Faculty of Economics and Social Sciences

The Evaluation of
Natural Resources

Edited by:
Gyrgy Ugrsdy PhD
Jzsef Molnr CSc
Istvn Szcs DSc

Gdll, 2014

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

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

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
5

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
6

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
7

12.1.
12.2.
12.3.
12.4.
12.5.
12.6.

Material flow, mineral assets .............................................................................219

Agricultural land ................................................................................................223
Water..................................................................................................................233
Air ......................................................................................................................253
Integrating assets in national accounts ..............................................................260
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

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./B11/2/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
9

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

10

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.

11

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
12

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
coal
crude oil
natural gas
fissile materials

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

conditionally
renewable
plants
forests
livestock
soil
fish stocks
water resources

non-exhaustible
solar energy
geothermal energy
air
wind power
water
sea fluctuation
tide

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

13

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 nonexhaustible 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
14

Output per Labor Unit

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.

Growing Output
per Labor Unit
I2

Marginal Product Curve

I1
I

Labor Use
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
15

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.
W HUF
.
m=
K HUF
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:
16

In situ
mineral raw
material

Primer
mineral raw
material

Intermedier
mineral raw
material

Geological
surveys

Mining

Preparation

Ultimer mineral raw material, semi-product,

final product
Production of
raw materials

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

Final product
Mechanic
energy,
chemical
industrial
products

Hard coal

Washed coal

Coal coke, gas,

raw materials
of chemical
industry

Hydrocarbon
occurrences

Crude oil,
natural gas

Crude oil
fractions, gas
fractions

Gas, raw
materials of
chemical
industry

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

Non-ferrous
occurrences

Non-ferrous
metal

Extracted metal

Blocked nonferrous metal

Wire, plate

Industrial
minerals
occurrences

Industrial
mineral

Clay, sand,
natural stone,
kaolin

Expanded
perlite

Products for
industrial or
constructing
industrial use

Coal
occurrences

Mechanic
energy,
chemical
industrial
products

Aluminium
constructions,
cable
Cable,
machinery
products
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
17

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:
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,

Yt

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;
18

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 (
available units of fixed assets . (

Y
) that may be reached by the
L

K
= 1) .
L

Y ALa K1a
K1a
=
= A(
) .
L
L
L
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.
19

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
Y
Y
dK L L K
=
.
s=
=
= .
dL Y Y L
K
K
The marginal rate of substitution is depending on the technical conditions; its change is
described by the elasticity of substitution ():
d ( K / L)
= K/L .
ds
s
According to the Cobb-Douglas function, the substitution is unlimited between the
Y
Y
production factors, that means the increase of one of the factors (
or
) will result
L
K
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
K
k = f( )
L

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.
K( t ) p L
=
.
.
L( t ) p K

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
20

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:

Y( t ) = K ( t ) + (1 ) L( t )

where:
is the factor productivity of labour and capital,
1
a substitution parameter = 1 .

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?
21

 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 =
Y =
A =
e =
=
=
K =
L =
; =

is time, as a continuous probability variable,

is the volume or yield of extracted raw materials,
constant coefficient,
base of natural logarithm,
quality parameter of technical growth,
parameter of the combined impacts of natural resources,
value of capital used for production,
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 =

log Y( t )
100 .
( + )t log e

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
22

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.

23

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.
24

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
25

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

26

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,
27

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.
28

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.
29

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:
Vt 1 =

1
1
1
1
RRt +
RRt +1 +
RRt + 2 + ... +
RRt + n 1
2
3
(1 + r )
(1 + r )
(1 + r )
(1 + r ) n

This formula assumes thet the rent ipaid at the end of the year, therefore the rent of
the first year shall also be discounted. By reordering the equation:
Vt 1

Vt
RRt
=
(1 + r ) (1 + r )

As the result of further reordering, RRt (resource rent) may be described as follows:
RRt = (Vt 1 Vt ) + rVt
30

The first formula shows the difference of the value asset between the starting point and the
end of the given period. For produced assets, it means the consumption of the capital
employed (fixed capital). This process should be called as exhaustion1 in case of nonproduced assets. The second formula represents the income in t-th year, and means the
rent of the capital assets in concern.

El Serafy method (concept of user cost)

In exploitation models, when the extractor saves an amount that equals with the
first years income (rV1) from the resource rent, and allows it to accumulate with a r
rate interest until the end of the lifetime of the given asset, then this amount will have the
same value as the original value of the asset in the beginning of the period. That means, it
may produce rV1 fix income. Of course, it also works in theory, because the first years
income cannot be calculated retrospectively.
Another alternative option for evaluating the continuously earned income is the user
costs concept of El Seraphy. The economic rent in every period includes the earned income
(X) and an exhausting element (RR-X). Assuming that the rent will produce the same
economic rent in each n years, then it value equals with the net present value of RR
calculated for year n. The amount of the income element of the economic rent shall reach
such value, that the net present value of the X could be equal with the net present value of
the resource over an infinite period. Using the above formula, the net present value of the
resource is the following:

1
(1 + r ) n
(1 + r )
1
NPV ( RR ) = RR
= RR
1

1
r (1 + r ) n
1
1+ r
1

The net present value of income flow has a simpler formula, because it has an endless
value:
1

NPV ( X ) = X
1

1
1+ r

=X

(1 + r )
r

Making these equations equal, the yearly rate of resource rent, which should be considered
as income, is the following:
X
1
= 1
RR
(1 + r ) n
For this assumption, we do not need to estimate the level of resource stocks, because it may
be calculated for each year, with different exploitation levels, lifetime lengths and discount
rates. It will give the same results as which may be calculated for the first years in

The term exhaustion has multiple meanings is everyday language. In some phrases, it means the total
volume of exploited natural resources multiplied by the realized price units. In this study, we use the words
exploitation and utilization for this context, while exhaustion as in the SNA terms, means the
changes of the resource stocks. Therefore, in the calculations the phrase corrected exhaustion expands
the definition of the consumption of capital employed, as a result of the impacts of capital employed and
the deterioration of the natural resources.

31

estimating the resource stocks, when an equal exploitation level is assumed in each years
of n period.
If we use any of the available methods for distinguishing income and the extent of
exploitation, the income will have greater part. If we use zero interest rate as social
discount rate, which assume that the income of the resource will be the same in the further
generations, then in the economic rent we cannot calculate the income component, it shall
be considered as extracted quantity as a whole.

References
1.
2.

Comta, M.: Traite de la proprit, Prizs, 1934.

Cski Cs.: Mezgazdasgi rendszerek tervezse s prognosztizlsa. Kzgazdasgi s
Jogi Knyvkiad. Budapest, 1982.
3. Kapolyi L.: svnyi eredet termszeti erforrsok rendszer- s fggvnyszemllete.
Akadmiai Kiad. Budapest, 1981.
4. Kzponti Statisztikai 5. Laczk I.: Kedveztlen termhelyi adottsg, sszer
fldhasznlat s krnyezetvdelem hegy- s dombvidkeken. Budapest, 1985.
(Kzirat)
6. Mrkus Lszl - Mszros Kroly: Erdrtk-szmts. Az erdrtkels alapjai.
Mezgazdasgi Szaktuds Kiad. Budapest, 2000.
7. Mrton J.: A versenykpes lelmiszer-termels s feltteleinek tovbbfejlesztse.
Gazdlkods, 1981/2.
8. OECD: Calculations on capital: a handbook for estimations of capital assets, capital
employed and capital service. 2001.
9. Szcs I. Verseny s rendszerszemllet a fldhasznostsban. Kzgazdasgi s Jogi
Knyvkiad. Budapest, 1990. 23. o.
10. Tth M.: A termszeti erforrsok gazdasgi rtkelsnek nhny alapvet krdse.
Budapest, 1983. (Kzirat)
11. Tmpe F. - Misz J.: A makrokonmia alapjai (HEFOP 3.3.1-P-2004-06. program).
Elektronikus tanknyv a BSc szakok szmra. 1-0. fejezet (pp. 1-150). DebrecenATC, 2007. p 215. ISBN: 978 963 9732 60 5

32

2. MAIN CHARACTERISTICS OF NATURAL RESOURCES

AND SOME EVALUATION PROBLEMS
Mrk Molnr Andrs Molnr
Introduction
The importance of natural resources which are major influencing factors of socioeconomic development has increased in the past years. For establishing well-based and
efficient national economic policies it is necessary to make a detailed assessment of our
national resources, to optimize their utilisation processes and to establish a regional
balance between the use of natural resources and the social environment. The intensive
utilization of the countrys area for industrial, agricultural, communal and infrastructural
purposes strongly increases the spatial and environmental problems of the mineral deposits,
natural waters, agricultural areas and facilities.
The main objective of our research was to explore the different processes of the
utilization of natural resources and their complex relations, to follow the most recent
scientific results of the utilization processes and their involvement into this complex
assessment, to establish a new set of values development models that consider the present
economic situation, and finally, to develop alternative methods that may help the future
decision-making processes.
According to the main directions of the research the theoretical and methodological
framework of the evaluation of the present conditions of the most important natural
resources mineral and water occurrences, fertile soils, forests and atmospheric resources
and their environmental relations and interactions would be assessed and summarized.
The main objective of the research is to make a continuous and dynamic assessment
to determine the real economic value of the natural resources, based on equal terms. This
system approach methodology may be used effectively for revealing the interactions and
the opportunities and to provide a basis for the optimal utilization of natural resources at
regional, sectoral, and general level, in order to improve the national income by
minimizing the social inputs and environmental burden.
The more consistent declaration of these objectives may be based on the introduction
of the general and specific taxonomical and methodological principles and some related
conceptual directives in connection with the natural resources. In the following, we
present a possible overview of this field.

2.1. 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 with the general decision making
theories and methods which are widely accepted at national economy level. The principles
and methods should be formulated to allow for easy comparison with industrial processing
activities.
Specific economic models of utilization
Considering production volume, current costs and the value of production, the
utilization of basic natural resources may be characterized by the economic models
illustrated by Figure 1.
33

Mineral
resources

n
m

n<m

B
w

Aquifers
Pastures

n
m

n n

Afforestations

n
n n

m<m

Figure 1: The economic model of the utilization of basic natural resources

The x-axis of the diagram represents years, while y-axis represents the annual costs
and values. The lined areas of the diagram represent the investment value (B) of the
increasing capacity and the current costs of operations (), the dotted areas represent the
production value (W) from natural resources. (In certain cases it may be needed to use the
production as a variable, for example when determining the increase of the environmental
assets of the forests from the increase of the growth of the trees. These calculation formulas
should be modified in such cases.)
The notation m represents the time required for the installation of the investment,
generally a few years; while n denotes the planned period for operating the new capacity,
i.e. the lifetime of the given natural resource. This lifetime means in case of non-renewable
mineral deposits the ratio of the exploitable mineral assets (Q) and the optimum annual
quantity of the product (T). In case of water deposits or agricultural land, this lifetime is a
chosen long (for example 100 years) or infinite period, which will not affect significantly
the results of the economic calculations. In case of wood areas, the n lifetime as the
average time demand of logging is just a fragment of the m time.
34

Figure 1. shows the differences between the non-renewable mineral resources and the
renewable water resources, soils and forests derived from the infinity or the length of the
lifecycle. It is also to be noted that forests (as natural resources), as a result of the
extremely long production period, can be described with a special cycle model with high
cycle time, assuming a homogeneous forest area.
As the value of natural resources may be defined by the costs of the indispensable
and most unfavourable other resources (such as imports) which are needed for the
fulfilment of the demand, the economic model of non-renewable mineral resources
(illustrated by the figure) may be supplemented after the nth year as its product might be
replaced by a resource of a yearly W = K cost.
The economic model of those production capacities which are not dependant on
natural circumstances and may be renewed unlimitedly is quite similar to the model of
other natural resources. This also implies that the utilization of natural resources and the
methods of the economic evaluation of processing industries will not differ from each
other.
The most suitable and widely used formulas which may be used even for the
evaluation of processing activities are the following:
Rentability index:
+ b z kkh
=
e
eh

where:
= The annual operational costs (including modernisation costs) of mineral resource
products. (e.g. in HUF/tonnes),
b = depreciation cost of the final product of mineral occurrences according to the
investments costs needed for extraction (HUF/tonne),
z = discount factor:
q 1
.
z = q m nq n n
q 1
Here q is the interest rate; m is the number of the years between the investments
peak performance and the maximum of the production capacity; n is the lifetime of the
investment.; e means the utilization value of the final product of the mineral occurrence
(HUF/tonne); kkh is the domestic price of a product which may be the substitute of the
given product (HUF/tonne); eh is the utilization value of the given (kkh) costs (HUF/tonne).
According to the equation the definition of rentability is the following: when the
production or the purchase value of substituting products is calculated with unchanged
product values then the given mineral occurrence will be rentable if the production costs of
a product does not exceed the marginal production or import cost of the substitute product.
Of course, the investment cost shall not be considered only the real operational costs and
the cost of realized investments, the latter with its interests. The cost calculations should be
carried out for the substitute products.

The role of differential rent in the evaluation process

If only the average production capacity and technology were taken into consideration
during the economic evaluation of the natural resources, the in situ national value would
equal the differential rent derived from the better natural conditions, i.e. the type 1
differential rent, notably resource rent.
35

In Figure 1. we indicated with slashed line the possible evaluation date by when
capacity building would already be finished i.e. by when the natural resources are under
extraction. In this case, B and Bf is omitted from general forms of the economic
evaluation formula, and the f factor is modified to f' = qm'. qn' (q-1) : (qn'-1).
Thus, the real cost of utilization which does not contain the costs of realized inputs
and the fixed costs will equal with the abovementioned operational costs i.e. with the
sum of those costs, which may be saved by the halting or suspension of the utilization of
natural resources.
In the course of the evaluation process it should be underlined, that the higher the
dependence on the natural resources on the natural condition that is the costs of research,
exploration and investments are higher) the lower the average cost of real productions. Of
course, it also means that the mining costs are higher. Such interpretation of real costs may
give a basis for evaluation and decision making about the reasonability of the preservation
of natural resources and the possible end of utilization or expropriation.
As it can be seen from the economic models of the utilization of basic natural
resources (Figure 1), the termination of a formerly utilized natural resource (for example
closing a mine, or abandoning the cultivation of a land) can only be economically viable,
when the ecologic and economic conditions of the given natural resource have so many
disadvantages. That means either the operational costs () exceed the production value
(W), or the W K condition cannot be ensured by additional investments for
modernization. The utilisation may be ended when production costs that can be saved are
higher than the potential production value that is lost. The special costs derived from the
suspension or termination of the production (for example the costs of redirecting and
retraining of the working staff) have to be accounted as resource costs, thus production
costs that may be saved have be reduced accordingly.
The position of the dashed vertical line shows that the value of any natural resources
is the highest, when the evaluation date is after the initial investments and as close as
possible to the start of the production.
In case of cultivated natural resources, the in situ value of national wealth contains
the value of investments for building the capacities and the fixed assets; therefore, it
exceeds the value differential rent originated from the more favourable conditions.
Although this contribution and the value of fixed assets are different categories (the first
depends on the natural conditions, the second is a product of the resources of the society)
but for the evaluation of natural resources their overall assessment may be useful. Most of
the fixed assets used for the utilization of natural resources (such as mines, channels, water
works, melioration and irrigation facilities, field paths, forest railways etc.) differently
from the fixed assets of processing industries are related to the natural sources, that they
are totally worthless without them.
A special methodological element of the evaluation of cultivated natural resources is
that the value of the fixed assets is not added to the original rent value. It should be
calculated with the real-time production value and operational costs (and if we introduced
additional investments in order to improve the technology to the optimum level, it also
shall be added), the value of fixed assets (Lengyel et al, 1980).
The principle of using the most recent technology as a base should also be used in the
evaluation of currently utilized natural resources. It may happen particularly in case of
mines or hydroplants that the technology installed formerly in capacity extensions can
not be modernised (or could be improved just by with extremely high investments) to that
level, which might be accepted in case of free natural resources with similar natural
conditions. As a result, the optimal technological level of natural resources which have
been already utilized will be lower, their reliability, their average in situ value and national
36

value will be smaller as the free natural resources under same circumstances. In this case,
technological features have the same impacts as natural conditions; therefore their impacts
should be categorized with negative sign as a differential rent from natural resources.
The natural resources may have different features, therefore their foreign currency
producing costs and rentability index may change in a wide range. In their in situ national
value, the environmental rent may be several times higher than the fixed assets, in contrast
with the processing industrial plants, where these long-term benefits cannot occur, because
the long term extra profit may only come from favourable natural conditions. (As the fixed
assets and the normative yield of wages are included in the costs of the formulas of
economic evaluation, we can assume that the national value asset of the processing plants
is also B after their installation, than the rentable natural resources (i.e. with zero
differential rent value.)
In the course of the economic evaluation of natural resources, the same principles
and assessment processes shall be used in all decision types, e.g. in investment decisions,
changing production structure, abandoning extraction, taxation or regulation issues. The
differences between the natural resources should not be enforced in the principles and
methods of the assessment, but rather in the different economic corrections, preferences
and economic sanctions (Lengyel et al, 1984).
In the course of further decision-making problems on the improvement of production
or optimization of the production structure, we give priority to domestic natural resources
in every case, and a priority shall also be given against the imported products, even it is
based on real and economically acceptable economic reasons.

Economic evaluation based on natural conditions

In the definition of the conceptual framework of natural resources, we have already
referred to the importance of economic evaluation.
In the evaluation process of natural resources those multivariate functions should be
explored, which are existing between the different conditions of the natural resources (for
example the location, the extent, and the quality of the mineral deposits, the topographical
and climatic features or the water supply of the agricultural land, etc.) and the production
capacity (T) and the production cost unit (k) of the primary product.
If we use the functions for the condition parameters in the formulas for economic
evaluation instead of (T) capacity and (k) costs, and the production value of the (w) of the
primary products is considered as constant (or parameterized constant), then these formulas
notably the rentability index and the in situ national wealth value may be calculated
directly as a function of natural conditions.
In this sense, an important difference becomes apparent between natural resources
and the processing plants: during their operation the economic results may be several times
higher than the economic averages. The differential rent of natural resources that is derived
from the different features of the natural conditions, and determines their economic value
and their economic utilization, may also be quantified in this way.
When we use the primary data (e.g. the direct data of drillings and direct measuring
sites) in the economic evaluation of natural resources and we establish the relevant
algorithms and computer technology background, than we can carry out the evaluation by
objective and mechanized methods.
When we compare the extraction costs or the efficiency of the utilization of a certain
natural resource with those results, which were calculated by another method or the actual
results, then we may obtain information not only about the reliability of the functions, but
also the difference between the optimal and the actual technological-operational level.
37

When we use long term production costs for evaluating natural resources (adjusted to
the optimal technology use) instead of real production costs, we assume that the second
part of total differential rent (derived from the technical-organizational features, which
cannot be distinguished from type I) is zero, which means that the differential rent is
clearly originated from the different environmental attributes. (This is why it is called
environmental rent.) We can give two reasons for this hypothesis. The first is that in
accordance with the goals of decision-making process, we plan for longer terms; we can
assume the equal technical-technological level in the utilization of natural resources as in
case of processing industries. The second reason is that the cost differences derived from
the technical-technological level are lower than the differences derived from natural
conditions. Nevertheless, we do not ignore the fact that advanced technologies which
need lower labour input and give higher yields might have higher material and energy
input requirements or more idle work need. (An exception can be the yield increase of
agricultural products on a genetic basis.) Technological improvements may also increase
the differences from varying natural conditions. The possible errors of the predicted result
of the technological development including the parameters of the prognostic functions,
may be corrected in the continuous controlling process (Jnosik et al., 1981).
The prognostic cost- and other economic functions may not only be used for the
comparison of domestic natural resources, but also for international comparisons.
Prognostic functions have already been used for mineral deposits, and certain evaluation
methods of soils may also be considered as the antecedents of these functions. The
functions describing the relation between the features of natural resources and their
utilization costs complies with the taxonomic criteria of transfer functions (Molnr, 1985).
The examination and exploration of the relations between the different characteristics
of the natural resources and their utilization is a key objective of scientific research.
Nevertheless it should be noted, that the evaluation might only be conducted after the
exploration of the natural resources and natural indicators, and the description of their
relations. The financial analyses shall be considered as a tool, and not as an ultimate
objective of the evaluation, it is a tool for quantifying the natural indicators on a common
base. An important requirement of long-term economic evaluations is a strong fundament
of natural, engineering and social sciences.

2.2. The importance of world prices and prognoses in the evaluation of

natural resources
The examinations and calculations conducted for the establishment of long-term
economic decisions have to include continuous control and risk evaluation of the used
prognostic methods.
When the plan for the opening a new mine is rejected, then it might be a result of the
lower import prices, the low world prices or the more favourable foreign currency
producing costs of the substitute products and vice versa.
The positive decision about the installation of a melioration programme assumes that
the yield increase will result that the export revenues exceed the domestic costs of the yield
increase; therefore, the efficiency of this melioration investment will not be lower than the
prospective results in the processing industry. The expropriation of a land is only
reasonable when the difference between the production value and the production costs is
negative. That means, the utilization effectiveness of the land is lower than the efficiency
of other types of utilization.
The utilization of hydrological assets except for special cases cannot be connected
to global prices. The communal water supply is based on the marginal costs of the
38

domestic supply and the domestic resources, the long-term efficiency of industrial and
agricultural water consumption is based on the economic efficiency of alternative
resources.
Thus, the most important base of the evaluation of natural resources may be the
predicted economic performance, which includes long-term domestic and foreign demand.
Only those categories should be taken into consideration, which may be quantified, such as
predicted prices and social inputs, efficiency indicators which can be used for the
optimization of the production structure and the optimal utilization of different natural
resources (Molnr, 1982).
As an example, the low energy prices of the 1960s due to the relative abundance of
crude oil increased demand significantly, leading to the extraction of oil deposits with
adverse conditions (e.g. in Alaska, in Siberia and sea oil resources). The politic conditions
of the world have also increased these high prices. The question of the prognosis is how the
increased use of the less expensive energy sources can decrease long-term energy demand
and energy prices. In addition, what development level is needed and how can be the
resources allocated for the economic efficiency of the domestic energy sources for longterm period.
The situation is the same with agricultural production, because the long term demand
and global prices (as well as import and export prices) will be the basic indicators,
according to which the value of our agricultural land and the technical and technological
investments may be determined.
As the decisions on the natural resources are made for decades and they determine
the production structure, the prognoses of demand and the economic efficiency are the
most important elements of the evaluation of natural resources. It is quite relevant for such
country as Hungary, which cannot be self-sufficient in certain minerals, but its agricultural
production and processing sector may exceed domestic needs (Gl et al., 1982).
Of course, the longterm decisions will always have such strategic or political
elements, which cannot be characterized by economic indicators. In addition we cannot
avoid the risk and the occurrence of errors in the different prognoses for example in
world price prognoses, in particular therefore the long-term development and utilization
plans of natural resources shall be developed in such way.

2.3. The effects of the utilization of natural resources on each

other a system approach
The natural resources may be overlapped or in relation; 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. An example for the first is the karst water as a by-product at the exploitation of
mineral deposits, for the second option a good example is the ceased wheat fields because
of afforestation, or the agricultural land destroyed by coal deposits near the surface.
Those natural resources shall be considered as primary, which may produce greater
economic result or, which utilization will result a loss of benefits or damages in the
environment or other natural resources. This loss or damage shall be considered as costs.
The effects of the utilization on the other natural resources are very important, and it shall
be determined at the first steps of evaluation. It is also relevant to determine which natural
resources are considered as primary. The rank of the resource may be different in its own
subsystem from the whole system. This problem may be solved by the system approach
calculations or programming methods.
39

If we could determine the role and the relations of the given natural resource, it will
allow the complex evaluation and the complex assessment of the different elements of the
natural resources. These results may help the decision-making process and the exploration
of the impacts of different utilization of natural resources by a system approach.
Considering the great number, the diversity and complexity of the factors that determine
the economic value of the natural resources, and the continuous development of the
technological and political environment as well, it is obvious that the assessment of the
natural resources shall be conducted by a system approach. Moreover, it shall be in
accordance with the economic correlations related to the certain deposits and occurrences
of the natural resources and their natural conditions.
The starting point of the optimization of long-term production structure is the
assessment of the present and the future resource factors. The results of cost function
analyses, direct cost calculations etc. will provide the data for the assessment as program
elements. The economic features of natural resources are special in many aspects when
compared to the processing industry:
The different deposits or production places of natural resources producing the same
product are different from in their cost per product unit values, even in that case when
they use the same technical-technological level and the optimal production capacity is
assumed.
The costs of the increased production of certain natural resources will grow significantly
after reaching the optimum. In case of non-renewable energy it is resulted by the costs
of investments activities for the capacity improvements, while in case of renewable
natural resources it is because of the progressively growing costs of the yield increase.
As because of the different natural conditions the optimum results and the cost
functions of the different natural resources may be different, the yield increase (which
exceeds the optimal yield) of a favourable resource may need less average cost then the
costs related to the own optimum yield of another resource. The general common
optimum result of the resources when calculated by the general features the system, will
not equal with the different specific optimum results: in case of resources with
favourable conditions, it will be higher, while for unfavourable resources its results will
be less or even zero.
The prospective elements of non-renewable resources are hypothetic, therefore they
may be considered in the calculations with high risk. In addition, the utilization of
natural resources in practice is also affected by natural hazards.
When we rank the resource elements from natural resources with the products or
semi-processed products of the processing industry according to the abovementioned
average cost, then the elements are grouped and integrated, the results may be illustrated by
a coordinate system, where the x-axis is the prospective future yield volume, the y-axis is
the average cost.
If the total material demand of the given country in the future is illustrated on the xaxis, and this point is projected into the common curve of the possible resources, thereafter
this point is projected into the y-axis, then this horizontal line will excise the optimal
volume of the given resource groups from their integrated curve. This line will show the
average costs of the resources related to the optimal yield volume. The vertical differences
between the horizontal line and the certain points on the curve of the natural resource
groups will show the differential rent or the average in situ value of the different natural
resource elements.
40

The positive differences between the optimal production volume and the domestic
demand will give the volume of the export needs, while the negative differences refer to
the import demand. The production of products not in international trade (for example
water) is limited by the domestic demand.
The calculated optimal volume of the resource groups may be influenced and modified by
other elements or limits, which were not considered in the calculations. The optimization
of a countrys future production (including the optimal utilization of natural resources) is a
very complex programming task, because it not only represents the vertical connections of
the national economy, but its ultimate goal is to determine the most effective allocation of
the social and economic resources of the country.
Fixing invariable elements of the programme and allowing for some errors may
simplify this very complex programming problem (Gl et al., 1983b). A simplifying
condition in the calculations of the possible optimal utilization of natural resources may be
that the costs of improving the yields and global prices related to the processing industry
are determined separately, but by the same abovementioned methods, used for the
natural resources. In the course of these calculations, we can fix the average (or aboveaverage) marginal foreign currency producing cost by which the estimated global price of
the natural resources are multiplied we can get such cost results that may be compared, and
which may indicate the optimal volume of the utilized natural resources, and the
domestically produced mineral resources in particular.
By using the different algorithms, functions and most up-to-date computer methods,
the problems from the limitations of manual data procession may be solved, and it may
also increase the range of the examined elements and alternatives. Use of up-to-date
methods increases the reliability of economic forecasts and the sensitivity of the programs
and also enables to follow the changes in the different currencies.

