New agri-environmental measures have a direct effect on wildlife and economy on conventional agricultural land

Study site

The study was performed in three locations (permanent research plots–PRPs) in the southeastern part of Moravia, Czech Republic, in the cadastral territory of Šardice (Fig. 1). The mean annual precipitation covering the wider area is approximately 509 mm, and the mean annual temperature fluctuates around 9.2 °C (CHMI, 2022). The length of the vegetation season reaches up to 170 days, with the highest mean temperature in July (19.3 °C) and the highest mean sum of precipitation also in July (66 mm). The lowest mean temperature is observed in January (−1.9 °C), and the lowest mean sum of precipitation in November (9.1 mm). There are ca. 37 days with snow cover in the area. The bedrock in the location consists mostly of marl, and the soil is identified as Chernozem (World Reference Base for Soil Resources, 2022) with a variable layer of humus.

From the aspect of hunting management, all three PRPs (size of ca. 1 ha) are situated in the hunting district of Šardice, with acreage of about 1833 ha. The basic details of PRPs are described in Table 1. The agricultural land for the given hunting district covers 1666 ha (90.9%), forests cover 83 ha (4.5%), water area comprises 8 ha (0.4%), and other areas (e.g., roadways, recreational areas, urban greenery, field roads, etc.) make up 76 ha (4.1%). Altogether, approximately 330 ha (19.8% of agricultural land) are managed in the ecological regime of agriculture (mostly extensive orchard alleys, wildflower strips, etc.). In the hunting district, there is only roe deer as a representative of the ungulate game species. The average number of roe deer is 156 counted individuals (the average number for the period 2019–2020) counted by local game managers by direct counting method in non-vegetation season (before reproduction), according to Mayle, Peace & Gill (1999). Every year, 61 individuals are hunted per year (the average number for the period 2019–2020 in the entire hunting district; 3.3/100 ha). The European hare is another game species present in the hunting district. There were 228 individuals hunted per year (the average number for the time period 2019–2020 in the entire hunting district; 12.4/100 ha).

Description of agri-environmental measures (AEM)

Both the ecological effects and economy of AEM were evaluated on three PRPs. The schematic design of AEM is visualized in the following picture (Fig. 2). Every agri-environmental measure has approximately the same acreage of clover grass mixture and an extensive orchard alley with grassy undergrowth and a wildflower strip. In the extensive orchard alley were planted common fruit trees like European pear (Pyrus communis L.), apple tree (Malus domestica Borkh.), apricot (Prunus armenica L.), sour cherry (Prunus cerasus L.), European plum (Prunus domestica L.), or sweet cherry (Prunus avium L.) in numbers of 110–160 trees per hectare. The wildflower strip was sown by 105.8 kg of seeds/ha and the clover grass mixture was sown by 25 kg of seeds/ha. The wildflower strip consisted of common oat (Avena sativa L.; 65 kg), brown-corn millet (Panicum miliaceum L.; 15 kg), common buckwheat (Fagopyrum esculentum, Moench.; 15 kg), wild cabbage (Brassica oleracea L. var. Acephala; 0.8 kg), lacy phacelia (Phacelia tanacetifolia, Benth.; 5 kg), and white lupin (Lupinus albus L.; 5 kg). The clover grass mixture was sown with perennial grass (Festuca pratensis, Huds.; 3.75 kg), bulbous oat grass (Arrhenatherum alatius ne elarius a doplnit L.; 1.25 kg), timothy grass (Phleum pratense L.; 0.75 kg), smooth meadow-grass (Poa pratensis L.; 2.5 kg), creeping red fescue (Festuca rubra L.; 2.5 kg), alfalfa (Medicago sativa L.; 3.75 kg), common kidney vetch (Anthyllis vulneraria L.; 1.25 kg), crimson clover (Trifolium incarnatum L.; 1.75 kg), red clover (Trifolium pratense L.; 2.5 kg), common bird’s-foot trefoil (Lotus corniculatus L.; 1.25 kg), and Dutch clover (Trifolium repens L.; 3.75 kg). The AEM were located in the standard, conventionally managed farmland with normal field block acreage. The particular crops on neighboring field blocks are mentioned in Table 1 for every year of monitoring. The description and costs of agricultural operations which were done for the cultivation of clover grass mixture, wildflower strip, and extensive orchard alley are described in File S1.

