Local Natural Capital Influences on the Geospatial Distribution of Farm Incomes

This paper examines the impact of natural capital characteristics such as soil quality, continentality (regional climatic differences) and environmental (rainfall and temperature) on farm market gross margin. The natural capital variables vary geographically and therefore differentially influence farm outputs and costs depending on location. In order to account for the geospatial heterogeneity of natural capital, we use a system of equations known as an income generation model that incorporates physical capital, human capital, and natural capital to adjust the data within the geospatial microsimulation model. In our model, we utilise agricultural administrative and National Farm Survey data. The incorporation of the geospatial heterogeneity due to local variations in natural capital results in considerable adjustments in simulated agricultural incomes across the case study country: Ireland, reflecting agronomic differences arising from the natural capital condition. The results show that after incorporating natural capital drivers into our model, market gross margin per hectare increased in the South and South-East. In contrast, sub-catchment level gross margin per hectare values decreased in the Midlands and parts of the North. Decomposing the variation in income between districts and within districts, we find that accounting for heterogeneity in natural capital also reveals greater income variability, particularly in relation to between-district variability. The outputs of the study demonstrate the impact of natural capital on farm income and the importance of accounting for localised environmental and agronomic conditions.