2.4. Methodological overview on energetic models

Energy production and utilization is one of the most important reasons of
environmental problems in all countries. Therefore in long-term energetic plans both the
economic and environmental aspects have to be taken into consideration, that is, the
decision makers have to develop different scenarios of sustainable development.
In such integrated planning mathematical decision support models are widely used. In
general, these models determine such structures of the production, transportation and
utilization of energy, which provide the different sectors with energy at a minimal cost.
The models also consider the different restrictions regarding the environmental pollution.
In the course of the establishing of energy concepts (a) the local and national level
developments shall be harmonized; (b) the relations between the energy sector and other
sectors of the national economy (industry, transportation, agriculture, forestry, water
management, etc.) shall be explored and taken into consideration; (c) the opportunities and
the demand shall be harmonized, and (d) both the energetic and environmental aspects
shall be evaluated and considered. As a result of the improved computer technology, the
models written for personal computers may be used effectively in the decision making
process, by the decision makers.
By using the most recent computer models, a large amount of information may be
processed, and the alternatives for the future can be established in details. The former
models of this field have failed several times, because they were too complex
mathematically, or they tried to predict the future too directly (optimization models). In
general, these models could help the decision making process, but could not provide real
decisions.
41

One of these decision-supporting tools is scenario analysis. By this model, we can

explore the present conditions of the energy structure, and we can make a comparison
between the different alternative development processes, which were developed and
chosen by the user. In these models we shall ask many what if-type questions. What
would happen if we built a new oil refinery plant? What would happen if we explored new
crude oil deposits? What would happen if we used a greater share of renewable energy
sources?
All of these alternative scenarios or their combinations may be assessed according to
both their input level and their environmental aspects. According to the results, the best
development models can be chosen. Based on these, the decisions and investments that are
needed for the satisfying the required energy demand and supply may be determined and
harmonized with the requirements of the selected scenarios.
Three types of evaluation are needed for the determination and the assessment of
energetic scenarios. At first, based on the relevant energy database, we have to evaluate the
present energetic processes. It is followed by trend calculations, assuming that there will
not appear any significant change or intervention in the present energetic system. This
examination may help to find the possible place and type of intervention. Finally, a costbenefit analysis should be completed according to the chosen scenario.
Flexibility is a main requirement of program models for planning of energetic and
environmental problems, which means, the system shall adapt the changes of the external
and internal conditions. The system shall be user-friendly, to help the use of the program
for those users, analysts and decision makers, who have not high-level skills in computer
technology. Finally, the system shall be complex; it shall cover all fields of energy
utilization.
In the environmental modelling and planning process, the researchers and developers
use different fields of science, the environmental phenomena and problems are explored in
physical, technical and economic aspects. The results shall be available and well
interpreted for the decision makers (and the public interest) and they shall be based on
professional experiences and scientific results.
The domestic researches of this field are at high quality, the researchers use
internationally accepted models. In the following, some model systems will be categorized
and introduced, highlighting the domestic methods and the ENPEP/BALANCE model in
details.

2.4.1. Classification of energetic models

Several energetic models are in use all over the world, which may cover all areas of
energetic field. Their structure, functions and aspects are quite similar, with only few
differences, therefore their grouping and differentiating the specific categories makes their
classification is a hard process. Table 1 summarizes the most important features, categories
and classification aspects of the different analysing methods of energetic models.

42

Table 1: Classification of energetic models

Classification
By research contents

By research approaches

By functions of the
models

By research scope

By modelling
approaches

Main features of the

models

Typical
models

economic energy model

MACRO

energy-economy

long-term

environmental energy
model

AIM

energy consumption and

energy-environment

long-term

economic-environmental
energy model

3Es model

energy-economy-environment
and policies

long-term

integrated model

IIASAWEC E3

energy technology, economy

and environment

long-term

energy simulation model

POLES

energy-economy

long-term

energy optimizing model

MESSAGE

energy technology, economy

and policies

long-term

energy equilibrium model

CGE

energy-economy-environment

energy input-output
model

HERMES

energy-economy

energy supply model

PRIMES

energy demand model

MEDEE

energy technology model

ERIS

Global energy model

IIASAWC E3

energy technology, economy

and environment

long-term

Regional energy model

GEM-E3

energy-economy-environment

long-term

National energy model

NEMS

mediumterm

Sectoral energy model

LEAP

energy-economy-environment
and policies
energy-economy-environment
energy-economy-environment

mediumterm

bottom-up

CGE

top-down

MARKAL

hybrid model

NEMS

Focus of research

energy-economy-environment
and technology
energy technology and
economy
energy technology and
electricity production

energy technology, and

environment
energy-economy-environment
and policies

Timeframe

mediumterm
mediumterm
long-term
long-term
-

long-term

long-term
mediumterm

Source: Wei, Vu, Fan, 2006

2.4.2. Comparison and evaluation of different energetic models

The comparison and evaluation of energetic models were conducted according to
the following approach:
Top-down models incorporate an economic model, based on economic indices of
energy price and elasticity. They present the relationship between energy consumption and
production; which in turn can be used for macroeconomic analysis and energy policy
programming. CGE are typical representations of top-down models. Bottom-up models are
based upon engineering technology models. They integrate detailed descriptions of
technologies used for energy consumption and production. Such models are used to
forecast energy supply/demand and analyse environmental impacts on energy consumption
and production trends. Bottom-up models have been developed in two directions: one
direction analyses more efficient technologies and a combination that focuses on the supply
and conversion of energy. MARKAL, which was developed primarily by the International
Energy Agency, and EFOM which was developed in the European Union (EU) are
representative of this particular direction.
43

The second direction is for the calculations in connection with the energy supply and
demand, namely, how the changes of the different sectors will modify the energy demand.
These models are also called as end use models. The most important models are the
French MEDEE and the LEAP model developed by the Stockholm Environmental
Institute. The development of the end use models which evaluate the most effective
energy technologies and their combinations according to the energy demand and
consumption is very slow. The AIM end use model (developed by the Japanese
National Environmental Institute) is used in many countries in the Eastern Asian and
Pacific regions. Combined energy models deals with the simulation of energy systems,
considering the exploitation, transformation, transportation and sales of energy, forecasting
the capacity supply, energy prices and the demand and macroeconomic parameters as well.
These models may be used for the development of the countries energy strategy and in the
decision making process. Hybrid models include energy supply/demand models (i.e.
bottom-up models) besides the top-down and macroeconomic models. Thus, these models
are integrated models, which considers different economic, supply, demand, payback and
environmental aspects and even refer to the country specific features. These models are
suggested for global, regional and national use. Most important representatives are: NEMS
(EIA) and IISA, and the t IIASA-WEC E3, developed by the WEC. Table 2 summarizes
the detailed information of comparison of these models.
Table 2: Comparison of top-down, bottom-up and hybrid models
Top-down
models

Bottom-up
models

Hybrid models

Method
econometrics, general
balance theory method,
linear programming
method
linear and non-linear
programming theories,
multipurpose
programming and system
dynamic methods, inputoutput methods

Function
macroeconomic analysis of
energy, and energy policy
programming

linear and non-linear

programming theories,
mixed integrated
programming,
econometric method

forecasting energy
supply/demand, analysis of
energy policies and energeticenvironmental proposals, cost
analysis and development analysis
of energy technologies

optional energy technological

strategies, forecasting the
environmental and energy
supply/demand impacts of energy
technologies, evaluation of energy
policy

Typical model
CGE
3Es-Model
MACRO
GEM-E3
MARKAL
MESSAGE
EFOM
MEDEE
ERIS
LEAP
AIM

Developer
Norway
NUT/Japan
IIASA
NTUA etc./EU
ETSAP/IEA
IIASA
EU
IEPE/France
PSI + NTUA +
IIASA
SEI/Sweden
NIES/Japan

NEMS
IIASA-WEC E3
PRIMES
POLES
MIDAS

EIA/USA
IIASA and WEC
JOULE/EU
JOULE/EU
JOULE/EU

Main features of top-down models

Use economic approach, can not explicitly represent technologies.
Relates to available technologies accepted by the market.
Use aggregated data.
As these models do not consider the most efficient technologies, the potential of technology improvements is underevaluated.
The energy demand is calculated by aggregated economic indicators (GNP, price elasticity), but they use them for energy demand
calculations alternately. (Nakata, 2004)
Main features of bottom-up models
Use engineering approach, with detailed description of technologies.
Consider technologic potential.
They use detailed data for establishing the targets.
Do not consider market restrictions, therefore over estimate the opportunities of efficiency development processes.
They show experimental technologies with detailed data, but in case of energy consumption it may vary.
Assume the omitting the impacts of the interaction between the energy sector and other sectors of the national economy. (Nakata,
2004)
Main features of hybrid models
Consider not only the costs of the chosen technology, but also the price flexibility, therefore it may be used for simulation and
analysis of global energy systems, combining the advantages of the other two models.
It may be used for analysing the energy, at global, regional or national level.
The model is complex, which allows its use for the simulation of real energy systems.

Source: Wei, Vu, Fan, 2006

44

Since the 1970s, energy models have been developed for the planning and forecasting
the energy demand and supply. These models (e.g. MARKAL, EFOM or MEDEE) had
significant importance because the energy supply was a crucial planning point in every oilimporting country. When the oil crisis of the 1980s has ended and the global market of oil
has been balanced, the global warming has appeared as most serious global problem. The
safety of the environment has become the hottest topic for scientific researches. The
Vienna Convention for the protection of the ozone layer was signed in 1985; it improved
the research and development of energetic-environmental models (for example AIM,
LEAP and EFOM-ENV models, etc.). Energy plays an increasingly important role in the
world economy, because the energy demand of the countries is growing, which leads the
interest for the question of sustainable development. Nowadays, this problem is not a
simply energy problem, but is related to many other areas, therefore the present energetic
models are rather energetic-environmental models, such as CGE, 3Es-Model, MESSAGE,
and the hybrid energetic models as NEMS and IIASA-WEC E3.

2.5. Use and methods of energetic models

2.5.1. Top-down models
Computable general equilibrium (CGE) models are a class of economic models that
use actual economic data to estimate how an economy might react to changes in policy,
technology or other external factors. The model, which focuses on the triple aspects of
energy-economy-environment, was developed at the end of the 1980s, for the simulation of
the interactions between the variables of the energy, the economy and the environment.
Several countries have introduced their own CGE model, which helped the evaluation of
energy trade, energy and environment interactions and taxation policy. The experiences
show that the model may be used efficiently in evaluation and simulation of the impacts of
the introduction of national economic and environmental policies.
3Es-Model is an integrated econometric model, which consists of sub-models: a
macroeconomic, energy and an environmental sub model. It was developed in the
Japanese Nagaoka University of Technology, and it is used for the simulation of the
interactions between economy, energy and environment, for determining the different
trends of economy, energy and environment, and for forecasting the savings, the coal taxes
and the improving the energy efficiency. The model is widely used in long-term energy
strategy planning and energy policy.
MACRO is a macroeconomic model, which describes the production function-type
connections between energy consumption, capital, working power and the GDP. Its
objective function is the total discounted profit of the typical individual
producers/consumers. The maximum of this function will determine the rank of optimal
versions of savings, investments and consumers decisions.
SOLFEGE/GEM-E3 (General Equilibrium Model for Energy-EconomyEnvironment) is an applied general equilibrium model that covers the interactions between
the Economy, the Energy system and the Environment. It is well suited to evaluate climate
and energy policies, as well as fiscal issues. The GEM-E3 model was developed in the
1990ies and it has been used for several Directorates General of the European Commission,
as well as for national authorities. GEM-E3 is a recursive dynamic computable general
equilibrium model that covers the interactions between the economy, the energy system
and the environment both at worldwide an EU level. It was designed especially for the
evaluation of environmental policies. GEM-E3 can evaluate consistently the distributional
effects of policies for the various economic sectors and agents across the countries. It may
improve the reforms of energy and environmental policies towards the concept of
45

sustainable development, and it also strengthen the importance of their impacts on climatic
change, energy, economy and environment.
There are other top-down models in use, for example the GREEB general
environmental equilibrium model (OECD, 1993), NEWAGE, a general environmental
equilibrium model used in national, EU and worldwide level (IER, 1996), or HERMES,
which was developed for the harmonized research of the macro-environment and energy
systems in the European countries in the 1980s.

2.5.2. Bottom-up models

MARKAL is a dynamic linear programming model from the 1970s, which is the
result of a nearly two decade long international cooperation, named ETSAP (Energy
Technology Systems Analysing Programme). The MARKAL model is used by 77
institutions of 37 countries for national and regional energy programming and the
assessment of energy policy (Lavagno, 2004; Naughten, 2003). The logical framework of
these models is the multi-objective programming method, and the mixed integer
programming method. It deals with 20 restricting factors, for example the limits of the
balance of energy sources, the increase of system investments or the capacity of electricity.
MESSAGE (IIASA-ECS, 2004) is a dynamic linear model for medium-term and
long-term analysis of energy planning, energy policy and different scenarios. The model
describes the energy system as a whole, from exploitation of the resources, through exportimport, transformation, transportation and distribution, until the services for the end-users
the energy supply for lighting, air-conditioning, industrial production processes and public
transport. MESSAGE is a technology-economy optimizing model, with tree main
variables: technological activity, introduction of new technologies/year, and yearly
resource exploitation. Among the evaluating factors, there is demand factor, which may
supply the exogenous demand by using appropriate technologies, or may determine a
balance in the energy transport factors which may grant that the energy consumption will
not exceed the energy production.
EFOM model was developed in 1982 for the evaluation of the energy model of the
European Commission. Since then, it is used for examining the different scenarios for the
evaluation of growth stages, import prices of oils, solid heating fuels and nuclear energy
etc. An improved version of EFOM model, which was enlarged by the analysis of harmful
emissions, and decreasing techniques was used in international studies, for example the
analysis of the cost curves related to the reducing of emission (Molnr S, 1995a,b).
The so-called EFOM-CHP model may assess the used technology of different
sectors, the primary demand and emission of fuels. This model can be used as an element
of a system, in competitive situation for modelling the strategies and decision-making
process of electricity producers.
MEDEE (European Energy Demand Model) was developed by the French Institute
for Energy Politics and Economy in the 1980s. The model forecasts the energy demand of
the different sectors, by simulation of their changes and calculating with the social,
demographic and technological factors of the given period. The MEDEE models classify
the energy system according to the different sectors: industry, transport, households,
service and agriculture. The models are used in the EU Member States for energy demand
calculations and planning (Modelling and Forecasting, 2004).
ERIS (Energy Research and Investment Strategy) was originally developed by the
TEEM project under the aegis of the European Commission. This linear programming
model was established based on a small-scale MESSAGE model, which was a test
programme for programming methods. It may integrate the technology changes into the
energy model (IIASA-ECS modelling framework, 2004c; EC-TEEM, 2000). The original
46

target of ERIS was to estimate the mechanisms under uncertain conditions, by the
examination of research and technology development policies and the cost-benefit analysis
of policies for making a rank between the options. Later, by the generalization and further
development of the ERIS model, a multi-regional analysis model was established for nine
geopolitical regions.
LEAP (Long-term Alternative Energy Planning System) is a static energy-economyenvironment model developed by the Energy Institute of Stockholm. This model forecasts
the impacts of energy demand, the consumption and the environment at sectoral level, and
makes detailed economic analyses for every energy scenarios. The model is also known as
end-user energy consumption model (Siteur, 2004).
AIM (Asian and Pacific Integrated Model) is an end-user model developed by the
Japanese National Environmental Institute in 1994. The model is used for the assessment
of the impacts of GHG emission and the climate change resulted by human activities on the
natural environment and the society. It is also used for the estimation of the impacts of the
implementation of measures for reducing the global warming. Three modules are
connected to AIM: emission, climatic and impact modules. By the emission module the
GHG emissions are estimated; the climatic module forecasts the GHG concentration and
the increase of temperature; while the impact module the impacts of global warming on the
natural environment and the society are evaluated (Molnr M, Molnr S., Takcs T, 2002).
As the half of the worlds population lives in the Asian-Pacific region, and the speed of the
economic growth is the largest here, it is very important to find the global solutions for the
problems arisen from the climate change.
Other bottom-up models are the EPPA and IKARUS models (IER, 1995).

2.5.3. Hybrid models

NEMS is a computer-based energy-economy modelling system, which was
developed by the Energy Information Administration (EIA) of the USA in 1993. The
model was used for the planning energy, economy, environment and safety, and their
impacts on alternative energy policies and the different requirements of the energy market.
In addition, the energy production, import, export, transformation, consumption and prices
were planned by the NEMS, based on macroeconomic and other issues (e.g. financial
factors, energy market, access to the resources, costs of the resources, attitudes, technology
aspects, cost-performance features of energy technologies, demographic features etc.). The
NEMS includes four supply modules (oil and natural gas transmission and distribution,
coal and renewable energy sources), two transformation modules and four end-user
modules (public, trade, transport and industrial) and an integrated module which goal is to
find the market balance between the different modules.
IIASA-WEC E3 is a dynamic linear programming energy-economy-environment
model, which was developed by the IIASA and the WEC in the 1990s. Its parts are the
following:
SCENARIO GENERATOR Model: introduces the relations between economy and
energy, by evaluating 30 scenarios in different regions of the world.
RAINS: simulates the regional air pollution for the purposes of examination of the
climatic change; it uses information in connection with the control and the costs of energy
consumption, GHG emissions, radiation parameters of the air and air pollution.
The dynamic linear programming MESSAGE model is used for the medium- and
long-term programming of energy systems, for evaluating energy policies and developing
alternative scenarios.
MACRO is a macroeconomic model that describes the relations between the
production functions of energy consumption, capital, working power and the GDP.
47

BLS is a system module, which is connected to a national agricultural model (IIASAECS Modelling Framework, 2004d).
MAGICC is a model for climatic impacts, which is based on the ESCAPE. ESCAPE
using a range of input scenarios reflecting different global policy, economic and
technological futures. The model is used for the estimation of CO2 emission and the CO2
concentration of the air, and for the estimation of the impacts of the forced reduction.
GCM is a general model, which use regression method for forecasting the impacts of
the dust content of the air on global warming.
PRIMES (Price Induction Models of Energy Systems) is a partial balance model
developed by the TEEM group of the EU JOULE programme, in 1993. The model
concentrates on the determining mechanisms of the energy demand and supply connected
to the markets. It uses a bottom-up approach for the analysis of the energy supply and the
top-down approach for the energy demand (Capros, 2004a, 2004b). The model is a market
analysis method for energy policies, which include and evaluate the connections between
energy policy and technology. The starting point of the model is that the present EU policy,
the rate of economic growth the demographic rate and the prices of oil, coal and natural gas
will remain stable.
POLES (Prospective Outlook on Long-term Energy Systems) is a partial balanceoptimizing model that is based on the energy supply and demand (EU JOULE programme,
1990s). POLES contains sub-modules at different level of the energy system. A key
element of the POLES is the simulation of oil and gas exploitation, and it has a great
importance in the international decisions of this field. The model describes the changes of
the worlds energy demand and supply, the prices and their global and regional changes
(Criqui et al., 2004).
MIDAS is a large-scale energy planning and forecasting model, which was developed
under the EU JOULE programme, in the 1980-90s. It makes a dynamic simulation
combining the energy system, the technical processes and the econometric formulas. The
model uses a top-down approach for the description of energy demand, and a bottom-up
approach for the energy supply. It covers the whole energy system, and it describes at a
yearly level the demand, the supply, the energy prices and energy costs, therefore the
system is in balance at prices and quantities. The result of the model provides a set of plans
for capacity improvement with detailed energy balances, sectoral cost and price lists and
production data (Capros, 2004).
There are other typical hybrid models, such as WEM (World Energy Model) (IEA,
1993), E3ME (European Energy-Economy-Environment Model), (EU, 1995), IFFS
(Integrated Medium-term Forecasting System), (USA Energy Information Administration,
1989) and DNE21 (Dynamic New Earth 21) model (Yokohama State University, 1990s).

2.6. Balance models used in the Hungarian practice the introduction of

ENPEP/BALANCE model and its utilization
2.6.1. Description of the ENPEP model and the fields of its use
The ENPEP program system was developed under DOS by the Argonne National
Labs, supported by the Ministry of Energy of the US and the International Atomic Energy
Agency. The windows version of the ENPEP is different from its DOS-based version in
many aspects, in either structure or availabilities. It may utilize the graphical facilities of
the operation system, which may facilitate the modelling of a given region or a country.
The objective of the ENPEP is to make models for even longer terms (even for 75 years) in
for the purposes of energy sector by modelling the balance between the energy supply and
demand.
48

For these purposes, the system determines a complex and representative network,
which includes the energy production, transformation, transportation and utilization
processes, which indicates the different energy and fuel connections between the activities.
The harmful environmental impacts are modelled by the emissions of different
activities. In addition to the energy costs, the environmental costs of disposal are also
calculated. These data may be used for improving the results of the balance model in
environmental aspects. (Molnr S, 1995)
The main objective of this software is to be used as an analytic tool to analyse the
energetic and environmental aspects in the course of establishing the long-term energy
strategies.
The central requirement of a comprehensive energy analysis is the evaluation of
alternative configurations of the energy system that will balance energy supply and
demand. The BALANCE Module of ENPEP is designed to provide the planner with this
capability. BALANCE uses a non-linear, equilibrium approach to determine the energy
supply and demand balance for its simulation, the Model uses an energy network that is
designed to trace the flow of energy from primary resource (e.g., crude oil, coal) through to
final energy demand (i.e., diesel, fuel oil) and/or useful energy demand (i.e., residential hot
water, industrial process steam). Demand is sensitive to the prices of alternatives. Supply
price is sensitive to the quantity demanded. BALANCE seeks to find the intersection of the
supply and demand curves as illustrated by Figure 2. In its operation, BALANCE
simultaneously tries to find the intersection for all energy supply forms and all energy uses
that are included in the energy network.
The equilibrium is reached when the model finds a set of prices and quantities that
satisfy all relevant equations and inequalities. The simulation time step is one year for up to
75 years. However, the Model is typically used to analyze a 20 to 30 year forecast period.
(Molnr, 1992)
Price/Cost
Demand

Supply

Quantity

Figure 2: BALANCE: supply and demand curves

2.6.2. Energy Network and Equilibrium Solution of the ENPEP

The energy network represents all energy production, conversion, transport,
distribution, and utilization activities in a country or region, as well as the flows of energy
and fuels among those activities. The energy network is constructed with a set of sub
models or building blocks, called nodes. The nodes of the network represent energy
activities or processes, such as petroleum refining.
(Figure 3 shows the available nodes types and their symbols of ENPEP)
49

Figure 3: Available nodes of the ENPEP

2.6.3. Available nodes and links in the ENPEP model

The user connects the nodes with a set of links. The links represent energy and fuel
flows and associated costs among the specific energy activities. Links convey this
information (i.e., price and quantity) from one node to another. The energy network is
developed by defining the energy flows among the different types of nodes for a given base
year. All sectors of the energy supply and demand system are included in a typical
BALANCE analysis.
Figure 4 shows the sectoral energy network used in a given country or region. Energy
resources are either imported or produced domestically. Every energetic sector includes a
detailed energy network with nodes and links between the sectors representatives and the
intra-sectoral processes. Fuel conversion occurs, for example, in the oil refinery in the oil
and gas supply sector, (crude oil is converted to refined products) and in the electricity
generation sector (coal, oil, or gas are converted to electricity). The transmission/
distribution sector routes the fuels to the various demand sectors (industry, residential,
commercial, transport, and agriculture/fishing).
A specific country may include more or fewer sectors and fuels than shown in Figure
4, because the modular structure makes BALANCE a very flexible tool and the user is free
to define the sectors and the nodes and links that are in each sector according to specific
analysis needs and/or available data.
In the next part, the equations and the calculations of the BALANCE will be
introduced.
50

Figure 4: Typical energetic system int he ENPEP/BALANCE model

The main goal of the BALANCE module is to predict the balance of energy consumption
and demand. It is a complex model, which covers the whole energy transformation chain:
exploitation of the energy sources (natural gas, crude oil, coal) and their import;
transformation of the energy sources (oil refinery, electricity production, etc.);
transportation and allocation of the energy sources;
utilization of the energy sources (according to sectors of national economy).
The above-mentioned elements of the system are concerning not only for the sectors,
but also the level of the energy transformation process that means the energy sources at
the higher level are getting closer to the ultimate goal of energy transformation processes
the so-called useful energy types as household heating, or energy of light bulbs etc. (
Molnr S, 1995).
By this system approach, the energy production and utilization processes
(exploitation, utilization, prices, etc.) may be analysed as a whole. By this approach, the
balance between the production and consumption may be kept at each different level of the
energy transformation processes, and the economic use of the different energy sources may
be ensured i.e. the lesser the price of the fuels is, the more the utilization level. (Molnr
S., 1994)
The base of the model calculations is the scheme of the energy system. It contains
nodes and its connecting links. Nodes are illustrating activities (e.g. crude oil refining)
while the links are for visualizing the energy flows (from the refinery to the power plant).
The BALANCE deals with 10 nodes, which is illustrated in Figure 5. To these nodes
10 algorithms are connected, there is a separate symbol and algorithm for modelling the
electricity system.
51

The links between nodes may be input

our output flows according to that the given
resource is a producer or a consumer of the
given The goal of the calculations is to answer
the questions about the quantity and the price
of the input and output flows.
The concept according to which the
exploitation and the import of the energy
sources are at the bottom of the scheme, and
the upper parts are for the transformed level
will improve the overview of the system and
also allows to visualize the directions and the
way of the energy resource from the
exploitation process until the utilization stage.
The algorithms of the calculations also
follow this approach. The nodes mean a
breaking point in the way of the energy
resource, its quantity is modified according to
the type of transformation, and the price is
modified.

RS:

depletable resource node

RN: renewable resource node

PR:

processing/conversion node

MI:

multiple input node

RE:

multiple output node

(refinery)

DE:

demand node

2.6.4. Decision
PP: pricing node
This node is one of the most important in
(tax, subsidy, etc.)
defining the role that competing energy
technologies will play in a future energy
system. They represent the market forces at
play when choices are made to use a particular
AL: decision/allocation node
type of energy. The approach used in
simulating the market decision process is to
assume that the market share of an energy
ST: stockpile node
source is inversely proportional to its price
relative to its competitors.
By convention, a decision node has one
EL: electric system node
or more input links and one or more output
links. Decision nodes select the amounts of
fuel to be supplied from alternative sources
(the input links of the node) at various points
Figure 5: BALANCE nodes
in the energy network, and route the energy to
satisfy energy flow requirements of the output
links of the node.
Price and quantity equations are associated with a decision node. The quantity
equation equates the total energy flow on the output links of the node to the total energy
flow on the input links to the node; energy flow is conserved at a decision node. The price
equation relates the prices of the fuels on the input links of the node to the price of fuel on
the output links of the node. In addition, several other equations indicate the shares of fuel
selected from the input links to the node. Shares are based on the relative prices of fuel
from the alternative sources, capacity limits on the supply sources, and government
policies. It should be noted that one of the features of the decision node algorithm is that
energy requirements may be met by selecting fuels from several supply sources
simultaneously rather than from a single source, as would be the case if fuel choices were

52

based strictly on least cost. However, the decision node parameters can also be specified so
the node selects fuel only from the least-cost source. (Molnr S, 1997)
Given the quantity of energy required on each output link of a decision node, the
quantity equation equates the total energy flow into the node to the total energy flow out of
the node:
Qik = Q S k
(1)
where:
Qik quantity of kth input energy source;
Q sum of the output energy sources;
Sk shares derived from:
r

1

P
Sk = k r
n

j =1 Pj

(2)

where:
Pk is the cost of kth input energy source;
Pj is the cost of jth input energy source;
n number of energy sources;
r
price sensitivity coefficient.
The r price sensitivity coefficient should be given by the user; its value shall be between 0
and 15.

2.6.5. Pricing
By convention, a pricing node has a single input link and a single output link. A
pricing node changes the price on the input link of the node to simulate a government tax,
subsidy, price ceiling, price floor, or other government pricing policy.
The output price of a pricing node is determined from the following equation:
P0 = a Pk + b

(3)

where:
Po price on output link of pricing node;
Pk price on input link of pricing node;
a price multiplier, and;
b additive cost.
If calculated costs exceed the maximum costs, or if the price is less than the minimum cost,
the program will consider the maximum or the minimum costs in the calculations.

2.7. Energy demand

By convention, a demand node has a single input link and no output links. Demand
nodes must be positioned in the energy network to indicate the points of final demand, that
is, points that terminate energy flows throughout the network. There are two options for
giving the timeline data:
a./ a separate menu point and table is used for the different years;
b./the data generated by the DEMAND module can be used.
53

The two options may be mixed, certain energy flows may be inserted from the
DEMAND module, while others may be given directly. No equations are associated with a
demand node.
The iteration algorithm has the following steps:
1. the calculation of the quantity of the exhaustible or renewable energy sources given at
the bottom line of the scheme (according to data of the preceding year, or the base
year);
2. solving the equations for cost calculations, according to the equations related to the
resources (from the bottom upwards);
3. determining the needed quantity of the energy source (upper level);
4. solving the equations for quantity calculations from up to the bottom, according to the
costs calculated in step 2.
5. comparing the results for utilization of the energy source with the initial values, if the
difference is within the given limitations, the program will accept the results, if not
accepted, than a new iteration cycle will start from step 2.
Note: for the basic year, not only the costs but also the amounts are also determined in step
2.
Of course, this algorithm is not convergent in every case. Sometimes it may happen
that no end result of the calculations (for example, the available quantity of the energy
source is not enough for covering the demand). The program developers put a limitation
into the process, which shall be given by the user. If the method will not give results after
the given number of iteration cycles, the program will stop by a program error sign.