Wildlife monitoring

The utilization of AEM by European hare and roe deer was monitored in the AEM and the neighboring agricultural land by direct personal monitoring with a thermal camera equipped with a range-finder (Pulsar Accolade). Monitoring was conducted during the morning (05:00–06:00 AM) and evening hours (08:00–09:00 PM) for the optimum thermal contrast between monitored animals and the surrounding landscape. By using the Pulsar Accolade, it is possible to monitor the whole area of PRPs with the control plots in the surrounding landscape (described in Table 1). The numbers of observed individuals were averaged and recalculated to the acreage of 1 ha for a clear comparison. The European hares were personally monitored every morning and evening for 30 days in April 2020 and 2021 when the vegetation cover was low, and the animals were well recognizable by a thermal camera. The roe deer monitoring was done for 31 days in May 2020 and 2021. This time period overlaps with the season when roe deer fawns are born (Christen, Janko & Rehnus, 2018).

AEM economic analysis

Financial analyses were calculated on differences between costs and incomes in AEM and conventional agriculture. The amount of subsidy was calculated according to Government Regulation No. 75/2015 on the conditions for implementing agri-environmental climate measures of the EU subsidy system. The costs of agriculture measures were calculated according to the average prices common in 2020–2021. Items of costs and incomes according to particular measures are listed in Files S1 and S2.

Moreover, the financial returns were calculated for different potential agricultural uses of the land. The selected land use variants are associated with different investment costs of the land purchase. The authors assume that when purchasing land, the price will neither be influenced by the prospective agricultural management, nor by the land valuation classification. Therefore, normal market prices of agricultural land of varied utilization were used for the analyses. Land prices were calculated on the basis of the data from the largest real estate portal in the Czech Republic, Sreality.cz, as the median of market prices of land in the category “field”, “orchard” and “meadow” in the South Moravian Region in late April 2022. For the calculation of a usual price, land plots with an area of more than 0.5 ha, intended for farming and not adjacent to residential districts were used. Land prices, operational income, operational expenses, and other values were converted from CZK to EUR at the exchange rate of CZK 25.625/EUR as of July 27, 2021, according to the Czech National Bank (2021). In the case of conventional crops (wheat, rapeseed) and wildflower strips, the median of the total number of 102 sale offers were considered. In the case of clover grass mixture, the median of 12 available offers were considered, and for the extensive orchard alley, the median of 26 available offers. The land prices were: A Wildflower strip 15,220 EUR/ha, B Extensive Orchard Alley 25,366 EUR/ha, C Clover Grass Mixture 14,634 EUR/ha, D Wheat 15,220 EUR/ha, E Rapeseed 15,220 EUR/ha. Cash flow from land management is the difference between operational income and expenses in individual years. The income from the sale of cultivated commodities, which was part of operational income, was valued according to the commodity prices stated by the Czech Statistical Office for 2021 (CSO, 2022). The costing of operational expenses corresponds to the sum of the financial valuation of the individual agrotechnical operations required to ensure the sowing (including the seed), treatment, and harvesting of each crop. These inputs are costed out at the current prices, in the form of services. An average price, determined by demand from three farms in the study area (according to Files S1 and S2), was considered. The cash flow structure is constant over a 5-year period, and recurring over a 5-year interval.

Some of the subsequently applied indicators for assessing economic efficiency take into account the time value through discounts. There will be three levels of interest rate used for discounting, namely:

Rf—risk-free interest rate—this will be derived, as recommended by theory, from the risk-free yield on government bonds corresponding to the life of the bond. A 15-year investment period, derived from 5-year and 10-year government bond yields, assuming a linear increase during its appreciation, as there are currently no Czech government bonds with a 15-year maturity on the capital market. According to the Kurzy.cz web portal (Kurcy.cz, 2021), the yield of the basket of government bonds with an average remaining maturity of 5 years (June 30, 2021) was 1.55% p.a., and with an average remaining maturity of 10 years 1.67% p.a. The yield of government bonds with a 15-year maturity was calculated assuming a linear relationship between the yield and the number of years of maturity—it yielded 1.79% p.a.

