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Soil depreciation is a measure of the change in the productivity of the soil resource over time. There are two alternative measures of coming up with this estimate. One is through the estimation of a damage function that relates yield to soil loss. The second measure is through the change in the asset value of the soil over the relevant time frame of analysis. The first measure relies largely on the physical measure of loss, which is then monetized using financial or economic prices. The second approach captures both the physical and monetary changes in the value of the asset; the latter brought about by changes in the input and output prices over time. Both of these approaches require certain data that is often difficult to find. As a result, much research continues to rely on the use of the replacement cost method, although there are a number of limitations with this approach.

The change in asset value approach is a superior measure of soil depreciation, since it captures both physical and economic changes taking place over the lifetime of the resource. One can picture a scenario wherein the physical loss in production may be compensated by higher prices of the remaining quantity of the good produced. If the gain from the change in prices more than offsets the loss from the change in quantity, then an appreciation (or negative depreciation) of the resource may result. In the case of the damage function approach, conceptually one would expect that depreciation will always correspond to a loss in production or some positive number.

Both of the two approaches discussed above require time series data that are often not available. At best, one has a number of years of observations for an experimental site but this is hardly large enough to say something about a whole province, more so for the whole country. This paper presents the results of an attempt to derive a damage function for soil loss using 20-year data projected through the application of the Erosion Productivity Index Calculator or EPIC in one soil conservation project site in the Philippines. For the asset value method, the study assumes a constant rent over the life span of the soil resource, assumed to be 30 years, which is the period in which all the topsoil is expected to be lost through erosion under condition of erosive farming practices. With a constant rent assumption, however, the economic measure of soil depreciation simply measures the change in the value of the asset due to the declining value of money over time. The paper also presents an estimate of 50% the value of the nutrients lost through soil erosion. The study assumes that only 50% of the nutrients available in the soils are taken up by the crops. The rest are lost through various natural processes.

Soil depreciation estimates for upland agricultural land ranged from PHP 1.47 billion to PHP 6.39 billion in 1989 using a 10% discount rate. The lower value represents the economic depreciation estimate using the asset valuation approach (i.e. a change largely attributed to changes in the value of money over time). The higher value considers both the economic depreciation and the physical deterioration of the resource base, measured in terms of the value of soil nutrients lost through soil erosion. Using 1988 data, the undiscounted value of soil nutrients lost from the uplands through erosion (PHP 5.94 billion) represents 4.27 percent of the Gross Value Added in agriculture and one percent of the Net National Product. The magnitude of the soil depreciation estimate is, therefore, substantial when viewed in total. This value represents what can reasonably be spent by the government for soil conservation programs in upland agricultural areas of the country.

This study has established that the value of soil nutrients lost through erosion is substantial for the country as a whole, but may not be that big when expressed on a per hectare basis. To the upland users of the soil resource, it is the per hectare analysis which is the more relevant measure. This means that farmers' decision making is affected largely by damages that are felt by them and not by the value of damages that society as a whole may incur.

If, indeed, the environmental cost of land use activities in the uplands is greater to society than to the upland farmers, then there is a sub-optimal incentive for farmers to adopt soil conservation practices. Alternatively, one may state that if the benefits from soil conservation activities will accrue more to society than they do to upland farmers, then there is a greater incentive for society to invest in such activities. Therefore, it makes sense for society to assist upland farmers in undertaking soil conservation activities, since these yield greater benefits to the country as a whole than to the individual farmers. The findings of the study, therefore, suggest that where upland farmers are already considered part of the ecosystem, they must be provided with some incentives in the form of technical assistance, counterpart costs for soil conservation and other measures to attain the desired reduction of soil erosion in the uplands. Where entrants of more migrants to the uplands can still be prevented, however, then efforts to prevent further encroachment into the uplands must be strengthened.

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