Abstract

Soil natural capital is a fundamental input in agricultural production, yet its economic value as a productive asset remains poorly quantified. This study develops an integrated framework to value soil natural capital by combining soil science and production economics. We adopt a two-step approach. First, structural equation modelling (SEM) is used to construct a latent index of soil natural capital from multiple biophysical soil indicators. Second, this latent measure is incorporated into a double flexible multi-output cost function that jointly accounts for variable and quasi-fixed inputs. This framework allows us to estimate the shadow value of soil natural capital, analyse input substitution patterns, and assess potential cost complementarities between agricultural production and ecosystem services. The empirical analysis relies on an unbalanced panel of 20,957 observations from 3,354 French crop farms drawn from the Farm Accountancy Data Network (FADN), combined with detailed soil information from the French Soil Quality Measurement Network. Results yield four main findings.
First, soil natural capital significantly reduces production costs, confirming its role as a cost-reducing productive asset. The estimated shadow value of soil natural capital is approximately €63 per hectare and per unit of the soil natural capital index. Second, the estimated marginal cost of soil carbon storage is approximately €42 per tonne, providing an economic valuation of the climate regulation service supplied by agricultural soils. Third, soil natural capital mainly acts as a substitute for hired labour, suggesting that better soil conditions reduce labour requirements and improve production efficiency. By contrast, its relationship with intermediate inputs is negative but not statistically significant. Fourth, we find no significant cost trade-offs between crop production and soil carbon storage, suggesting that climate-oriented soil management practices can be implemented without systematically increasing production costs.

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