Faculty of Economics and Social Sciences

The Evaluation of Natural Resources

Edited by:

Gyrgy Ugrsdy PhD

Jzsef Molnr CSc

Istvn Szcs DSc

Gdll, 2014

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The Evaluation of Natural Resources

Program-leader: Istvn Szcs DSc

Program-secretary: Gyrgy Ugrsdy PhD Authors: Adrienn Vida PhD student Andrs Molnr PhD Anna Dunay PhD Annamria Fredi Kovcs PhD Csaba Blint Ills CSc Csaba Fogarassy PhD Enik Seidel senior maneger va Bede Szke PhD va Laczka PhD va Neubauer PhD student Gbor Szilgyi senior counsel Gbor Valk PhD Gyrgy Ugrsdy PhD Gyrgyi Gbriel Tzsr PhD student Istvn Szcs DSc Jzsef Lehota DSc Jzsef Molnr CSc Judit Villnyi PhD

Klra Tth Lks PhD Lajos Franczen senior counsel Lszl Lks jr. PhD Lszl Szelnyi PhD Mria Farkas Fekete PhD Mrk Molnr PhD Nndor Komromi PhD Nra Dienes Borbly counsel Pl Aujeszky consultant Roland Tth PhD student Sing Mahesh Cumar PhD Szergej Vinogradov PhD Tmea Cseh PhD student Zoltn Ragoncsa PhD student Zsolt Balyi PhD student Zsolt Baranyai PhD Zsuzsanna Lehota PhD student Zsuzsanna Nar Tth PhD

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Revised by:

Endre Tth Dr.

Technical redactor:

Valria Trojk

ISBN:

Responsible Publisher:

Agroinform Publishing and Printing Ltd. H-1149 Budapest, Angol u. 34.

Istvn Bolyki

Managing director

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CONTENTS

EVALUATION OF NATURAL RESOURCES A UNIFIED APPROACH (Theory Methodology Ractice) ........................................................................................ 9 1. METHODOLOGICAL ISSUES OF THE EVALUATION OF NATURAL

RESOURCES ................................................................................................................. 11

1.1. Terms used int he research ....................................................................................... 11 1.2. A system approach of the evaluation of natural resources....................................... 13 1.3. The system of land use ............................................................................................. 22 1.4. Evaluation of the different resources int he SNA .................................................... 26

2. MAIN CHARACTERISTICS OF NATURAL RESOURCES AND SOME

EVALUATION PROBLEMS ........................................................................................ 33

2.1. Basic princples of the economic evauation of natural resources ............................. 33 2.2. The importance of worlsd prices and prognoses int he evaluation of natural

resources .................................................................................................................. 38 2.3. The effects of the utilization of natural resources on each other a syste

approach ................................................................................................................... 39 2.4. Methodological overview on energetic models ....................................................... 41

2.4.1. Classification of energetic models ............................................................... 42 2.4.2. Comparison and evaluation of different energetic models .......................... 43

2.5. Use and methods of energetic models...................................................................... 45 2.5.1. Top-down models ........................................................................................ 45 2.5.2. Bottom-up models ....................................................................................... 46 2.5.3. Hybrid models ............................................................................................. 47

2.6. Balance models used int he Hungarian practic the introduction of ENPEP/BALANCE model and its utilization.......................................................... 48

2.6.1. Description of the ENPEP model and the fields of its use .......................... 48 2.6.2. Energy Network and Equilibrium Solution of the ENPEP ......................... 49 2.6.3. Available nodes and link sin the ENPEP model ......................................... 50 2.6.4. Decision ....................................................................................................... 52 2.6.5. Pricing .......................................................................................................... 53

2.7. Energy demand ........................................................................................................ 53 2.8. Hungarys fossile resources and reserves ................................................................ 55 2.9. Hungarys mineral assets of raw materials .............................................................. 57

3. EVALUATION OF AGRICULTURAL LAND AS AN ASSET ................................... 64

3.1. The correlation of land qualification and economic soil evaluation ........................ 64 3.1.1. Categories of the economic evaluation of soil ............................................ 64 3.1.2. The objective of the economic evaluation of land ....................................... 65

3.2. The main quantitative methods of calculating land value........................................ 67 3.2.1. Land price as capitalised land rent .............................................................. 67 3.2.2. Definition of and yield as a residue ............................................................. 69 3.2.3. Definition of land value by substitute cost .................................................. 70 3.2.4. Measuring the partial yield of production factors by production ................ 70

3.3. Land evaluation methods applied in Hungary ......................................................... 72 3.3.1. Setting the loan-to-value ratio of soil .......................................................... 72 3.3.2. The land evaluation methodology of NHAMO ........................................... 74

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3.4. The economic land evaluation based on D-e-Meter land evaluation system ........... 75 3.5. The asset value of arable land ................................................................................... 78

3.5.1. Theoretical considerations ........................................................................... 79 3.5.2. Material and method .................................................................................... 79

3.6. Asset valuation of plantations ................................................................................... 83 3.6.1. The plantation evaluation system of the NLAM .......................................... 86 3.6.2. Plantations assessment of the present research program.............................. 89

3.7. Evaluation of the vegetable garden .......................................................................... 93 3.8. The special methodology of evaluating grasslands .................................................. 93 3.9. Reed .......................................................................................................................... 95 3.10. Evaluation of ponds ................................................................................................ 96 3.11. Evaluation of forest ................................................................................................ 96 3.12. The aggregated land assets of the Hungarian agriculture in 2010 .......................... 98

4. WATER VALUE AND WATER RESOURCE EVALUATION IN HUNGARY ....... 103

4.1. Economic approach of water resource .................................................................... 103 4.2. Economic approach of characteristics of water resource ....................................... 104 4.3. Methodological background of water resource valuation ...................................... 105

4.3.1. Non-use value............................................................................................. 107 4.3.2. Use value .................................................................................................... 108 4.3.3. Cost-based valuation methods ................................................................... 110

4.4. Interactions considered ........................................................................................... 111 4.4.1. Dependence of system constituents ........................................................... 111 4.4.2. Mutual effects............................................................................................. 112 4.4.3. Summary of variables, factors.................................................................... 112 4.4.4. Interpretation of water rent......................................................................... 114

4.5. Water Allowance Coefficient ................................................................................. 115 4.5.1. Water footprint ........................................................................................... 115 4.5.2. Water Allowance Coefficient (WAC) ........................................................ 119 4.5.3. Adjusted Water Value ................................................................................ 121

4.6. Results by Water Allowance Coefficient ............................................................... 122 4.6.1. National agricultural water value ............................................................... 125

4.7. Results .................................................................................................................... 127 5. METHODOLOGICAL ISSUES OF THE EVALUATION OF ATMOSPHERIC

RESOURCES ................................................................................................................ 131

5.1. Special problems of the evaluation of atmospheric resources ................................ 131 5.1.1. Atmospheric resources ............................................................................... 132 5.1.2. The state, the burden and risk factors of atmospheric environment .......... 132 5.1.3. Changes of the atmospheric carbon dioxide .............................................. 134

5.2. Methodology of emission budget calculations ....................................................... 138 5.2.1. Measurability of the clearness of air .......................................................... 139 5.2.2. Evaluation of atmospheric resources ......................................................... 140

5.3. Evaluation methods of atmospheric resources ....................................................... 142 6. THE STRUCTURAL FORMATION OF OPTIMIZATION PLANNING AND

PRODUCTION-PROGRAMMING MODELS (Production of a marketable copyright product) ............................................................ 148 6.1. Materials and methods ............................................................................................ 148

