Changing the understanding of crop production: Integrating ecosystem services into the production function

Ecosystem services, such as weed and pest regulation provided by biodiversity, are vital for sustainable crop production. However, the economic contributions of biodiversity are often overlooked in commercial markets due to the absence of market prices. This complicates quantification and comparison with physical capital, leading to poor economic decisions. To improve the economic understanding of crop production, we combine economic and ecological analyses and develop a structural production economic model that accounts for ecosystem services' contributions to crop yields. Our structural crop production function integrates both anthropogenic inputs and ecosystem services, quantifying production possibilities along a spectrum from input-intensive to ecosystem service-based management practices. The model explicitly depicts resource allocation decisions across labour, physical capital, and intermediate inputs. To mitigate and reverse biodiversity stressors in intensive agriculture, alternative management practices that maintain productivity while reducing reliance on polluting inputs are essential. We review and recommend economic and ecological indicators, ranging from ideal measurements to available proxies, for model estimation, addressing the trade-offs between accuracy, feasibility, and data collection costs. Our analysis emphasises the need for comprehensive information to operationalise the understanding of productivity and substitutability between ecosystem services and biodiversity-adverse inputs such as agrochemicals and energy.