Table 3      Gross and average erosion rates by region and by land use in The Philippines in 1993

Table 3 presents the gross and average erosion rate per region in the areas classified as uplands and highlands based on the classification given by Evangelista (1993). These land uses account for a total land area of 25.37 million ha, or 84 percent of the country's land resources. The national average erosion rate of 80.62 tonnes/ha is based on a weighted average of the three land-use specific erosion rates. The gross erosion in the country was estimated at 2.05 billion tonnes per year. The greatest contribution comes from the grasslands, which have the highest gross erosion rate of 1.56 billion tonnes/yr. Agriculture loses about 457 million tonnes of soil yearly while the woodland, a significant proportion of which has been encroached upon by illegal loggers and upland dwellers, has an annual loss of 26.98 million tonnes of soil.

The average rate for the various regions ranges from 65 tonnes/ha/yr in Region XI to 128 tonnes/ha/yr in Region I. The Visayas have relatively higher erosion rates of 105 tonnes/ha/yr for Region VI, 114 tonnes/ha/yr for Region VII and 76 tonnes/ha/yr for Region VIII. These are comparable to the estimated erosion rate in the Forestry Master Plan (1990) of 74 tonnes/ha/yr average for the entire Philippines.

Results showed that in all of the three major islands, the erosion rate was higher in the hilly lands or in areas with a slope of more than 18 percent and an elevation of less than 500 m.

Length of time to deplete soil resources

Given the information on rate of soil loss, soil density and effective soil depth, one can estimate how long it will take to deplete a centimetre (cm) of soil and the entire effective depth of the soil. Earlier, this length of time was referred to as the economic life of the resource. The economic life of Philippine soil resources was estimated using data on sampled and management units (LMUs) in different regions of the country. The sampling was limited by the available data and by the time constraint in this study.

Table 4      Length of time required to deplete soils of a given depth and bulk density by pedo-ecological zone (PEZ) and by region

Data from sample LMUs of the different pedo-ecological zones are summarized in Table 4, along with the economic life estimates for soils in the different regions. In general, one cm of soil, given current erosion rate, will be depleted in about a year and a half, or an average soil depletion rate of 0.75 cm a year. With effective soil depth ranging from 50 to 163 cm, the economic life of soils for agricultural land use is still very long at 70 to 265 years. This means that soil loss is going on at a very slow process and may not be noticeable within normal economic planning time-spans. This could partly account for the lack of sensitivity to on-site cost of soil erosion by many upland land users. They lack appreciation for the severity of the situation since there are still soils where they can plant. For as long as this is the case, they can see no problem, especially since many yield-enhancing technologies can mask the impact of soil degradation.

One can argue that it is not the effective soil depth that should be the main concern of the analysis. Rather the topsoil is more important since it is in this soil layer where the plants take most of the nutrients needed for their growth. Once this layer is removed, sustaining plant growth without additional fertilizer application will be difficult.

Recent data on topsoil depth of some upland areas reveal a soil depth of less that 10 cm. At soil depletion rate of 0.75 cm/ha/yr, it will take only some 13 years for the topsoil to be depleted. This makes it necessary for current resource users to be concerned with how the soil is being "mined" at present. If one takes a more optimistic stand and assumes a topsoil depth of 15-25 cm (a figure quoted by some respected soil scientists of the country)³, then it will take 20-33 years for this layer to be removed. This period is much shorter than when the effective soil depth was considered, but it can still probably be viewed as a long time when one accounts for a person's economic lifespan.

Nevertheless, the continuous removal of the topsoil through erosion will result in the reduction of total nutrients available for plant growth. Hence, noticeable costs are incurred in the process of soil erosion. Thus, it can be argued that even in the absence of studies which will relate nutrient loss to productivity decline or which will establish that the loss of soil nutrients leads to productivity loss, it is appropriate to "charge" resource users with an amount at least equal to the value of the lost soil nutrients.