6.1.1. Databases used for the studies.................................................................... 148

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6.1.2. The applied data-analyzing methods ......................................................... 149 6.2. Results ................................................................................................................. 149

6.2.1. The production model ................................................................................ 150 6.2.2. Evaluation of model-calculations .............................................................. 154

6.3. The generalized copyright version of the model ............................................... 158 7. ANALYSIS OF CLIMATE SENSITIVITY OF PRODUCTION AREAS ON

COUNTY-LEVEL...................................................................................................... 161

7.1. Materials, method ................................................................................................ 161 7.2. Results ................................................................................................................. 162

7.2.1. Examination of year effects by analysis of variance ................................. 163 7.2.2. Investigating the effect of the counties by analysis of variance ................ 165 7.2.3. Analysis of the yield stability of the regions ............................................. 167 7.2.4. Conclusions based ont he analysis ............................................................ 171

8. SCARCITY OF NATURAL RESOURCES: TO WHAT EXTENT DO REAL

PRICES REFLECT RESOURCE SCARCITY? ........................................................ 174

8.1. Methodology ........................................................................................................ 175 8.2. Scarcity indicators and resource price changes ................................................... 175

8.2.1. Scarcity indicators ..................................................................................... 175 8.2.2. Resource price changes ............................................................................. 177

8.3. Inflation bias inherent int he CPI ......................................................................... 178 8.4. Overview of the examined materials ................................................................... 179 8.5. Results and discussion ......................................................................................... 179

8.5.1. Price trends. ............................................................................................... 179 8.5.2. Material scarcity ........................................................................................ 182

9. MODELING SCARCITY IN ECONOMIC GROWTH ............................................ 188

9.1. Production function extended with energy use .................................................... 188 9.1.1. Introducing energy efficiency int he model ............................................... 190

9.2. Impact of energy efficiency improvement ........................................................... 192 9.3. Estimation and assessment of a domestic production function ........................... 194 9.4. Conclusions ......................................................................................................... 194

10. MEASUREMENT OF SUSTAINABILITY OF AGRICULTURE .......................... 196

10.1. The concept of sustainable agriculture .............................................................. 196 10.2. Indicators of sustainable agriculture .................................................................. 197 10.3. Examination of indicators .................................................................................. 201 10.4. Conclusions and further research ...................................................................... 204

11. THE LEVEL OF PERCEIVED TECHNOLOGICAL AND NATURAL

RESEOURCE RISKS AND ALTERNATIVES FOR RISK MITIGATION IN THE HUNGARIAN FOOD CONSUMERS BEHAVIOUR ............................................. 206

11.1. The definition and role of risk in food purchase decisions................................ 206 11.2. Detection and management of food risks .......................................................... 208 11.3. Food risks and risk mitigating consumer behaviour patterns in Hungary ......... 211

12. THE EVALUATION OF NATURAL RESOURCES

Practices an endeavors in he Central Statistical Office (HCSO) ................................ 218

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12.1. Material flow, mineral assets ............................................................................. 219 12.2. Agricultural land ................................................................................................ 223 12.3. Water .................................................................................................................. 233 12.4. Air ...................................................................................................................... 253 12.5. Integrating assets in national accounts .............................................................. 260 12.6. Subsoil asset accounts ........................................................................................ 269

13. MICROECONOMIC MODELLING METHODS FOR UTILIZING

RENEWABLE AGRICULTURAL ENERGY SOURCES ........................................ 273

13.1. Literature review ................................................................................................ 273 13.2. Production of raw materials of biomass energy ion of raw materials of

biomass energy .................................................................................................. 278 13.3. The process of biomass processing .................................................................... 281

13.3.1. Liquid biomass ....................................................................................... 281 13.3.2. Solid biomass ......................................................................................... 283

13.4. Methods used in microeconomic analysis ......................................................... 287 APPENDIX ........................................................................................................................ 293

Appendix 1. Main characteristics of natural resources and some evaluation problems. ....................................................................................................... 294

Appendix 2. Classification of natural assets. ..................................................................... 301 Appendix 3. The various plantations and value derivation. .............................................. 306 Appendix 4. The evaluation methods of TR system. ...................................................... 312 Appendix 5. General description of grassland. .................................................................. 318 Appendix 6. Monitoring system of natural reseurces. ....................................................... 323 Appendix 7. Regions in the evaluation of air pollution based on measurement

data network .................................................................................................. 325

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EVALUATION OF NATURAL RESOURCES A UNIFIED APPROACH

(Theory Methodology Practice) Introduction

This book is the scientific summary of the results of the TMOP-4.2.1./B-11/2/KMR-2011-0003 research project.

The primary aims of this research project were to lay down the scientific foundation for the action programmes and the regulatory system of safe and sustainable use of natural resources, to help to establish a sustainable development strategy and to make the evaluation and the monitoring of the whole process. By the dissemination of the scientific results, we wish to improve the fulfilment of the EU environmental requirements and the elaboration of a new, better-targeted support scheme that may improve the social cohesion. The main objectives of the project were the following:

to elaborate a calculation algorithm for the valuation of natural resources;

to develop optimization models by which the ecological carrying capacity of a given area and the efficient use of natural resources may be improved;

to elaborate educational materials by which the environmental friendly attitudes and the behaviour of the society in relation with the climate change and the adaptation to the possible changes may be improved.

This project is directly connected to the National Strategy for Sustainable

Development and its objectives are in compliance with the measures of the New Hungary Rural Development Programme. The results of the project may be utilized by the supports related to the measures for investments for improving the competitiveness of the agricultural sector and the preservation of the values of natural environment and rural communities. In the past decades, the sustainable development of the global economy and the problem of the limited availability of some natural resources became one of the most widely studied fields either for scientific researchers or the political and economic decision makers. Most of the natural resources are limited in time and/or space. The profit-oriented economic growth, the increased consumption level forced by the increased well-being may cause the exhaustion of non-renewable resources or destroy the renewing capacity of renewable resources. Since the report of the Club of Rome (1971) and the Brundtland Commission (1987) several scientific results, political statements and commitments has been formulated in this topic, but in practice, the attitude of the societies in relation with the natural resources is rather wasteful until present. Nevertheless, the importance of the sustainable social behaviour is widely accepted by the public and the sustainable management of the natural resources, the changes of the attitudes and objectives are also well known for the society.

The report of the Brundtland Commission (Our common future) and the Agenda 21 document of the Rio de Janeiro Earth Summit laid down the principles of the sustainable development and formulated suggestions and proposals for fulfilling this concept. The concept, the meaning of this phrase and particularly its practical use

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should be clarified to avoid the problems deriving from the different interests of the different stakeholders.

Several international and Hungarian literature sources deal with the interpretation, evaluation and utilization of natural resources. The initial resources were connected mainly to fossil energy sources. At the World Summit on Sustainable Development (held in 2002, Johannesburg), it was declared that the utilization of the natural resources shall contribute to the economic growth, the improvement of social welfare, social justice and equal opportunity.

In several EU countries (particularly in the new member states), the effectiveness of the agricultural production is low. The accession could not decrease the differences between the old and new member states; moreover, the different support level has broadened the gap. As the initial point of sustainable development is the efficient use of natural resources which requires a dynamic adaptation to the environmental changes, (i.e. the impacts of climate change) therefore a regional approach is needed for the evaluation of circumstances. In our former researches (NKFP-2001-4/032, NKFP-2004-4/014 and 015) we summarized the theoretical bases for the examination of efficiency and competitiveness at macro (national economy) level, meso-level and micro (enterprise) level, and we also elaborated the methods which can be used in domestic circumstances. The results of this research work is summarized in the final reports of these projects (Szcs and Farkasn, 2004; s Szcs and Farkasn, 2008). According to our findings, we suggested to assess the social efficiency of the factors of sustainable development by the total net social value of the production factors and by the evaluation of their contribution to the social welfare.

