We can use the cost of fertiliser to generate a financial value for organic matter. Nitrogen is one of the most important elements in the growth of grass and urea has the greatest concentration of nitrogen. Rounding the current bulk price of urea to $450/tonne, we can calculate the market value of nitrogen. We can then determine what organic matter is worth and any increase or decrease in the value of land. First, we need calculate the amount of organic matter in a hectare of soil.
What do these figures mean for a farming business? For example, lets say a 200 hectare farm generates an annual net profit of $60,000 through the loss of 0.5% organic matter across the property over a year. Using per hectare figure above, the loss of 0.5% organic matter equates to a $131,320 decrease in the capital asset - land. The profit of $60,000 is achieved through a loss of capital of $131,320, resulting in a net worth loss for the farm of approx $71,000. Common sense tells you that the loss of capital and net worth is not a profitable activity.
Now although it is unlikely for a farm to increase organic matter by 0.5% in a single year, it can certainly be lost. It takes 3-4 years of pasture or no-till practices to replace the organic matter lost in a single year of conventional cropping. Losing organic matter lowers the water retention capacity, increases the likely dependency on fertilisers, and essentially erodes your most valuable asset – the land.
Of course, an option open to farmers is to steadily build organic matter reserves over a period of time and cash them in by reaping from the accumulated biological wealth. This practice would be worthy only if part of a lifelong land management strategy. The Holistic Management decision framework helps farming families to determine which practices are best for their situation.
Adaptation from The Economics of Biodiversity, Holistic Management Quarterly, 35, Spring 1992.