Figure 6: Modelling renewable energy sources in ENPEP

Source: Molnr S. 1995

54

2.8. Hungarys fossile resources and reserves

Hungarys yearly energy consumption is 1170 PJ, which 76% is covered by imports.
The import share of the different fossil energy sources in heat values / in Mt and Bn m3:
Coal:
46% / 20%
Crude oil:
92% / 88%
Natural gas:
77% / 79%
(In case of coal the difference between the heat value and the bulk weight is resulted by the
low heating value of the domestic production).
The domestic production was the following in 2007:
Coal in total: 9,7 Mt, from which 8,4 Mt was lignite, 1,3 Mt was brown coal
(from the Mrkushegy Mine of the Vrtes Power Plant)
Crude oil: 838 kt
Natural gas: 2,65 Bn m3
The supply of Hungary at the present level of production is the following:
Lignite: >300 years
Brown coal: >100 years
Black coal: the production was ceased in 2004, but the coal reserves are significant.
Crude oil: 20 years
Natural gas: 22 years
The economic consideration of the total, technically extractable mineral assets is
depending on the domestic and foreign economic and political situation, the level of
technological development, and the world price of energy sources; therefore, it may vary in
the different years. As a result of the present extremely high oil prices, the importance of
domestic reserves of coal, crude oil and natural gas may increase. In this way, a significant
part of the exploitable assets may be allocated into the economically exploitable group.
The supply of Hungary based on the exploitable mineral asset (according to the
present level of exploitation):
Lignite: >500 years
Brown coal: >1000 years
Black coal: the production was ceased in 2004, but the coal reserves are significant
Crude oil: 23 years
Natural gas: >1000 years (it contains the natural gas reserve of Mak pit.
A part of the technically extractable mineral assets cannot be exploited economically even
in the future. The following table shows the present situation of Hungarys mineral
reserves according to economic and technical feasibility.
Table 1: Fossile resources and reserves in Hungary
Fossil raw materials
Economically exploitable
Technically exploitable
Lignite
2 893 Mt
4 373 Mt
Brown coal
166 Mt
2 244 Mt
Black coal
199 Mt
1 986 Mt
Coal in total
3 259 Mt
8 603 Mt
Crude oil
17 Mt
19 Mt
3
Natural gas
58 Bn m
3 355* Bn m3
* contains the technically exploitable natural gas reserves of the Mak pit

55

According to the supply with fossil energy sources and the mineral assets of
Hungary, it can be stated that Hungarys supply with primary energy sources is acceptable,
but the difference between the certain raw materials is significant.
In aspects of crude oil, the countrys conditions are limited, there is no reality for
exploring new crude occurrences, and therefore we need a significant crude oil import in
the future.
In case of natural gas, the exploitation of the Mak pit reserves is very important.
The gas pit different from other reserves is centred in a basin; in a great depth (30006000m) Its extraction has many several problem. The Falcon, the Exxon Mobil and the
MOL wish to solve these problems in close cooperation. The cost of the extraction will
exceed the costs of traditional gas deposits, and foreign capital is needed. The technology
will probably be presented by the Exxon. The risk of this project is very high, but if it will
be successful, and the production starts, it may reach a production level of 10 Billion
m3/year. According to the pessimistic scenario, the project will not start due to the high
costs.
In Hungary, the in situ mineral resources are owned by the state, which after the
payment of the so-called mining rent will be owned by the mine owner companies. It
means, that the companies of the mining industry will pay also the mining the mining rent
in addition to the corporate taxes, local business taxes etc. The calculation of the mining
rent is regulated by Act No. 1993. XLIII. and regulation118/2003 (VIII. 8.). The sum of the
payments of mining rent has reached 124 billion HUF, which 98% is represented by crude
oil and natural gas. The presently used legal act is the Mining Act (amended in 2008) and
the decree of the government 54/2008. (III. 20.) has changed the volume of the mining
rent, and its stepwise increase have been introduced in the field of hydrocarbons.
The hydrocarbon use of Hungary because of the use of power plants based on
hydrocarbons is rather high within the energy consumption. It is not suggested to build
additional hydrocarbon based plants, as it would increase our import demands. The energy
consumption of the domestic power plants was the following in 2006 (considering heat
volume)
Table 2: Energy consumption by fossile fuels
in power production
Lignite
Brown coal
Black coal (imported)
Crude oil
Natural gas
Nuclear materials
Renewable (biomass)

13%
4%
3%
1%
35%
36%
8%

Hungary has huge amount of lignite, the power plant developments shall be
connected to this resource, to produce energy from domestic resources with domestic
working power. There is a need for foreign capital for the developments. The lignite assets
of Hungary allow the building of 4000 MW power plant capacity. There are important
developments for the modernization at Visonta (financed by the MVM and the Mtravidk
Power Plant) which increase the capacity by 400 MW (although a 200 MW capacity with
low efficiency will de ceased). According to our findings, there is a need for the
construction of the lignite-based power plant at Bkkbrny, and the opening of the lignite
pit and the lignite based power plant at Torony, in Western Hungary.
Our most important fossil energy source is lignite; the unit costs of lignite-based power
plants are lower than all the other power plants (except for the Paks Nuclear Power Plant.
56

The further use of brown coal is needed, and there is a hope for the restart of the black coal
mining in the Mecsek Mountains (deposits at Mza-South), which may be utilized for
several purposes (power plant use. burning together with communal waste for energy
purposes, coking, chemical use etc.).
The methane content of black coal is significant, further R&D is needed for its
utilisation.
Underground coal gasification is also possible, but it needs also R&D activities.

2.9. Hungarys geological reserves

The National Mineral Resource Register contains the assets of more than 3700
deposits with 37,5 billion tonnes of geographical assets and 24,4 billion tonnes of
exploitable assets. The mineral assets of raw materials on January 1st 2010 and 2011 and
the production of 2010 are summarized in the table, based on the data of the Hungarian
Mining and Geological Institute.
Table 3: Geological reserves and resources in Hungary

Raw materials

Geological Exploitable
Geological
reserves
reserves Production reserves
2010
2010.01.01. 2010.01.01.
2011.01.01.
Mt

Mt

Mt

Mt

Exploitable
resources
2011.01.01.
Mt

Crude oil
Traditional

209,4

18,4

0,7

218,6

23,1

Non-traditional

418,9

25,1

418,9

25,1

280,6

118,1

3,1

535,3

139,8

3 282,4

2 274,8

3 282,4

2 274,8

45,9

32,2

0,1

45,8

32,1

Black coal

1 625,1

1 915,5**

1625,1

1 915,5**

Brown coal

3 198,0

2 244,3

0,91

3197

2242,9

Lignite (surface mining)

5 761,0

4 356,3

8,203

5 752,05

4347,7

Natural gas*
Traditional
Non-traditional
CO2*

Uranium

26,8

26,8

26,8

26,8

Iron ore

43,1

43,6**

43,1

43,6**

Bauxite

126,0

81,2

0,307

125,1

80,6

90,8

100,2**

90,8

100,2**

781,2

726,5

781,2

726,5

Lead-zinc ore
copper
Noble metals

36,6

36,5

36,56

36,5

manganese

79,6

52,6

0,055

79,5

52,5

Mineral raw materials

4 330,2

1 270,3

2,57

4 134

1 218,6

Cement- and lime industry

2 897,5

1 460,4

3,54

2 855

1 416,4

4 511,59

2 946,1

11,39

4 572,6

2 985,8

Sand and gravel

8 176,4

5 408,6

25,06

8 179,4

5 438,2

Ceramic industry

1 832,8

1181,1

1,27

1 833,4

1 182,1

182,0

123,3

0,05

182,1

123,4

37 935,9

24 441,4

57,26

38 014,8

24 432,2

Building and construction industry

Moorland soils and lime

Hungary total

Source: MBFH, 2013

57

COAL
Table 4: Hungarys coal assets
Assets
Black coal
Brown coal
Lignite
Hungarys total coal
assets

Geological
Exploitable
Geological
Exploitable
Geological
Exploitable
Geological
Exploitable
Industrial

2010. 01.01.
(Million tonnes)
1 625,1
1 915,5
3 198,00
2 243,8
5761
4 356,3
10 584,1
8 515,6
3 283,1

2011. 01.01.
(Million tonnes)
1 625,10
1 915,50
31 970,00
2 242,90
5 752,05
4 347,70
10 574,15
8 506,10
3 272,40

Source: MBFH, 2013

Table 5: Hungarys coal production in 2009 and 2010

Production (2010)
1000 t/year
910
8 203
9 113

Production (kt)

Black coal
Brown coal
Lignite
Hungarys total coal production
Source: MBFH, 2013

Production (2009)
1000 t/year
952
8 026
8 978

Hard coal
Brown coal
Lignite

Figure 7: Hungarys coal production between 1992 and 2010

Source: MBFH, 2013

The coal production has dramatically decreased from the 20 million tonnes per year
production (at the end of the 1980s), in 2005 the production decreased below 10 million
58

tonnes. The share of domestically produced coal in the energy supply has decreased to
6,5%, the industrial use (power plants) is 19,5%, although the registered coal reserves may
guarantee the domestic coal supply for hundred years.
Table 6: Hydrocarbons
Assets
Crude oil
(Mt)
Natural gas
(Gm 3 )
CO 2 gas
(Gm 3 )

Geological assets
Exploitable assets
Geological assets
Exploitable assets
Geological assets
Exploitable assets

2011. 01. 01.

637,5
48,2
3 817,8
2 414,6
45,8
32

Natural gas (Gm3)

Crude oil (Mt)
Carbon-dioxide (Gm3)

Figure 8: Hungarys hydrocarbon and CO2 assets, Source: MBFH, 2013

Crude oil, natural gas and CO2 production in Hungary between 1992 and 2010
Source: MBFH, 2013

The Hungarian production of crude oil was the highest in volume between 1976 and
1990, when it exceeded the 2 Million tonnes/year amount. In this period, the natural gas
production was between 4-7 Gm 3/year.
The domestically exploited hydrocarbons may cover the 17-20% of the domestic
demand in the next 20-year period. The exploration of new, traditional type of reserves is
not expected, but there are great efforts for the exploitation of the non-conventional type
basin-centered natural gas reserves in the Mak pit. If the technological experiments will
have favourable results, the duration of the natural gas assets will increase significantly as
59

well as the share of domestically exploited gas. This project and the exploration of other
similar, but smaller reserves considering the present world prices may modify the
vision of Hungarys energy supply in the future.

ORE RESOURCES
Hungarys ore production was traditional and excellent in the past centuries, but the
situation has been changed in the past decades. In 1985 the iron and sulphide ores (copper,
lead, and zinc) was stopped. The uranium mining was ceased in 1997. In our time, the ore
mining of Hungary is represented by bauxite and manganese.
Table 7: Ore assets of Hungary in 2010
Ore

Geological assets
(Mt)

Exploitable
assets (Mt)

Production in
2010 (Mt)

Iron
Lead-zinc

43,1
90, 8

43,6
100,2

Copper
Noble metals
Uranium

781,2
36,6
26,8

726,5
36,5
26,8

Bauxite

125,1

80,6

0,307

79,5

52,5

0,055

Manganese

Production (kt)

Source: MBFH, 2013

Figure 9: Bauxite production in Hungary between 1994 and 2010

Source: MBFH, 2013

60

Table 8: Non-metallic resources

Raw materialgroups
Minerals
Moorland soils
Moorland lime
Cement- and lime
industry
Building and
construction industry
Sand for building
industry
Gravel for building
industry
Ceramic industry
Non-metallic raw
materials in total

Geological assets Exploitable assets

Mt
Mt

Production

Production

2009

2010

2010.

2011.

2010.

2011.

1000

1000

1000

1000

I. 1.

I. 1.

I. 1.

I. 1.

tonne

m3

tonne

m3

4 330,2

4 134,0

1 270,3

1 218,6

2 860,4

1 184,8

2 572,9

1 086,2

182,0

182,1

123,3

123,4

84,7

322,9

54,1

169,5

2 897,5

2 855,0

1 460,4

1 416,4

4 462,7

1 774,1

3 537,0

1 410,0

4 511,6

4 572,6

2 946

2 985,8

15 808,1

6 152,6

11 390,1

4 497,3

1 112,0

1 124,4

804,6

813,4

12 095,3

6 774,2

5 901,5

3 348,6

7 064,4

7 055,0

4 604,0

4 624,8

23 496,1 12 036,2

19 157,1

9 851,0

1 832,8

1 833,4

1 181,1

1 182,1

1 270,9

671,0

21 930,5 21 756,5 12 389,7 12 364,5

1 851,1

974,5

60 658,4 29 219,3

43 883,6 21 033,6

Hungarys assets of non-metallic mineral resources and their production

Source: MBFH, 2013

The production of non-metallic mineral resources was 43,9 Mt (21,0 Mm3) in total, in
2010, which is lower by 16,8 Mt than in the preceding year.

Figure 10: Production of non-metallic resources

Production of non-metallic mineral raw materials in Hungary between 1992 and 2006
61

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rendszermodellje, Kzponti Bnyszati Fejlesztsi Intzet, Budapest, 1981.
Lengyel L., Jnosik J., Molnr S., Neumann L., Stpn .:A hazai svnyvagyon
rendszertervezse s hatkonyabb kiaknzsnak lehetsgei I., Kzponti Bnyszati
Fejlesztsi Intzet, Budapest, 1980.
Lengyel L., Molnr S., Szidarovszky F.: A System Model for the Utilization of
Mineral Resources, APPLIED MATHEMATICS AND COMPUTATION. 1984.
14:(3) pp. 273-287.
Molnr S.: Az energiaszektor trendjeinek vizsglata 2000-ig egy optimalizcis
moddell segtsgvel, Kzponti Bnyszati Fejlesztsi Intzet, Budapest, 1982.
Molnr S.: Az svnyi anyagok komplex rendszermodelljnek lersa s
programcsomagja I., Kzponti Bnyszati Fejlesztsi Intzet, Budapest,1985.
Molnr S.: Modellvizsglatok a nemzetgazdasg szempontjbl legkedvezbb
integrlt energetikai vertikum meghatrozsra, Kzponti Bnyszati Fejlesztsi
Intzet Kzlemnyei, Budapest, 1987. 30: pp. 121-127.
Molnr S., Gl A.:Termszeti erforrsok rtkelse s hasznostsuk optimalizlsa,
Kzponti Bnyszati Fejlesztsi Intzet Kzlemnyei. Budapest, 1988.
Molnr Sndor, Tajthy Tihamr: Adaptation of models supporting environmental
strategies in the energy sector (Kzponti Bnyszati Fejlesztsi Intzet, 1992,
Budapest)
Molnr Sndor: A krnyezetvdelem szempontjait is figyelembe vev energetikai
modellek hasznlata I-II (Utilisation of energy models considering environmental
impacts) (Systemexpert Tancsad Kft. 1994, Budapest)

17. Molnr Sndor: Greenhouse Gas Emissions and Response Policies in Central and
Eastern Europe: Workshop Overvies Summary (Trsszerzk: G. Marland, A.
Sankovski, J. Wisniewski) (Proceedings of the Eastern European Regional Workshop
on "Greenhouse Gas Emissions and Response Policies in Central and Eastern Europe",
Idjrs, Quarterly Journal of the Hungarian Meteorological Service, Vol. 99. No. 3-4,
July-December, pp. 147-157, 1995)
18. Molnr Sndor, Takcs Tibor: Energy-economic modelling in Hungary (Proceedings
of the Eastern European Regional Workshop on "Greenhouse Gas Emissions and
Response Policies in Central and Eastern Europe", Idjrs, Quarterly Journal of the
Hungarian Meteorological Service, Vol. 99. No. 3-4, July-December, pp. 419-428,
1995)
19. Molnr S., Takcs T., Tajthy T.: Estimating emissions from energy: Hungarian
experience (Trsszerzk: Takcs T., Tajthy T.) (Proceedings of the Eastern European
Regional Workshop on "Greenhouse Gas Emissions and Response Policies in Central
and Eastern Europe", Idjrs, Quarterly Journal of the Hungarian Meteorological
Service, Vol. 99. No. 3-4, July-December, pp. 365-374, 1995)
20. Molnr S.: Greenhouse Gas Mitigation Analysis Using ENPEP, Hungarian Case,
Argonne Labs, Illinois, USA, 1995.
21. Molnr S., Takcs T., Plvlgyi T., Farag T., Tajthy T: Greenhouse Gas Emissions
and Removals in Hungary (in Greenhouse Gas Emission Inventories - Interim Results
from the U.S. Country Studies Program) Kluwer Academic Publishers (1996) pp. 275287.
22. Molnr Sndor: Assessment of Mitigation Measures and Programs In Hungary
Applied Energy, Vol 56. pp. 325-332, 1997
23. Molnr Sndor: Modellfuttatsok 1997-es adatokra, (Hungarys emission data for
1997 with EFOM_ENV) Systemexpert Tancsad Kft. 1998, Budapest
24. Dr. Molnr Sndor: Comparative cost effect analysis of emission taxation strategies
(Jelents a Nemzetkzi Atomenergia gynksg szmra) No. 302-I1-HUN-9628 B5HUN-25584. 1998.
25. Progress in energy complex system modelling and analysis Int. J. Global Energy
Issues, Vol. 25, Nos. 1/2, 2006 109, Yi-Ming Wei, Gang Wu, Ying Fan
26. S. Molnr, T. Takcs, M. Molnr: Comprehensive Analysis of Greenhouse Gas
Emissions in Hungary, International Journal of Sustainable Development, (2001), Vol
5, 1-2 Electricity and Sustainability: Issues in Debate. Special Issue of International
Journal for Sustainable Development
27. Pellnyi Gbor: Az energiahatkonysg makrogazdasgi szinten, Kzirat, Budapest,
2007
28. Szcs I.: A vertiklis integrcit megalapoz elemzsi rendszerek s gazdasgi
dntsek STAGEK, Budapest, 1974. 33 p.
29. Szcs I.: A termels optimlis terleti elhelyezse s a kedveztlen adottsg
mezgazdasgi terletek hasznostsa Kzgazdasgi Szemle XXIV:(5). Budapest,
1977. p. 11.
30. Szcs I.: Termszeti tnyezk szerepe a mezgazdasgi termels terleti tervezsben
Kzgazdasgi Szemle XVI:(5). Budapest, 1979. p. 49.
31. Szcs I.: A terleti hatkonysg s a klnbzeti fldjradk, Kzgazdasgi Szemle
XXIX:(5). Budapest, 1982. p. 9.

63

3. EVALUATION OF AGRICULTURAL LAND AS AN ASSET

Zsuzsanna Nar Tth Gyrgyi Gbriel Tzsr Istvn Szcs
Zsolt Baranyai Mria Farkas Fekete Jzsef Molnr
Szergej Vinogradov

3.1. The correlation of land qualification and economic soil evaluation

3.1.1. Categories of the economic evaluation of soil
One of the direct objectives of soil evaluation is to arrange the legal and proprietory
issues on land with regards to social justice. Before drafting the concrete economic and
social political objectives, let us have a look at the categories of the economic evaluation of
soil.
1. The need for an economic evaluation has been aroused by everyday practices as it
is present in almost all areas of economic life to a various degree. Farmers make use of
their land for different purposes: producing certain products at different times and to a
different extent. However, when decisions are made not only ecological considerations are
assessed but also all the circumstances that can effect income. This form of evaluation is an
annually repetitive economic evaluation and the bottom part of evaluation. This practical
approach to land evaluation makes up the special plant production structure, production
habits, the local work experience of the producers etc. in certain regions of the country.
The criterion or aspect of this practical land evaluation is a fixed gross and net income
level or rate that fluctuates on the basis of external and internal economic circumstances.
2. Another aspect or category of practical land evaluation is macroeconomic land
evaluation which is usually carried out in the management while creating and running the
system of economic regulations. Practically, this activity is used for evaluating land in
different parts of the country as well as in comparison with the other factors of production.
There are some land evaluation works that can act as influential income differentiating
factors given their long lasting effects (e.g. a 0 km transport system uses up most of the
benefits and consequently, well positioned areas regarding transport and other factors will
be depreciated). These land evaluation objectives and aspects can be expressed in terms of
a certain land price and a ratio of land as a product when exchange values of land are fixed.
3. When analysing the issues of national economic growth the land values must also
be evaluated on an international level, in the global economy or on a corporate level as
well as under given external and internal economic circumstances. The economic value of
land in the global economy can be with a negative sign and to a different extent depending
on the global market price of agricultural products as of domestic costs. For example,
duties levied on products of foreign origin will not change this situation on the
macroeconomic level but they actually do change how much different plots of land are
worth for domestic agricultural producers. On the contrary, if the value of a countrys land
is with a positive sign in the global economy, then this will not be affected if the land value
is with a negative sign on the level of agricultural producers. The difference will be added
to the assets of the treasury or non-agricultural companies.
If substantial inequalities of income exist in and within the different main industries
of the national economy, the economic value of different lands can basically differ from
the aspect of corporate management. Economic political control can assist the formation of
different macro level processes in many cases and also can improve it by using
differentiated regulatory instruments (e.g. the rate of land tax varies if the same land is
64

used as arable land or an orchard). However, economic land evaluation, whose objective is
to examine the potential income generating capacity of land, must be unbiased in a certain
sense, i.e. it has to surpass the changes of economic regulation that can be felt in the short
term. Economic land evaluation cannot afford to depreciate well situated lands from an
economic point of view only because e.g. due to the 0 km purchase price this good
situation is not directly reflected in the revenue of agricultural companies. All this
explicitly means that the current price and subsidy system cannot always serve as the basis
for the economic evaluation of soil. It cannot because such an evaluation (or revaluation)
would fix the disproportionate features of the agricultural price and subsidy system that are
typical of those years in connection with land. Although in case of its legalisation and
codification it could be made as a standard in land matters and agricultural regulation for
several years (or even decades). Another question is what concrete parts should be
incorporated in the regulatory system after setting up the economic value system, e.g. when
setting the rate of land tax or the rate and differences of subsidies.
The micro and macroeconomic problems outlined above reflect that setting the
economic value of land is a complex issue regarding both the economic nature of the
problem and its methodological aspects so there is a need for a complex approach from a
lot of directions. Undoubtedly, sooner or later such a value system should be set that meets
the requirements, i.e. it should answer all economic and social political questions on the
topic of land based on the new standard that can arise in everyday practice. It is also true
that a formulated economic value system cannot rigidly be applied when tackling various
issues like the taxation system or defining the sum of expropriation. There are such
regulatory tasks, e.g. the tax and subsidy system, when we cannot disregard the current
economic climate2 or the real price and income position of companies. At the same time, it
would be improper if the examination of regional situation were regulated and analysed on
the basis of the current income position.

3.1.2. The objective of the economic evaluation of land

The following tasks can directly or indirectly serve as the basis for creating a new
evaluation system:

Improving the economic regulatory system of agriculture, connections between

micro-and macro-level economic interests affecting the issues of land utilisation

Protecting the most important production factor of agriculture, i.e. land, protecting
and improving its quality and realistically defining land extraction and
expropriation to satisfy the land needs of other industries.

Regulating land transfers and swaps between farms that are necessary for
optimising production factors and ensuring conditions for more efficient
management.

Guaranteeing a level-playing field for land as an instrument of production with

labour and capital in efficiency calculations on macroeconomic, sectoral, industrial
and international levels, which results in creating a more efficient management
structure.

Standardised evaluation of land as a national asset in line with the other resources.
There are such economic-political tasks directly linked to land whose efficient
implementation depends on the created method and system of evaluation. If the
economic value of soil is examined in terms of its potential income generating

Molnr et al (2001) also deal with this issue.

65

capacity, when ecological and economic factors are also involved as independent
variables, this economic evaluation among others helps tackling such economic
problems like the more rational utilisation of soil, improving the situation of
agricultural production etc.
In many cases the terms evaluation and qualification can be regarded as
synonyms.
Land evaluation is such a bureaucratic procedure in which the qualification (class)
and net income per cadastre (GC value) of land are defined for land office records.
Therefore, land qualification serves double purposes:
the ecological qualification of soil by categorising them into classes and
the economic qualification of soil by defining GC value.
During the ecological qualification soil types are classified into classes on the basis
of their ecological features, i.e. what potentials it has to qualify for utilisation in the given
branch of cultivation. Ecological features are expressed by soil, climate and topographic
conditions. However, the objective of economic qualification is the expression of the
benefits of utilising soil in agriculture.
In international professional literature it is often emphasised (Beek-Bennema, 1972,
p.12.) that land should always be qualified for a special purpose defined in advance as
there is no absolute an general land value. Selecting the right objective can be decisive in
the success of qualification so, the objective of qualification does matter.
Practically, the objective of land qualification is dual. On the one hand, it serves the
ecological evaluation of soil types and also the economic evaluation of soil on the other
hand. The objective of ecological land qualification is the creation of an optimal
production structure, i.e. to decide the branch of cultivation where the land concerned
could be utilised and also to state what is worth producing there at what costs (.e.g. soil
resupply, melioration), i.e. to assist in the rational use of land.
As a result of the ecological qualification soil types are classified into groups based
on the natural endowments of land to see what potential qualities they have in order to
produce a plant. Ecological features include soil, climate and topographic conditions.
(Their scientific analysis is of great importance as without considering their impact the
estimation of land yield in the future cannot be carried out). Knowing soil features helps
organising production and carrying out managerial tasks. This knowledge can assist in
making a decision for the farmers, organising mechanisation, the professional and rational
use and spread of fertilisers as well as melioration processes to select the method of
cultivation, positioning plants within the farm and planning yield (Laczk, 2005). This
method of evaluation is not directed at monetary terms, rather it serves as a basis for it, i.e.
it serves orientation for improving agricultural production (e.g. in France, Belgium and
Germany).
In contrast, economic evaluation aims to express the gains from soil through
agricultural utilisation by monetary terms. Primarily, economic land evaluation is used to
fix the market price of land (e.g. prior to a sales or mortgage contract).
In more details, the objectives of the economic evaluation of land in our country are
as follows:
taxation purposes;
assisting the state in controlling and influencing land rent and lease;
fixing the security (collateral) for land lease;
66

influencing land market prices by the state;

supporting in making agripolitical decisions;
assisting in the system of agricultural subsidies;
laying the foundations for expropriation indemnity and reallocation;
including the value of land in the national assets;
setting the price of land taken out of agricultural cultivation (Narn, 2009).