In the present research project, we examine the methodological issues of the unified evaluation of natural resources. In our opinion, only a unified methodology may give an appropriate base for the estimations of the optimal use of available natural resources, where the objective function is not only the profit maximization but also the improvement of social welfare in compliance with the requirements of sustainability.

During the implementation of the research programme, the following natural resources were analysed:

mineral resources and raw materials,

agricultural land,

water asset,

air asset (atmospheric resources),

forests, as a specific land use form.

The research panels were elaborated by the same logical context. At first the different natural resources were positioned in the whole system of resources, then their theoretical and methodological issues were summarized, and finally, the efficient utilization of the resources were presented by different models on their use in the practice.

In the research project, the researchers of the Research Group for Economic Analysis and Methodology took part, by the major contribution of external experts and PhD students.

The Editors

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1. METHODOLOGICAL ISSUES OF THE EVALUATION OF NATURAL RESOURCES

Istvn Szcs Zsolt Balyi Zoltn Ragoncsa Gyrgy Ugrsdy

1.1. Terms used in the research+

In our research the most important natural resources e.g. mineral resources, water resources, soils, forests and atmospheric resources and their relations and interactions were examined and evaluated.

The main goal of our present research was to make a dynamic and continuous assessment of the natural resources on the same bases to determine their real economic value. This system approach methodology may be used effectively for the exploration of the interactions, the opportunities and making a basis for economic decisions in which the use of natural resources are determined at regional, sectoral, and general level in an optimal way.

The natural environment of the human beings is constituted by the elements of the earth crust, the land surface and the atmosphere. According to this methodology, natural resources i.e. the ecological potential are those elements of the natural environment, which may be used economically at the given development level, in order to fulfil the needs of the society.

In this sense, the natural resources of the earth crust are the different mineral resources of the industrial mineral deposits, namely the mineral energy resources, different ore deposits, industrial and building industry-use mineral deposits. The surface and underground water deposits may also be classified as the natural resources of the crust, but because of their renewable features and products they are rather be classified in another group. The natural resources of the land surface are the fertile soils used for agricultural production (arable land, grassland, orchards, forests etc.) and the different natural resort areas for recreational use. The natural resources of atmospheric origin are the air and in an indirect way, the solar radiation.

The basic unit for the evaluation of natural resources is that largest part of the occurrence of the given resource, which extent may be considered homogenous. The larger units of the natural resource may be determined by these units up to the larger extent, for example from the occurrence and up to the whole deposit level. The determination of these calculation and evaluation units should be used in a unified way, therefore the development of the unified methods for data collection and database formation shall be considered as an important methodological objective.

Natural resources may be characterized and identified by different methodological terms of geometric and density features and the cellblock units.

Products (goods) of natural resources

The theoretic determination of the products (or rather, the goods) of natural resources is very important, because the economic evaluation of natural resources can be made only by the assessment of their products and the goods of their origin. When the primary products of the natural resources before they are converted into a intermediate- or final

+ This overview is based upon the research report made by the Coordination Office for Natural Resources of the Hungarian Academy of Science.

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product are undergone through a breeding process or processing, then these products should also be assessed as raw materials, inner or final products of the process during the final economic analysis. In case of coal deposits, the intermedier or ultimate products of the coal as a primary product are the following: gas, steam electricity and phenol. In case of natural ore occurrences the intermedier or ultimate products are the metal products. Similarly, in case of water occurrences the drinking water, steam or electricity which are made from the water (as primary product), in case of agricultural land the grain products, the animals fed by grain, or for example, timber products made from the raw wood shall be considered as intermedier or ultimate products.

Variability is one of the most important feature of natural resources, which is manifested by the multi-way applicability of the natural resources for producing primary products (e.g. arable land may be used both for producing different crops and afforestation, water can be used both for producing drinking water and irrigation). From the same primary product different ultimate products (for example, from coal electricity and raw materials of chemicals can be made). On the other hand, variability may be manifested by using the primary products of different natural resources for the same purpose (e.g. for electricity production wood, coal, carbohydrates, uranium, water and solar radiation may be used as well).

The energy sources and ore sources may be mostly replaced by each other (or by other resources) among the natural raw materials. The agricultural resources and raw materials (both plant and animal origin) may be more or less substitutable by each other or by other raw materials, but for example, water cannot be substituted by any other raw materials. In this aspect, water similar to air is such special bulk raw material, which cannot be substituted. In addition, the dynamic correlations between water use and water replacement, as well as the multipurpose use of water make the evaluation and optimization of the use of water occurrences more difficult.

The primary product of mineral occurrences as its material is identical with the raw material is invariable, and it may be only changed when the consistence is changed in situ by the technology of exploitation, and thus the primary product will be manifested in intermedier (or even in ultimate) form. For example, the primary product of coal occurrence is not only the coal in solid form, but also the gas form; the primary product of uranium occurrence is not only solid uranium, but also uranium sulphate. Nevertheless, this fact will not change the product of the mineral occurrence itself, only its form. There are, of course, special cases, when the earth crust of the occurrence.

In contrast, the primary product of agricultural land is very variable until the date of sowing or planting. This variability will not only enable but also clearly require for the assessment and the comparison of the agricultural lands based on the available yields and economic results, the selection of the appropriate quality of soils for the production of different crops. By this selection the fulfilment of the needs will be covered by the most suitable land areas, resulting the maximum yields and production values.

Limitations of natural resources

A general feature of the natural resources is their limited availability, which means that the products available through their lifetime are restricted in quantity. Moreover, their deposits may have different quality and may occur at different places, which means that the same technology may result different economic values. In contrast, resources produced by the processing industries may be manufactured independently from the natural constraints.

The key features of renewable natural resources is that their deposits cannot be depleted in case of continuous usage, which actually means that these resources are inexhaustible their lifetime is endless. Soil, water, climatic elements and the power of the

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sun are the most important renewable natural resources. The water sources also may be considered as renewable resource, as it may be replaced in situ, in a natural way, as well as it is renewable because it can be reused by different technologies.

It is derived from the different properties and barriers of natural resources that the price of the raw materials and their products are determined by the costs of utilization of the most unfavourable natural resources, which are indispensable for the needs of the society. In contrast, the more favourable resources have differential rent which are independent from the technical and economical circumstances therefore it represents a stable advantage for them.

When we assume the utilization of the natural resources according to the rank of the different features, it is highly probable, that features of those most unfavourable natural resources which are needed for the fulfilment of the increasing demand will be deteriorated in function of time. In order to increase the efficiency of researches for exploration of the options of expansion and the technologies of utilization of natural resources the acceleration of growth is needed. This tendency may be altered by new opportunities, namely by the substitution some products of natural resources by more favourable items.

Basic principles of the economic evaluation of natural resources

The basic principles and methods of the economic evaluation of the utilization of natural resources should be established in accordance the general decision making theories. The principles and methods should be formulated in such way, that it may be used for the comparison with the processing industry activities.

1.2. A system approach of the evaluation of natural resources

According to Mrkus and Mszros (2000) natural resources may be defined as follows: Natural resources are elements derived from environment and which are in natural form, and used by the society for satisfying their needs at their own demand level. Natural resources contain all those natural elements (e.g. solar radiation, , mineral deposits etc.) which form the basis for the human activities.

