The economic role and characteristics of land resources in agriculture

Features of land as the main production resource

Unlike machinery, buildings, or seed, land is not created by human labor and initially has no cost to be transferred to the cost of production. At the same time, land acts simultaneously as an object and a tool of labor: an agronomist works on the soil, and it, in turn, ensures the growth and development of crops. Understanding the economic and physical properties of land plots determines the success of investments in their tillage and improvement.

Land holdings possess a number of specific properties that directly affect the economics of an agricultural enterprise:

• Potential non-wearability. With proper agricultural practices, land quality does not deteriorate, and soil fertility increases. Accumulation of humus during grass sowing, application of manure and compost, compliance with crop rotation, and competent tillage allow for systematic yield increases.
• Spatial immobility. Fields are stationary, which forces constant movement of machinery, seed, fertilizer, and harvest. This forms a significant share of transport costs in the cost structure.
• Area limitation. The land fund of the Earth is fixed. Soil fertility is reproducible, but it is impossible to increase the physical area of a plot, which requires careful use even of land of lower quality.
• Heterogeneity and differential rent. Plots differ in natural soil fertility and distance from sales markets (differential rent I). Additional net income is also created through intensive farming, technology, and management level (differential rent II).

In the economics of land use, it is customary to divide soil fertility into two types. Natural soil fertility is formed by nature and represents the potential ability of virgin soil to produce a harvest. Artificial soil fertility is created by an agronomist in the process of tillage, fertilizer application, liming, and irrigation. With the start of field cultivation, both types of soil fertility work together.

Land fund structure and resource availability

For agricultural production, the most important are agricultural lands: arable land, fallow land, perennial crops, as well as hayfields and pastures. In Russia, the total area of agricultural land is 190.9 million hectares. Basic indicators of resource availability determine the development potential of the industry both for the country as a whole and in specific regions.

• Total agricultural land area — 190.9 million ha
• Agricultural land per capita — 1.36 ha
• Arable land per capita — 0.81 ha
• Share of arable land in the RF — 60.5 %

The distribution structure of agricultural land shows the predominance of arable land and natural forage crops, which determine the specialization of crop production and livestock farming.

The degree of cultivation of land differs significantly by macro-region. This is due to climatic conditions, relief, and the historically established specialization of farms within the districts.

How to evaluate the return from each hectare: a system of indicators

Natural and artificial soil fertility work only in conjunction, forming economic soil fertility. The more rationally the natural resources of the field are used, and the more competently agrochemicals, land reclamation, modern machinery, and technologies are applied, the higher the ultimate yield of the land. For an agronomist and a farm manager, it is important to distinguish actual soil fertility into two key types.

• Absolute soil fertility — yield of crops in centners/ha
• Relative soil fertility — production output per unit of cost

Relative soil fertility reflects the return on investment per hectare. To obtain a complete and objective assessment of the efficiency of land fund use, three groups of main indicators are calculated:

• Cost indicators: volume of gross production, gross and net income, as well as profit calculated per 1 ha or 100 ha of agricultural land (primarily arable land).
• Natural indicators: yield of individual crops and their groups (grain crops, silage, hay, green mass, vegetables). For forage crops and arable land, yield is additionally expressed in feed units, digestible protein, and metabolic energy.
• Structural indicators: degree of land cultivation, share of fallows, repeated sowing, perennial grasses, and crops. Expressed in percentages and showing the intensity of arable land use.

To understand the reasons for the results obtained, the structure of the indicators is supplemented by factor analysis. It takes into account the level of machinery equipment, volumes of fertilizer application, introduction of advanced technologies, and new high-yielding cultivars.

Economics of agricultural practices and production intensification

Any agrotechnical and organizational decisions are evaluated based on their economic profitability. The calculation methodology is based on comparing the additional costs of an event and the value of the additional production obtained as a result, at current selling prices.

Let’s consider the calculation of economic efficiency of an agricultural practice using the example of post-harvest processing of seed material:

• Additional costs for seed — 300 RUB/t
• Additional income — 80 RUB/t
• Cost-profitability of seed improvement — 26.6%

The amount of net income obtained is calculated per 1 hectare of the area where work on increasing soil fertility was carried out. If an agricultural practice requires capital investment, its efficiency is assessed by the payback period of these investments.

The main factor in increasing land efficiency is intensification, that is, the competent investment of resources to obtain the maximum output of high-quality produce per hectare at the lowest cost. The process requires the adoption of soil-protective and moisture-saving systems, maintaining a non-deficit balance of nutrients in the soil, using modern cultivars and hybrids, and applying integrated plant protection with an optimal combination of chemical and biological methods.

Increasing production volumes is only possible through intensification. Land is capable of restoring and increasing economic soil fertility only with sufficient resource provision and their integrated use.