Farm-scale natural capital accounting – creating a virtuous cycle from paddock to market

Jim Radford (Research Centre for Future Landscapes, La Trobe University) & Sue Ogilvy (Integrated Futures)

Having worked in agricultural landscapes in southern Australia for the last 25 years, we have witnessed the demise of biodiversity at an alarming rate. The proximate causes are well-documented and include habitat destruction and fragmentation; degradation of remnant habitat due to invasive species, despotic native species, and altered fire and hydrological regimes; climate change-induced drought and heat stress; and increased prevalence of pesticides and other pollutants in the environment.

Calls to reform land-use for the sake of biodiversity have failed to gain traction, with some notable exceptions (e.g., Lurg Hills and Project Hindmarsh restoration projects, Gunbower Creek and Kerang wetlands environmental watering). This is because a narrow focus on biodiversity conservation fails to address the ultimate drivers of decline – the economics of market pressures that underpin the everyday management decisions made by farmers. A compelling business case for maintaining biodiversity and ecosystem function in agricultural landscapes has not yet gained mainstream acceptance.

A glaring contradiction in the prevailing ’business as usual’ approach is the widespread appreciation that natural capital – that is, all biotic and abiotic elements of the natural environment, including soil and soil biota, water resources, native vegetation and the fauna it supports, as well as pastures, crops and livestock – is the foundation of agriculture. Aside from agricultural products (food and fibre), natural capital also generates ecosystem services that have private and public benefits for people, such as air and water filtration, flood protection, carbon storage, and habitat for wildlife that assist with pollination, pest control, and nutrient cycling in production areas.

Globally, governments, consumers and agricultural supply-chains are seeking farming practices that are environmentally sustainable and do not further deplete biodiversity. However, quantifiable, verifiable and repeatable methods that measure the environmental performance of agricultural enterprises are lacking. This is the gap that farm-scale natural capital accounting aims to fill.

Natural Capital Accounting

Dr Jim Radford visits a sheep farm as part of the Farm-scale Natural Capital Accounting Project. Credit: AJ Taylor


Natural capital accounting enables farmers to measure and manage the natural capital on their farms. Like financial accounting, natural capital accounting abides by an agreed set of standards, but it explicitly reports on stocks and flows in natural capital over time. Different metrics in the accounts measure different aspects of environmental performance for the entire farm, including production areas, such as ecosystem integrity, soil condition, carbon balance, net export of nutrients/pollutants, and impact on biodiversity.

Natural capital accounting measures the environmental impacts (positive and negative) of agriculture. Natural capital accounts complement financial accounts to provide an expanded view of farm profits that incorporate changes in natural capital. This broadens our understanding of farm performance by considering the different ways in which farm practices support or diminish natural capital and ecosystem function, and conversely, how natural capital contributes to the financial performance of the farm business.


What’s in it for the farmer?

Natural capital accounting puts a farm’s natural assets on the balance sheet. More importantly, what is measured can then be managed to ensure farm practices are improving natural capital and environmental performance. Our vision is that natural capital accounting helps farmers to:

  • Determine where improvements can be made to farm management to increase environmental health and profitability.
  • Uncover opportunities to improve farm productivity and profitability through better management of natural capital.
  • Demonstrate the public benefit of maintaining and improving on-farm natural capital (opening new income streams, such as habitat credits and stewardship payments).
  • Communicate a farm’s environmental performance to a range of stakeholders (e.g., buyers, lenders, insurers, investors).

The Farm-scale Natural Capital Accounting Project

The Farm-scale Natural Capital Accounting Project (2020-2023) is led by the Research Centre for Future Landscapes at La Trobe University, and funded through the Australian Government’s Smart Farming Partnership program with co-investment from La Trobe University and Odonata Foundation, in collaboration with eight other organisational partners and participating farmers.

The project will develop a standardised framework for farm-scale natural capital accounting and produce farm-scale natural capital accounts for 50 farms in NSW, Victoria and Tasmania. The accounts will be available on a user-friendly digital platform, enabling the cost-effective collection and update of data and delivery of the information in a farmer-friendly format, coherent with United Nations System of Environmental Economic Accounting, which has just been adopted by the United Nations Statistical Commission as an international statistical standard.

The natural capital accounts will be co-designed with farmers to ensure they are understandable, trusted and provide relevant information to help farmers improve farm management and environmental performance. We aim to design natural capital accounts that are valued by all farm stakeholders – farmers, agricultural supply-chains, financiers and consumers.

While it is logical that improvements in on-farm natural capital will flow through to improvements in biodiversity, sound evidence for this is scarce. To investigate this, we will also measure aspects of biodiversity (e.g., native plants, birds) and selected ecosystem services in relation to standard measures of on-farm natural capital. These relationships underpin the value of natural capital and are often assumed but rarely measured.

Our vision is that farm-scale natural capital accounts will empower farmers to gain financial leverage and business resilience from proactive environmental management. Through demonstrating the value of natural capital for profitable and sustainable farming, we aim to promote farming practices that have positive outcomes for the natural resource base that underpins our food system, while turning the tide on the loss of biodiversity in agricultural landscapes.

For more information, contact Jim here.

This article was first published in the ESA Bulletin March 2021. 

A remnant patch of Red Gum Forest on a farm property can provide ecosystem services and habitat for biodiversity. The Farm-scale Natural Capital Accounting Project will also measure aspects of biodiversity and ecosystem services on farmland, in relation to standard measures of on-farm natural capital. Credit: Dr Alex Maisey.



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