According to the time of their development, natural resources may be classified as:

non renewable, exhaustible (stock) resources,

renewable or reusable (flow) resources (Table 1.). Table 1: Classification of natural resources

NON RENEWABLE RENEWABLE resources

Exhaustible Theoretically reusable conditionally renewable non-exhaustible

coal crude oil natural gas fissile materials

Elementary minerals (e.g. potash) Reusable metallic elements

plants forests livestock soil fish stocks water resources

solar energy geothermal energy air wind power water sea fluctuation tide

Source: Mrkus Mszros, (2000) 40. p.x

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Exhaustible resources are the fossil energy sources, the energy sources of mineral origin, metallic and non-metallic minerals. Their common feature is that their development process is extremely slow and it means a quantity limitation for their utilization.

Theoretically reusable resources are such minerals (metallic and non-metallic) which may be reusable through advanced technologies. It means that their stocks may be preserved in the earth crust, or they have stocks in some processed form. The recovery options of these resources may vary in a large scale, but by secondary utilization of raw materials the savings of original resources may reach a good level, which significance in environmental aspects is very important.

Renewable and non-exhaustible natural resources are solar, geothermal, wind and water energy. Wind energy and the tide energy cannot be exhausted by the human society, although in cosmic sense they are exhaustible. The other group of renewable energy sources contains the resources of soils, water sources, the flora and the fauna. They may reach the zone of critical level that means their utilization may reach or exceed the limit of their renewability. Their over-utilization means a significant hazard for the human society, as it may bring the total exhaustion of these resources. In the past decades, many plant and animal species became extinct, and in many parts of the world, the degradation of the fertile soils reached a dangerous level. The human activities may endanger even the non-exhaustible natural sources, which can modify the living circumstances of wildlife. Solar energy as a result of greenhouse effect may cause the warming of the earth ground which may start unpredictable changes in the biosphere.

According to Mrkus and Mszros (2000) Natural resources are those resources of the nature which may be used for satisfying the needs of the human beings. This wealth cannot be considered as a closed set, because the development processes of the society may open new opportunities for their utilization. Their importance may, of course change, for example, the society does not need them anymore, or other resources with higher quality may replace them. The circle of natural resources is very heterogeneous, but there are some common features, by which they may be distinguished from each other.

Their most important common feature is their limited availability either in quantity or in their use.

A common character of both renewable and non-renewable resources is that their availability, exploitation or collecting highly depend on their natural conditions (geographical, spatial conditions or production potential) and these activities may result different profitability even under the same technological level. In this case, the utilization cost of the most unfavourable utilized resource determines the value, all the resources which may be utilized by better inputs may establish economic rent. Economic rent is a surplus value after all costs and normal returns have been accounted for, i.e. the difference between the price at which an output from a resource can be sold and its respective extraction and production costs, including normal return (=opportunity cost). Its origin is due to the differences of natural conditions, therefore this differential rent may be considered as natural rent. The reason of rent formulation lays in the mechanism of value production process, because in case of processing industries the central price is formulated by the world market prices based on the level of average production costs. When using two different resources, which have the same quality and other features, a rent may be formulated, which is originated from the differences of labour productivity. This rent may be reached by additional inputs, which will cause an increased technical-technological level, and the labour input units will decrease. The amount of savings (resulted by the additional investments) will not increased in the same extent as the investments value, it will slow down, and after a given point, and the yields will decrease. This is the law of diminishing returns, which is shown by Figure 1. The efficiency of natural resources is

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determined by not only the differential rent, but also the costs of production, mining and processing, and of course the cost of sales. The role of sale is very important, because it may withhold the realization of differential rent.

The technological growth level generally increases the differences from the natural conditions. The natural rents cannot be avoided by any technical-technological growth. The profitability of natural resources is determined by the combination of production and processing costs and the costs of sales. The higher the natural rent, the shorter is the payback period of investments; this also makes possible the more liberal utilization of the higher profit.

Labor Use

Marginal Product Curve

Out

put p

er L

abor

Uni

t

I

I1

I2

Growing Output per Labor Unit

Figure 1: The law of diminishing returns

Forrs: Mrkus Mszros: Erdrtk-szmts

Natural rent is a factor of the effectiveness of national economy. The amount of accumulated income is in close connection with the rent generating capacity of a given country. Favourable natural conditions (which of course are depending on the characteristics of the natural resources) may give advantages which utilization is a national interest. (Mrkus L. Mszros K., 2000. 51. p.)

Certain natural resources are non exploitable, they are the so-called in situ natural goods, they may contain such values that are beyond economic value (for example landscape value, the biodiversity of the forests, or the clear air of the touristic resort places). This dimension of the natural resources has not been evaluated until recent times. The value set of the society is changing continuously; the natural environment and its special elements may be appreciated in a different way and may be preferred better than material goods The in situ elements of natural resources are particularly important for the touristic and recreational activities, as their industries use these elements. Nevertheless, their investments may also bring threats through their possible negative environmental impacts.

The largest problem in the evaluation of natural resources based on the rent theory, is to differentiate the yields of the different natural resources, and to quantify the proportion of the different resources in the total income of their production.

According to literature sources, (see Mrkus, Mszros, Szcs, Faller, Tth, Kulcsr and other authors) the economic evaluation of the Hungarian mineral wealth shall be

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conducted through two parameters: the determination of the marginal cost and the real costs. The marginal production cost equals with the real production cost of the most unfavourable natural resource, which is needed for satisfying the demand in time of the evaluation. In open economies this most unfavourable resource is the real import, calculated by that marginal input, which compensate a unit of imported products. In order to calculate the in situ economic value of certain deposits the differential rent shall be used which may be calculated by the difference of the abovementioned real costs and the marginal costs. The worth for the realization of exploitation may be given by the rentability index.

Rentability index shows that the given unit is worth to exploited, when the real cost of exploitation using the most appropriate technology will be less than the marginal costs.

=HUF

HUF

K

Wm .

The value of the mineral wealth depends is proportional with this index, and the mineral wealth can be assessed by the in situ value (E, in HUF) which shall be calculated by the multiplication of the natural amount (Q) of the mineral wealth and the difference between its real cost unit (W) and marginal cost (k):

E = Q(W k) .

As a result of the principles of the evaluation process, the values calculated by this formula will change continuously, because the costs and prices will be stable only in a given time. According to this evaluating method, only those stocks shall be considered as the part of the national wealth, which rentability index is higher than one.

Economic evaluation of renewable resources

Renewable resources may be classified as landscape, flora, forests and soils, but the solar and geothermal energy, the atmospheric resources, wind, water, water flow and tide energy (which are in the non-critical zone) may also be discussed among them. These resources may be utilized in different economic and social spheres, they play role in energy supply, in providing peoples physiological needs, or they may improve the life quality of people (e.g. touristic and recreational issues). Their evaluation may raise several problems, because the market of the utility of these resources has not been formulated until present, and the quantitative evaluation (in natural units) is also problematic. A common feature of renewable resources is that they cannot be destroyed with their reasonable utilization, the can be used without time limits.

The system of natural resources of mineral origin

It is suggested to make the evaluation of natural resources by a system approach. This system was described by Kapolyi for the mineral resources, according to his opinion, every mineral resource is the complex set of chemical elements. In the past decades, the question of the energy demand and the sustainable development became very important, and it is the key element in the course of planning and influencing the tendencies of further development.