3.2. The main quantitative methods of calculating land value

The most important land price and land value calculating methods are classified on
the basis of international and national professional literature as follows (Figure 1):

Ecological
evaluation

Economic evaluation

Soil evaluation

Land evaluation on the

market-experience

Return-based land value

Evaluation of
topographic
conditions

Evaluation of
climate conditions

Capitalisation of market
land rent

Principle of residues

Other methods of
land evaluation

Observations, estimates
forecasts

Standard gross
margin

Principle of substitution
Complex ecological
evaluation
Marginal productivity
principle

Automated land
evaluation system

Capitalisation of land income

Shadow prices of L-P models

Figure 1: Classification of land evaluating methods

Source: own compilation

3.2.1. Land price as capitalised land rent

The classical economic theories define the price of land in a relatively simple way by
dividing land rent (part of income that can be contributed to land) and capitalising interest
67

rate (Szcs, 1998, p.50., 51., 52.). This formula is the limit value of infinite geometric
series practically. The owner (seller) tries to sell the land for such a sum which, when
accumulated in a bank, could have the same annual gains as alternative utilisation
(leasing).
According to the well-known formula of interest on interest the total value of n year
at q interest rate is the following.
a n = a o 1+ q

Limit value of equation:

lim a n =

ao
q

that is, when using the terms of land evaluation:

F =

FJ
r

where:
F = land value, HUF/ha
FJ = land revenue, HUF/ha
r = capitalising interest rate.
If the seller receives F for 1 ha land he is right in hoping for acquiring a capital
yield equivalent of FJ land revenue with this basic capital at r interest rate. However, the
buyer hopes to reach at least FJ land rent (land revenue) on the purchased land or more
when trusting in his exceptionally good organising skills and management. This is how
equilibrium price is formed.
We can also have reasoning. With years passing land represents a value considering
the series of anticipated net income and returns, which could hopefully be available for the
farmer within n years. In this respect land, like other commodities, represents value. Land
has more and more durable characteristics that the other production factors so its future
income generating capacity is of great importance in the process of evaluation. In theory
land value equals to the present value of future net returns (gains), i.e. the value of land can
be made equal to the present rediscounted values of future land revenues.
The potential customers on the demand side of the land market form the price of land
on the basis of the expected future net income. Theoretically the sum that is the equivalent
of their imaginary discounted value of future net income is offered for the land. On the
supply side land owners as potential sellers also set the value of future net income
according to their own forecast.
The discounted value of expected future net income is based on the idea that people
appreciate their present income more than the future one. The economic players value
their 100 monetary unit income higher than their 100 unit income a year later if during the
year a positive rate of returns prevails. If they can obtain 100 units at present, this will be
100 (1 + r ) a year later if a positive return is supposed. If the rate of return is, e.g. 4 %, in
our example 100 units will be worth 104. If someone owns FJ money at present, at r
F
n
capitalisation rate in year n it will be worth F = FJ (1 + r ) and FJ =
.
(1 + r) n
As the buyer of the land actually buys the right or entitlement for the annual series of
future net income, the net income per each and every year should be discounted for the
present situation. The discounted values of the expected net incomes are
68

F =

FJ n
FJ 1
FJ 2
,
+
+
1
2
(1 + r )
(1 + r )
(1 + r ) n

where: FJ1 stands for the net income in the first year and FJ2 the net return in the second
year and so on.
If the annual net income is the same in every year, their expression is becoming
geometrical series whose total sum can be calculated as outlined before.
Practically, the relatively simple formula has several problems.
It simplifies one of the most difficult economic problems, i.e. the problem with the
content and measuring land rent (or land lease) and the distribution of income among
the factors of production.
It does not take the changes in productivity into account so it does not manage the
changes in the productivity and income generating ability of land regarding the
equilibrium price.
It also ignores the income that the state leaves at the producer and also the prevailing
state programmes for subsidising agricultural production.
A lot has been dealt with solving these problems and improving the methods and
concrete recommendations were drafted to transform and refine the formula of
capitalisation. (These issues are raised later). However, the real great problem is hidden,
i.e. how big is the rent that can be contributed to land as a factor of production. Anyway,
this problem must not be disregarded. We have to answer how the generated income is or
can be distributed between the factors of production. The price of the factors is defined by
the partial yields of the single factors, i.e. the yield of land defines the price of land. If we
know land rent then the definition of land value can be carried out by much simpler or
complicated methods by simply capitalising yields or carrying out more complicated future
value calculations.

3.2.2. Definition of land yield as a residue

This procedure, which basically derives from the nature of land rent, i.e. rent is part
of net income that is left after deducting the average profit requirements of expenditures, is
used all over the world (Szcs, 1998). It was rpd Hensch who applied it first when he
was dealing with defining land as an instrument3. The following exploring-analysing tasks
have to be solved for the calculations.

detailed analysis of ecological environment;

deciding on the duration of the examination;
selecting producible cash crops;
observation of yields per production;
registering expenditure and expressing their value in Tourism;
observing sales price by channel of distribution and calculating average sales price
per product;

Hensch, . (1906): Mezgazdasgi zemtan (Agronomy). Patria, Kassa. in: Szcs Istvn i.m.

69

 defining net income from certain plants by the difference between yield value and
expenditure;
defining land yield by net income.
Examinations must be ex-post, i.e. we have to rely on the former data of management
in the past. Taking the fact into account that these data are available or can be estimated for
nearly all lands of the country, it is advisable to calculate with at least the average data of
five years but also the data of a longer period improve the punctuality of estimation.

3.2.3. Definition of land value by substitute cost4

Works on land evaluation by substitution suppose the following (Szcs, 1998, p.65.):
production that has been stopped on the expropriated land can be made up by additional
investment. The capitalised value of this extra investment can practically be regarded as
the value of the land (indemnity).
the annual total costs on the given unit of area + the capitalised annual interest of fixed
assets equal to the value of the capital which is equal to the value of capital serving to
replace the land necessary for production.
To estimate capitalised interest rate and also to replace fertiliser and soil-spread, the
land and instruments parts of the Cobb-Douglas-like functions are used.
Y1 = a P K A
where:
Y1 = net income [HUF/ha],
P
= number of points (gold crown value),
K
= costs [HUF/ha],
A
= fixed assets,
,, = parameters.
Exponents like and can be used as it can derive from the capitalisation of land
substituting capital value, costs and interest or even capitalisation of fixed assets as the
land and asset residue describes the state when a Cobb-Douglas function-and asset residue
can be regarded as the annual yield of the production factor.

3.2.4. Measuring the partial yield of production factors by production

functions
To present the logic of the method the modified C-D function serves as the basis that
describes the connection between the three main production factors and net income (Szcs
1998, p.67., 68.).
y = a F L T
where:
y = net income of crop production;
4

Burger Klmnn - Szab Gbor - Szp Katalin: A helyettestsi mdszer eredmnyei. in: Szcs Istvn i.m.
195.p.

70

F = land quality;
L = labour;
T = fixed capital value (without land price).
The share of the single production factors in yield can be expressed by the function
by means of a simple rearrangement.

y
F = a
L T
y
L = a
F T
y
T = a
F L
However, we have to note that instead of the type of the function above the multivariable linear function can also be used as calculations in practice show that a fitting error
is quite probable in the case of nonlinear functions of production and the parameters of the
functions cannot frequently be used. When fitting the linear function estimating the share
of the single factors is much simpler methodically. If we, however, stick to nonlinear
functions of production, it is practical to start from the logarithm of the functions and
calculate the share of the single production factors on the basis of the formula below.
y = aF L T
log y = log a + log F + log L + log T
The distribution ratios of shares are
log a
= m1
log y
log F
+
= m2
log y
log L
+
= m3
log y
log T
+
= m4
log y
log y = 1.00 = 100%
The share of land as a factor of production in total income is

m2 log y .
However, we have to remark that the correlation between the factors is also of great
importance here as conversely, the weight of proportional factor a is relatively great and
only little or unreliable information is gained.
71

The characteristics of yield methods used to define land value are that they are
directly or indirectly based on the yield of land, the product of its production. They
suppose that the standard, existence or lack of production factors can numerically be
expressed in the profits made in the industry or by the enterprise. Undoubtedly, measuring
the yield of factors is a complex task and requires a lot of calculations that any other
methods described above. It is also true that more exact land values are available if
methodological and information flow troubles are shot successfully.

3.3. Land evaluation methods applied in Hungary

This subchapter presents the most frequently used methods of soil value estimates
(based on Narn, 2009 and Vinogradov, 2009) in connection with two big areas of
utilisation, namely land mortgage and the programmes of the Hungarian National Asset
Management Inc (HNAM, the successor of the National Land Asset Management
Organisation, NLAMO).

3.3.1. Setting the loan-to-value ratio of soil

Soil serves as the collateral in mortgage dealings. Setting the loan-to-value ratio of
soil is one of the most important tasks in mortgage procedures. The amount of the loan
approved depends on the value of the collateral. According to the effective regulation (5
(3) of Act XXX in 1997 on mortgages and debentures) the maximum amount of loan can
be 70% of the loan-to value ratio of the estate that serves as collateral.
Due to the low volume of turnover in the Hungarian land market the price of a
concrete plot of land is difficult to set. Currently land evaluation is regulated by Decree 54
(1 August) in 1997 of the Ministry of Agriculture on the methodological principles of
setting the collateral value of soil. The Decree outlines the joint application of two methods
to set sales price as the basis of collateral value, namely, the analysis of market
comparative data and the evaluation based on yield calculation.
The first method makes provisions for analysing and individually correcting the
market comparative data of at least three real estates with similar features to the evaluated
production area. According to Takcs (1995) market sales price is the price available
within the framework of the free market exchange system, primarily on the basis of
concrete dealings of the past. The value of an asset could best be described by the market
assessment if the volume of the annual turnover of agricultural assets on the market were
great enough to provide a reliable ground for comparisons. The annual mobility of soil
proprietorship in Hungary can be accounted for 1-2 % according to Kapronczai et al
(2005), which means that relative to the mid-90s land turnover has significantly been
reduced. The application of this method is made even more complicated by the fact that
Hungary does not have an official existing land market database which could contain
reliable data and be accessible to all the market players. Land prices collected for taxation
considerations are far above the real market price.
In the evaluation based on calculating yield the value of soil was set by the real estate
assessors on the basis of the formula defined by Decree 54 (1 August) of 1997 by the
Ministry of Agriculture5:

The formula was worked out by Istvn Szcs requested by the Ministry of Agriculture. The procedure takes
into consideration both the yield bearing potential of land and land rent that reflects all-time market relations
in 50-50%. (Yield and rent are similar terms in Ecnomics.) (The lessee pays the owner the land yield due in
the form of rent).

72

P +B
100 p
kj )
2
(1
Ft =
i
100

where:
Ft

= sale value of 1 ha soil [HUF/ha];

= rent-like income of 1 ha soil in wheat kg/ha per county. The actual value of
variable P is the multiplication of the gold crown value of the real estate itself
[GC/ha] by the value of land rent [wheat kg/GC];

= typical of the vicinity of the real estate, wheat kg/GC land yield [wheat kg/ha]
calculated from the multiplication of land lease and the own gold crown value
of the evaluated real estate [GC/ha];

= the average stock exchange price of wheat in Hungary prior to the year of
evaluation [HUF/kg];

= capitalisation rate [%];

k j = adjustment factor [percentage rate] that expresses the aggregated impact of

criteria modifying the calculated value of land.
Setting the rent-like income of soil (P) per county would be the task of the Ministry
of Agriculture on the basis of Regulation 54/1997. However, the Ministry has not
published these values so far. At present FHB uses the average values for ten years
between 1980 and 1990 defined by STA, GEK, Szcs et al (Szcs, 1998).
The value of B is set on the basis of the information of greater land leasers
(agricultural Inc., Ltd. etc.) in the neighbourhood of the area of land in question. However,
an important question must be faced here, namely, at what value the previous fees of
longer lease contracts should be accounted. If the values of the contract are used in
calculations, the value of the soil will lag behind the real value to a great extent.
Setting the stock exchange average price of wheat (p) has no methodology. Kardos
(2009), with several years professional experience in evaluation, raises an issue, i.e. if
stock exchange prices change to a great extent year by year, will the value of soil act
accordingly? The expert publishes not only his own opinion but also that of other valuers
by suggesting that at least the average of three years must be considered or the intervention
price of EU like in the practice of HNAM.
According to the regulation capitalisation rate (i) is defined and published by
financial institutions. As the rate of interest can vary, evaluations are distorted which could
be avoided by defining a standard capitalisation rate. Kardos (2009) is on the opinion that
the 4.5% rate of interest is applicable to eliminate the problems of the formula at which the
estimated value is close to the real market price of soil.
By using adjustment factors ( k j ) the value of the land can be adjusted on the basis
of its geographical position, topography, water balance, road network etc. Generally,
adjusted figures can decrease the basic value by maximum 80% (kmin = -0.8) and can also
increase it by maximum 250% (kmax = 2.5). Otherwise, too low (even negative!) or too high
values could be obtained, which could not be considered in agricultural production. The
problem lies in the fact that evaluations are carried out by using the capitalisation rate
instead of the real interest rate.
73

3.3.2. The land evaluation methodology of NHAMO

Provisions for sensibly managing state-owned land assets, soil utilisation for
agricultural production with ecological conditions as well as economicalness and
profitability and even promoting a modern farm structure based on family farms were
made by establishing one of the forerunners of the National Hungarian Asset Management
Organisation (NHAMO)6. Experts in land issues assign a significant role to NHAMO in
flourishing and invigorating land market, regulating land prices and land lease and also in
assisting and speeding up estate reallocation (Szcs et al., 1999) and curbing land
speculation and illegal purchase or use of land.
To meet the requirements of a competitive farm ownership structure NHAMO was
authorised from the very start to purchase soil for life endowments on behalf of the state
(Government Decree 255/2002. (13 December)). The Decree is aimed at meeting its
objectives not by its authority, rather, on the basis of market conditions, thus offering
alternative to land owners above 60 (Horvth, 2003).
The methodology of setting the purchase price of land is based on the methodology
of the simplified real estate evaluation of soil as defined by Appendix 1 of Act 254/2002
(13 December) on the asset recording, management and utilisation of the National Land
Asset.
The following formula below is applicable by law in the case of evaluating arable
land.

F =

A P IR M
i

where:
F
A
P
IR
i
M

= offered purchase price of arable land [HUF],

= net income of arable land per catastre [GC],
= normative income per 1 GC in wheat kg [kg/GC],
= published intervention price of cereals [HUF/100 kg],
= capitalisation rate [%],
= multiplier by farming branch.

The value of variable A must be considered according to the net income per
catastre on the title deed that contains the real estate records.
The values of Pare also included in Appendix 1 of Government Decree 254/2002.
The fluctuating value of IR is the multiplication of the sum per 100 kg (EUR/100
kg) of the price on the interventional purchase of cereals effective on 1 May of the current
year announced by the Ministry of Agriculture and Rural Development by the official
foreign exchange rate of MNB (the National Bank of Hungary) (HUF/EUR) effective
during the same period.
The value of variable i' equals to the percentage of capitalisation value effective at
the preparation of the simplified real estate evaluation estimates defined by the Land Credit
and Mortgage Bank Rt. outlined in Appendix 2 of Decree 54/1997 (1 August) by the
Ministry of Agriculture.
The Decree caters for the value of M multiplier per farming branch as follows: 1.0
arable land; 1.0 vegetable garden; 0.8 meadow; 0.4 pasture.

Act CXVI of 2001 on National Land Asset

74

3.4. The economic land evaluation based on D-e-Meter land

evaluation system
D-e-Meter land evaluation is the result of working out a new complex land evaluation
method based on qualifying production site sub-models. Regarding its complex nature (i.e.
examining both the ecological and economic factors in a closed system), one of the
important tasks of this land evaluation system is to substitute the outdated gold crown
system. (Narn et al., 2013a) The basis of land evaluation is the qualification of ecological
endowments, which is carried out in the D-e-Meter system worked out in Keszthely.
Practically, this method combines (Vinogradov, 2009, Farkasn et al., 2013c) land
prices calculated on yield basis with the prices formulated on the land market, which
defines a modern, economic land price that also considers the ecological quality of land but
also reflects the demand and supply of land prices. The created evaluation system reads all
the important factors that influence land value with additional information from a digital
map, this way ensuring the automated nature of the evaluation system.
D-e-Meter system is such a modern land qualifying and information technology
system supported by on-line geoinformation modelling possibility that was developed by a
research and development consortium comprising 9 institutions (managed by Veszprm
University) funded by NKFP and GVOP projects. The central part of the system is a land
quality value, namely D-e-Meter point, that can show a numerical difference between the
conditions of the sites for production based on the environmental needs of the main cash
crops and plants, production intensity and the production risk lying in climatic and soil
science factors (Gal et al., 2003).
Databases used for D-e-Meter land evaluation system are classified into the following
five groups by Gal et al (2003):

Data of the Agrochemical Information and Managing System (AIMS) (5-year

timelines for the period between 1985 and 1989) that can further be divided into
three groups:
a) basic data (the location, size, steepness, exposedness, meteorological area,
GC value etc. of plots),
b) soil examination (TVG) data (pH, solidity, humus, N, P, K),
c) data of the plot register (plant, sequence, yield, and fertilisation).

data of the National Fertilising Experimental Network (NFEN);

databases of the pilot plots (1:10000 genetic soil maps, with their examination
results attached, data on nutrient supply and crop production);

the hydrologic databases of the Hungarian National Soil Science Institute;

Geoinformation databases (Geodzia Rt., MTA-TAKI).

Figure 2 gives a short overview of the process of land evlauation within the
framework of D-e-Meter system. The classification process serves as the basis for the
running of the system as groups of soil patterns with similar features are separated based
on the digitalised large scale (1:10000) genetic soil maps. Afterwards, in the case of these
groups average yields are defined on the basis of the information from AIMS database. By
projecting average yield to a 100-point scale the initial point values are defined and after
correcting them we obtain the land quality expressed in points of D-e-Meter.
75

Figure 2: Flow chart of physical land evaluation in the D-e-Meter system

Source: Vinogradov (2009): Szntfldek komplex kzgazdasgi rtkelse
Magyarorszgon, 25. p.

As computerised databases, which serve as the basis for working out a land
evaluation system, provided little information on the water management of soils so an
attempt to estimate water management soil parameters from the basic soil examination
parameters was made (Mak et al., 2003, p.52.) by means of the statistical analyses on
independent databases (Georgikon Faculty of Agriculture of Veszprm University
(VEGMK) and the Soil Science and Agrichemistry Research Institute of the Hungarian
Academy of Sciences (MTA-TAKI)). Based on the research results the system estimates
water management category based on the digitalised soil maps and cartogram data. Taking
them into account significantly different productivity groups were defined per crop
produced year (favourable, unfavourable, average), meteorological district (by Gbor
Szsz) and slope category. The average values of production data per groups, which were
projected to a 0-100-point scale showed the values of the so-called interim quantifier
indicator. These values served as the initial point for the next module of the system, i.e. soil
bonitation nutrient module (Mak et al., 2007).
Factoring the interim quantifier by soil type characteristics takes place in an
integrated soil bonitation module with the nutrient model and the results gained should be
adjusted to topographical conditions or according to preliminary sowing. Weighting the
land evaluation points received for the main cash crops by their ratio in the national crop
structure, a general land evaluation indicator, D-e-Meter point is established (Debreczenin
et al., 2003, p.34.). D-e-Meter system evaluates and systemises the soil and production site
conditions of Hungary by means of modern instruments and methods and expresses them
by D-e-Meter points.
Within the complex research project the economic evaluation and the system of
automated evaluation based on the D-e-Meter system were carried out by the Faculty of
Economics and Social Sciences of Szent Istvn University. The methodological bases of
automated land evaluation system were laid down by Istvn Szcs, Mria Farkas Fekete
and Szergej Vinogradov.
76

The objective of this system is to take economic factors into consideration in complex
land evaluation. Although economic and ecological factors can be evaluated separately,
evaluation must form a closed and unified system because this is the equivalent of the
golden crown system in terms of logics and content. Practically, economic land evaluation
takes place on two stages simultaneously. On the one hand, the yield principle expresses
the potential productivity of the given arable land and qualifies the immediate economic
environment (including land yield and situational yield). On the other hand, market prices
of land on the real market are also considered. That is why there is a need for establishing a
land market information system (Szcs et al., 2008). Based on the D-e-Meter system the
sematic overview of setting the economic land value is presented by Figure 3.

Figure 3: The basic framework of the complete, automated land evaluation system
Source: Szcs et al. 2008 (Szcs I., Farkasn Fekete M., Vinogradov Sz., Narn Tth Zs.
(2008): A termelsi tnyezk rtkelse. [pp. 64-94.] In: Szcs I., Farkasn Fekete M. (Edit.):
Hatkonysg a mezgazdasgban, 357.p.

77

Detailed account on the land evaluating system, information technological

background and its improvements have been provided by the members of the consortium in
several studies (Gal et al., 2007; Debreczenin et al., 2003; Mak et al., 2007; Hermann et
al., 2007; Szcs et al., 2008).
While evaluating the feasibility of introducing D-e-Meter system Hermann (2009,
p.113.) estimated the costs and the duration of establishing a large scale genetic soil
mapping database in 20 billion forints and approximately 10 years, respectively. However,
he draws attention to the fact that the amount above can further be reduced by 60% when
funded by European Union sources. Taking into account the fact that other authors (Bday
et al. 2008) estimate the value of all the Hungarian arable land to reach 1300 billion forints
the budget of the project for 20 billion forints takes up only 1.5% of the (current) value of
arable land. In our opinion the necessary funds can be collected in the form of taxes or fees
from land owners who, in return, can even obtain land price increase due to the modern,
punctual and standardised land evaluation.
The introduction of D-e-Meter system can mean such an instrument for the
Hungarian agriculture that can effectively enhance our competitiveness between the current
members and the candidate countries of the European Union (Mt-Tth, 2003).
The system of economic land evaluation based on the D-e-Meter system together
with the concept of the automated evaluation system was published in several national and
international publications (Farkasn et al., 2013a). The necessary control calculations were
also carried out. On the basis of them, the system is running and by using the necessary
algorithms the actual economic land value and land price can be attached to the D-e-Meter
points after reading the necessary input on the map and integrating the exogenous
information.
In our opinion it would be practical for the leading scientific organisations to initiate
a feasibility study that could lay down the foundations for introducing a land evaluation
system to replace gold crown. (Narn et al., 2013a)

3.5. The asset value of arable land

It is a well-known fact that in Hungary, like in the other countries that accessed the
European Union in 2004 or 2007 (EU12), the price of agricultural lands is significantly
lower than in the older EU member countries (EU15). (Farkasn et al., 2013b) During the
period of accession although specialists forecast a decrease in these significant differences
in price within a few years after the EU accession and the total liberalisation of the land
market would not cause drastic social and economic problems, the expected harmonisation
of land prices did not at all come true or not to the extent expected. However, total
liberalisation is approaching. Based on this situation our research has a dual objective. On
the one hand, it is aimed at giving an overview of the situation of land prices on a regional
level between 2006 and 2010 and examining what correlation exists between the value of
land in its economic sense and its price on the basis of the theory of economics, on the
other hand. (Baranyai et al., 2013a).
In the forthcoming years the Hungarian agriculture faces another challenge due to the
liberalisation of land (soil) market. Our country similarly to the other newly accessed
Union member countries regarded it important in the period of association that the chances
of obtaining land must be kept for the national family farms that are not strong enough.
That is why interim exemption was requested and granted from opening (liberalising) the
Hungarian land market to foreigners and business organisations. It is coming to its end
although as projected, the price of the Hungarian soil after our accession to the European
Union was gradually increasing (Baranyai et al., 2013a, Vinogradov et al., 2013b;
78

Takcsn et al., 2012). It is still below the average of the EU, which can cause serious
problems. Based on this situation our research has a dual objective. On the one hand, it is
aimed at giving an overview of the situation of land prices on a regional level between
2006 and 2010 and examining what correlation exists between the value of land in its
economic sense and its price on the basis of the theory of economics, on the other hand.
Within its framework the data of the Agricultural Economic Research Institute (AERI)
were analysed by using the methods of partial factor yield calculation and the classical
definition of land value (Baranyai et al., 2013b).

3.5.1. Theoretical considerations

The problem of defining the economic value of soil has been dealt with by several
national and international publications. The relevant literature can practically be divided
into three groups (according to Szcs et al., 2008):
Microeconomic procedures and models aimed at fixing equilibrium prices (e.g.: Harvey
1974 etc.).
Preparing different forecasts, estimations on the basis of registering real market prices
(e.g.: Featherstone Baker 1987 etc.).
Setting land rent after separating production factor-yields by different methods and
estimating land prices after capitalisation (e.g.: Traill 1980; Szcs et al. 1990 etc.).
With regards to the available database (as well), we opted for the third land
evaluation approach in which production functions play a significant role. Due to the
constraints of the present study we have to discard the presentation of the general
measuring model. The referred bibliography is recommended to anybody interested.

3.5.2. Material and method

If someone opts for purchasing land or selling land, the first step is to compare the
economic value of land to its current market price. This approach serves to evaluate
whether it is more profitable to cultivate the land rented or privately owned.
In our research (Narn et al., 2013b; Vinogradov-Narn, 2013a; Vinogradov et al.,
2013b; Baranyai et al., 2013a and 2013b) the first question was how we can define the
economic value of agricultural soil. During our examinations we focused on defining the
economic value of arable land as it represent the highest ratio of agricultural land.
The pilot farm system operated by the Agricultural Economic Research Institute
(Hungarian FADN) served as the basis for the research outlined in the subchapter
(Baranyai et al., 2013a s 2013b). The analyses comprise 2010 on a regional level.
Regarding farms and meeting the objectives of our research the examinations were carried
out on the data of Specialised grains (except rice) oil seeds, and protein rich plant
producing farms (Code: 151) described by the typology of the Union. In the years of
examinations the data of 704 farms (2006) and 798 farms (2010) were available,
respectively. Fourteen variables were included in the analyses.
Based on Chapter Theoretical considerations the method based on the partial yield
of production functions is employed to define the economic value of arable land (LV). As
mentioned before, this method supposes that the partial yield of certain production factors
defines the value of the factors, among others; the yield of land defines the value of land.
79

As the first step of defining the value the factors that are likely to set the results of
crop production are outlined. The probable logical correlation can mathematically be
expressed in the following way:

( E ) = f ( A( Q), L( WT ), K ( AC ), R (SC + FC + PC ) )
where:
(E) [HUFha-1] = net yield of crop production per 1 hectare. A modified indictor can
be used to express it due to the different land utilisation features of individuals
and businesses. The operating results of businesses were adjusted by the value of
rents and wages/salaries paid after land to form the indicator;
A (Q) [AK] = soil as a production factor. It was expressed numerically on the basis of
land quality, i.e. the gold crown value currently applied by the Hungarian land
evaluation system;
L (WT) [hha-1] = use of labour. The use of labour by farms is expressed by labour per
unit of land7;
K (AC) [HUFha-1] = fixed capital. The extent of fixed capital in technical assets was
used to express the standard of fixed capital (asset supply) in farms;
R (SC+FC+PC) [HUFha-1] = value of production costs (material costs). Items to be
considered were seed cost (SC) fertiliser cost (FC) and pesticide cost (PS).
In the next step multivariable linear regression estimate functions were constructed
that describe the correlation between the four production factors and net income of which
some factors like the ratio of the soil in income-yield were defined. Finally by capitalising
income attributable to soil we obtain the economic value of soil. (In our calculations a 7per cent-interest rate was applied based on the current practice of FHB Bank).
In the first phase of the research (Baranyai et al., 2013a and 2013b) examinations on
land prices were carried out. Results show that during the examined period (between 2006
and 2010) the price of arable land was dynamically rising on a national level from 376
thousand to 474 thousand, which corresponds with an annual increase of 24.5 thousand
forint (6%) (Table 1). At the same time, significant differences lie behind this dynamic
increase. The average annual rise in the Great Plain regions was 10 and 16.25 thousand
forint while it exceeds 35 thousand forints in the three Transdanubian regions and North
Hungary.
Extending our examinations to other regions significant differences are reflected in
the land prices per region in the single years. Taking 2010 as a base year the average land
price fluctuated between 391 thousand (North Great Plains) and 628 thousand forints
(South Transdanubia). It is also interesting to note that land quality not necessarily
correlates with the regional differences in land prices. To illustrate, the price of land was
628 thousand forints in South Transdanubia with an average land quality of 22.3 GC while
in South Great Plains higher quality arable land of 23.5 GC is worth 405 thousand forints
on average. Table 1 presents the data obtained.

The labour use of agriculture is also dealt by Magda (2011).

80

Table 1: Changes in land price and land quality on the examined farms
between 2006 and 2010
Region
Central Hungary
Central Transdanubia
West Transdanubia
South Transdanubia
North Hungary
North Great Plains
South Great Plains
Hungary

2006
2010
land price
land quality
land price
land quality
-1
-1
[1000 HUFha ]
[GC]
[1000 HUFha ]
[GC]
433
19,8
511
20,9
376
23,6
519
23,3
371
20,8
529
21,1
479
21,7
628
22,3
332
18,1
456
19,2
351
19,4
391
19,1
340
25,6
405
23,5
376
21,6
474
21,4

Source: own calculations based on AERI data

Note: the published data were calculated on the data of farms encoded 151 by weighing them so results
can be regarded representative

Due to the paradox described above the impact of land quality and regional situation
on land prices on the farms was examined by ANOVA model (Table 2). Our research
shows that in hierarchical models both land quality and regional situation significantly
determine the changes in land prices. We have to remark, however, that it was justified that
land prices, even statistically, are differentiated within the different land quality categories
depending on the region where the land can be found. In other words, the price of the same
quality arable land differs in the given regions, which can statistically be proved.

Table 2: The impact of land quality and situation on land prices (summary of the results of
ANOVA models)
explanatory variables
land quality
ETA
[1-4 category]* BETA
Region
ETA
[-]
BETA
Interaction
R2/E2

2006
0.423
0.456**
0.325
0.341**
significant
0.29/0.39

2007
0.413
0.423**
0.321
0.310**
significant
0.27/0.32

2008
0.414
0.431**
0.280
0.283**
significant
0.25/0.32

2009
0.405
0.412**
0.307
0.299**
significant
0.25/0.31

2010
0.385
0.380**
0.344
0.326**
significant
0.25/0.30

Source: own calculations

Note: *Cat.1: below 17 GC; Cat. 2: between 17 and 25 GC; Cat.3: between 25 and 30 GC; Cat.4: above 30
GC; ** significant at 0.01.

