By Guest Author 04/05/2018 4


Pierre Roudier

With a title like “Precious arable land”, needless to say, I’ve read with interest Eric Crampton’s opinion piece published on Sciblogs recently.

It followed the release of Our Land 2018, the Ministry for the Environment’s report about the state of New Zealand’s land resources. One of the main outcomes of this report is the impact of urban sprawl over some of New Zealand most valuable soils, a major issue identified by the soil science community1,2,3 and the basis for setting up strategies to protect these soils.

Alas, the irony of the title was lost on me, and the article the author penned actually suggests the protection of these versatile soils is not needed — despite what is advocated by the “anti-sprawl people” (a mysterious conglomerate formed when the “Let’s protect Precious Agricultural Land” people teamed up with the “Let’s protect Precious Neighborhood Amenity”). At the heart of Eric Crampton’s argumentation is the fact that the value of soils is somewhat accounted for by the market:

But suppose you have an agricultural paddock near town. The land can produce horticultural crops worth, say, $1m per year net after costs. The present discounted value of that stream of profits gets capitalised into the price of the land. And so the price of the land will already reflect peoples’ expectations about the value of the agricultural produce that will come out of that land over the long-term.”

Ha, the proverbial wisdom of the invisible hand of the market.

The true value of soil

The problem with this line of thinking is that the value of agricultural outputs produced out of a piece of land represents only a minor part of the overall value we get from the land. Apart from food and fibre production, there is a wide range of services that, at heart, are provided by soil: filtering nitrates, storing water, mitigating flood risk, or storing carbon. The provision of this multitude of services is why soils are an important determinant for the economic status of nations as a whole4. And it is also for this reason that soils are a critical part of the environmental infrastructure of any nation, and at the intersection of most of the challenges they face5:

  • Food security
  • Energy security
  • Ecosystem services provision
  • Biodiversity protection
  • Climate change abatement
  • Water security

Critically, food production is only one service addressing one of such challenges. And unfortunately for soils, the other services they provide are not easily quantified, and therefore very poorly captured by markets6.

“If a developer is able to pay the farmer more than that, that tells us something important. It tells us that the value of that land in housing is higher than the value of that land in agricultural use. The value of all the agricultural output is already accounted for in the price of the land. So you really don’t need to protect valuable agricultural land from developers. The price of agricultural land already does that.

The value the developer is ready to pay the farmer for only covers one service that is only relevant for one user (food production for the farmer, building support for the developer). The overall value for the other users (the rest of society if you want) is unaccounted for.

Soil is a finite resource

The other reasons the soil science community (which I guess is referred to as “the Let’s protect Precious Agricultural Land people”) argues for more protection for versatile soils has to do with the way their very nature. The timescale at which the value of land is considered is way too short. Crampton thinks about returns on a yearly basis, when a mature soil will need anywhere between 10 and 50,000 years to form and can continue providing services across generations.

Moreover, soils and their properties vary a lot across New Zealand. The versatile soils we are talking about, the soils surrounding Auckland, are incredibly rare (5% of NZ’s are for versatile soils, less than 1% if we are talking elite soils).

The need for policy to protect soils

Soils are a finite resource: once we build on them, there’s no going back, on a human timescale. And like housing, it’s not a resource we can import. So we have to think very strategically about the soils we want to retain for their services, and those we want to sacrifice to housing (and there’s no question we need to do that).

Banning development on that land only makes sense if you really really believe that the person putting in the ban knows better than either the owner of the land or the purchaser of the land the future price path of agricultural products or dwellings. And in that case the person putting in the ban should just be buying the land directly and reaping the huge and obvious profits from knowing better than the market about futures prices.

It’s not so much that “the person putting in the ban knows better than either the owner of the land”, it’s that the value the government puts on the soil resource goes beyond (i) food and fibre production, and (ii) the rather short timescale used by developers. Banning the development on our best soils makes sense because it acknowledges the true value of the resource, its finitude, and the need to protect it across generations.

Call that kaitiakitanga if you prefer.

Pierre Roudier is a scientist in the Soils & Landscapes team at Manaaki Whenua – Landcare Research, and a Principal Investigator at Te Pūnaha Matatini.

References

1: Andrew, R. and Dymond, J.R., 2013. Expansion of lifestyle blocks and urban areas onto high-class land: an update for planning and policy. Journal of the Royal Society of New Zealand, 43(3), pp.128-140.

2: Curran-Cournane, F., Vaughan, M., Memon, A. and Fredrickson, C., 2014. Trade-offs between high class land and development: Recent and future pressures on Auckland’s valuable soil resources. Land Use Policy, 39, pp.146-154.

3: Curran-Cournane, F., Golubiewski, N. and Buckthought, L., 2018. The odds appear stacked against versatile land: can we change them? New Zealand Journal of Agricultural Research, pp.1-12.

4:  Daily, G.C., Matson, P.A. and Vitousek, P.M., 1997. Ecosystem services supplied by soil. Nature’s services: societal dependence on natural ecosystems, pp.113-32.

5: McBratney, A.B., Field, D.J. and Koch, A., 2014. The dimensions of soil security. Geoderma, 213, pp.203-213.

6: Costanza, R., d’Arge, R., De Groot, R., Farber, S., Grasso, M., Hannon, B., Limburg, K., Naeem, S., O’Neill, R.V., Paruelo, J. and Raskin, R.G., 1997. The value of the world’s ecosystem services and natural capital. Nature, 387(6630), p.253.