The economics of the mineral wealth covers not only the mining activities, but also the further steps of processing. This process may be distinguished into four stages, according to the following table:

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In situ mineral raw

material

Primer mineral raw

material

Intermedier mineral raw

material

Ultimer mineral raw material, semi-product, final product

Geological surveys

Mining Preparation Production of raw materials

Processing Final product

Coal occurrences

Hard coal Washed coal

Coal coke, gas, raw materials of chemical industry

Electricity, heat, light energy, intermedier products of chemical industry

Mechanic energy, chemical industrial products

Hydrocarbon occurrences

Crude oil, natural gas

Crude oil fractions, gas fractions

Gas, raw materials of chemical industry

Electricity, heat, light energy, intermedier products of chemical industry

Mechanic energy, chemical industrial products

Uranium occurrences

Uranium Uranium metal Steam, electricity

Heat and light energy

Mechanic energy

Black ore occurrences

Black ore Crude iron Steel block Rolled steel Machinery products

Bauxite occurrences

Bauxite alumina Aluminium block

Semi manufactured aluminium

Aluminium constructions, cable

Non-ferrous occurrences

Non-ferrous metal

Extracted metal Blocked non-ferrous metal

Wire, plate Cable, machinery products

Industrial minerals occurrences

Industrial mineral

Clay, sand, natural stone, kaolin

Expanded perlite

Products for industrial or constructing industrial use

Final products for industrial or constructing industrial use

Source: Kapolyi Lszl: svnyi eredet termszeti erforrsok rendszer- s fggvnyszemllete Akadmiai Kiad. Budapest, 1981. 743 p.

The complex mineral wealth and the connected extraction and processing activities form a production system in technical-technological and economic aspects.

The different features (physical, chemical, geological etc. processes) of mineral wealth and its exploitation process that are changing in time and space may be described as a V space with four dimensions, where the first three coordinates characterize the space, while the fourth is for expressing time.

Complex planning process shall contain the whole axis of natural conditions technological conditions conditions of production which means planning parallel with the scientific-technological development. This process will also affect and of course it is also determined by the structure and dynamics of the national economy, and the intensification level and the circumstances of the production. Therefore, the knowledge about scientific and technical-technological growth is a key factor of this information system.

The natural conditions play a significant role utilization of mineral resources, especially when compared with other industries. Here, the subjects of the human activity

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are different mineral sources, which are non renewable, and which will remain a part of the nature until it is extracted by changing the original natural conditions in a complex or even a less complex way.

The utilization process is conducted in different time, therefore its actions may be observed through a spiral on the special cylinder surface. For example, in case of determination of the area of mineral deposits the economic evaluation shall not be conducted in that stage, it rather have to be conducted in that time segments of the cylinder, where the extraction and processing of the extracted materials will be conducted in fact.

It is clear that without optimal resource allocation cannot be realized without knowing the normative input prices. When because of special economic impulses we have to differ from the production prices during the planning process, we have to elaborate different options for normative prices, which may be used in the further efficiency calculation process, namely, in the dual results of programming methods.

It means, that the rents, which are derived from the natural and technical factors will be used as a base for the economic evaluation of the mineral resources. These rents are determined by the individual input level of the different deposits.

Consequently, in the course of evaluations taken at national economy level, the yields and inputs shall be calculated at world prices in order to avoid the distortions, or, we can use the domestic prices after eliminating the aggregated income.

In case of vertical production systems, the production value or the increase of production value shall also be calculated in each production stages. In one hand, by this method we can determine those stages which may be realised most effectively in the given domestic conditions, on the other hand this method will help us to find those production steps in which we have to make adjustments in order to improve the efficiency of the whole process.

When we determine the capacities of production, we have to prefer those options, which allow the shorter exploitation process, without increasing the time period of the investment process. The modernity of the products will play important role in the evaluation, because the competitors activities and the technological growth will result more modern products, and therefore the production inputs and costs can also be reduced. For the effective production, it is inevitable to use our present production capacities and to develop the technological conditions; therefore, the improved quality of the product will satisfy the needs and quality standards and may be sold at the planned price level.

The conditions of production and the production functions characterizing the production process may be calculated by the following general formula (Kapolyi, 1981):

Yt = f[X1(t), X2(t),,Xm(t)] where:

Yt is the volume or yield of the production, that is the output of the whole production system,

X1(t),,Xm(t) is the quantity of producing factors or, in general, the inputs of the production,

The correlation between the production yield (Yt) and the quantity of the inputs of production X1(t),,Xm(t) f may be calculated by correlation analysis of the former factual data.

The following factors and their distribution parameters may be evaluated:

yields of production in natural units and value; fixed assets, their gross and net value;

19

the features of the investment; parameters that may characterize the natural conditions; the main features and the pace of development process; the technical-technological level; the available technological conditions; labour efficiency level; elasticity of the different producing factors; indicators for the evaluation of production factors; substitution elasticity; marginal rates of replacement; leadership and organizational features of the production.

In practice, these production factors may be described by different dimensions,

depending on the objectives and the scope of evaluation, and they may be assessed as homogeneous or non-homogeneous functions. In general, when the we would like to show the impacts of different production factors on the output of the production (in %), it is better to calculated the homogeneous function connections.

In economic practice that production function is widely used, where the volume of production (Y) is calculated by two production factors, labour input (L) and capital input (K).

It is assumed, that the two factors may substitute each other, and their impacts on the changes of production level may be assessed separately. Considering the production cost units of the different production factors we can determine that type of production where the volume of production (Y) may be reached at the minimum cost level, or, by the total costs of production we can reach the maximum of the production volume.

The aggregation level of production functions may be different: a single production process, a plant, a company, an industry or the national economy. When the different parameters of the production functions are determined, at lower aggregation levels the role of the organizational or technical plans, or natural relations are higher, the increase of the aggregation level will need the exploration of more comprehensive correlations between the factors.

The production function with two variables was introduced by Cobb and Douglas, and until present it is the most standard form for production of a single good with two factors, which has several modified versions of the basic formula. The formula is:

Y(t) = AL(t)aK(t)1-a

where Y(t) is the production in t period (in general, value added or production), A is total

factor productivity, which means the profitability (L

Y) that may be reached by the

available units of fixed assets . )1L

K( = .

)L

K(A

L

KAL

L

Y a1a1a == .

The homogeneity level of the production function i.e. the returns of scale means the level of increase when the labour and the capital inputs increase at the same rate.

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In case of the Cobb-Douglas function, the returns of scale are constant and the function is homogeneous:

Y(t) = AL(t)aK(t) , + 1 .

One of the most important features of Cobb-Douglas production function and its limiting factor is that the elasticity of substitution is given in unit, therefore the elasticity of labour and capital inputs will not change by changing the ratios of the two inputs. The marginal rate of capital input with labour input is

L

K.

K

YL

Y

K

YL

Y

dL

dKs

=

=

== .

The marginal rate of substitution is depending on the technical conditions; its change is described by the elasticity of substitution ():

s

dsL/K

)L/K(d

= .

According to the Cobb-Douglas function, the substitution is unlimited between the

production factors, that means the increase of one of the factors (L

Y or

K

Y ) will result

the positive value of the marginal productivity. After defining the parameters and extrapolating the correlations, we can determine

the ratio of those wages and material costs, where the volume of production may be reached by the lowest costs. Therefore, the minimum of the cost function

)L

K(fk =

shall be determined.

Expressing the volume of labour and material issues from the production function, and their unit costs by PL and PK, the ratio of labour and materialized labour, which results the minimum of the costs, may be determined.