Rd—(cost of debt rate) the interest rate on debt financing—determined as the average variable interest rate on new mortgages. This was 2.14% p.a. as of May 31, 2021 (Kurcy.cz, 2021).

WACC—the weighted average cost of capital is a value of an agriculture holding’s cost of capital in which equity and debt capital are proportionately weighted. In NACE (NACE means Nomenclature Générale des Activités économiques dans les Communautés Européennes” and it is the statistical classification of economic activities in the EU.) A: Agriculture, Forestry and Fisheries, the Ministry of Industry and Trade (MPO.CZ) reported WACC costs of 11.74%.

Evaluating the economic efficiency of investments

The economic efficiency of the investment in the land with regard to its management will be assessed using the following indicators: Internal rate of return (IRR), net present value (NPV), profitability index (PI), payback period (PP), and discounted payback period (DPP). These selected methods will effectively evaluate whether the investment in the land is profitable for each scenario of subsequent management and which of the variants of agricultural management (variants A to D and E rotation) is the most economically attractive. These indicators are commonly used in various industries, including agriculture, forestry, or ecology, to assess the efficiency of investments (see, e.g., Kang et al., 2020; Sharma & Irmak, 2020). PP (Eq. (1)) versus DPP (Eq. (2)) does not take into account the time value of money. The PP indicator shows how many years it takes for the investor to recover the initial investment through operating income from the investment. The PP must be shorter than the life of the investment. (1)${\displaystyle II={\sum }_{i=1}^{PP}C{F}_t}$ where: PP—Payback Period, CF—Future Cash Flows, II—Initial Investment, t—time period.

DPP operates by discounting future cash flows and recognizing the time value of money. The discount rate can be set at an rf, rd, and WACC. Again, the critical threshold is the life of the investment, which the DPP must not exceed, and when multiple options are selected, the investment with the shortest discounted payback period is the most appropriate. The indicator appears as follows. (2)${\displaystyle II={\sum }_{i=1}^{DPP}\frac{C{F}_t}{{\left(1+d\right)}^t}}$ where: DPP—Dynamic Payback Period, CF—Future Cash Flows, d—discount rate of return that could be earned in alternative investments, II—Initial Investment, t—time period.

Net present value (NPV; Eq. (3)) calculates the current total value of a future cash flow stream. According to the NPV, an acceptable investment is the one that has a positive net present value, and the best investment that has the maximum NPV. The NPV is the difference between the accumulation of discounted net cash flows in each year of the life of the investment and the capital expenditure at the beginning of the investment. Calculation of NPV; see, e.g., Gren & Amuakwa-Mensah (2020) or Sharma & Irmak (2020). (3)${\displaystyle NPV=PVCF-II={\sum }_{i=1}^n\frac{C{F}_t}{{\left(1+d\right)}^t}-II}$ where: NPV—Net Present Value, PVCF—Present Value of Future Cash Flows, CF—Future Cash Flows, II—Initial Investment, d—discount rate of return that could be earned in alternative investments, t—time period, n—total number of time periods.

However, the NPV indicator is only one of several potential dynamic indicators used to evaluate the acceptability of an investment. The NPV indicator can be complemented by the Profitability Index PI if the size of the investment differs between investment options, as in this case. In the case of an acceptable investment, the resulting PI index (Eq. (4)) reaches a minimum value ≥ 1; see, e.g., Ellabban & Alassi (2019) or Yoomak, Patcharoen & Ngaopitakkul (2019). (4)${\displaystyle PI=\frac{PVCF}{II}=\frac{\sum _{i=1}^n\frac{C{F}_t}{{\left(1+d\right)}^t}}{II}}$ where: PI—Profitability Index, PVCF—Present Value of Future Cash Flows, CF—Future Cash Flows, II—Initial Investment, d—discount rate of return that could be earned in alternative investments, t—time period, n—total number of time periods.