Soil resources as an asset: asset value for different land uses in the Philippines

Land is a non reproducible asset that, in productive use, has a market value. The market value of any capital asset is the present (i.e., discounted) value of the stream of net returns expected from its use over a given time span, plus how much the land owner expects to get from it if it will be sold at the end of that time span. The net return for any land use, in turn, is obtained by deducting from the value of output the operating costs (i.e., labour and intermediate input), the cost of exploration and development, and capital consumption allowance (Hamilton 1989). Since the asset is expected to provide a flow of services over time, one may estimate the useful life of the resource, the rate of extraction or resource utilization over time, and the rate of return from the use of the resource. This information is not easy to derive. One simple approach is to assume optimal production, which requires (according to Hotelling’s specification) the returns from production of an exhaustible resource to grow over time at a rate equal to the interest rate. This assumes that extraction costs are independent of scarcity.

There are three possible ways to estimate the value of a natural resource base (Hamilton, 1989). Two of these are:  (a) getting the net present value (NPV) of a constant stream of land rent (i.e. net returns less a reasonable allowance for profit) which is assumed to be equal to the current land rent; and (b) calculating the NPV of a constant stream of land rent assumed to be equal to the land rent on the Maximum Sustainable Yield (MSY) of the resource. The MSY is the yield achievable by an optimum population size which is exploiting the given natural resource unit. Since determining MSY is in itself a research topic that is not yet explored at present, the former approach will be used in this paper. Admittedly, the current rate of extraction (as reflected in the current level of net returns) is subject to wide yearly variations and, therefore, may be arbitrary, but the lack of time-series data on land rent as a function of time, limits the analysis to that year when the land rent estimate was available.

Table 5      Basic data used in the asset depreciation analysis (in 1998 prices)

Table 5 presents a summary of the basic data used in estimating the asset value for agricultural land use in the Philippines. The source of basic data is the Land Resources Evaluation Project (LREP) of the Bureau of Soils and Water Management, which are contained in the ALMED (1990) reports for Luzon, Visayas and Mindanao. The major agricultural crops that dominate each of the 13 regions were taken from Evangelista (1993). This paper assumes that these dominant land uses account for all of the agricultural land use each in region. The net returns, as reflected in the LREP report, were adjusted downward by 30 percent to reflect a normal rate of return on investment. The remaining amount constitutes the above normal profit or the land rent. Land rent for the various agricultural crops is then multiplied to the agricultural area by type of agricultural crop to derive the total land rent for the various regions. These land rent values were used to estimate the asset value of the agricultural land resource in the upland Philippines.

Table 6      Estimated asset value and depreciation of agricultural land

The asset value of the 7.4 million ha of agricultural lands in 1988 was PHP 242.28 billion using a 10 percent discount rate, or PHP 168.75 billion using 15 percent discount rate over a 30-year period (Table 6). Take note that the asset value represents the return to the use of the land since all production costs have already been paid for, including an allowance of 30 percent of net returns for normal return on investment. On a per hectare basis, using the 7.4 million hectares of agricultural land area, the asset value is PHP 32,778 at 10 percent discount rate or PHP 22,830 at 15 percent discount rate. As indicated in Table 5, land rent varies depending on the crop planted. Higher land rent is noted for high value crops like fruits, vegetables, and plantation crops. Low land rent is noted in areas planted to crops like corn, rice and root crops. Crops best suited to the soil characteristics are also expected to generate higher land rent.

Between 1988 and 1989, a reduction in asset value was noted to be PHP 1.47 billion and PHP 0.38 billion, using 10 percent and 15 percent rate of discount, respectively. These figures represent the economic depreciation of the soil resource base mainly due to the declining value of money over time (a present value formula). As a measure of depreciation, the economic depreciation values do not reflect the physical deterioration of the soil resource base that can be caused by several forces, a major one being soil erosion. To assume that depreciation from physical deterioration of the soil is not significant is tantamount to saying that productivity losses from soil erosion are not substantial to cause a significant decline in yield. This was implied in the long period remaining before soils become totally depleted (Table 4). From an earlier discussion, it was pointed out that effective soil depth is still relatively thick and, given current rate of soil loss, it will take a long time before the depletion point is reached. When that time comes, substantial productivity loss will be experienced, but since that is expected to happen beyond the life span of the present generation, converting it to present value will yield a very small number.

