Land Quality as an Input to Production: The Case of Land Degradation and Agricultural Output

Land is a traditional input to production, and the influence of both land area and land quality on economic scarcity have long been the subject of debate. Analysis of the role of land quantity on output has involved classic applications of the production function. But analysis of the role of land quality and land characteristics is more recent and has proved less straight forward. Analysis of the effects of land degradation on agricultural output is an example of the problem. In this paper a general approach to analysis of the effect of changes in land quality is developed, tested and applied to land degradation. The approach provides insights on whether output falls as degradation increases and by how much, and the output effects of treatment. This sort of information, from this general approach, enables the analyst to raise issues for policy, question existing policies, and suggest broad priorities for investment. The authors gratefully acknowledge the financial assistance of the Land and Water Resources Research and Development Corporation, the co-operation of the Department of Land and Water Conservation in providing the land degradation data, the helpful assistance of Owen Graham who undertook the Department’s land degradation survey, the timely help of Jeremy Black in assembling the land degradation data, and the analytical skills of George Battese and Tim Coelli. Andrew Blake, Richard Chewings, Glen Christiansen, Bob Crouch, Noel Flavel, Stephen Kelly, Des Schroder, and Bob Wynne all provided useful information and helpful comments. We would like to thank two anonymous referees for their valuable comments.