The IRR is the discount rate at which the NPV equals 0. When evaluating an investment on the basis of IRR, the principle is that an investment is acceptable only if the value achieved for this indicator is higher than the appreciation of the risk-free investment rf or equal to and higher than the cost of capital rd or WACC (Hazen & Magni, 2021). (5)${\displaystyle {\sum }_{i=1}^n\frac{C{F}_t}{{\left(1+IRR\right)}^t}-II=0}$ where: IRR—Internal Rate of Return, CF—Future Cash Flows, II—Initial Investment, d—discount rate of return that could be earned in alternative investments, t—time period, n—total number of time periods.

Data analysis

For comparing differences between European hare and roe deer in 2020 and 2021, the Wilcoxon rank-sum test was employed. All statistical procedures were conducted in R software (R Core Team, 2018). The significance level was set to α = 0.05. Principal component analysis (PCA) was carried out in CANOCO 5 software (Lai, 2013) to assess the relationship between wildlife density and economic parameters of both AEM and conventional agriculture. Before the analysis, the data was standardized and centralized. The results of PCA were illustrated by an ordination diagram. Data from individual PRPs were merged for statistical evaluation because there was no significant difference between them.

Economic advantage of using your own land

The selected land use variants differ in their income (revenue), expenditure (costs), and therefore, cash flow (net income) in each year of management. Most types of costs repeat each year at the same amount (var. A Wildflower strip, B Extensive Orchard Alley, D Wheat, E Rapeseed). Only clover grass mixture has higher costs in the first year, while in the following years of the 5-year management cycle, the costs remain the same (see Table 2). Considering the need to rotate the rapeseed and wheat crops, these two crops will alternate on the plot. Therefore, their revenues, costs, and cash flows will be calculated by averaging the two.

With regard to the assessed revenue parameter, the highest values were found for the extensive orchard alley (see Table 2). Net income (cash flow) from extensive orchard alley is four times higher than from clover grass mixture, and cash flow from wheat and rapeseed is nearly three times higher than from clover grass mixture, which ranks last (we assume that the harvested forage will be sold as feed).

The lowest value of operational costs (EUR 134) was found in the case of the extensive orchard alley management. The calculation considered an established orchard that is already fully fruiting. A relatively comparable operational expenditure was found for the wildflower strip (EUR 259) and clover grass mixture (EUR 284). These three farming variants differ significantly from the other two, in terms of costs (wheat EUR 639; rapeseed EUR 805; mean EUR 722). The operational costs have a wider variance compared to the level of income. If we compare the annual expenditure on the extensive orchard alley (EUR 134) and on rapeseed cultivation (EUR 805), we find a difference of six times their amount, in the case of wheat—five times their amount. In terms of income, the maximum difference in revenue between extensive orchard alley and clover grass mixture is approximately three times (EUR 1685 wheat and rapeseed vs. EUR 558 clover grass mixture). Consequently, the calculated “cash flow” value corresponds to the highest attractiveness in the case of extensive orchard alley (EUR 1190) wheat and rapeseed cultivation (EUR 963), wildflower strip (EUR 673), clover grass mixture (EUR 274), as shown in Table 2.

Economic advantage of land investment

Investment land has the lowest cost for growing clover grass mixture (EUR 14,634/ha), while the most expensive is the acquisition of an established orchard (EUR 25,366/ha). Investment in land for A Wildflower strip, D Wheat, and E Rapeseed is comparable to the purchase price of land, at an average of 15,220 EUR/ha. Table 3 shows that, in terms of the PP indicator, the fastest return on investment in agricultural land over 16 years was found in the case of sowing the land with wheat and rapeseed, followed by extensive orchard al-ley with a payback period of 20.32 years, and then the wildflower strip with a payback period of 22.61 years. Clover grass mixture clearly shows to be the worst value, with a return of almost 54 years.