A further question can arise in the research, i.e. which of the two explanatory
variables, namely land quality or situation, has a stronger impact on defining land prices.
As expected, land quality has more significance each year (it is illustrated by BETA values
that belong to the variables). At the same time, however, the partial impact of regional
situation is also strong. Moreover, it is important to remark that in relation to 2006 and
2010 the impact of land quality on land price showed a decrease while situation (locality)
approximately stayed on the same level. These processes indicate that the relative weight
of situation in the changes of land prices is increasing.
In the forthcoming part of our research (Baranyai et al., 2013a and 2013b) an attempt
was made on the economic value estimation of arable land based on current economic
theory. The most important experience is summarised by Table 3 below.
81

Table 3: Changes in land price (LP) and land value (LV) per region (2006, 2010)
Region
Name
land price (LP)
[1000 HUFha-1]
land value (LV)
[1000 HUFha-1]
LP/LV100 [%]

HUN
2006
2010
2006
2010
2006
2010

C-H

C-T

W-T

S-T

N-H

433
511
598
732
72
70

376
519
810
838
46
62

371
529
815
893
46
59

479
628
740
854
65
74

332
456
554
694
60
66

N-GP

S-GP

351
391
677
766
52
51

340
405
975
924
35
44

376
474
750
836
50
57

Source: own calculations

Land value defined on economic principles in relation to 2006-2010 on a national

level and also in most regions shows an increasing tendency. In parallel with land prices
we can state that during the period of examination the land price on the land market
accounted only for 50-60% of the economic value of land. As one of the most important
conclusions of our examinations we can stress that institutional factors (such as subsidies)
have a very significant role in the changes of land price. The omission of subsidies from
our calculations can result in negative earnings before interests and taxes in many cases so
they cannot be used to define land value. We can conclude that institutional factors are one
of the most important ones to define land value in the short term. At the same time,
institutional environment is continuously changing [Vsry (2011, 2008), Magda (2012)],
which can accordingly affect land price again. Research results (Narn et al., 2013b) show
that subsidies have a much more powerful impact on land lease. It can partly explain the
slighter capitalisation of subsidies in land prices (for example in 2008 the average rent of
arable land in Hungary increased by 12% relative to the 7% rise in land prices).
Analysing the changes in the economic value of arable land regionally, significant
differences can be experienced between the regions. According to the calculations in 2010
land value fluctuated between 694 thousand (North Hungary N-H) and 924 thousand
forints (South Great Plains-S-GP). By comparing land values to the typical land prices of
the regions the picture is very mixed. Part of the regions are characterised by a rate of
approximately 50% which corresponds to the average HUN value (West Transdanubia
W-T; North Great Plains N-GP). The typical land prices of three regions (Central
Hungary C-H, South Transdanubia S-T and North Hungary N-H) approach two thirds
of the estimated land value while arable land I the most undervalued in one region with one
of the most favourable land supply, in South Great Plains (S-GP) (Baranyai et al., 2013a
and 2013b). According to the HCSO data the value of 1 ha arable land is 519 300 HUF,
which is close to our calculations.

Conclusions
The present study deals with the issue of land price and land value. By analysing the
current processes on the Hungarian land market we can conclude that although the market
price of arable land increased dynamically, this rise is not likely to reach the land prices of
the former European Union member countries (EU15) within reasonable time. All this
raises several questions as the moratorium once prolonged is going to expire again soon.
We see it as a problem that the date of the projected total liberalisation of the
Hungarian land market (2010) antecedes the date of our catching up to the union level of
subsidies, which can generate speculative dealings. A further issue of concern is that
82

smaller extent of subsidies is capitalised as of EU-15 before reaching the maximum value
of subsidies. Simultaneously, this smaller extent of subsidies prevents land prices form
catching up regarding the possibility of improving efficiency. To sum up, the issue is who
will capitalise the increased value of subsidies in the future in the newly accessed member
countries. (Narn et al., 2013b)
By extending land market examinations regionally, significant regional differences
were explored in the changes of land prices. Statistical examinations proved that not only
the differences in the quality of land but also regional situation, locality itself is a
significant and a relatively more differentiating factor in price differences. All these
phenomena are in a tight relationship with the price rising impact of speculative demand
for land.
The second part of the research is directed at estimating the economic value of soil
(including arable land). Experience on this reflects that the price formed in the Hungarian
land market in the past and presumably at present hardly exceeds half of the price defined
by economic principles. Of course, the distorting effects of institutional factors (mainly
subsidies) must also be considered as region-based subsidies allotted within the framework
of Common Agricultural Policy (CAP) affect prices to a significant extent. It is of great
importance especially by knowing the fact that CAP is being transformed and as a result,
significant rearrangements of subsidies are expected together with the reduction of the
available sources (Baranyai et al., 2013a and 2013b).

3.6. Asset valuation of plantations

Yield based soil evaluation is regulated by 54/1997 Decree of the Ministry of
Agriculture8, which, in the case of plantation is supplemented by the cost based calculation
in the Appendix of Government Decree 254/2002.
The evaluation of grape and fruit plantations is based on the gold crown value
assigned to the farming branch prior to plantation. If it also served as a plantation before,
the gold crown value of the neighbouring arable land must be calculated.
The current price of the plantations is set by the adjusted basic value of soil and the
value of the plantation together:

defining land value and carrying out adjustments;

defining plantations and;
the value of buildings.

Plantation is such a form of agricultural investment that is not simply directed at the
long term improvement of productivity by constantly increasing the value of soil unlike
melioration, rather it temporarily changes the farming branch itself and results in special
land utilisation.
To define the market value of grape and fruit plantations the evaluation of the culture
must also be carried out in addition to evaluating the soil. Plantations are typically
intensive agricultures that require costly one-time investment) plantation and supporting
system depending on the culture), several years of growing, high cultivating and
replacement costs while they are being cultivated and also significantly high labour input.
These economically disadvantageous characteristics can be well balanced by the high level
of revenue and income per unit of land as of other farming branches in the case of proper
care and balanced market relations. Accordingly to the latter feature, their value is also
8

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83

high but it greatly depends on the age, condition, real productivity of the plantation and the
demand for their products.
Utmost attention must be paid to the fact if the real estate is situated within the
boundaries of a historical spot and also the exposedness of the plot must be considered
when setting the price. Furthermore, great attention must be paid to taking care of the
plantation and the possible flaws. They can all derive from the defects of plantation,
growing, cultivating and nutrient supply and can partly or entirely be remedied in time by
proper actions.
An older culture can also look younger and in a good condition if it is taken care by a
trained and professional expert and conversely, a young grape or fruit plantation can easily
be ruined due to lack of proper care within a short period. As in this respect the basis is
always an expected, normal state that depends on the age of the plantation, the value
adjustment of the plantation calls for a different solution from land value adjustments. It is
not practical to suggest preliminary estimates in percentage under the title of amortisation
as this can result in an unreasonable distortion of values in a concrete case. The rate of
depreciations and justified appreciations can practically be assigned to an expert.
It is important to emphasise that the real evaluation of plantations is a complex task
that requires professionalism, which must be assigned to an expert in a concrete case.
All this suggests that real estate assessors must be considerate by taking all factors
into account and proportionately weighting them.
The ecological needs of the different farming branches also differ. It is not always the
good quality land with a high GC value is ideal. In some wine regions, for example, grapes
of excellent quality can be grown on relatively weak quality soil with proper situation
(location) while, on the other hand, there are regions with excellent soil quality but
practically inadequate for growing grapes.
As it can be seen from the facts above the evaluation of plantations requires utmost
care, attention and professional knowledge.
A typical feature of plantations is that they grow old within a certain period of time
(depending on the type and plantation method) and their productivity can decrease to a
level where their cultivation becomes uneconomical and they have to be cut out.
When evaluating plantations a difference must be made between
the period before bearing fruit and
the period after.
Before the bearing period the value must be defined on the basis of the real incurred
and justified costs during plantation (and care-taking and cultivating till bearing).
After fruit bearing three methods are applicable to define the value of the plantation:
evaluation based on investment, evaluation based on productive tree unit and evaluation
based on net yield. In all cases the value of the plantation is made up by three compounds:
the value of the area (land), the value of the plantation and the value of the buildings there.
In the case of evaluation based on investment the cost of investment (plantation) is
divided by the projected period of utilising the plantation. When fixing the value, the part
not yet amortised is taken into consideration. The earnings of the investment are considered
by relating the GC value of land to the arable land (on which plantation took place). Value
gains are attributed to the earnings from plantation. For example planting grapes on arable
land worth 8 GC/ha can result in 40 GC/ha grape.
The downside of the method is that it disregards the temporal value of money, the
income from plantation and the status of the plantation.
84

Evaluation based on productive tree unit can basically be applied to orchards. The
main point is that the accounted fruit trees are expressed in productive tree units and
afterwards the value of the productive tree is expressed in forints. The productive tree unit
is then multiplied by the total amount and then the total sum is obtained.
Evaluation on net yield is based on
the evaluation methods of the single cultures,
the estimation of the plantation value9 and
the setting of plantation value10.
Plantation is such a form of agricultural investment that is not simply directed at the
long term improvement of productivity by constantly increasing the value of soil unlike
melioration, rather it temporarily changes the farming branch itself and results in special
land utilisation.
Plantations are typically intensive agricultures that require costly one-time
investment) plantation and supporting system depending on the culture), several years of
growing, high cultivating and replacement costs while they are being cultivated and also
significantly high labour input. These economically disadvantageous characteristics can be
well balanced by the high level of revenue and income per unit of land as of other farming
branches in the case of proper care and balanced market relations. Accordingly to the latter
feature, their value is also high but it greatly depends on the age, condition, real
productivity of the plantation and the demand for their products. A typical feature of
plantations is that they grow old within a certain period of time (depending on the type and
plantation method) and their productivity can decrease to a level where their cultivation
becomes uneconomical and they have to be cut out. When setting the value of plantations
that fluctuates from year to year an important rule is that the function values for the single
years are always lower than the total sum of the current and obtainable income of
plantations before they are cut out. The reason for this is that the income to be realised in
the future must be adjusted to present value and it can result in a significantly lower
amount even at solid discounted rate of interest (Szcs, 1998). The rule above is clearly
expressed by the attached plantation value tables (Appendix 3) and estimating functions
(Appendix 3).
Regarding value, walnut plantation is peculiar as here real (and value) processes
partly typical of other fruit plantations and partly of forests occur. Fruit bearing realises a
systematic and initially increasing income generation that decrease at the end of the period.
In parallel, a continuous increase in tree value can be observed till they are cut out. Unlike
the plantation types, the value of the walnut plantation is the highest when the value of
other plantations becomes 0. When estimating the value of plantations utmost care must be
paid to the time factor. However, it is not at all certain that at the time of the estimation the
plantation even with a significant plantation value can keep the minimum gross margin
necessary during the maturity period. That is why older plantations at their plantation value
can be accepted as collateral for long term loans (exceeding 5 years) with utmost care.
(Szcs, 1998)
The sales value of plantations on the land must be defined by using the formula
below in the case of vineyards and orchards:
k

n 1
d

Ti = J i + 1
J ( j +k )
100
k =1
9

Szcs (1998): A fld ra s bre. Budapest. Agroinform Kiad. pp. 130-138.

Balogh . in: ibid. pp. 17-22.

10

85

if i = 0 then Ti = 0*.
where:
Ti =
Ji =
J(j+k) =
n =
k =
d
*

plantation value in year i [HUF],

earnings before taxes of the plantation in year I [HUF],
the estimated earnings before taxes of the plantation in year (j+k) [HUF],
life expectancy from planting (year 0) to cutting out (year n) [year],
the ordinals of years from the year of estimating value (in the year of estimation,
whose value is i, maximum value (n-i) [year],
= discounted rate of interest,
= the value of plantation in the year of planting is 0.

Buildings, cellars and other constructions that support systematic farming on land
and cannot or only by force be used for other purposes than intended do not represent
independent values when setting the sales price. The impact of these establishments on the
sales price must be evaluated in the process of adjustment.
The sales price of independent real estates other than classified above with a
significant value (such as mansions, hunting boxes, cottages, pensions etc.) must be
defined according to Decree 25/1997 (1 August) by the Ministry of Finance.

3.6.1. The plantation evaluation system of the NLAM11

The requirement of establishing a National Land Fund has been on the platform of all
political forces since the change of the regime. By founding the National Land Fund (NLF)
the Hungarian State aimed at creating such land portfolio that is authorised to sensibly
manage the assets of state-owned land not included in the list of nature conservation on the
one hand and establishing viable and competitive plots of land alongside real estate
policies. After several political debates in 2001 first the Hungarian National Land Fund
Non Profit Company was set up on the basis of state owned land managed by PV Rt
(State Privatising and Asset Management Inc.) and Treasury Asset Management succeeded
by the National Land Fund (NLF).
By considering the requirements of sensibly managing state owned land assets in line
with estate policies as well as the ecological, economical and profitable points of view the
Parliament drafted Act LXXXVII of 2010 on the National Land Fund to promote the
modern farm structure based on family farms. The law became effective on 1 September
2010.12
11

Czinege A. (2005): A Nemzeti Fldalap fld-rtkbecslsi rendszere. Agrrtudomnyi Kzlemnyek,

2005/16. Special Edition. pp. 317-323.

12

Excerpts from the articles of incorporation:

The public task of budgetary authoritiy prescribed by statute:
a) Over the National Land Fund on behalf od the Hungarian state is the National Fund. The public task of
budgetary authoritiy prescribed by statute;
b) over the National Land Fund on behalf od the Hungarian state according to the Act LXXXVII of 2010
it has the right of ownership and duties;
c) it represents the Hungarian state in regarding the civil legal relations concerning the National Land Fund,
d) it utilizes the lands belonging to the National Land Fund based on the goals and land-policy principles
defined by the Act LXXXVII of 2010;
e) participates in the improvement of the unfavorable land structure;
f) registers the assets belonging to the National Land Fund.
Appendix of the Hungarian Gazette (2010. december 22.)

86

The National Land Fund manages all the state owned soil, arable land, land under
agricultural or forestry cultivation and land serving agricultural or forestry purposes or land
taken out of cultivation.
The proprietary rights and liabilities over the National Land Fund are exercised by
the minister of agricultural policy and the National Land Asset Management Organisation
(NLAMO) on behalf of the Hungarian State. NLF is a budgetary institution. Its president
and two vice presidents are appointed by the minister. The Organisation is overseen and
controlled by the Estate Policy Council and the Supervisory Board.
The work of the NLF, Estate Policy Council and Supervisory Board is done in
compliance with the act on the National Land Fund with special regard to the prevalence of
estate policies.
The Government gives an annual account by the minister of rural development to the
Parliament on the prevalence of estate policies, the situation of the National Land Fund and
the activities of NLF.
Special tasks of the National Land Fund:

assisting in establishing viable family farms and helping agricultural professionals in

obtaining land,

supporting the improvement of plots formed in the process of land privatisation but
inadequate for agricultural cultivation in line with rural development objectives and
assisting in creating competitive estate sizes,

estate reallocation, ensuring soil for plot swap that is necessary for estate accumulation,

ensuring land set aside to meet special cultivation objectives,

promoting the conditions for the (sustainable) management of forestry assets,

guaranteeing social land fund for performing agricultural activities organised to assist
in the living of those socially deprived and

serving the objectives of education and scientific research, preserving and maintaining
the agricultural and genetic background.

Managing national land assets by the NLF is carried out in public with great
transparency with regard to leasing announced in open tenders, transferring to asset
management, land swap, exercising preliminary purchasing rights and land purchase in an
open tender or bidding. NLF prepares an updated account of land assets and their
utilisation.
A greater part of land in the portfolio was transferred to the National Land Fund by
law while a smaller part was and is attached to state proprietorship through the customer
relation system of NLF.
Within a short time the NLF has become a decisive payer in the Hungarian land
market. It established the significance of land as security for loan by offering security to
mortgage. The NLF has entered into contractual relations with several banks to provide
long term mortgage for agricultural purposes in addition to land as collateral.
The only objective contact point between NLF and the clients is the requests and the
attached value estimates so that is why a special importance must be assigned to the proper
presentation control and management of value estimations.
TR evaluation system worked out by the National Land Fund while using legal
basics is a versatile flexible value estimation system that can reliably set the value of the
given land. By employing independent supervisors further control is built in the process
ensuring real land value.
87

Par.10 of Government Decree 254/2002 (13 December) on the accounting principles

of the National Land Fund makes provisions for the NLF to select its own network of real
estate assessors by an open tender system who are then registered. According to these
points at the beginning of 2003 NLF announced a tender for value assessors. Eighty nine
companies and individuals were awarded with the opportunity of preparing land
evaluations for the NLF.
A question was raised even when the tender was launched, i.e. although prescriptions
exist for the professional and formal part of evaluation, they were not made compulsory so
there will be different formats from different assessors posted to the NLF. Another instant
issue is how the exclusive rights of the NLF can be ensured for selecting NLF employed
valuers by the clients as it is not prescribed by law. In the case of the programme
exchanging soil for life endowments it can be solved as the land owner directly contacts
NLF which only accepts standardised evaluations of the same format prepared by its own
valuers.
In the case of providing security for mortgages (issuing conditional declaration of
purchase) the NLF has no direct contacts with the clients as it is commissioned by financial
institutions to undertake collateral dealings. These institutions, however, appoint their own
network of valuers if they have any to perform the task instead of the valuers of the NLF.
The root of the problem in this case is not incompliance with professional requirements,
rather the lack of standardised format, which results in extra tasks in data processing and
controlling.
Evaluations are prepared within the NLF for the following economic purposes:

intention to purchase,
intention to sell,
collateral to debt,
estate reallocation, swap and
offering.

The legal regulatory background necessary for preparing the evaluations has been
available for many years. In addition to laws and regulations when setting the mortgage
value of real estate other guidelines consists of the European Valuation Standard (EVS)
founded in 1997 and initiated by TEGoVA (The European Group of Valuers Association
with the representatives of 37 countries in line with the standards of the International
Valuers Standardised Committee (IVSC). The Hungarian Real Estate Association is also
among the members of TEGoVA. EVS examines the following issues in connection with
the mortgage evaluation of agricultural real estates:

questions of ownership, utilisation and business,

differences,
intention for a structural change,
general physical characteristics and regulators,
possible sources of information,
evaluation methodology,
setting the market price and
the changes of land value concerning the production of perennials.

The current national practice of evaluation shows several deviations from EVS
standards. Meadow inventory is dubious (except vineyard, orchard and forest) the role of
88

perennials and the role they play in evaluation. In the Hungarian practice the principle of
who sows will reap prevails.
The evaluation system of the National Land Fund
Based on 11-12 of Government Decree 254/2002. (13 December) on the detailed
regulation of the asset management, recordings and utilisation of the National Land Fund
NLF can set the value of the real estate by detailed or simplified evaluation. The Decree
empowers NFL to set the conditions of applying simplified evaluation by its own authority
to decide if he conditions of application are met. Moreover, it can also set general and other
conditions depending on the farming branch by using the comparative market data
available together with the experience to carry out a detailed evaluation.
Supervisory valuers are also employed by the National Land Fund that supplements
its own network of valuers. All the issues of evaluating security to loan are supervised.
Evaluations for further dealings are only supervised in the following cases:
based on the recommendations of the regional NLF manager or
central NFL manager or
if requested by the client.
The rate of supervising other dealings that security to loan does not reach 5% and
80% of them are supervised on the recommendations of the regional NLF managers.
The following methods can decisively be used to evaluate soil (as an instrument):
evaluation based on market data
yield based evaluation
yield based evaluation by considering direct regional based subsidies (only in the
case of soil)
evaluation based on reproducing costs (for buildings)
forest evaluation (in Appendix 2 of Government Decree 254/2002)
simplified evaluation of forests of maximum 500 000 forints and
detailed evaluation on the basis of the methodology of the West Hungarian
University of Forestry.
The NLF worked out a standard evaluation system for its values. The software is
entitled TR (Evaluation System of Etablishments) evaluation standard. TR evaluation
standard is to evaluate soil and plantations in a simple way.
Soil and plantations are evaluated by three methods: market, yield and direct regional
subsidies and weighting them. (Appendix 4)

3.6.2. Plantations assessment of the present research program

The asset differences of plantations are determined by the difference in their value.
Table 4 illustrates the differences in value for plantations where plantation values are
displayed at 2010 prices multiplied by 2010 areas. The application of the formula below
results in obtaining the plantation value.
k

n 1
d

Ti = J i + 1
J ( j +k )
100
k =1

if i = 0 then Ti = 0*
89

where:
Ti
Ji
J (j+k)
n
k
d
*

=
=
=
=
=

plantation value in year i [HUF],

earnings before taxes of the plantation in year I [HUF],
the estimated earnings before taxes of the plantation in year (j+k) [HUF],
life expectancy from planting (year 0) to cutting out (year n) [year],
the ordinals of years from the year of estimating value (in the year of
estimation, whose value is i, maximum value (n-i) [year],
= discounted rate of interest,
= he value of plantation in the year of planting is 0.

Values for year 15 illustrate calculations for the values of Table 4.

Fruit

Year

grape
plantation
value
[thousand
HUF/ha]

apple
plantation
value
[thousand
HUF/ha]

peach
plantation
value
[thousand
HUF/ha]

walnut
plantation
value
[thousand
HUF/ha]

15

1 560

1 092

350

782

16

1 398

981

252

782

Calculating year 15 plantation value: income of year 15 increased by the present value of
year 15 of the plantation value of year 16.
annual income [thousand HUF]
grape

apple

peach

15

274

190

16

257

178

plantation value [thousand HUF]

walnut

grape

118

87

1 560

97

130

1 398

apple

peach

walnut

1 092

350

782

981

252

782

Calculations were carried out at discounted rate = 8.0%.

grape

274 + (1-8/100)*1398 = 274 + 0.92*1398

= 1560.15

apple

190 + (1-8/100)*981

= 190 + 0.92*981

= 1092.28

peach

118 + (1-8/100)*252

= 118 + 0.92*252

350.3

In the case of walnut plantation value depends on three factors: timber, walnut and
other wood. As timber is only realised in the year of felling and whose present value in the
year of examination equals wood income in the year (50th) of felling multiplied by the
discounted rate (50-15). It is supplemented by the income generated by other wood and the
plantation value from the income of walnut production. The value of walnut plantations is
the same from year 10 to year 40.
90

Table 4: The asset valuation of plantations of different age per fruit

area

year
1

grape

apple

peach

walnut

80 345 ha
plantation
value
value
[million
[thousand
HUF]
HUF/ha]
1 641
131 878

37 271 ha
plantation
value
value
[million
[thousand
HUF]
HUF/ha]
1 135
42 300

6 660 ha
plantation
value
value
[million
[thousand
HUF]
HUF/ha]
1 091
7 263

4 182 ha
plantation
value
value
[million
[thousand
HUF]
HUF/ha]
347
1 453

1 868

95 750

1 393

51 936

1 267

8 440

499

2 088

2 060

110 645

1 564

58 284

1 388

9 247

597

2 497

2 208

121 284

1 690

62 996

1 454

9 682

673

2 815

2 331

125 539

1 760

65 615

1 485

9 893

706

2 951

2 442

127 667

1 799

67 047

1 472

9 801

716

2 996

2 484

127 667

1 791

66 764

1 396

9 295

738

3 087

2 508

125 539

1 750

62 903

1 279

8 517

749

3 133

2 482

122 348

1 688

60 580

1 137

7 574

760

3 178

10

2 385

119 156

1 625

57 544

994

6 621

771

3 223

11

2 239

114 901

1 544

57 544

854

5 685

782

3 269

12

2 070

109 581

1 443

53 791

716

4 769

782

3 269

13

1 896

103 198

1 326

49 409

583

3 884

782

3 269

14

1 726

96 814

1 208

45 024

461

3 073

782

3 269

15

1 560

90 431

1 092

40 710

350

2 333

782

3 269

16

1 398

82 984

981

36 550

252

1 680

782

3 269

17

1 240

75 536

873

32 522

168

1 120

782

3 269

18

1 087

67 025

768

28 637

100

664

782

3 269

19

939

59 578

668

24 908

42

278

782

3 269

20

796

52 131

573

21 349

782

3 269

21

659

43 620

482

17 973

782

3 269

22

529

36 172

397

14 798

782

3 269

23

407

28 725

318

11 841

782

3 269

24

292

21 278

245

9 120

782

3 269

25

185

14 895

179

6 657

782

3 269

26

88

7 447

120

4 472

782

3 269

70

2 592

782

3 269

28

1 042

782

3 269

29

782

3 269

40

782

3 269

41

792

3 314

42

803

3 360

43

814

3 405

44

836

3 496

45

879

3 677

46

966

4 041

47

1 075

4 495

48

1 194

4 994

49

1 303

5 448

50

1 455

6 084

27
28

Source: own calculations

91

Table 5: Total asset valuation of plantations in 2010

area of land

half of the
amortisation
period

[ha]

[year]

Plantation

average value value of 1 ha

of 1 ha arable plantation in
land
the given year
[thousand
[HUF/ha]
HUF/ha]

value of
total
plantations
[billion
HUF]

grape

82 768

519 300

2508

250,572

apple

37 271

519 300

1750

84,588

peach

6 660

519 300

1485

13,352

walnut

4 182

13

519 300

782

5,44

total

353,953

Source: HCSO and own calculations

Table 6: Basis of estimates: half of the accounted amortisation period of

he plantation [year]
life
expectancy of
plantation

rate of
description,
%*

amortisation
period [year]

half of the
amortisation
period [year]

grape

27

6,0

16,7

apple

29

6,0

16,7

peach

20

10,0

10,0

walnut

50

4,0

25,0

13

Source: * Appendix 2 to Act LXXXI of 1996. List other rates of description

http://www.globalprofit.hu/main.phtml?target=torvenyek&id=894&kat=98

Table 7: Total adjusted asset valuation of plantations in 2010 [billion HUF]

Factor adjusted by the averages of net added value from 2008 to 2010.

plantation

grape
apple
peach
walnut
total

land
area

half of the
amortisation
period

[ha]
82 768
37 271
6 660
4 182

[year]
8
8
5
13

value of 1
ha arable
land
[thousand
HUF/ha]
519
519
519
519

adjusted
value of
value of 1 ha
1 ha
value of total
arable land plantation plantations
[thousand [thousand
HUF/ha]
HUF/ha] [billion HUF]
2 002
2 508
373.288
1 196
1 750
109.821
1 196
1 485
17.860
1 196
782
8.272
509.242

Source: HCSO and own calculations

The adjusted factor calculated from average net added values from 2008 to 2010:
- vineyard: 3.86;
- orchard: 2.30.
92

3.7. Evaluation of the vegetable garden

Vegetable gardens are usually found around the house with mixed species and often
are separated from the other parts of the farm. Since 1995 it means only the area for crops
produced for the consumption of those who belong to the farm and only a small quantity of
possible excess products can be sold.
Government Decree 254/2002 (13 December) on the accounting of the assets of the
National Land Fund improved the formula of Decree 54/1997 by the Ministry of
Agriculture on yield calculation. Among others it amended it by a multiplier per farming
branch as follows:
arable land: 1
meadow:
0.8
pasture:
0.4
garden:
113
plantation (area without establishments): 114
As in the evaluation of arable land in Hungary the average price (asset value) of 1 ha
arable land in 2010 was 519 300 HUF, the total asset of 81 500 ha garden amounts to 4.2
billion forints.

3.8. The special methodology of evaluating grasslands

When evaluating grasslands it was not the produced plants that were considered as
their turnover, value and representation on the market is not unified. To define a standard
end-product in economics the ability of sustaining larger animals (livestock) per hectare
was selected. (The theoretical background is described in Appendix 5.)
In the point based system of the grassland module the following factors are present as
mentioned before (Figure 4).
1. Production area
identification and
conditions

2. Productivity of
grassland type
(quantitative) t/ha

3. Productivity of grassland
(qualitative) raw protein
kg/ha

Animal sustenance of grassland

(large livestock/ha)
Figure 4: The point based system of the grassland module
Source: Dr-Fbin (2006): Gyep-modul. In: Szcs I. et al. NKFP-2004-4/015. szm, a
"Fldminsg, fldrtk s fenntarthat fldhasznlat az Eurpai Unis adottsgok kztt" cm
kutats 2. rszjelentse. Gdll. pp. 47-49.

