The contribution of ecosystem services in agricultural production : an application of the production function approach

Natural Capital Accounting (NCA) integrates economic and environmental data to understand the connections between economic and environmental resources. The European Union (EU) has shown strong policy support for NCA, amending Regulation 691/2011 to include ecosystem accounts (EA) as a mandatory reporting requirement. Efficient and standardized approaches for periodically conducting EA are needed. This report contributes to measuring the contribution of ecosystem services (ES) to crop production and suggests using the Production Function (PF) method as an alternative approach. PF offers the advantages of utilizing open-source data and accounting for the interactions between human inputs and ES. It aligns with the System of Environmental and Economic Accounts Ecosystem Accounting (SEEA-EA) framework and will support the development and maintenance of ES accounts. The report assesses the contribution of crop provisioning service as a final ES, as well as the contribution of pollination and soil retention as intermediate ES. The analysis found positive and statistically significant output elasticities, which measure the percentage change of crop output in case of a 1% change of the production factor, for all ES and at the range of 0.2 to 0.5 percentage units. The elasticity estimates are employed further so as to estimate the share of crop production attributed to the ES during the compilation of the Supply and Use tables of EA. For the 2018 accounts, 44% of the value of production should be attributed to the crop provisioning ES.