One may, however, argue that soil nutrients lost through erosion is real and, therefore, should at least be accounted for. If this is to be an accepted measure of cost of soil erosion, then the value of lost nutrients should be considered as part of the production cost, a negative externality, which must be deducted yearly from the value of the net returns.

Whatever remains of the net returns can then be used in the asset value formula. There are two objections to this alternative. One is the issue on whether the lost nutrients are indeed lost. The other is whether soil depreciation is really brought about by the physical changes in the soil.

The first objection argues that when fertile soils are eroded from the upland farms to downstream farms with less productive soils, they may even increase soil productivity downstream. Productivity loss takes place only if the additional returns downstream are less than the value of foregone productivity upstream. It is possible, however, that the topsoil upstream is still thick such that no significant productivity decline may result from soil erosion. In which case, there will even be a benefit from soil erosion rather than a cost. Of course, it is possible to think of fertile farms downstream being covered by infertile soils. In which case, productivity decline is expected to take place.

Unfortunately, there is not enough information to ascertain what becomes of the eroded materials. This lack of information limits our knowledge of the true value of soil erosion and consequent sedimentation. Nevertheless, the value of soil nutrients foregone may be considered as the minimum value of the cost of soil erosion under condition of thin topsoil in upland farms. This measures the amount of fertilizer nutrients that must be added to the soil to sustain crop growth.

The second objection to the proposed asset valuation approach relates to the measurement of soil depreciation. Under the said approach, it is hypothesized that the change in the value of the asset (a measure of depreciation) is brought about by changes in the physical quality of the resource and in monetary changes due to changes in prices. To treat the value of lost nutrients as part of the direct production cost would limit the definition of soil depreciation to changes that are brought about by changes in prices. This is not in conformity with what one normally associates with depreciation, i.e., the physical component.

Table 6, thus, shows the yearly economic depreciation measured from changes in the value of the asset (also shown in Figure 2) and, separately, the value of the soil nutrients found in eroded soil, discounted to the present. As earlier discussed, the latter can be taken as indicator of the physical deterioration of the soil resource base.

Figure 2     Economic depreciation

Value of soil nutrients in eroded soil

One way of putting a monetary value on the on-site cost of soil erosion is to estimate the value of the lost nutrients through erosion. The idea behind this is that eroded soil carries with it soil nutrients that could have been used up for plant growth. The value can be estimated using an analysis of soil nutrient content expressed in a per tonne or per cm of soil basis. Due to the important role played by macro-nutrients in the soil and because most data are only available for these soil nutrients, the analysis has focused on nitrogen (N), phosphorus (P), and potassium (K). The values of available N, P, and K were estimated in terms of the equivalent levels of urea (45 0 0), solophos or P205 (0 20 0), and muriate of potash or K20 (0 0 60).

Table 7           N (urea), P (P2O5) and K (K2O) content of a tonne of soil under varying land uses, by region, Philippines, 1993

Table 7 shows the macro-nutrient content of a tonne of soil while the peso equivalent is shown in Table 8 for the three major land uses and for the 13 regions of the country.

Table 8      Value of N, P and K found in a tonne of soil under varying land uses, by region, Philippines, 1993, (in pesos)

Valuation was done using two sets of prices. The financial prices were the 1988 retail prices of urea, super phosphate (P2O5), and muriate of potash (K2O), which was PHP 3.94/kg, PHP 2.94/kg, and PHP 3.47/kg, respectively. The economic prices of these nutrients were the 1988 CIF import prices, which were US$ 157.64/MT for urea, US$ 112/MT for solophos, and US$ 125.43/MT for muriate of potash.

