agricultural Science and Agricultural Technologists of Australasia, Riverina Outlook Conference, Wagga Wagga, 16 July.
16. Quiggin, J. (1986). Failures and imperfections in policy analysis: the case of land degradation. ANU (Centre for Resource and Environmental Studies) paper presented at the 30th Conference of the Australian Agricultural Economics Society, Canberra, 3-5 February.
Appendix: THE BAE REGIONAL PROGRAMMING MODEL
The regional programming model is a large model of Australian broadacre agriculture, which is solved using a linear programming algorithm (Longmire, Brideoake, Blanks and Hall, 1979). The model enables the simulation of a wide range of sheep, cattle and cropping activities which are regionally disaggregated. The technical production coefficients and the pasture and other resource constraints are derived from BAE farm survey data, State Departments responsible for agriculture and the CSIRO, and are specified on a regional basis. The model contains thirteen regions (see the map), each of which is approximately homogeneous in terms of the effects of climate on agricultural practices. Price estimates for the model are obtained from BAE commodity price projections. The objective function optimised in the model is total net farm income in an ‘average’ (in terms of prices and climate) year. The model includes allowances for flows of capital, stock and feed between regions, and increases in flock and herd size over time.
Regional Programming Model Boundaries
Western high rainfall
Eastern high rainfall