= .p

p

)t(L

)t(K

K

L .

In conclusion, the production can be realized at the lowest costs, if the ratio of labour and dead work equals with the multiplication of their yields ratio and the reciprocal value of their prices. (This context may also be used for the evaluation of labour and dead work as a combined production factor.)

This context shows the evidence that in a production process that realizes a given volume of production, the ratio of the dead work and real labour will be higher, when it has more yield () and the less the cost unit of dead work (pK) compared to labour costs (pL).

This context will also show what additional costs are needed to keep the number of the staff under the optimum level, and how many additional costs may be used for

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developing the technical level, which may improve the yield of dead labour, without increasing the total costs. It also can be used for calculating the cost reduction to reach the desired efficiency of the investments used for developing the technical level.

Tinnbergen and Solow modified the Cobb-Douglas production function; they have considered the non-materialized technological growth as a different factor:

Y(t) = Aet L(t)a K(t)1-a ,

where is the average yearly rate of neutral technical growth.

This context assumes that there is no connection between the investment and the technical growth.

Solow wanted to eliminate this condition by the introduction of the technical growth embodied in the fixed assets. He assumed that the fixed assets meet all the requirements of the technical level, in which they were made, and without any modernization, they may be utilized in the future. According to this principle

Y(t) = AL(t)a K(t)1-a ,

where K (t) is the capital assets corrected by the average annual rate of the technical growth embodied in the assets.

As in real, the embodied and non-embodied technical growth will work together; it is useful to combine these to growth options in one model. It will lead to the following model

Y(t) = AetL'(t)K(t)

which was examined by Intriligator. K(t) and L'(t) are the resource inputs (labour and dead

work inputs) corrected in order to meet the criteria of technical growth and the quality of the staff.

International researchers and experts made efforts on the determination of the elasticity of substitution in different industries. They concluded that the elasticity of substitution differs from 1. According to their results, they withdrawn the Cobb-Douglas production function, and introduced a new one: which became known as CES function (constant elasticity of substitution). It is homogeneous, and calculated differently in different industries with different but constant elasticity of substitution.

The formula of the CES-function is the following:

[ ] +=1

)t(L)1()t(K)t(Y , where:

is the factor productivity of labour and capital,

a substitution parameter 11

= .

A CES-function contains the Cobb Douglas function as a marginal case; if = 0,

then = 1. The different types of production functions raised the following questions:

Is the returns to scale a constant, decreasing or increasing?

Is the elasticity of substitution constant or variable?

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What are the impacts of technical growth on the neutral (non materialized) and capital assets?

In producing sectors, when applying production functions, we have to consider that

the outputs of the production are depending not only on the volume and technical level of the input factors, but also on the natural conditions. These impacts will determine the production yields; therefore, it will be present in the different parameters of the production functions. This impact may be explored by the cross-sectional evaluation of different workplaces under different natural conditions.

In the mining industry, the use of such production function is reasonable, in which besides the two main production factors the non-materialized impacts of the technical growth and the natural resources on the fixed assets. The suggested formula is:

Y(t) = Ae(+)tK(t)L(t) where:

t = is time, as a continuous probability variable,

Y = is the volume or yield of extracted raw materials,

A = constant coefficient,

e = base of natural logarithm,

= quality parameter of technical growth,

= parameter of the combined impacts of natural resources,

K = value of capital used for production,

L = labour or working time used for production,

; = elasticity parameters, which measures the responsiveness of output to a change in levels of parameters used in production, for example a 1% increase in one of the production factors and the others remain stable, what % will be the increase in output.

According to this, in addition to the labour and capital production factors, the rent

producing ability of the natural conditions, which affect the utilization of raw materials will also be appear. The transformed formula of the function is:

logY(t) = logA + (+)t log e + log K(t) + log L(t) ,

from which [(+ (+)t log e] parameter means the impacts (in%) of the mining rent (Bj) from the volume of the total extracted raw material:

Bj = e log)t +(

)t(Ylog

100 .

1.3. The system of land use

In the evaluation of the land, we will continue the theories of rent, i.e. we assume that the price of the land is a capitalized land rent. Land rent is based on the different quality of soils, or their limited availability, but it is also affected by the land use, the technological level of the production and of course, the current conditions of supply and demand.

In the assessment of the land use we accept the following opinion: A nation cannot reach that degree of wealth and power they are able to reach using their own conditions, if

23

they forget to use their land in such way, which is in compliance with the common goals (Comta, 1934)

According to literature sources, the different issues connected to of land use are discussed as the combination of soil utilization, land use and utilization of space. Hungarian researches put the agricultural utilization, in the centre as conventional and rational land use types. In this case, the starting point of the researches is connected to the technological features, namely the soil, climatic and geographical conditions, the economic productivity of the soils, the different combinations of production factors (land, labour and capital), the preservation, maintenance and improvement of the fertility of the soil, production structure that is in compliance with the conditions, soil and environment friendly technologies, and the additional (management, organizational, technical etc.) conditions.

The agricultural economists in Western Europe, on the conference of the European Cultural Fund (in 1973, in Wageningen, the Netherlands) introduced a new dimension geo-culture, which is widely accepted revolutionary new version for agriculture. This definition has enlarged the assessment of land use with a new dimension: the complex assessment of the environmental impacts.

Utilization of space (spatial management)

The most comprehensive category of land use is utilization of space (spatial management). Utilization of space is a complex system for the utilization of the renewable and non-renewable natural resources (solar energy, depreciation, wind energy, soils, water, minerals) that are situated in the surface, atmospheric or under surface layers of a spatial unit (country, international organizations, or the total land surface) in order to satisfy the needs of the human society.

One of the most important questions of the economic growth is the utilization and qualification of resources situated in different space. Its economic evaluation is discussed by spatial economics, which assess the following issues:

surveying and exploitation of different resources;

measuring the labour and capital inputs used in the utilization process;

evaluation of the different methods, technical and technological applications and the combinations of different factors;

exploring the interactions of the different experiments, observations and relations for future utilization etc.

Spatial management is discussed by several authors, who examined the complex

evaluation of mineral resources and other natural resources. As an example, Lszl Kapolyi examined the mineral resources in a complex system approach, using the theories of production functions by G, , K factors. According to his work, the general description of a natural system may be given by primary transportation processes, which make possible their evaluation in function of time the three fields: the geometric field (G), its density () and its characteristics (K). (Kapolyi, 1981).

Kapolyi added another field to these three, the so-called measuring field, which evaluate the coherences of the secondary processes. The role of the three fields will have different weight in the assessment of different natural resources.

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Figure 3: The system of spatial use

Source: Szcs I. Verseny s rendszerszemllet a fldhasznostsban. Kzgazdasgi s Jogi Knyvkiad. Budapest, 1990. 23. p.

The density feature will be more significant in the evaluation of mineral resources (solid, liquid etc.), but this feature has not great importance in case of agricultural land. It suggests that the utilization of space shall be assessed in a more differentiated way.

According to MiklsTth, the natural resources may be overlapped or connected; therefore, they may interact with each other. These connections may improve but also may cut or makes difficult the utilization of the others, or, ultimately the utilization of a given resource may destroy the other.