13

the reality of value 1 was not researched separately as adjustment calculation on representative data
collection would have been necessary, which was out of the scope of the present study.
14
In our calculation this value for vineyeards is 3.86 and orchards 2.3.

93

To define livestock sustenance knowledge about the productivity of the grassland

type typical of the plot is inevitable. On the evaluated area livestock sustenance is
significantly influenced by the quality and nutrition value of the product in addition to its
quantity. To define the factors typical of nutrition value the results of examinations on the
topic aimed at the definition of the nutrition value of the main grass species of different
grasslands were used together with the data from the professional literature.
To find out about the yield of grassland in livestock unit the following formula can be
drafted:
T
Q
Qf
G
k

=
=
=
=
=
=

type of grassland,
yield of grassland [t/ha],
protein yield of grassland [kg/t],
protein yield of 1 ha grassland = Q*Qf [kg/ha],
necessary protein to sustain 1 livestock unit,
(Q*Qf) / k.

On the basis of the average sales price and costs of fat stock the extent of real income
can be estimated. From it by using the residue principle or the partial yield of the
production factors we can conclude the differential yield of grasslands, whose
capitalisation will lead us to its asset value.
It is more practical and better in reflecting the market values to employ a method to
set the economic value of grasslands and estimate their asset value.
The basis of calculating is the formula also used by the NLF transformed to
grassland. The suggested formula is the following:
grassland price (Gv) = average rent price of grassland / capitalisation rate
The following information on rent can be found in the publication of HCSO entitled
Agricultural soil prices and rents in June 2013. In 2011 the average national annual rent for
arable lands was 32 800 HUF/ha. The highest rent was applied to vineyards and orchards,
namely 46 400 HUF/ha for the former one and 37 800 HUF/ha for the latter one,
respectively. Grassland rent amounted to 16 300 HUF while that of forest reached 14 000 F
per hectare. Table 8 presents the breakdown of national rent fees per farming branch.
Table 8: National rent fees per farming branch between 2008 and 2011 [HUF/ha]
Farming
branch
arable land
grassland
vineyard
orchard
forest

2008

2009

2010

2011

24 600
10 300
33 600
30 000
9 900

25 900
12 000
42 700
32 000
13 200

28 900
14 200
42 000
34 500
13 800

32 800
16 300
46 400
37 800
14 000

Source: HCSO (2013): Agricultural land prices and rents HCSO June 2013

By 2011 the rental fee of grassland increased at the greatest rate as of 2008 by 58%.
The rental fee of forest rose by 41, vineyard by 38, arable land by 33 and orchards by 26%
as of 2008.
94

The price of 1 hectare grassland has been changed at 5% capitalisation rate based on
the data below:
2008: 206 000 HUF/ha,
2009: 240 000 HUF/ha,
2010: 284 000 HUF/ha,
2011: 326 000 HUF/ha.
These estimated data are approaching the national average market price of grasslands,
which suggests that rent can be interpreted as an income generating ability and are suitable
for estimating asset values. The total value of Hungarys grasslands is the following in the
years mentioned above:
2008: 208 billion HUF,
2009: 241 billion HUF,
2010: 217 billion HUF,
2011: 247 billion HUF.

3.9. Reed
Based on the data of Table 1 f Appendix 5 65 500 hectare reed are disclosed, which
amounts to 0.88% of the production area of the country. The official land utilisation
statistics makes not of 26 000 hectare reed nationally in 1960, which is 43 000 in 1975 and
in 1990 it is again higher than 40 000 hectares. Despite the great drainage programme this
increasing tendency results from the creation of ponds and artificial water reservoirs. Even
the edges of these artificial water surfaces are surrounded by reed but also the
neighbourhood of reservoirs started to grow reed due to the significant humidification of
soil. A significant part of areas not cultivated such as natural water surfaces is covered by
reed, as well but they are not statistically accounted for.
Reed is important both from managerial and environmental protection
considerations. The utilisation of reed is one of the most extensive methods of land
utilisation. Reed plays a decisive role by acting as a filter for shallow lakes, moors and
reservoirs (Kis-Balaton, Lake Velencei, Lake Tisza etc.). Their role in environmental
protection is undebatable.
The value of reed is determined by its components that are utilised. This qualitative
compound can significantly change by the production site, year and age. In 2013 the ratio
of the single estimated modes of utilisation was the following (calculated by 800
sheaves/ha production): 30, 10, 20, 10, 30. The revenue of 1 ha reed is shown by Table 9.
Table 9: Revenue of 1 ha reed [HUF]
Name

sheaf [pcs]

price of reed sheaf

[HUF/sheaf]
300
400
300
200
15

reed for beating

240
hamming reed
80
reed cloth
160
reed disc
80
briquette
240
800
Total
Source: Professional background for a lawsuit (2010)

revenue of 1 ha reed
[HUF]
72 000
32 000
48 000
16 000
3 600

According to the data in 2010 the total value of 65.4 thousand ha reed reached 2.4
billion HUF.
95

3.10. Evaluation of ponds

According to the HCSO definitions ponds are natural or artificial water surfaces that
are used for raising fish including ponds for the winter period and raising offspring.
The sales value of ponds has two parts. On the one hand, the value of soil in its
natural state that is they are used up by the pond and the net value of (infrastructural)
investment in and around the pond.
The latter one differs from pond to pond but its value can be defined relatively easily
on the basis of inventory data.
The research team agreed that based on the definition of pond its land attraction is
practical to define on the value of average arable land. To sum up, in 2010 the value of
35.5 thousand ha pond was 18.435 billion HUF without net fixed assets on the basis of
519.3 thousand HUF/ha average arable land value.

3.11. Evaluation of forest

According to the NRDP research program in 2008 managing forests is substantially
different from other business activities.

The traditional objective of forestry is producing timber but in addition, objectives of

defence, relaxation etc. are of greater and greater importance,

in timber production human activity and biological processes are intertwined,

within the time limitations of biological processes farmers themselves can define the
starting and finishing dates of some production activities,

the duration of timber production has wide temporal boundaries regarding the types of
trees, production sites and purpose of utilisation. The long cycle of production is
decisive when selecting a method for economic examination,

it is difficult to make a shift in management. Due to the long production cycle forestry
is not able to keep up with the changes in economic principles,

a special feature of forestry is that the costs of reproduction will be realised only after
decades and this makes it necessary to consider the production period.

The National Forestry Database stores the most important ecological data of the
production site per forest plot electronically. The team of experts led by Andrs Bidl
assigned the suitable tree type and its average annual yield to the production sites defined
by the single ecological features by statistically processing the database.
The gross margin of timber production was calculated by using the results.

AP

A f = ( RB KTS 1,2) (1
) EFJ V
100

where:
A
RB
KTS
1,2
96

= margin for timber production for final use (HUF/ha)

= specific revenue HUF/net m3)
= specific costs (HUF/net m3)
= utility bills multiplier

AP
EFJ
V

= decrease (%)
= benefit to keep up the forests (HUF/gross m3)
= average timber volume for final use (gross m3/ha)

The difference between value yield and cost by the time of the final use can and must
be regarded as a permanent seasonal yield, which first appears in the year of final use (year
f) and afterwards in every f year. The method supposes that permanently the same type
of tree with the same yield and cost can be produced. The yield value of capitalised,
permanent seasonal yield leads to the yield value of soil (production site).
The value of forest can also be calculated on the basis of the official information
provided by HCSO. In its 2013 publication HCSO examined the market turnover of the
single farming branches. In 2012 the price of forest rose to the slightest extent by 4.3%,
that of grassland increased by 13%, orchard by 19.8%and the price of vineyards showed
the greatest increase (23.2%).
There were significant differences between the regions of the country in terms of the
breakdown of land sold by farming branches. The sale of arable land was decisive in all the
counties. Ngrd count had the lowest ratio (nearly 47%) while in Bks it was the highest
(96%). Significant turnover in grassland and forest was noticeable in Zala, Veszprm,
Ngrd and Borsod-Abaj-Zempln counties. Sales in grape were insignificant both on the
national and regional level and only few counties reached 1% of total sales. Most vineyards
were sold in Heves and Bcs-Kiskun counties (3-3%, respectively. A similar tendency
occurs with orchards. Szabolcs-Szatmr-Bereg county had the greatest turnover, i.e. 8% of
total sales.

Forest
Grassland
Orchard
Arable land
Vineyard
Figure 5: Breakdown of land sold per farming branch (2012)
Source: HCSO (2013): Agricultural land prices and rent, HCSO June 2013

97

Table 10: Prices of cultivating 1 ha area per farming branches between

2009 and 2011 [HUF/ha]
Farming
branches
Arable land
Grassland
Vineyard
Orchard
Forest
a)

2009

2010

2011

2012a)

491 200
242 000
977 300
663 700
368 900

519 300
251 600
913 300
721 200
400 400

583 700
283 800
1 035 400
729 100
440 100

670 400
320 600
1 275 700
873 300
459 000

Preliminary data/HCSO calculations based on NTCA data

Source: HCSO (2013): Agricultural soil prices and rents, HCSO, June 2013

According to the data of Table 10 the market price of forests was increased by 24.4%
between 2009 and 2012. Forest price in 2010 was 400400 HUF/ha. By capitalising it rough
estimates on forest assets were carried out according to which the value of our forest assets
equals to 765.425 billion HUF.

3.12. The aggregated land assets of the Hungarian agriculture in 2010

After working out and improving the method of land evaluation per farming branch
and focusing on 2010 the land asset valuation of our country has been calculated. Table 11
summarises the results.
Table 11: Land asset valuation of our country
farming
branches
arable land
vegetable
garden
orchard
vineyard
grassland

applied evaluation
method

pond
cultivated area

value of 1 ha
[thousand
HUF/ha]
519.3

total assets
[Bn HUF]

multiplicator 1

4 322.1

multiplicator 1

81.5

519.3

4.2

arable land
value*multiplicator +
net plantation value
Gv = rent/
capitalisation rate

93.7

264.746

82.8

373.288

762.6

284.000

216.578

5 342.7

3 103

agricultural
area
forest
reed

area
[thousand ha]

1 912.9
1 ha revenue
(sheaf*market price)
multiplicator 1

400.400*

2 244.467

765.425

65.4

37.080

2.425

35.5
7 356.4

519.3

18.435
3 890

Note: multiplicator 1 = supposing average quality arable land

*Source: HCSO (2013): Mezgazdasgi termfld rak s brleti djak, HCSO June 2013
Source: own calculations

98

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4. WATER VALUE AND WATER RESOURCE EVALUATION

IN HUNGARY
Csaba Fogarassy va Neubauer
All natural resources, especially agricultural land, forests and drinking
water supplies, biodiversity in particular native plant and animal
species and cultural assets shall form part of the nations common
heritage, and the State and every person shall be obligated to protect,
sustain and preserve them for future generations.
The Constitution of Hungary

Introduction
Present appointed target of this study is monetary valuation of water. Evaluation of
water as natural resource could raise numerous questions at theoretical level. We will not
consider moral, ethical or philosophical views, in this study only the economic aspects and
methods and their needs will be discussed.
European Union is undoubtedly one of the most influential factors on the present
state of our domestic economy, and it is not different in case of water resource
management either. The EU determines in its Water Framework Directive for all member
states the condition in which this important natural resource must be. The European Union
taking into consideration the concerning contracts and Commission opinions justifying the
necessity of its establishment has adopted in 53 points the 2000/60/EC directive on 23rd
October, 2000, the definition and framework of community action in water politics (EU
VKI, 2000). The alignment to Water Framework Directive (WFD) at national level
required many years of research and consultation to conduct a qualitative and quantitative
survey and classification of the water resources of Hungary. Of course, it is required to
continue this work, to conduct monitoring, and to make necessary corrective decisions in
the future.
It can be accepted that the mentioned research results and their attachments of
National River Basin Management Plan (NRBMP) are the main pillars of national water
resource evaluation. At this approach, NRBMP, which was prepared in accordance with
the requirements, can serve as the basis of future evaluations of water resources. This
vision could be welcomed by us, because for this reason water resource evaluation
methodology can be performed with increasing security and the possible comparison of the
resulted values could be more established.
In this study, we try to explore the economic aspects of water resource and determine
which the most acceptable versions are for us. In addition, we strive to describe water
resource evaluation methods in a wider range rather than selecting or developing one,
which can best illustrate the estimated value of water resource of Hungary with current
available knowledge and data.

4.1. Economic approach of water resource

Decision makers in water resource management take certain driving forces into
consideration during their strategic planning, which can determine our competitiveness
within Europe. These driving forces are, in broad sense, for example demographic,
103

technological, economic, social, environmental and institutional or even changing attitudes

and international processes. These factors can be external factors, on which we have no
influence, internal factors, which are the present conditions and traditions, and the mixed
ones (Somlydy, 2011). From these factors, we can conclude that hydrological resources
can be strategical environmental and social factors, while the result of water resource
evaluation can be considered as an economic driving force. In our case, all the three can be
considered as mixed driving force, because each environmental, social and economic ones
has elements both beyond and depending on our control.
The economic definition of water resource can be accepted from Ress (1988, p. 9.),
who considers it as the elements and attributes of the natural resource, which can be used
for satisfying the needs of a society at given or expected technological state of
development. This concept assumes two axioms:
physical, chemical, biological characteristics of water determine advantageous and
disadvantageous attributes for society, of which carrier is the material of water. This is
the value of water recourse potential.
Satisfaction of human, economic and environmental needs are related to valuable
attributes
quality, quantity,
energy,
maintenance of living space of biological movements,
effort on risk minimizing in economic, environmental approach.
In the economic development process induced by the changing needs, economic
value of water is formed by different structure of elements. Namely, the development level
of productive factors in a given period, the environmental, economic and human water
demand and the need for water use are the main determining economic factors of water
resources. The historically changing structure of the use of these resources is determined
by three value factors: value of resource, value of utilization chain and used external cost.
From the natural side it is determined by resource balances, capacity balances and the
satisfaction balances (Ress, 1988).
According to Marjain (2005) economic approaches of natural resource valuation are
estimations to express in money the social value of quantitative change and to reduce the
advantages and disadvantages from many areas into one dimension.
In other words, this is the evaluation of spatially and temporally defined,
advantageous and disadvantageous characteristics and the positive and negative effects of
physical, chemical and biological attributes of water. It is based on objective
determinations, and appoints the directions of utilization. Each attribute can be shared by
multi level categorization. This can be, for example according to utilization (such as
material, energy, and living space), spatial appearance, temporal changes, risk, etc.
Adjusted to the changing needs, the presence of water as a potential value system can be
determined in monetary units, score, dimension, etc (Ress, 1988).

4.2. Economic approach to define characteristics of water resource

Water is a natural resource that can be found all over the country. There are spatial
and temporal differentiation in its quality and quantity thus demand appears differently in
these dimensions (Ress, 1988).
104

Beside the fact that water is classified into the group of natural resources according
to its features, it can also be described with specific characteristics. In general aspects, as a
natural resource, it has life sustaining function, a natural condition that a human being or
the society use for satisfying their material needs at a given technological level. Water is a
renewable, namely a flow type natural resource. That means that in spite of its use it can be
regenerated by the laws of nature in a perceptible time by humans (Bora, 2001). But
renewable resources can be used until exhaustion if the rate of usage [or pollution] is
higher than the rate of reproduction [or purification]. Among the renewable resources, this
group is called the critical zone. Typically, those natural resources are included here where
the recovery of supply processes does not take place even after the usage of the resource
stopped (Rees, 1985).
Table 1: Classification of natural resources (part)
Renewable (flow) resources
Without of risk of critical zone
With the risk of critical zone
solar energy
flora
geothermal energy
forests
atmospheric energy (wind)
fauna
water (hydropower)
aquatic ecosystems
tidal
part of water resources
waves
soil
marine currents
biomass
Source: Bora (2001, p. 16.)

Table 1. suggests that the natural kinetic activity of water cannot be exhausted by any over
usage or over pollution according to our present knowledge. In addition, although one part
of water resources and aquatic ecosystems are able to regenerate, but they can reach their
limit of capacity of regeneration with over usage or over pollution and if this is exceeded,
they become non-renewable ones. Well known examples for this are over-fishing, overwithdrawal of karst water, leaching of chemicals into shallow lakes or certain river sections
which reduces assimilation and can causes algae, siltation or decease (Bora, 2001).
With a few exceptions, water as a natural resource is part of the national wealth.
Without claiming completeness, the following laws are in order:
Act CXCVI. of 2011. on national wealth, Chapter II. Property types belonging to the
category of national property, 1. State property, 4. (1) d) - e) paragraphs, and:
Enclosure 1. to act CXCVI. of 2011., Exclusive property of the state, A) Rivers,
streams, backwaters, tributaries and their river bed, and register of water establishments.
Act LVII. of 1995. on water management, Chapter III. Provisions of property and
operating of property, 6. (4) a) - c) paragraphs

4.3. Methodological background of water resource valuation

Considering the renewal rate of water resource in total, it can be interpreted as a
limited natural resource. This is an absolute limit, which suits to Malthusian limits,
therefore quantity and renewal rate are constant. In our case, synthetically produced water
105

is not taken into consideration. In addition, the relative limit, which determines
consumption, appears at a certain level that is determined by place, time and purpose of
usage. Relations among these determinants are represented by transport and storage costs.
Finally, limits can be permanently static or variable dynamic ones (Ress, 1988).
During our research, we try to calculate the value of water as a natural resource. By
this aspect, we mean that it is part of the national water resource, which is used or can be
used considering usage directions of multi-dimensional human activities. This, in itself,
assumes that this part of water resource is known and (can be) used at given level of needs
and technology. This study does not include those elements of life cycle, which are
connected to exploitation and subsequent levels of being, like costs of construction and
maintenance of infrastructure, storage, redistribution or managing pollution. These factors
are evaluated typically at market-base.
Considering the task, in system-based approach, following Tyteca (2001), economy
can be considered as it is implanted in social and natural systems, so these systems are
interrelated with each other.

Figure 1: Implantation of economical, social and ecological systems

Source: Tyteca (2001) cited by Kerekes-Fogarassy (2007, p. 47.)

Water appears in all the three systems; in the ecologic one water cycle is essential as
a transfer medium and living space at macro and micro level. Human settlements have
always been established near main water streams and culture and economy has also been
developed there. Economy was built on water usage, because all the economic sectors
basically use water both in a direct and indirect way.
In addition to the mutual relationship the existence of these systems is depending on
each other: typically from inside out as it is illustrated by Figure 1. Thus, our social system
is built on the ecologic system; the former cannot exist without the latter one. Our
economic system is built on our social system, but this in turn, cannot exist without the
presence of both social and ecologic systems. In our opinion, these conditions must be
taken into consideration in the method.
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An interview with Dr. Sndor Ress15 appointed the practical part of water resource
valuation, and the diversity of elements used as the basis of evaluation as well as the
responsibility accompanies defining these elements. According to his experiences, the
random variable is actually the availability rate, and water need is not equal to water
demand, because when price appears the value of the difference narrows down.
Labour theory of value in the case of water is not working even not in the sense of
water exploiting. The only exception is when water is artificially produced.
Relatively new factors appear in the calculation of potential value, namely the value
of existence and the value of heritage. A good example can be as follows: the value of a
granny would represent the former one and the next generation(s) is represented by the
latter one.
We must determine during the evaluation what water as a natural resource is mainly
suitable for, but the exact factors cannot be defined at this stage of the evaluation process.
For example quantifying of changing of biological processes is very difficult, expensive
and inexact or mostly impractical. Evaluation should be restricted to welfare factors
because the biological needs of humans cannot be specifically accounted.
Expenses must be defined with the consideration of correcting, value-reducing factors.
These features in general are known that the more costly is less valuable. It can be
interesting to consider the case of water that for example we have to pay at drought, but not
at flooding though with intervening in conditions of drains we have to face with
economically invested objectified capital. However, for example, in relation to
maintenance costs at infinite time horizon this cannot be evaluated.
The starting point of one-by-one evaluation is the principle of cardinal utility, in
other words it means that certain composition of properties cannot be replaced with each
other. A good example for this is the therapeutic value and energy of thermal water.
Separately both of these properties can be replaced with certain costs. But these two
replaced parts will never give the utility as original thermal water, because the whole is
always more than the sum of its parts. Take for example thermal water at Pard16.
Valuation of bottled Pardi sulphurous thermal water is market-based, but Pard spa
represents cardinal utility, because it cannot be replaced, there is no other like that. In
addition, in case of replacement its value need to be corrected by travel cost or benefit
transfer and remediation or cleaning cost must also be accounted. These vectors must be
evaluated both individually and in groups. In connection to water resource, it can be
evaluated for the present or future. According to Ress (1988), present valuation is the
valuation of water resource as part of the national resource. This can be the basis of both
water management decisions and future valuations.
When the well is dry, we learn the true value of water.
Benjamin Franklin

4.3.1. Non-use value

Existence, intangible value
In this case, following the opinion of KerekesSzlvik (1996), value of existence can
be understood as the value of being itself. At this approach, water resource has value if
15

Dr. Sndor Ress is present chairman and CEO of Hungarian KO Inc. After many years of research his
results on water resource evaluation was published in 1988, which is one of the bases of present study. The
interview was in 27. August 2012.
16
At Pard there is one of the greatest thermal spas of Hungary.

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society takes care of its long-term existence in this value. The formula can be written like
this:
Existence value = multitude of organisms intangible value
(1)
where:
multitude of organisms
intangible value

= biocoenosis can be found at the area,

= nature protection value of elementary object.

It follows that:
Intangible value = K[R+T(A+e)]

(2)

where:
K = category multiplier (0,11,0)
R = rarity (050 point)
T = type multiplier (0,11,0)
A = base value (545)
e = unique index (-10 +5).
The natural value of elementary object must be assessed with careful objectivity.
Following the thought of existence value, Equation 1. can be used in our case at sub-unit,
sub-basin and country level.

Heritage value
Citing Marjain (2001) there are numerous explanations on the existence of heritage
value which summarized by Freeman III [1994] as follows: 1. the intention is to leave
certain resources by will for our descendants and for future generations; 2. feel
responsibility for conservation of natural resources or their certain properties; 3. the desire
to keep the opportunity of usage of natural resource in question by others. In our opinion
heritage value comes from the value of being and has to express that given water
resource might be the reflection of thousands of years. This is the value of which benefits
are respected, enjoyed by present society, but which is available after thousand years with
the same technical conditions.

4.3.2. Use value

Calculation of benefits based on imputation
With mathematical economic methods it can be shown how effectively the unit
elements of a supply proportion to be valued are utilized at direct or final consumers. In
our case it is calculable how much the benefit, which was generated during the production
process, is included by a unit of the quantity of water resources. The bases of the
calculations are modified Cobb-Douglas production functions, in which elasticity
coefficient relate to water can constitute a basis for the evaluation of water resource (fij).
Value of water resource:
E = xij fij
i
j
(3)
where:
E = Value of used water, utilized hydrological conditions. Annual outcome attributed
water resource.
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xij = Volume of water resource can be utilized by jth consumer related to ith supply
component. So, volume of water resource used from ith water quarry by jth
consumer.
fij = Benefit attributed to one unit element of supply proportion, elasticity coefficient
related to water.
This method is mainly suitable at those water usage directions, where correlation
relationship can be quantified and defined between benefit and used water as production
factor.

Benefit calculation set out from principle of substitution

Substitutability of each supply unit at any consumer can be revealed and by this way,
proportional numbers of substitution (hij) can be defined regard to the examined
substitution alternatives. Evaluation can be accomplished by quantifying cost-savings or
demonstrable surplus outcomes compared to outcomes or costs of substitution variables.
In case of one substitution variable, if the result, which can be attributed to the
variable can be valued according to calculation of benefits based on imputation the relation
below can be used.
Correlation in case of one single substitution variable:
E = xij Hij (i, j = 1, 2, )
i j
(4)
where:
Hij = Surplus outcome shown against substitute variable on unit of used water resource.
It follows that:
Hij = hij (gij kij)

(5)

where:
hij = Substitution proportion rate indicator. Denotes how many unit elements of
substitution variable of given usage are able to replace one unit element of the
examined ith type water resource (generally smaller than one).
gij = Net annual outcome attributed to one unit element of substitution variable of ith
type water resource unit element at jth consumer.
kij = Production, withdrawal cost of utilization of ith type water resource unit element
at jth consumer.
If the result attributed to one single unit of substitution variable (gij) cannot be
concretized, that costs of one single unit of variable must be considered. In this case,
therefore, gij represents expenditures.
In case of more substitution variables compared surplus outcome (Hij) can be
calculated as:
k k
Hij = min { hij (gij kij) (i, j, k = 1, 2, ) }
k
(6)
where:
k = Number of variables.
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This method is mainly suitable in those cases where water utilization can be compared to
other solution alternatives.

Benefit calculation deducted from formation of differential allowance

Dij proportion of real costs of one single unit of water production, obtaining can be
received with defining real costs of water production, obtaining in case of all utilization
directions (j) and quarries (i).
Context:
Dij = max { Dij (i, j, k = 1, 2, ) }
j
(7)
where:
Dij = Maximum cost at which acquisition costs of water are also refunded at social
level. (Costs of marginal water quarries.)
Annual outcome attributed to water resource can be written from these as the following
equation:
E = xij (Di Dij)
i j
(8)
where:
Di Dij = Differential allowance on water usage type (i, j).
Any of the methods based on quantified benefits can be used depending on aim and
feasibility of research and data availability (Ress, 1988).
The basis of property, resource valuation of components with positive effect are
given by outcome proportion of usage of produced water resources at a given level of
development.
On the other hand, the basis of property, resource valuation of negative, threatening
components are given by value of damage of non-built protection capacities also at a given
level of development. These are for example, lost production values, additional costs of
rescue and damage control and value of damaged components of national property.
Extents of these negative components are depending on type, presence and appearance of
damage, extent of protection, economic and geographic structure of a given area. Internal
waters just like rainfall conditions are mostly calculated in land evaluation (Ress, 1988).

4.3.3. Cost-based valuation methods

According to Marjain (2005), the initial assumption of these methods is the value of
natural resource; in our case water, is equivalent to the extent of utility it provides for
humans, which is equivalent to the extent of costs of conservation or/and restoration.
Marjain also accepts two assumptions in national resources evaluation. According to
the first one, peoples income and changes in natural resources are replaceable with each
other, so people accept decrease of environmental conditions, if they get compensations,
and vice versa, with decreasing income they can live in better environmental conditions.
According to the other assumption, the only thing is worth, for which people are willing to
pay (Marjain, w.y.17)
17

w.y.: without year

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Failure of cost-based valuation methods is that they cannot make real difference
between alternatives, since extents of benefits of natural resource are considered to
conservation costs. Real benefit by natural resource is probably not equivalent with the
costs of maintenance, therefore this group give significantly distorted result (Marjain,
2005).
This group includes the following methods: productivity change method, defensive
expenditure method, shadow project method, cost recovery method and the method of
substitute goods. These methods are very similar to each other. Their advantages are that
they can be accomplished relatively easily, data is relatively easily available, and forming
of the value of a change takes relatively short time (few months). In contrast with these,
they are suitable only for determining values related to usage; their usage is not
recommended in case of dominance of non-use values; the resource values estimated by
costs or benefit can be distorted (two times higher expense do not mean two times higher
benefit; the value of the underlied natural resource is often only in indirect relation with the
valuated goods (Marjain, 2005).
Besides these, the methods that estimate by demand curves can be used. One of the
large group of them is called revealed preference methods. A main feature of these
methods is that their inductions on demand of natural resource connected to product or
service are related to changes in consumption, so these are rather ex post than hypothetical.
Here the aim is to identify events at which behaviour of market participants and prices are
affected by the change of natural resource (Marjain, 2005).
Dr. Sndor Ress revealed that the extent of economic utilization of each water body
could be analysed. The higher this value is the more preferable of using of given water
body as natural resource is.
Its most commonly used methods are travel cost method and hedonic price method.
These two valuations are more suitable for determination of certain value parts, and not for
the whole natural resource evaluation and research where results meets with the
fundamental difficulties of qualitative research, and therefore distortion must be expected
at these cases (Marjain, 2005).
The third group of methods, which is called revealed preference methods also
belongs to methods estimated by demand curves. Their characteristic is that they outline
hypothetic situations where respondents do not express their preferences by their behaviour
at market. Methods of this group are contingent valuation method, contingent choice
method, and contingent ranking method. These methods can also be false due to their
hypothetic way, they require professional skills and practise, and are often expensive and
time-consuming. However, they suit for water resource evaluation, since value judgement
of those who are not directly involved can turn out, and allow exploration of value of
conversions (trade-off), thus monetary definition (Marjain, 2005).
In summary, these methods are typically used in a mixed way by experts, at certain
cases in order to obtain more complete values which are closer to reality (Marjain, 2005).
In our opinion, these methods should have been calculated with value of water as natural
resource. This would exclude the assumption that only that is worth something what people
are willing to pay for.