The N content (in urea equivalent) of soils under agriculture ranged from a low 1.45 kg (PHP5.71) in Region XI to a high 6.60 kg (PHP26.02) in Region XII. The average for all regions is 2.85 kg of urea, which is worth PHP 11.23. The solophos content of agricultural land is quite low at 0.06 kg, valued at PHP 0.17 only, while the muriate of potash content is also low at 0.44 kg, which is worth PHP 1.52. No significant differences were observed between the N, P and K content of soils under grassland. The average N content of grassland is 2.5 kg valued at PHP 9.83, K content is 0.07 kg worth PHP 0.19, and P content is 0.47 kg valued at PHP 1.62. The woodland has relatively higher N content of 3.03 kg urea (PHP11.93), but it has lower P and K content at 0.04 kg and 0.36 kg, respectively.

Considering all the macro-nutrient content of a soil, a tonne of soil contains PHP 12.92 worth of macro-nutrients for agricultural land, PHP 11.65 for grassland, and PHP 13.32 for woodland. (Table 8) A tonne of soil lost through erosion carries with it this amount of soil nutrients. One can immediately notice that the estimated values are probably so small to matter to the farmers, which may be the reason why soil erosion has reached its present state. There appears to be little incentive to prevent the nutrient losses since they are insignificant in money terms.

The above discussion has focused on the soil nutrient content of a tonne of soil. A hectare of soil, however, loses more nutrients annually than a tonne of soil. This means that the on site loss to farmers can be much bigger than what is implied by the per tonne soil analysis. Recall that the erosion rate used for agriculture land use was 61.8 tonnes/ha/yr, 173.7 tonnes/ha/yr for grassland, and 3 tonnes/ha/yr for woodland (see Section 3.21, p.12). Using these erosion rates, the average N content of a hectare of eroded agricultural land is 176.27 kg of urea worth PHP 694.50, 3.5 kg of solophos worth PHP 10.29, and 27.11 kg of muriate of potash valued at PHP 94.07. Thus, a hectare of agricultural land is losing soil nutrients worth PHP 798.86 per year. Nutrient loss in grasslands is worth PHP 2,023.52 per year, while for woodlands it is only PHP 39.97 per year. The average value of soil nutrients lost through erosion is PHP 799.23/ha/yr for all land uses.

Differences in the value of soil nutrient losses can be explained by the differences in the level of soil erosion for the three land uses. Even on a per hectare basis, the value of soil nutrients lost through erosion may not be considered substantial. When masked by use of inorganic and organic fertilizers, nutrient losses are hardly noticeable at all. Again, this shows that on site losses may not be that significant to cause farmers to worry about the economic impact on them. The off site effects are often not a relevant concern to private decision makers on site. The off site cost, however, is a relevant one to society and must be considered in determining the optimal level of soil loss that can be allowed to persist.

Note that while the per hectare losses may not be substantial, the value of the loss for the country as a whole is quite huge. From the agricultural lands, the value of the loss is estimated at PHP 5.94 billion, which represents close to 1 percent of the Net National Product (NNP) in 1988 at 1985 constant prices and 4.27 percent of the PHP 139.258 billion gross value added for agriculture in the same year. Losses from grasslands are highest at PHP 18.29 billion while from the woodlands they were lower at PHP 323.4 M. From all land uses, the value of lost soil nutrients is PHP 24.56 billion.

The share of the various regions to this total is also given in the same table. Region IV had the biggest value of loss at PHP 3.1 billion while Regions I and II had the lowest at PHP 764.8 million and PHP 995.9 M, respectively. In agriculture, however, the biggest losses were estimated for the Visayas Region, with PHP 587.7 million in Region VI, PHP 668.6 million in Region VII, and PHP 918.5 million in Region VIII. Nutrient loss was also high for Region XII, estimated at PHP 804.28 million for 1988. The CAR and Region I registered low losses from agriculture at PHP 54.55 million and PHP 32.55 M, respectively. The low value obtained in these two regions was mainly due to the relatively smaller agricultural land found in them.

Table 9      Value of depreciation and nutrient losses of agricultural lands at 10% and 15% discount rate (in billion pesos, 1988 prices)