Considering the time value of money according to the DPP indicator and depending on the discount rate chosen (rf, rd, WACC), the payback period of the investment is extended. For both DPPrf and DPPrd, the ranking of the length of the investment payback period remains unchanged. The DPPrd values are higher than DPPrf, because rd is at the level of the capital cost when financed by a mortgage loan (2.14%), while rf reflects the alternative risk-free appreciation and is, therefore, lower (1.55%). DPPWACC maintains the previous ranking, with all investment payback periods at a discount rate of 11.74%, having a return above 80 years. Wheat and rapeseed (var. DE) are the most economically advantageous in terms of all of the indicators in Table 3. Extensive orchard alley (var. B) ranks second and wildflower strip (var. A) ranks third. Clover grass mixture (var. C) has the longest return period.

NPV values were also calculated, again with discount rates rf, rd, and WACC. In terms of NPVrf, wheat and rapeseed perform best and clover grass mixture worst. Generally, the land use variants do not achieve positive values over a time horizon of 15 years. This is due to the current high market value of land. In the case of the NPVrf calculation using 2020 land prices according to land suitability, all of the variants, reach negative NPVrf values. Wheat and rapeseed perform best with an NPVrf of EUR -3090.

NPVrd assesses whether the investment would be worthwhile if the land purchase were financed with a loan (Table 4). For all variants, the investment is not profitable with credit financing over a 15-year time horizon, as their NPVrd values <0. Again, wheat and rapeseed perform best with an NPV of EUR -3617. Using a discount rate of WACC, the NPV of all land use variants is negative. It follows that the farmer should use bank financing to finance such an investment and not use mixed corporate capital, as this will further reduce the NPV of the investment.

The PI indicator puts ∑DCF and the initial value into the ratio and thus takes into account the size of the initial investment, which can be crucial for the investor. PI >1 indicates that the discounted cash flow from the investment exceeds the initial investment. This is not the case for all variants, in terms of PIrf, as the discounted income will not reach the price of the purchased land even after 15 years. The closest to the value of 1 was the PIrf of wheat and rapeseed with 0.7969.

With credit financing (discount rate rd of 2021), the situation became worse, and all variants are below the economic acceptability threshold.

Taking into account the cost of equity and cost of debt through the discount rate at the WACC level (11.74%), none of the variants cross the critical threshold 1. Even in the case of wheat and rapeseed (DE) as the best economic appreciation of the land, the PIWACC value achieved was only 0.4141.

The IRR indicator estimates the annual rate of appreciation that an investment will generate each year over a given investment horizon. Table 5 clearly shows that the extreme increase in the market price of land in recent years has meant that Wildflower Strip (A), Extensive Orchard Alley (B), Clover Grass Mixture (C), and even Wheat and Rapeseed (DE) do not generate sufficient net income to ensure a return on investment over a 15-year time. For their discounted revenue to reach the value of the land investment, their discount rates would have to be negative. Specifically, clover grass mixture has a discount rate of −12.56%, extensive orchard alley, −4.11%, wildflower strip, −4.74%. Wheat and rapeseed generate the highest appreciation (−0.69%).

Relationship between wildlife and economy

Principal component analysis results expressing the relationship between wildlife and economic parameters are presented in the form of an ordination diagram in Fig. 5. The first ordination axis represents 72.12%, the first two axes 96.88%, and the four axes combined account for 99.86% of data variability. The x-axis represents the profitability index and revenues. The y-axis represents the initial value. The internal rate of return was positively correlated with revenues, profitability index, and cash flow, while these parameters were negatively correlated with the payback period. The abundance of monitoring wildlife (hare and roe deer) was negatively correlated with all economic parameters except the initial value and payback period. The lowest difference between variants was observed for wheat and rape (and their combination), while the marks indicating grass mixture and orchard alley were very far from the others. Generally, high values of economic indicators were characteristic for wheat and rapeseed, while AEM, including grass mixture, wildflower strip, and extensive orchard alley, were typical for a high abundance of wildlife and payback period.