4.4. Interactions considered

4.4.1. Dependence of system constituents
For the construction of methodology, independence axiom of Edgeworth is
considered. This, after Berde-Petr (1995), is the following: total utility can be very rarely
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broken down to the sum of separate utilities of each good. In our view, this is supported
by the statement that the whole is always more than the sum of its parts.

4.4.2. Mutual effects

It is acceptable, that there is mutual relationship between water resource and its
directions of usage at water resource evaluation in which controlling mechanisms are in
action. At this context, these directions can be probably split into two groups. Factors of
effects, which have impact on water resource at a given knowledge and at a given level of
technological development, are in one group. And those factors on which water resource
has an impact on are in the other one (Figure 2.).

Figure 2: Schematic representation of mutual relationship between water

resource and its usage directions
Source: own editing

4.4.3. Summary of variables, factors

The European Unions Water Framework Directive (EU WFD) provides a strong
national framework at domestic level for present water situation. Therefore, in our opinion,
sub-basins and their sub-units are defined in National River Basin Management Plan
(NRBMP) of which smallest units are water bodies can be extent at water resource
evaluation of Hungary. These are as follows:
Sub-basins (4 pcs)
Sub-units of sub-basins (42 pcs)
Water bodies (185 surface water and 953 groundwater) (VKKI, 2009)
The factors of evaluation which are taken into consideration in this work are
classified into three groups. For each of the factors typically according to the groups
different weight have been given in the evaluation.

Group of factors of sustainability

Value of these factors can be weighted more heavily, because all the others, natural
conditions and social usability are formed from this. Values belonging here areas follows:
existence value,
uniqueness value and
heritage value.

Group of natural characteristics of water

This group is typically about classification which system is worked out in EU WFD,
which is completed by requirements of socio-economic needs of properties of water
resource. Features are included in this group are less weighed than factors of sustainability.
These are:
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 volume and surface area of the water resource,

quality according to WFD: excellent, good, moderate, poor and bad.
WFD is serving for determination of biological indicators requiring detailed, species
listed survey, furthermore for determination of morphologic and hydrologic features of
water body and its environment, and for determination of specific pollutants to characterise
water status. ... must be examined during the qualification process if biological
classification is supported by physical-chemical state or not. ... WDF requires wrong one
wrong all principle during aggregated classification, i.e. result of worst classification is
the reference in all case (ClementSomlydy, 2011).

Conditions determining social consumption

This group includes those factors which arise from our culture or which have
influence on our economic decisions. From these, by rearranging, the value of certain
directions can be differentiated which then show with add up representative value
considering the water resource. These factors, because they can be influenced by
anthropogenic factors, are less weighed than factors of natural characteristic:
needs,
prices,
social utilization direction.
At this point value modifying factors can be mentioned which can build into all the
three elements. These can be, according to Mizsein (2010) for example position, location
(distance from inhabited area, food processing plant), accessibility, road conditions, use
inhibitory landmarks, demographic conditions, farming traditions, aesthetic impression,
economic environment, infrastructure, public utilities, natural protection of area, et cetera.
These factors can be interpreted as contingency allowance elements determining water as
natural resource allowance. In our case, we must account in water resource evaluation with
three factors in socio-economic system at given technologic level. Interconnection of these,
parts can be seen in Figure 3.

Figure 3: Schematic representation of merging of socio-economic conditions

established to natural resources
Source: own editing

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Figure 3. displays the following factors:

needs: requirements, needs considering to water usage,
economic efficiency: considering to practical satisfaction of needs,
direction of social utilization: practical applications.
The overlapping sets according to Figure 3., can be interpreted as all three factors are
present in Section A in sufficient quantities for existence or implementation. It means that
practices and utilization directions exist to satisfy emerging needs and market prices do not
hinder them. (This part of the figure can be closest to practical issues of water
management.) There might be a need which would meet the effective demand, i.e. need
and economic effectiveness are presented (Sub-section B1), but certain activity cannot be
classified into any current utilization directions, practical background of realization is
absent. Furthermore, there are needs which are too expensive and cannot be satisfied even
with the presence of current utilization directions (Sub-section B2). And it is also possible
that prices and current utilization directions would allow certain kind of utilization of water
resources, but need does not appear for it (Sub-section B3).
Social utilization directions of Section A are listed at this present research. For further
calculations this group is enlargeable. In light of quality and quantity, completed by Ress
(1988), these are as follows:
communal sector,
industry,
agricultural irrigation,
production of water products,
pollutant disposal,
shipping,
recreation,
hydropower generation,
thermal water utilization.
Each utilization direction is considered as consumer goods, utilization final products
that target satisfaction of needs. In our view, each of the utilization directions has rent
proceed on which water resource valuation can be clearly based.

4.4.4. Interpretation of water rent

During the interpretation of water rent we proceeded from the fact that producer price
of final water product (Vup) is depending not only on the average profit of producer but on
the access cost of marginal quarry, too. It follows that:
Water rent = Vup access cost of better quarry than marginal one + average profit

(9)

In other words, production costs of marginal quarries and their components, as well as
average cost per water unit from one unfavourable water quarry can be understood as
utilization final product, which were the bases of water rent calculation.
Rent according to utilization directions interprets and evaluates water resource in one
system at national (even international) level. According to this, asset value of water as
utilization final product (Vu) is:
Vu =

water rent externalities potential rent

capitalisation real interest rate
(10)

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Total asset value of national water is:

V = gu Vu
where:
gu =

(11)

relative weight rate of each water utilization directions.

4.5. Water Allowance Coefficient

4.5.1. Water footprint
Water footprint is a relatively new environmental economic index, which shows new
side of processes related to water consumption, use, and virtual water flows both at the
national and international level. Development of the methodology is linked to the Dutch
professor Hoekstra. The structure, the composition of water footprint is different from
casual water withdrawal indicators, since it has three main factors. Green water footprint
refers to the consumption of the total rainwater evapotranspiration (from fields and
plantations) and the water incorporated into the harvested crop or wood. Blue water
footprint shows the consumption of surface and groundwater. Grey water footprint refers to
pollution with the quantity of water required to dilute pollutants. During the water footprint
calculation these are combined and completed with the basic processing water needs of
each step of the production process. Water footprint is the absolute amount of freshwater
which is used during the production of a product or a service, and also includes the
measurement of polluted water. This indicator makes integrated complex, horizontal and
vertical sectoral data multifactorial assessment procedures possible. Whit its application
previously unknown, sometimes even unsuspected economic, social and political
correlations could come to light, which are approaching our personal and social attitudes
related to water in a new way" (Neubauer, 2010. p. 2). Researches of this direction may
reveal the absolute water need throughout the total product life-cycle. The index shows the
actual, direct and indirect water usage measured on the whole value chain only valid for
the given area and period. It can be calculated for a product, a consumer, a company, a
nation or group of these and a geographic area.
So, water footprint of a product is the volume of freshwater expropriated during its
production, taking also into account the used and polluted volume of water in different
phases of the supply chain (www.waterfootprint.org). Numerous studies and researches
have been conducted to highlight water need of our consumption and production habits
through water footprint calculations. These reasons also turn out during the calculations,
thus water productivity can be increased with high efficiency by appropriate decisions.
It turned out from the estimations that, for example from aspects of national water
footprint of productions, globally China, India and the USA have the highest total water
footprint (1 207, 1 182, and 1 053 Gm3/year18). About 38% of the global total production
takes place in the territory of these countries. The next on the list is Brazil with 482
Gm3/year, which is just a fraction of the preceding ones. India has the highest blue water
footprint with 243 Gm3/year, which is 24% of the global total blue water footprint value.
Responsible for this are the irrigation of wheat in 33%, of rice in 24% and of sugarcane in
16%. China has the highest grey water footprint, 360 Gm3/year, which is 26% of the total
global grey water footprint value. It also turned out, that agricultural production has the
highest water footprints in all countries. In industrial production, the USA and China have
the highest water footprints with 22% and 18% from the total global industrial water
footprint. The water footprint of industrial production of Belgium can be interesting with
18

Gm3: giga cubic meter. 1 Gm3 = 1 000 000 000 000 000 000 000 000 000 m3,
with other words 1 Gm3 = 1027 m3.

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its 41% of the total national water footprint, while the agricultural is 53% and the
remaining six percent responsible for the household consumption.
The global annual average water footprint during the period 1996-2005 in relation to
agricultural and industrial production and household water consumption is 9 087 Gm3/year.
74% of this is green, 11% is blue and 15% is grey water footprint. Water footprint of
agricultural production is significant 92% of the total global value. Industrial production is
taking only 4,4% and households are 3,6%.
Global water footprint of products produced for export is 1 762 Gm3/year. In
agricultural sector, 19% of the total water footprint is the value of export products. In
industrial sector this is 41%. As the average of the three sectors it is seen, that 19% of the
total global water footprint of production is not for domestic consumption but for export,
thus generating international virtual water flows.
The global sum of international virtual water flows related to the trade of agricultural
and industrial products is on average 2 320 Gm3/year in
Green water footprint
the period 1996-2005. 68% of this is green, 13% is blue
refers to the consumption of
and 19% is grey water footprint. 76% of the total global
the total rainwater
value is related to trade of crops and crop products.
evapotranspiration (from
fields and plantations) and
Responsibility of trade of livestock and industrial products
the
water incorporated into
are 12-12% of the international virtual water flows. It is
the harvested crop or wood.
concluded from the results and background calculations
Blue water footprint shows
that export goods are more strongly related to surface and
the consumption of surface
groundwater consumption and pollution than goods which
and groundwater. Grey
are produced for local consumption.
water footprint refers to
Leaders of gross virtual water export countries,
pollution with the quantity of
which are together responsible for half of the value of total
water required to dilute
global virtual water export, are the USA, China, India,
pollutants.
Brazil, Argentina, Canada, Australia, Indonesia, France
and Germany. The USA, Pakistan, India, Australia, Uzbekistan, China and Turkey are the
responsible for 49% of total global virtual blue water trade. Because these countries have
to struggle partial drought, it raises the question of whether the implicit or explicit use of
this scarce national resources into blue water export production is the most efficient and
sustainable choice or not. Closely related matter is how much is the reflection of water
scarcity in water prices in these countries. The fact is that externalities hardly appear in
water prices and it is more typical in agriculture. We cannot expect that production and
trade patterns are also automatically counted with the regional scarce patterns of water.

Figure 4: Virtual water balance per country and direction of gross virtual water flows
related to trade in agricultural and industrial products over the period 1996-2005.
Note: Only the biggest gross flows (> 15 Gm3/yr) are shown; the fatter the arrow, the bigger the
virtual water flow.
Source: Mekonnen-Hoekstra, 2011, p. 21.

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International water dependency of certain countries can be concluded from these

estimations (Figure 4.). Total external water footprint19 of nations is 22% of the total global
value, although it varies by country. At some European countries, such as Italy, Germany,
the UK and the Netherlands, external water footprint constitutes 60-95% of the total. On
the other hand, in some countries such as Chad, Ethiopia, India, Niger, DR of Congo, Mali,
Argentina and Sudan, this value is very low, less than 4%. Countries with high external
water footprint are seemingly dependent on the freshwater resources of other countries.
Countries with high water scarcity, which have extremly strong water dependency are Mali
(dependency 92%), Kuwait (90%), Jordan (86%), Israel (82%), the UAE (76%), Yemen
(76%), Mauritius (74%), Lebanon (73%) and Cyprus (71%). Not all of the water dependent
countries have large external water footprint. Many northern European countries are like
this, such as the Netherlands and the UK. Freshwater resource dependencies of other
countries in these cases are not necessary, because agricultural production could be
extended within the areas of the countries and thereby reduce their dependence on external
water (Hoekstra-Mekonnen, 2012).
A recently conducted study shows the virtual water balance of agricultural products
of the hydrologic regions, which are greater than 1000 km2, of the Union (EU28 and
Croatia). The result is net virtual water import of agricultural products, which is shown in
Figure 5.

Figure 5: Virtual water balance of agricultural products of hydrologic regions, which are
greater than 1000 km2 in the EU (Mm3)20
Note: net VWi,agr: net virtual water import of agricultural products
WFcons,agr: water footprint of consumption of agricultural products
WFprod,agr: water footprint of production of agricultural products
Source: Vanham, 2013, p. 55.

19

The part of the water footprint of national consumption that falls outside the nation considered. It refers to
the appropriation of water resources in other nations for the production of goods and services that are
imported into and consumed within the nation considered (www.waterfootprint.org / a).
20
Mm3: mega cubic meter. 1 Mm3=1 000 000 000 000 000 000 m3, with other words 1 Mm3=1018 m3.

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Net virtual water import of agricultural products is the difference between water
footprint values of producing and consuming agricultural products. Overall, considering
agricultural products the EU is a net virtual water importer, so more virtual water is
imported due to the trade of agricultural products than exported.
However, there are enormous differences between regions in the EU. Net virtual
water import values of basins of densely populated and industrialized regions of Western
Europe are high, therefore, they are virtual water importers according to the virtual water
balance. Such catchments are the Rhine, the Elbe, the Po, the Seine, the Thames and the
Scheldt. On the other hand, rural and sparsely populated catchments, such as the Iberian
Peninsula, Western France and the Eastern Baltic countries, have negative net virtual water
import values; they are virtual water exporters (Vanham, 2013).
Previous researches have also highlighted the water footprint of wheat production.
Based on water footprint estimations, freshwater need of wheat production in the period of
1996-2005 was 108 billion cubic meters. The majority of this (70%) was green water
(rainwater, soil moisture), approximately 19% was blue water (irrigation of surface and
groundwaters), and 11% was gray water (water need for dilute polluted water). The global
average water footprint of wheat was 1 830 m3/ton in the same period. Approximately 18%
of it was devoted for export and not for local residents to consume. In addition, global
average water saving from international trade of wheat products was 65 Gm3/year. It turned
out that blue water footprint is relatively high of water stressed Ganges and Indus river
basins. These two basins were responsible for 47% of total blue water footprint of global
wheat production.
It was also revealed that 93% of wheat consumption in Japan was coming from other
countries, partly from the USA, Australia and Canada. In Italy about 44% of water
footprint of average 150 kg/year/person wheat consumption, which was more than twice
the world average, was outside the country mainly in France and the USA. Estimated data
for Hungary also turned out form the study. For example, our country contributed to the
total wheat production of the examined countries with 0,7%. This rate was 0,6% in the
Czech Republic and 1,5% in Poland. Domestic total water footprint of wheat production
for the period was 5 476 Mm3/year (green 4 078 Mm3/year, blue 8 Mm3/year and gray
1 389 Mm3/year). In the Czech Republic it was 3 734 Mm3/year (green 2 834 Mm3/year,
blue 0 Mm3/year and gray 900 Mm3/year), and in Poland it was 14 517 Mm3/year (green
9 922 Mm3/year, blue 4 Mm3/year and gray 4 591 Mm3/year). The total water footprint of a
ton of wheat in Hungary was 1 306 Mm3/year (green 973 Mm3/year, blue 2 Mm3/year and
gray 331 Mm3/year). In the Czech Republic this value was 957 Mm3/year (green 726
Mm3/year, blue 0 Mm3/year and gray 231 Mm3/year) and in Poland was 1 639 Mm3/year
(green 1 120 Mm3/year, blue 0 Mm3/year and grey 518 Mm3/year) (MekonnenHoekstra,
2010). Generally, certain conclusions can be drawn regarding a given time period, that the
domestic wheat production was typically demanding green water, which refers to the free
falling rainwater, and, compared to this, required much less irrigation water (blue water).
The value of related water pollution was relatively high, which would require a more
careful investigation, this fact can have many reasons from incorrect support system to
inadequate fertilization and pesticide use. While green and blue water footprints can only
be decreased until the plant keeps the maximum yield, the gray water footprint can be
reduced to zero by appropriate measures and prudent decisions.21

21

See more definitions, interesting studies and

scientific researches at
www.waterfootprint.org.

118

4.5.2. Water Allowance Coefficient (WAC)

Water Allowance Coefficient (WAC), which can be described as availability
potential of freshwater resource, has developed from thinking the estimation system of
water footprint further. In the case of Hungary, it is based and foregone by national water
footprint estimations of wheat production by Neubauer (2010). The results of this research
were achieved by the following methodological steps by making some necessary
simplifications, by CropWat 8.022 software.
The data required by the software to calculate the water need of wheat was gained
from several information sources. The climatic data was obtained from the closest synoptic
meteorological stations of the wheat growing regions. Other factors, such as humidity
estimation, root depth, crop coefficient and soil data, was based on existing FAO database
in the software. The received results were the value of reference evapotranspiration (ETo),
solar radiation rate (Rs), and wheat water requirement (CWR). Data source of production
of wheat was the national Central Statistical Office. It was necessary methodological
assumption that during the cultivation of wheat crop water requirements were fully
satisfied, so the conditions were ideal in order to not have any restriction of its growth and
yield. Thus, the green and blue evapotranspiration of wheat can be equivalent to the total
water requirement of the plant (ETgreen+ETblue=ET=CWR). Further calculations for the
estimation of green and blue water footprint of wheat are based on this crop water
requirement data, because:
WFwheat,green =

CWUgreen
CWUblue
and WFwheat,blue =
Y
Y
(11 and 12)

where:
WFwheat,green/WFwheat,blue
CWUgreen/CWUblue
Y

=
=
=

Green or blue water footprint of wheat (m3/ton or l/kg).

Green or blue water usage of wheat (m3 or l).
Yield (ton or kg).

It follows that:
CWUwheat,green = CWRgreen x 10

and

CWUwheat,blue = CWRblue x 10
(13 and 14)

where:
CWUgreen/CWUblue
= Green or blue water usage of wheat (m3 or l).
CWRgreen/CWRblue
= Green or blue water requirement of wheat (m3 or l).
(Hoekstra et al., 2011)
In the case of grey water footprint estimation it is not possible to rely on the software,
thus another method must be used. In agriculture environmental effects of nutrients,
pesticides and herbicides, except fertilization, are little or not at all studied factors.
Therefore, certain environmental standards should be applied. This, in the basic research,
was the norm set by the U.S. EPA (United States Environmental Protection Agency).
According to its assumption, the amount of nitrogen flowing back into the water body is
10% of the applied fertilizer extent. Data, for calculation grey water footprint in connection
22

CROPWAT 8.0: Decision supporter software developed by FAO Land and Water Development Division.
A tool that is used to calculate the water and irrigation needs of plants with certain soil, climate and crop data.
By using it watering schedule of different crops can be determined and irrigation practices of farmers can be
evaluated (FAO, 2010).

119

with wheat production, were available from databases of national Central Statistical Office
and FAO.
Results of calculations and estimations can be seen in Table 2:
Table 2: Water footprint of wheat and its changes by regions and Hungary, 2009.
Water footprint (WF) (m3/ton)

Water footprint changes (%)

Region
WFgreen

WFblue

WFgrey

WF

WFgreen

WFblue

WFgrey

WF

Southern Great Plain

589

535

270

1 394

99

131

101

110

Northern Great Plain

675

432

309

1 417

114

106

116

112

Southern Transdanubia

569

329

216

1 114

96

81

81

88

Western Transdanubia

526

293

240

1 059

89

72

90

84

Central Transdanubia

527

422

257

1 206

89

104

96

95

Northern Hungary

574

279

290

1 143

97

69

108

90

Central Hungary

777

505

330

1 612

131

124

123

127

Hungary average

593

407

268

1 268

100

100

100

100

Source: Neubauer, 2010, p. 43.

Based on the water footprint assessment we can state generally that a lower value of
water footprint is accompanied with a more efficient water usage of production. This is
suggested by the green values of the last column of Table 2. (Southern Transdanubia,
Western Transdanubia, Central Transdanubia, Northern Hungary), which are compared to
the national result have better value, while the red ones (Southern Plains, Northern Plains,
Central Hungary) show unfavorable difference. Based on these a Water Allowance
Coefficient (WAC) was concluded that can be determinated on the base of existing wheat
water footprint calculation mainly at regional level. Water Allowance Coefficient is formed
according to Equation 15 from Table 2. above.
WACi =

100
WFwheat,i %
(15)

where:
WACi

= Water Allowance Coefficient, based on wheat water footprint changes at

region i.

WFwheat,i = Changes of wheat water footprint at region i, %.

The regional value of WAC is between zero and one (0 < WACi < 1), if value of water
footprint of wheat produced in the region is higher, it is less favorable than the national
value (WFwheat,i > WFwheat,nat). If regional wheat water footprint is less, it is more favorable
than the national estimation (WFwheat,i < WFwheat,nat), and it shows a value above one (WACi
> 1). The lower the Water Allowance Coefficient in a region, which is the closer to zero is,
the more unfavorable the assessment of water resources availability is. In other words,
larger values of WAC increase the monetary value of available water resources in a given
region (Table 3).
120

Table 3: Water Allowance Coefficient, based on water footprint change of wheat,

by type and region, Hungary = 1.

Region
Southern Great Plain
Northern Great Plain
Southern Transdanubia

Water footprint change based Water Allowance Coefficient (WAC)

WACgreen
WACblue
WACgrey
WACtotal
100
WFgreen%
1,01
0,88
1,04

100
WFblue%
0,76
0,94
1,23

100
WFgrey%
0,99
0,86
1,23

100
WFtotal%
0,91
0,89
1,14

1,12
1,12
1,03
0,76
1,00

1,39
0,96
1,45
0,81
1,00

1,11
1,04
0,93
0,81
1,00

1,19
1,05
1,11
0,79
1,00

Western Transdanubia
Central Transdanubia
Northern Hungary
Central Hungary
Hungary average

Note: WACgreen, WACblue, WACgrey: green, blue and grey Water Allowance Coefficient

Source: own calculation according to Table 2.

Since changes of Water Allowance Coefficients vary between regions, setting up

ranking values would cause the disappearance of the distances between the regions. We
work directly with the Water Allowance Coefficient values to eliminate this.
This means that Water Allowance Coefficient, based on the wheat water footprint
change, has favorable values at the regions of Southern Transdanubia, Western
Transdanubia, Central Transdanubia and Northern Hungary (see green background at
Table 3). In these regions WAC reduces the value of water resource on the whole.
Compared to the national average, we face unfavorable values in the regions of Southern
Great Plain and Central Hungary (see red background in Table 3). In these regions WAC
changes are unfavorable.
According to directions of water usage various types of WAC can be distinguished.
Conforming to these, agricultural usage of rainwater stored in soil, soil moisture (green
water) is interpreted as WACgreen. Irrigation water (blue water) is WACblue while water
need of dilute pollutants (grey water) is WACgrey. It is important, that these WAC types are
not synchronized with the total coefficient value, therefore they do not change water value
neither the same proportions nor the same direction. This can be seen later in values (Table
5.).
The part systems of a complex organic whole exist in a state of
such intimate interaction that it is hard to draw a line between
their several functions, none of which in its normal form is
conceivable without all the others.
Konrad Lorenz
Civilized man's eight deadly sins

4.5.3. Adjusted Water Value

Water assessment as a natural resource starts, at this point, to connect to the market
price of water, because certain monetary value must be assigned to the developed
coefficient. Therefore, a basic consumer price of water consumption values of national
users has been determined.
121

According to the database of HCSO (2013/a), in the year 2012, the average consumer
price of water consumption was 331 HUF/m3. Because the retrospective data shows
increasing values year-by-year, the price of water fee per m3, in our case, is measured on
that price without any average calculations. Following Table 4. it can be drawn up by
supplementing HCSO (2013/b) data with the average consumer price, which is actually a
technical auxiliary table for calculating water values according to Equation 16.
p,irr,i

irr,i

p,cons

(16)
where:
p,irr,i
irr,i
p,cons

= Average price of irrigation water at region i on a hectare (HUF/ha).

= Average volume of irrigation at region i (m3/ha).
= Average consumer price of water (HUF/m3).

Table 4: Average volume of consumed irrigation water by regions (m3/ha) (20042012.) complemented by the average consumer price of water use (HUF/ha)

Region

Average irrigation
(m3/ha)
(20042012.)
irr

Central Hungary

Average price
(HUF/ha)
p,irr

1 213

401 613

Central Transdanubia

687

227 287

Western Transdanubia

805

266 308

Southern Transdanubia

623

206 213

Northern Hungary

741

245 234

Northern Great Plain

1 195

395 508

Southern Great Plain

1 133

375 097

Hungary average

1 099

363 659

Note: Average water fee price ( p,con) is determined on the price 331 HUF/m3.
Source: own calculation according to HCSO (2013/a, 2013/b).

The middle column of Table 4. shows the average irrigation by hectare of regions in
the period 2004-2012. Values of the third column are gained by multiplying values of the
middle column and the average consumer price of water consumption (331 HUF/m3).
Value modifying factors of agricultural production are gained by the assignment of these
data to the Water Allowance Coefficient of the region as a correction factor. The national
average value of Hungary is about 365 000 HUF/hectare, which can vary by regions
according to WAC changes and types.

4.6. Results by Water Allowance Coefficient

The following results, based on agricultural usage direction of water resource are
gained. By linking Water Allowance Coefficient results (Table 3) and its water value to be
adjusted (Equation 16. and Table 4), regional values corrected by Water Allowance
122

Coefficient, complemented by green, blue and gray coefficient values, can be calculated as
results of the following Equation 1720. and Table 5.
AWVgreen,i = WACgreen,i

p,irr,i

(17)
AWVblue,i = WACblue,i

p,irr,i

(18)
AWVgrey,i = WACgrey,i

p,irr,i

(19)
AWVtotal,i = WACtotal,i

p,irr

(20)
where:
AWVgreen,i, AWVblue,i, AWVgrey,i, AWVtotal,i = Adjusted green, blue, grey and total
water value of Water Allowance Coefficient (HUF/ha) at region i.
WACgreen,i, WACblue,i, WACgrey,i, WACtotal,i = Green, blue, grey and total Water
Allowance Coefficient at region i.
p,irr,i =

Average market price of irrigation water on a hectare at region i (HUF/ha)

(Equation 16.).

Table 5: Values of adjusted, corrected Water Allowance Coefficient

by regions and types (AWV) (HUF/ha)
Adjusted values of WAC (HUF/ha) (AWV)
Region

AWVgreen

AWVblue

AWVgrey

AWVtotal

Central Hungary

305 226

325 307

325 307

317 275

Central Transdanubia

254 561

218 195

236 378

238 651

Western Transdanubia

298 265

370 168

295 602

316 906

Southern Transdanubia

214 462

253 642

253 642

235 083

Northern Hungary

252 591

355 590

228 068

272 210

Northern Great Plain

348 047

371 778

340 137

352 002

Southern Great Plain

378 848

285 073

371 346

341 338

Note:
AWVgreen, AWVblue, AWVgrey, AWVtotal: green, blue, grey and total water
value according to Adjusted Water Values of Water Allowance Coefficient values.
The gained results may show little distortion due to rounding errors.

Source: own calculation according to Table 3. and 4. and Equation 17-20.

The changes of data in Table 5. are different from the direction of changes of regional
Water Footprint values. Favourable and critical regions are different from the results of
foundational calculations. Its reasons are the inserted values, and their different regional
weights, into Water Footprint values and Adjusted Water Values of Water Allowance
Coefficients, just like differences of volume of average irrigation on a hectare.
Further values in relation to Adjusted Water Value types appeared from the table
above, which are determined by average consumer prices on a hectare. It turned out, that
123

the value of rain water in Southern Transdanubia is the lowest and it is highest in the
Southern Great Plain. It also turned out, that the value of irrigation water measured on
average consumer price compared to the other regions and their values, is very favourable
in Central Transdanubia, 218 195 HUF/ha. The next favourable value of this type is about
35 000 HUF/ha higher and the most expensive Adjusted Water Value of irrigation water
are in Western Transdanubia and Northern Great Plain (370 168 and 371 778 HUF/ha).
From the table it is also clearly seen that the value of water need for dilute pollutant water,
which is actually an indirect water need, is the lowest in Northern Hungary and the highest
in Southern Great Plain. These are the coloured values in Table 5.
The following Figure 6., illustrates the AWV results by regions. Values of the lightest
areas are the lowest and they are growing toward the darker regions. The lowest AWVs are
in Southern Transdanubia and Central Transdanubia. The value of water in Northern Great
Plain is outstanding.