The author goes further: The permanent evaluation of natural resources may be implemented within the whole economy, in parallel with optimizing the production structure as well as the infrastructural and social interactions. (Tth, 1983)

The abovementioned opinion shall be underlined, because the natural resources, which seem to be independent (for example the minerals exploited from under the fertile soils or the geothermal water pumped from under the cities) may influence their utilization and their efficient use. This interdependence and the direct conflicts of interact may be present in the following areas:

a) In utilization of the land, when the different types of utilization may be conducted, introduced or broadened only at the expenses of the others.

b) One utilization process will obstruct the operation of the other by increasing its inputs or decrease it yields. An example for the first case is a telpher, which may obstruct the modern plant production technologies, or a second example, the biological hazards or decreased yields as a result of air pollution.

25

c) The labour and capital inputs (and the investments or financial sources) shall be shared among the different types of utilization, as with the same resources only one of the utilization types may be realized at the same time.

Land use is the part of spatial use, because it utilizes only certain factors of it, but it is broader in some aspects, because land use covers not only the spatial structures needed for the use of national resources, but also the processing activities and services connected to them. The complexity of land use may be discussed in two main angles:

a) In the first case, the utilization of surface areas can be examined, considering the criteria of the efficient operation of the whole system.

b) In the second aspect we examine that in which part of the land surface shall we implement the investments, which were made by decisions at different (macro, meso or micro) levels. For example, where shall we produce the 30 million tonnes of cereals, which is needed in the given time, or where to open a mine, or where plan a new motorway, or where to establish a new industrial plant or where to build a new housing estate etc.

These two aspects are in close connection, because in both cases it is very important to determine the most favourable and economic way of utilization of the land.

The first aspect is wider, because besides evaluation of the basic problems of installation, it examines those processes, which may influence the efficient operation of the subsystems. The second aspect focuses on that what will be the impacts of the different new investments on the land surface on the efficient utilization of the land. This method will put the opportunity cost into the centre, because the changes in the composition of agricultural land users will affect the agricultural land use.

The descriptive method of the land use system treats the ecological, technical and economic factors of the production, the environmental, social and economic connections of the utilization process, their inputs and outputs and the realization of the primary products as a closed unit. It is very important that the elements of land use should be operated in a harmonized way and the proportions of different types of land use should be assessed. Another important task is to assess the utilization costs and to quantify all the parameters that affect the production and the economic and social aspects of land utilization.

The mining industry, for example, represents only 2 per mill of the total surface land use, but the value of one hectare land used for open-pit mining may reach the 20-25 per cent of the mining investments. The industrial or tertier utilization of the land is represented by only 7% of the total land. On the contrary, the investment costs of the facilities are much greater than the value of the utilized land.

Specific features of land use

Different types of land use have different features and scientific fields (e.g. economics of mineral resources, industrial economics, agricultural economics etc.). In the following, we summarize the main features of the agricultural land use:

Firstly, the agricultural land may be considered as renewable natural resource, which means that it will not lose its value through utilization; in fact, its value may be increased by appropriate production technologies and cultivation methods. One of the most important characteristics is the fertility of the soils, which differentiates the soil from the basic rock. The utilization of the soils is determined by the quality level of the used production factors, while the potential opportunities of utilization are expressed in the productivity of the soils in the economic sense. The renewability of the soils is very important and they should be differentiated from the non-renewable resources. It may be a key question of set aside of

26

lands and recultivation, and this factor should also be considered in long run planning in time aspects.

Secondly, another important feature of agricultural production is that it works with living organisms, which may increase the role of incidents. Although there is a direct connection between living organisms, the incidental events may occur even after finishing a learning process. (Cski, 1982)

In the agricultural sector, the economic process of the production is intertwined with its original, natural process, thus the natural resources will play a more important role than in the other sectors. In agricultural production, the processes may be managed, but you cannot control. (Laczk, 1985).

The reasons of this situation were interpreted by Mrton (1981). In his opinion this special feature is originated from the biological features of the living organisms; the rhythm of life of the plants and animals as well as their consumer, the human being is determined by biological factors, the process is in compliance with the continuous circle of generation, existence and passing away. (Mrton, 1981/2)

Another special feature of agricultural production is seasonality, which is manifested in the seasonality of utilization of the different assets and facilities, labour force and in working time as well. Seasonality and the connected peaks of work may be decreased by using technical resources, but it cannot be stopped. It is similar in case of handwork because its technical substitution can be solved but the technical resources will generate a shortage in other sectors or processes.

Thirdly, the agricultural utilization of the land surface produce the most important goods for the society, the different kinds of food, and its demand will not be change in the foreseeable future, because food is hardly can be changed by other resources.

Fourthly, the importance of the preservation and protection of the earth and natural resources is increasing and this feature of agricultural land use became one of the hottest topics of our time. The responsibility for the land is the highest in this sector, which shall be incorporated into all regulations.

Fifthly, the products of agricultural production (food products and different products of light industries) shall be consumed in short time, because they are perishable and they may lose their original quality in short time. This feature has a great importance in primary production and processing; minimizing the losses will play a determinant role in the efficiency of the supply chain of primary products.

Finally, the most important feature of land use particularly in system approach is that the use of agricultural land has more variances and structural combinations than the other natural resources, and it influences its adaptability to other natural resources and its aspects to economic growth. Of course, it shall be noted that despite the abovementioned features, it is suggested to emphasize those general aspects, which allow the quantification and the measurability. These characteristics may influence the rent generating capacity and the price of lands. In our researches, we discussed only the economic evaluation of the agricultural lands.

1.4. Evaluation of the different resources in the SNA

According to the present considerations, the SNA gives a well-defined method for the assessment of different natural assets. For the measuring process the use of market prices is suggested, which is achievable in case of land and certain products. In some countries it may also be used for the under surface assets, but it mostly depends on the institutional structure of the given country. For example, in several European countries the under

27

surface resources are state owned assets, therefore unmarketable, i.e. they have no market values and market prices.

If we have not got available market prices, then we have to calculate the present value of the future profit derived from holding or the utilization of the assets. According to economic theories, this assessment is similar to the calculation of the market prices of the products. If the future profit will not exceed the market price level, then the cost-effective sale of the product will not be possible. Therefore, the net present value of the product shall be compatible with the market prices. (KSH, 2002)

If market prices cannot be used, and it is impossible to calculate the NPV of the given asset, then its production cost shall be used instead. Separation of the natural and produced assets

When a company uses produced and non-produced assets both, in theory the gross operational surplus may be separated into two parts: capital services deriving from produced and non-produced assets, while the net operational surplus may be distinguished as the income of produced and non-produced assets. The value of capital services produced by natural resources is the yield or result of the given natural resource, which can be defined as resource rent. Evaluation of natural (non-produced) assets

If market prices cannot be used for the natural assets, then the evaluation should be performed by methods of net present value calculation based on resource rents. After calculating the natural rent of the given natural asset, three additional questions may occur for determining the net present value (i.e. the real value) of the given asset. How long the given asset can produce any rent (in years)? How the decrease of the rent can be calculated? For calculating the present value, a discount rate is needed. How can the discount rate be calculated? Estimation of resource rent

Three options may be used for estimation of resource rent. The first is based on the actual transactions and may be defined as expropriation method (or ownership method). The other two methods are based on the estimation of the resource rent in such way, that the information about the economic rent of the assets in a given company shall be grouped as produced assets and natural assets.