4 Responses to “Our soils: more than meets the (developer’s) eye”

  • Great points here Pierre, thank you.

    Eric’s reductive reasoning relies on lots of assumptions. You’ve bored a few large holes in those assumptions, so he now needs to either patch them up or explain why they are immaterial. Or fold.

  • Thanks Pierre,

    A few comments.

    First up, I’ll agree that there are services land can provide that wouldn’t be incorporated in either the value the farmer receives from it or that the developer would receive.

    If land in one use is a better store of carbon than land in another use, then that won’t be accounted for in the price mechanism I described – unless the ETS is improved to account for it. I could see merit in expanding the ETS to provide credit for carbon-capture in soils. Putting that in place seems more efficient than simply banning different uses – any carbon sequestration value would then be accounted for in the change in ETS credit provided, and we’re back to prices appropriately internalising things.

    You note the difficulty in quantifying the value of many of the services provided, but surely such quantification would be a critical part of any CBA accompanying a ban on changes in land use. Otherwise, how could you possibly tell whether a ban might have merit? There would have to be at least some estimates of it. And if we have estimates of it, why wouldn’t it be better for the public benefiting from the provision of those myriad services to pay for it directly through the tax system by paying the land owner for the land’s otherwise-uncounted services? The alternative forces an inequitable sharing of that burden between the current land owners and those who would have benefited from the transformation of the property to higher valued use. To put it bluntly – because we’ve been reluctant to pay for those services through the tax system, where higher earners bear more of the burden, we’re foisting the costs instead largely on those who are screwed by Auckland’s broken housing market.

    I had understood that flood risk mitigation and water storage were already considered in RMA applications, so if someone proposed putting a subdivision in where there is now a paddock, they would have to have appropriate storm drainage in place.

    I’ll disagree as well on the timescale issue. I don’t think about returns on a yearly basis; I think rather of the present discounted value of returns over a stream of years. While it’s true that discounting at normal rates will mean that values in the far future count for little, I’m not really seeing that mattering here. As a simple example, consider iron. Whatever geological processes create iron take much longer than any human-relevant timescale. And yet things work out. Iron is mined; it is recycled and reused to the extent that current prices and technologies make that worthwhile; it is sometimes disposed of in landfills that may themselves someday be mined. A piece of land suitable for an iron mine sells for a price that reflects the scarcity of that kind of land and the value of the product that can come from it. That scarcity might be informed by the length of the geological process, but the length of the geological process has nothing directly to do with the appropriate price.

    I also note that suburban development may be less irreversible than you’re suggesting. Parts of Detroit are reverting to farmland as the city shrinks, for example. That won’t be possible for, say, a former power substation or a former apartment tower. But Detroit does seem to be turning former neighbourhoods into farms and gardens. Just Google for the urban agriculture there now going on.

    I will make two summary recommendations:

    1) Better policy for preserving agricultural land would combine better practice in urban planning with actual payments to the owners of agricultural land for the currently unpriced services. Better practice in urban planning would allow far greater density in downtown places where many people would like to live; would price congestion and infrastructure so that user-pays would be far more prominent (and consequently discourage some areas where sprawl might otherwise be subsidised); and, would open up more transport corridors so that developers would have options to build in many other places. All of that together would mean that there would be less value in turning agricultural land into housing because other options would become more profitable for developers. And payment for the currently unpriced services would mean that a farmer selling out to a developer would be factoring in the loss of the payments for those services.

    2) It is plausible that there are external benefits that vary across different types of land use. But then we have an equity case around who should bear the burden of ensuring those benefits are provided, and an efficiency case around making sure that they are only provided up to the point where the cost of doing so is no higher than the benefit. A policy banning residential development of agricultural land not only imposes costs on the current owners of that land, but also can substantially increase the cost of housing services across the entire city. The land price gradient across the city is determined in part by the cost of bare land at the city’s fringes, and where less fringe land is there available because of regulatory restrictions, the price of available land is bid up, and even the price of downtown terraced housing will be affected. That burden is felt most strongly by the poorest, and very few people who advocate banning building housing give any consideration to that cost that they impose in doing so.

  • I really love Eric’s #1 policy ‘recommendation’ – what a beautiful dream.

    Meanwhile, there’s a risk of irreversible loss. Which is why more analysis is required. This is Pierre’s main point I think, and it has not been disposed of by Eric’s reckons.

    Eric is advocating for a policy on the basis that externalities *should* be priced, and if they were, the policy would be great.

  • John – the only critical assumptions I think I have in there, other than the standard ones around demand curves sloping down and the like – is that the value of unpriced external services relating to agricultural uses of land are not out of line with the value of unpriced external services associated with other land uses, and if that fails that the value of those services is not large relative to the value of the priced stuff.

    If that assumption doesn’t hold, then I expect it makes more sense to pay for that service directly rather than mandate that service’s provision.

    Very similar arguments are made against density downtown by those asserting strong external services provided by heritage buildings – or other ‘neighbourhood character’ amenities. That kind of argument underlies the heritage overlays that block a lot of downtown development. And I’ve there similarly argued that it would be better to pay for any real external benefit provided out of general Council revenues, and to abate that payment with modifications to the property that diminish the heritage value provided – and to lift the ban on development.