The problem may be solved in two different ways. The first starts with the assessment of the rent of produced assets, and the rest will be connected to the non-produced assets in use. This option applies the impact of the theory of capital services on the different rents. Expropriation method

In many countries, the owner of the countrys natural resources is the state. The governments as landowners might levy the total rent of their resources. These rents are generally taken from the companies contracted for the exploitation of the resources, in the form of different fees, taxes and duties. This process forms an optional procedure for estimating the rent of a natural resource. Although, in practice, the fees, taxes and duties are tending in such direction, which allows the low level of resource rent, because governments are interested in additional goals, such as indirect price support for the exploiting companies, or improving the employment in the industrial sector. In addition,

28

the value of the contributions to the state will not certainly change linearly by the price of the product, although the economic rents would do so. If these data cannot be identified or utilized separately, then the value of the rent should be calculated by different, indirect methods. On the other hand, if the two datasets are available than the comparison of the values may form a good base for the different economic analyses. Resource rent deriving from pim calculations

In many countries, the permanent income rent (PIM) is used for the evaluation of the value of capital assets. This method starts with the determination of an n years old asset, with the assumption of the its depreciation rate in the past n years. This decrease will be equal with the consumption of capital employed. The calculation of the net operations surplus will be calculated as follows: the difference of the gross operational surplus minus the consumption of the capital employed. The net operations surplus is calculated from the gross operational surplus minus the consumption of capital employed, while the capital rent is calculated by using a given set of capital stock determined by the help of PIM. Resource rent calculated from capital services

The use of capital services for the evaluation of capital assets is preferred in the OECD countries. (OECD, 2001). This method is generally considers and models the decrease of capital services during the life of the assets, instead of the decrease of prices. (For example, a light bulb will give the same light during its lifetime, but its capacity will decrease, therefore it will lose its value and its expected duration of it usability.) This calculation method of capital service is used in studies evaluating productivity or calculating the net income; in this case capital service (S) is deducted from gross operational surplus (GOS) which will result the value of resource rent (RR).

The pattern of the decrease of the capital service value of a given asset is connected to one (and only) pattern of the decrease of a given assets price, therefore, in theory, the two methods should give the same results. Nevertheless, in practice, the connection between the decrease of the effectiveness and the price is not obvious in many cases, as there are several examples in the literature sources for the differences between the estimations by capital service calculating methods and PIM estimations. Negative resource rent

Another problem might be that while the world prices of different products fluctuate, the costs of the exploitation or utilization of different resources will remain constant. If we determine the resource rent as the difference between the revenues of sales and the costs, it may result distorted, even negative results. Therefore, the above-mentioned fluctuations should be possibly avoided in the calculation process of resource rent, which may occur as a result of methodological problems or distorting effects. In some cases, the result might be false, or negative, for example when the exploitation rates might not be changed because of the machinery costs even when the world prices of the given resource are decreasing, or, when the price decline is considered as a temporary, which might be followed by a rising period. A similar situation may occur in such circumstances when the exploitation of special stocks (e.g. the coal stocks in several European countries) shall be supported by state subventions. In such cases both the economic rent and the value of coal stocks is zero. It may occur only under special conditions, for example, when the uneconomic activity is forced by a strong social pressure, and the exploitation of the uneconomic stocks will last for a longer period.

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Determination of the lifetime of resources

For determining the duration of time until the exploitation or the utilization of the given natural resource can be continued, it is essential to get available physical data about the present level of the stocks of the given resources, its exploitable amount, and the rate of its renewal process (if relevant). The lifetime of the resource may be calculated in the following way: the amount of the available stock divided by the predicted yearly yield of exploitation and corrected by the possible renewal process. It is suggested to consider the occurrence of certain events (such as forest fires may occur in every fifth year) in the calculation of the predicted yield and the renewal process, and the mistaken calculation of lifetime should be recalculated yearly based on the new information.

For renewable resources for example biological resources it is obvious to use the renewability rate in calculating the lifetime of the resources.

When a non-renewable resource is clearly known, then renewal process shall not be taken into consideration. The lifetime of resources may be calculated from the amount of the available resources and the possible rate of exploitation. Problems of discount rate

Certain types of resource assets, where the rent is developed in the future (e.g. forests) or it is realized in longer period (mineral deposits); the future income may be evaluated by discounting to the present value. The first step of this process is to determine the discount rate, which in several cases may cause debates.

Discount rate (i.e. the rate used for discounting the future income) shows a time preference, namely the owners preference, that the present income is more favourable than future income. Time preference changes according to the owners of the company. Private users and companies will use higher rate of time than the governments. It means that private users and companies need a faster return, than governments, the higher time rates will give higher discount rates.

Some authors suggest the use of social discount rates in the determination of the net present value of non-produced wealth. According to the basic theory these rates consider such aspects, which will affect the future generations, therefore it is suggested that the discount rate shall be around zero. This concept is close to the aspects odd the calculation methods of state owners or assets with non-production origin, which suggest that the capital value will have zero value.

There is a debate about how shall the rate of return (which may be different from the discount rate) be determined, whether to adjust it to the net operational surplus, or is it worth to determine it exogenously. In the second case, it is possible to calculate the difference between the calculated return on capital and the net operational surplus. This difference is called net profit or net loss, which shows that the return on capital in the company is higher or lower than the average.

At least three methods may be used for determination of the exogenous rate of return. The first option suggests that it shall be calculated from the net operational surplus of the capital stock of the given industry. According to the second method the income of the produced capital is the amount of money that is used for covering the input costs of this production process, therefore it might be considered as an occasional cost of the investments needed for the production process. This occasional cost may be estimated based on the average rate of return of any other investments.

In the first method, the normal rate of return is used for the value of the capital employed. This normal rate is often determined by comparing the net operational surplus and the capital stock any other industries, with similar characters of operation.

30

The second method assumes that the returns of promissory submitted by the companies and/or the returns derived from the shares issued in the given industry may be used for calculating the rate of return. The advantage of using the financing costs is resulted by its direct connection with the risks of operating the capital. However, the option, which uses the returns of the shares, will include the return both on capital and the inputs, and it also includes the impacts of the external forces in the market. Therefore, the return on promissory might be used for estimating the rate of return of capital, while the return of shares is not suitable for this process.

The third method uses the occasional cost of any other capital of the national economy, and it uses the obligatory, long-term interest rates which are defined by the state for the calculations of estimating the return on produced capital. This approach might be disadvantageous, because it does not consider the different risks. The rates calculated by this method will not contain incentives for covering the risks and uncertainties of the exploiting industry. Resource rent, income and exhaustion

The data of different resource rents may be used for exploring the resource stock levels by the help of net present value calculations. These data may also be used for distinguishing the resource rent into two parts, where the first represents the depletion of the natural resources and second represents income. At this stage a decision should be made about sustainability of the natural resources. There is such an opinion, which says that resources are abundant, therefore the whole resource rent may be considered as income. As it was stated earlier, this was one of the most important assumptions of SNA 1968. Another assumption is connected to the reservation of the concerning resource, for example, in the case of crude oil, which cannot be recovered in human timescale, it might not produce income- type elements in the resource rent. According to another interpretation of this principle, the revenues that derived from the selling of natural assets will not form income of production origin; therefore, they shall be disclosed from the net domestic product (NDP), even that part which is connected to the sustainable use of renewable resources. According to the general opinion of many experts, the resource rent may be divided into two elements: an income-type element and another which represents the exhaustion of the given resource. The result should be used for the two extreme values, either when the income-type element represents zero percent or 100 percent of the resource rent.

If RRt means the resource rent for a given period, the discount rate is r, the lifetime of the asset is n, then Vt-1 is the value of the asset at the end of t-1 period, therefore the value of the asset in the beginning of the t period may be given by the following formula:

123121 )1(

1...

)1(

1

)1(

1

)1(

1+++ +

+++

++

++

= ntntttt RRrRR

rRR

rRR

rV

This formula assumes thet the rent ipaid at the end of the year, therefore the