Figure 6: Schematic illustration of Adjusted Water Values of Water Allowance

Coefficient by regions
Source: own editing according to own calculations

Equation for regional level calculation based on Water Footprint is as follows (Equation
21.):
100
AWVi = (
WFwheat,i % ) ( irr,i p,cons)
(21)
where:
AWVi = Adjusted Water Value of Water Allowance Coefficient at region i
(HUF/ha).
WFwheat,i = Changes of Water Footprint of wheat production at region i, %.
irr,i
p,cons

124

= Average volume of irrigation at region i (m3/ha).

= Average price of consumer water fee (HUF/m3).

4.6.1. National agricultural water value

Because of the applied methodology the sum of the regional values is not giving the
total national value. Thus the Hungarian water value looks as follows (Table 6. and
Equation 22-23.):

Table 6: Calculation and types of Water Footprint based value of water used for
agricultural production, Hungary

Type of
Water
Footprint

Water
Footprint
values (m3/t)

Changes of
Water Footprint
values (%)
(WFtotal=100%)

Water
Allowance
Coefficient
based on
changes of
Water
Footprint
(WAC)
(100/WF%)

593
407
268
1 268

47
32
21
100

0,47
0,32
0,21
1

WFgreen
WFblue
WFgrey
WFtotal

Value of water
used for
agricultural
production on
a hectare, based
on average
price of water
consumption
(HUF/ha)
(AWV)
170 920
116 371
76 368
363 659

Type of
Adjusted
Water Value

AWVgreen
AWVblue
AWVgrey
AWVtotal

Source: own calculation according to Neubauer, 2010, p. 43.

The value, with its green, blue and grey components, of water used in agriculture on a
hectare of Hungary is determined by calculating with the data of Table 6. As a national
average it is shown that rain water has the highest value, 170 920 HUF on a cultivable
hectare. This is almost half of the total Adjusted Water Value. The next is the irrigation
water which is almost one third of the total value. The smallest part is the value of water
need for dilute pollutant water with 21%. Values of Table 6. are in equation are as follows
(Equation 22-24.):
AWVtotal,Hun = AWVgreen,Hun + AWVblue,Hun + AWVgrey,Hun

(22)

where:
AWVtotal,Hun =
AWVgreen,Hun =
AWVblue,Hun =
AWVgrey,Hun =

Adjusted value of WAC on Hungary (HUF/ha).

Adjusted value of green WAC on Hungary (HUF/ha).
Adjusted value of blue WAC on Hungary (HUF/ha).
Adjusted value of grey WAC on Hungary (HUF/ha).

Another way:
AWVHun =

p,Hun,WFgreen

p,Hun,WFblue

p,Hun,WFgrey

(23)

where:
AWVHun
p,Hun,WFgreen

p,Hun,WFblue

= Adjusted value of WAC on Hungary (HUF/ha).

= Value of green water used for agricultural production on a hectare,
which is based on average domestic price of water consumption
(HUF/ha).
= Value of blue water used for agricultural production on a hectare, which
is based on average domestic price of water consumption (HUF/ha).
125

p,Hun,WFgrey

= Value of grey water used for agricultural production on a hectare,

which is based on average domestic price of water consumption
(HUF/ha).

Also another way:

AWVHun
=
WFgreen
WFtotal ) (

[(

irr

p,cons)]+[(

WFblue
WFtotal

)(

irr

p,cons)]+[(

WFgrey
WFtotal

)(

irr

p,cons)]

(24)
where:
= Adjusted value of WAC on Hungary (HUF/ha).
AWVHun
WFgreen, WFblue, WFgrey = Green, blue and grey water footprint of Hungary (m3/t).
WFtotal
= Water footprint of Hungarian wheat production (m3/t).
irr

= Average volume of irrigation (m3/ha).

p,cons

= Average price of consumer water fee (HUF/m3).

According to HCSO (2013/c) data the cultivable territory of Hungary is 5 338 000 hectare.
Completing the national, aggregated AWV with this the following estimation can be
calculated (Equation 25. and Table 7):
AWVagg = AWV Tagr

(25)

where:
AWVagg
AWV
Tagr

= Aggregated adjusted value of WAC on Hungary (HUF).

= Adjusted value of WAC on Hungary (HUF/ha).
= Volume of agricultural territory (ha).

Table 7: Aggregate value of water used for agricultural production, which is based on
average price of water consumption, Hungary
Type of
Adjusted
Water
Value
AWVgreen
AWVblue
AWVgrey
AWVtotal

Water Allowance
Coefficient based on
changes of Water
Footprint (WAC)
(100/WF%)
0,47
0,32
0,21
1

Value of water used for

agricultural production on a
hectare, based on average price of
water consumption (HUF/ha)
(AWV)
170 920
116 371
76 368
363 659

Aggregated adjusted
value of Water
Allowance Coefficinent
on Hungary (HUF)
(AWVagg).
912 369 518 740
621 187 757 440
407 654 465 820
1 941 211 742 000

Source: own calculation according to HCSO (2013/c) and Table 6.

From the results of Table 7. the corrected total water values of Hungary, on the basis
of agricultural water use, by on water footprint calculations based adjusted values of Water
Allowance Coefficient can be seen. According to these value of rain water (green water) it
is close to 912,5 billion forints. The value of irrigation water (blue water) is more than
621,18 billion forints and the volume of dilute water need (grey water) is over 407,65
126

billion forints. According to this estimation, the national aggregate water value is more
than 1 941,211 billion forints.
Water Allowance Coefficient is able to demonstrate the total value of water and its
types. For example as a correction co-factor of land valuation, at the right place, it may
change land prices regarding to the green, blue and grey components. Using AWV may
also cause interesting, unexpected results in the industry and the tertiary sector. However,
urbanisation effect calculations must be considered, which can be reflected, for example,
by population density data involvement as a limitation factor. These opportunities are
challenging and are expected to meet them as results of further researches.

4.7. Results
1.

During the review of references of general methodology related to natural resources it

has been proved that the widespread assessment processes are not able to evaluate
water as a natural resource.

2.

Based on Water Footprint of domestic wheat production Water Allowance Coefficient

(WAC) has been developed as a correcting factor, which can also be described as the
availability potential of freshwater resource. Its practical application is achieved
through regional agricultural water resource valuation.

3.

The lower the WAC in a region, which is the closer to zero is, the more unfavorable
the assessment of water resources availability is. In other words, larger values of WAC
increase the monetary value of available water resources in a given region.

4.

Wheat water footprint change based WAC, compared to the national average, has
favorable values at the regions of Southern Transdanubia, Western Transdanubia,
Central Transdanubia and Northern Hungary. In these regions WAC reduces value of
water resource. Compared to the national average, unfavorable values can be seen in
the regions of Southern Great Plain and Central Hungary. In these regions WAC
increases values.

5.

Different types of WAC can be distinguished. Accordingly, use of rain water stored in
soil, soil moisture is WACgreen. Irrigation water is WACblue, and water need of
dilution of polluted water is WACgrey. These types are not sync whit the total WAC,
thus do not change the same volume or the same direction of water value.

6.

The monetary valuation of water as a natural resource is connected to the consumer

price of water. The determined base, consumer price from values of domestic
consumers is 331 HUF/m3, which is in connection with the average irrigation volume
on a hectare by regions, which is corrected by WAC.

7.

The value of rain water in Southern Transdanubia is the lowest, and is the highest in
the Southern Great Plain. In Central Hungary, the irrigation value of water is the most
favourable compared to the other regions, 218 195 HUF/ha. This value is the highest
in Western Transdanubia and Southern Great Plain (370 168 and 371 778 HUF/ha).
Value of water need for dilute polluted water is the lowest in Northern Hungary and
the highest in Southern Great Plain.

8.

The value of water used for agricultural production on a hectare is 363 659 HUF in
Hungary. Rainwater has the highest value from it, 170 920 HUF, which is almost half
127

of the total Adjusted Water Value (AWV). The next is irrigation water, which is
almost one third of the total value. Tthe water need for dilute polluted water has the
lowest value with 21%.
9.

WAC based aggregated AWV in Hungary is over 1 941,211 billion forints. Value of
rainwater (green water) is close to 912,5 billion forints. Value of irrigation water (blue
water) is over 621,18 billion forints, the value of water need for dilute polluted water
(grey water) is more than 407,65 billion forints.

10 WAC is able to demonstrate the total value of water and its types. For example as a
correction co-factor of land valuation, at the right place, it may change land prices
regarding to the green, blue and grey components. In case of other calculations,
integration of a population density factor would be necessary.

Summary
In our study, we tried to determine value of water from natural resources. After
reviewing existing methods with formatting a specific system, we tried to model a value
added framework in which so-called sustainability values, values of natural conditions of
water resource and values of social utilization appear with different weight. In the model,
these factors by adapting economic, social and environmental changes and with taking
those into consideration can be upgraded as well. During the research it became clear that a
method based on allowance capitalization can be the most effective. Thus, the developed
method is able to estimate water property value in a nationally uniform system by the
utilization of final products. It has been decided that the determined method of Water
Allowance Coefficient (WAC) is based on water footprint results of domestic wheat
production. Water footprint was chosen because it is able to refer to water availability with
also considering both the direct and indirect usage of water. It covers the absolute volume
of our freshwater needs, which also can be determined as the availability potential of
freshwater resources.
According to our orientation calculations monetary valuation of water as an
agricultural natural resource is connected to the consumer price of water. This is in relation
with the average regional irrigation volume on a hectare, which is finally corrected by
WAC. The name of the gained value is Adjusted Water Value (AWV).
Methodological statement: because the change of AWVs among regions vary, the
distances of regional values would disappear by ranking. To eliminate this, the WAC
values were directly used.
According to our main results, the value of agricultural water use on a hectare is
363 659 HUF in Hungary. Of this, rainwater has the highest value, 170 920 HUF, which is
almost half of the total AWV. The next is irrigation water, which is almost one third of the
total value. The water need for dilute polluted water has the lowest value with 21%, 76 368
forints. WAC based aggregated AWV in Hungary is over 1 941,211 billion forints. The
value of rainwater (green water) is close to 912,5 billion forints. The value of irrigation
water (blue water) is over 621,18 billion forints, the value of water need for dilute polluted
water (grey water) is more than 407,65 billion forints.
In case of further valuations, WAC provides the opportunity for calculating water values at
different sectors. As a correction co-factor of land valuation, at the right place, it may
change land prices regarding to the green, blue and grey components. Using AWV may
also give interesting, unexpected results at industry and the tertiary sector. However,

128

urbanisation effect calculations must be considered, which can be reflected, for example,
by population density data involvement as a limitation factor.

References
1.
2.

3.

4.

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Budapest, pp. 15-27., ISBN 963 9345 31 8
Clement, A., Somlydy, L. (2011), Vzminsg-szablyozs, in: (szerk.) Somlydy, L.
(2011), Magyarorszg vzgazdlkodsa: helyzetkp s stratgiai feladatok,
Kztestleti stratgiai programok, MTA, Budapest, pp. 169-205., ISBN 978 963 508
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www.mta.hu/data/Strategiai_konyvek/viz/viz_net.pdf
HCSO (2013/a), 3.6.3. Egyes termkek s szolgltatsok ves fogyaszti tlagra
(1996), Tblk (STADAT)
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EU VKI (2000), Az Eurpai Uni Vz Keretirnyelve,
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Water Footprint Assessment Manual Setting the Global Standard, Earthscan, London,
Washington, ISBN: 978-1-84971-279-8
Hoekstra, A. Y., Mekonnen, M. M. (2012), The water footprint of humanity, in:
Proceedings of the National Academy of Sciences of the United States of America
(PNAS) vol. 109. pp. 3232-3237
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Kerekes, S., Fogarassy, Cs. (2007), Bevezets a krnyezetgazdasgtanba, SZIE GTK
RGVI, Gdll, ISBN 987 963 9483 76 7
Kerekes, S., Szlvik, J. (1996), A krnyezeti menedzsment kzgazdasgi eszkzei,
Kzgazdasgi s Jogi Kiad, Budapest, ISBN 963 222 950 9
Lorenz, K. (2002), A civilizlt emberisg nyolc hallos bne, Cartaphilus Kiadi
KFT., Budapest, p. 5., ISBN 978 9639 3035 91
Marjain Szernyi, Zs. (2001), A termszeti erforrsok pnzbeli rtkelse, in:
Kzgazdasgi Szemle, XLVIII. vf., 2001. februr, pp.114-129.
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vgrehajtsban, in Vz Keretirnyelv vgrehajtsnak elsegtse II. fzis.
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kzgazdasgi rtkelsi mdszerek, A Krnyezetvdelmi s Vzgyi Minisztrium
Termszetvdelmi Hivatalnak tanulmnyktete, BCE-KTT, Budapest, ISBN 963 218
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the green, blue and grey water footprint of wheat, in: Hydrology and Earth System
Scineces, 14., doi:10.5194/hess-14-1259-2010, pp. 1259-1276.
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130

5. METHODOLOGICAL ISSUES OF THE EVALUATION OF

ATMOSPHERIC RESOURCES
Judit Villnyi Singh Mahesh Kumar Enik Seidel
Introduction
In the past decades, the relation between the society and the environment came into
the front, and it raised the attention of both the science and the politics. Many new issues
have arisen in relation with environmental protection, sustainable development and climate
change; new interactions have been explored in the framework of environmental
economics for the connections between the environment and socio-economic development.
Air (atmosphere) is one of the basic elements of our environment, and will remain so
as air is one of the most important factors in the metabolic processes. Without the presence
of air life is not possible. The atmospheric resources of a country are proportional with the
countrys area; consequently, the grade of air pollution is depending on the countrys
activities on prevention or pollution. It is related mainly to industrial type pollution because
the harmful emissions may flow through the countrys borders, as there are not physical
dividing lines, therefore their measurement or determination is almost impossible.

5.1. Special problems of the evaluation of atmospheric resources

The classification and the evaluation of the economic value of the natural
environment have undergone significant changes. The initial point of the evaluation of the
economic value is the connection between the human being, as the evaluating person, and
the goods, as the subject of evaluation.
Several definitions shall be differentiated in this case: the total economic value
consists of the use value and values that are independent from the others (non-use value).
The use value includes those value factors, which are derived from the real utilization of
the environment. Option value is for expressing the peoples preferences related to those
resources which are not utilized at the present, but they support their preservation in order
to be available in the future. Non-use value of the resources is based on that assumption,
that the people may attribute monetary value to the natural resources. The concept of quasi
option value is based on the fact, that if we do not protect a given resource, than we can
lose a value, which real value was not assessed previously, therefore we do not even
considered. In the assessment of natural values, the elements of the ecosystem are
classified as primary value, while the use value and non-use value are classified as
secondary values.
Table 1: Total economic value
Personal Use Values
Direct Use
Values
food, biomas
recreation,
health

Indirect Use Values

ecological function, flood
protection, thunder protection

Option Values
biodiversity, protected
organisms

Total economic value

Non-use Values
Existence
Bequest Values
Values
organisms,
organisms,
irreversible
endangered
changes
organisms

DECREASING ABILITY TO PLACE VALUES

Source: Gyulai (2011)

131

Considering the use values, some problems may arise in connection with the in situ
(non-exploitable) environmental goods. The property rights shall be defined precisely in
this case, because the common goods air, landscape, water, etc. are indivisible, because
the access of an individual to these resources will not influence access of the other
individuals to the given good. In this case, the natural resources are used in accordance
with an important feature of the common goods, namely, they will not be exhausted.
(Kerekes, 2007)

5.1.1. Atmospheric resources

The in situ raw material of atmospheric resources is the potential that lays in the
different atmospheric elements; it also refers to their ability for modification and utilization
either in passive or active ways. Primary product may be the different atmospheric
elements, but also certain industrial or agricultural products (OMSZ, 1982). The production
costs of the primary products of atmospheric resources are influenced by the climatic
conditions, the geographical location, and the different natural parameters of soil and
water.
Table 2: Elements of atmospheric resources
Atmospheric resources
modification
atmospheric potential
In situ
(precipitation producing
material
situation)
Primary atmospheric resource
product element (precipitation)

active utilization

passive utilization

atmospheric potential
(kinetic energy of wind)

atmospheric potential
(intensity of solar radiation)

industrial product
(electricity)

industrial or agricultural
product (heating device)

Source: OMSZ, 1982

Atmospheric resources are not available at the market, they are unchangeable, they
have no price, but they are able to produce value or they are able to influence the value of
other resources, therefore they can produce natural rent. The atmospheric resource
elements may have differential rent when compared to others at certain geographical
location (for example where wind energy cannot be utilized). Different natural resources
influence each other; therefore, the question shall be examined from different aspects. An
important question is to determine how the utilization of the atmospheric resources will
influence the utilization of others. Another key aspect is how the different natural resources
affect the atmospheric resources. The different gases, elements and heat emission may
influence the radiation in the atmosphere, which can modify the atmospheric elements.
These processes will cause the degradation of the air (for example, the increase of CO2
emission, which may affect an irreversible climate change) (OMSZ, 1982).

5.1.2. The state, the burden and risk factors of atmospheric environment
Atmospheric environment are those air layers that have direct influence on the living
conditions biosphere. The reference conditions of the air environment are considered as
those physical and chemical features of the atmosphere, which were prior to the human
activities. The influencing factors of the air environment may be classified according to
their climatic and chemical features.
132

Influencing factors of the atmospheric environment

Value of air quality (in concentration
Temperature of the air
of air)
Moisture of the air
Value of air precipitation
Air flows
Radiation
Precipitation

Chemical features

Climatic features

Table 3: The influencing factors of the atmospheric environment

Value of atmospheric acid (in

concentration of atmospheric acid
sedimentation)

Source: own construction

Climatic change, i.e. the modification of climatic factors is that process, when the
values of these factors are changed in a greater extent than the natural average, which may
cause ecologic damages. These problems are resulted by such atmospheric processes which
were generated by human activities. The concentration of anthropogenic pollutants is the
highest at the ground level, i.e. at the layer of inhalation, and their concentration decrease
in higher layers of the air. In case of local and regional air pollution the lowest few hundred
meters shall be considered, while in continental processes thousands meters air layers shall
be taken into consideration.
The quality of the air is influenced by the concentration of the most important air
pollutants such as carbon monoxide, carbohydrates, sulphur dioxide, nitrogen oxides,
ozone, solid particles and dust..
The atmosphere plays an important role in keeping the balance of the biosphere. The
greater part of the atmosphere, 78% is nitrogen (N2), 21% oxygen (O2). The remaining 1%
is composed by different gases (carbon dioxide, noble gases, nitrogen oxides, sulphur
oxides etc.) and water vapour.
Table 4: Composition of atmospheric elements
Chemical element

dm3

Nitrogen (N2)
Oxygen (O2)

78,08
20,95

Argon (Ar)
Carbon-dioxide (CO2)

100 dm3

0,93
0,034

Neon (Ne)

0,0018

Helium (He)
Ozone (O3)

0,0005

Other gases, water vapour

0,0035

0,0002

Source: own construction based on Barati 2002

In the greenhouse effect of the atmosphere, the most important influencing factors are
the water vapour, carbon dioxide, methane, nitrous oxide and the ozone. If any changes
occur in the volume or the concentration of these greenhouse gases (GHGs) the energy
distribution and, therefore the temperature of the earth surface will also change. The
changes in the quantity of GHGs will bring global climate change. The relations between
133

these gases and the climatic conditions are very complex, because of the many feedbacks
and interactions. Nowadays, the global warming that is caused by the greenhouse gases
is the hottest topic and filed of research because of its effects on the climate change. The
increase of GHGs in the atmosphere will not only increase the temperature, but also it may
influence the distribution and the quantity of precipitation, affect the soil moisture, modify
the air flows, influence the movements of cyclones and anticyclones and also may
influence the water of the world ocean. Thus, it may be stated that it is a complex change,
which will affect the climate of the whole (Barati, 2002).
According to the observations about certain areas of the Earth and global temperature
data it may be stated that the mean temperature of the Earth has increased by 0,6 C since
the end of the past century. This value is the lower limit of the increase indicator of
greenhouse effect, but if we consider the neutralizing impacts of aerosol, then the results
are very close to the models that threatening by global warming. In fact, the mean
temperature of the surface of the Earth has increased significantly.
Table 5: Impacts of selected gases on the global warming of the Earth
Contribution to the global warming
Gas
Carbon-dioxide
Nitrogen-oxides
Freon (CFCs)
Ozone
Methane

until 2000

until 2050

42 46 %
34%
30 35 %
14%

51 60 %
69%
20 23 %

6 12 %

3 23 %

Impact on increase of
mean temperature until
2050
1,5 6 C
0,25 1,0 C
0,3 0,7 C
0,8 C
0,3 C

Source: www.tiszta.levego.hu

5.1.3. Changes of the atmospheric carbon dioxide

In the 1950s, when Charles David Keeling could measure the CO2 content of the air,
a question has arisen: if only the half of the carbon content, which has been emitted into the
air by the human activities, can be found in the atmosphere, where is the other part? It has
taken a few decades to get the answer. According to our present knowledge, the oceans
absorb roughly 25 per cent of the carbon derived from human activities. The ocean,
therefore, will be more acidic, which endangers the marine life, but these chemical
processes may be well predicted. Woods can also adsorb the same quantity of carbon, but it
is not known how will happen in the future. Carbon dioxide is an important factor in all life
cycle processes in the Earth. The geological data show that the too high the carbon dioxide
content may result a sharp temperature increase. The different chemical processes of the
Earth will finally cease the redundant carbon amount.
About 1% of the carbon is transmitted into the atmosphere. Roughly one-third of this
amount remains in the atmosphere, the other is absorbed by the biosphere and the oceans,
therefore the growth rate is 0,45% per year. It fluctuates independently the emission level
as a result of the temporal changes ecologic systems of the temperate zone. One CO2
molecule stays an average of 10-15 years in the atmosphere therefore it has global impacts.
CO2 is a secondary atmospheric component, originated from the solid layers after the
dissipation of cosmic gases. In the beginning of the geological age, because of the physical
and chemical processes, its level was higher than at the present. Its concentration has
reduced during the ages, resulted by the different chemical reactions and the evolution of
the biosphere. At the present, it is in a quasi-balanced state; the amount of the CO2
134

produced by the decomposition of organic materials and the amount of the CO2 utilized by
photosynthesis is nearly the same. Nevertheless, this state is very unstable, because in
addition the CO2 produced by the metabolism processes of living organisms, many other
natural phenomena (for example volcanic activity) and human activities may cause
significant CO2 emissions. The technical-technological development is also a harmful
factor, because it is connected to the increased use of fossil fuels, which burning is one of
the most important CO2 emission. The plants cannot decompose this huge amount of gas,
therefore most of it will remain in the atmosphere without transformation, and may cause
dangerous impacts on the biosphere (for example by the greenhouse effect. (Radnain,
2004)

Relations between CO2 and temperature

There is a significant connection between the atmospheric CO2 and the increase of
the temperature (it is illustrated by Figure 2.) As it is shown, that the amount of CO2 and
the relative temperature increased significantly in the past few thousand years. According
to some opinions (particularly by certain industries with high harmful material emission),
the CO2 shall be considered as a nutrient of the different plants, which is utilized by the
plants. By model experiments, it was proven that woods of a forest have shown a 25%
growth in two years, under the conditions of an increased CO2 atmosphere. The impacts are
undoubted at the present, but according to the opinion of some scientists, this growth will
last until the decay of the trees, because after it the decomposition of the organic materials
of the trees will produce CO2 that which will return into the atmosphere. According to
calculations, a person emits an average of 800 kgs of carbon (that equals 4 800 = 3 200
kgs of CO2) per year into the air, by the electricity used. Transportation is added to this
amount, because one-third of CO2 emissions is derived from vehicles.

Figure 1: The relation between CO2 level and temperature

Source: Radnain, 2004

The temporal distribution of the atmospheric CO2 concentration is influenced by the

condition of the biosphere. In the temperate zone and higher latitudes, the cycle of
vegetative and dormant period is also manifested in the CO2 concentration, there is a
maximum at the end of winter and a minimum in summertime. The CO2 that accumulated
in the dormant period, will decrease, when the CO2 consumption of the plants exceeds the
135

emission of the soil-plant complex. According to domestic measurements, the CO2

concentration is the highest in December and January, and it decreases later. It is resulted
and proven by model-calculations by the geographical conditions of Hungary, because
the vertical movements of the atmosphere in the Carpathian Basin increase in February.
Although the surface of the ground is a net CO2 producer for the next 2-3 months, the air
with less CO2 content, which comes from the troposphere will decrease the CO2
concentration of the lower layers and the surface. There is an interaction between the
climate and CO2 concentration, therefore the changes of the climate will influence the CO2
concentration as well. Water vapour can be found in large amount in the atmosphere, but
only for a very short time, therefore the anthropogenic activities will not influence its
content. Nevertheless, the amount of the other GHGs is highly determined by the human
activities, which is proven by the different measurements conducted in the atmosphere and
by iced air inclusions. As a matter of fact, the concentration of the CO2 in the atmosphere
has increased since the 18th century the start of the industrial revolution by 35 per cent.
From the other GHGs, he concentration of dinitrogen oxide increased by 20%, methane by
150%.In addition, such other GHGs also appeared as a result of human activities, which
have not natural resources, only artificial (for example halogenated carbon compounds.
The increase of the GHG concentration in the atmosphere will have unfavourable
effects on the climate change, but the most significant relation is between the CO2 and the
climate. It is because of the biosphere, which is both a user and the producer of
atmospheric CO2, which reacts very sensitively for the climatic changes. Finally, when the
activity of the biosphere changes, it will influence the CO2 and the climatic conditions
both. The most important part of climate researches besides the measurement of the
GHGs is the examination of the activities of the biosphere.

Figure 2: Relations between the amount of CO2 and the global heating
Source: Meinshausen (2009)

136

The concentration of the atmospheric CO2 has been regularly measured in Hungary
since 1981. The observatory station of Hegyhtsl has been in operation since 1994, where
the measurement of the CO2 content is observed till 115 m height at different layers,
completed by basic meteorological observations and regular air-samplings as well. By such
air samples, the National Oceanic and Atmospheric Administration (NOAA) is able to
determine the level of other GHGs. A special device (based on the Eddy-covariance
principle) was installed in 1997 at the tower of the observatory of Hegyhtsl at 87 m
height, which can measure the CO2 flows between the ecological systems of the region and
the atmosphere. (http://www.otka.hu/index.php?akt_menu=4104, Haszpra Lszl: A
bioszfra s a lgkri szn-dioxid)
Based on the global emission level according to special methodological analyses, the
data of emission per head was calculated for the Hungary (based on the demographical data
of 2000). The GHG emission budget of Hungary between 2000 and 2049 is 2463 million
tonnes of CO2 equivalent. From this amount, 605 million tonnes of CO2 equivalent have
already been emitted between 2000 and 2007, which is roughly one-fourth of the total
budget between 2000-2050. In the remaining 42 years, Hungary shall manage only 3/4 of
the total budget, which means that at the emission level of 2007, this emission budget
would be only enough for the country until 2032. (Feiler, rge-Vorsatz, 2012)

Table 6: The emission data of the possible options for reduction in certain years (1000
tonnes) and in % (compared to 1990)
2010
A option:
EU-30% (2020)
EU-80% (2050) (+
economic crisis)
%

2015

2020

2025

2030

2035

2040

2045

2050

68 934 69 048 65 031 57 787 48 286 37 880 28 297 21 643 19 833

69,51

69,63

65,58

58,27

48,69

38,20

28,53

21,82

20,00

Emission rights to be bought until 2050: 169,4 million

B option:
EU-30% (2020)
EU-80% (2050) (+
economic growth)
%

73 318 75 618 65 126 50 477 37 485 29 143 25 626 24 288 19 833

73,94

76,25

65,67

50,90

37,80

29,39

25,84

24,49

20,00

Emission rights to be bought until 2050: 90,5 million

C option:
until 2020 a 40%
reduction +
economic crisis

68 934 65 818 58 437 49 608 40 535 32 257 25 642 21 392 19 833

69,51 66,37 58,93 50,03 40,88

%
Emission rights to be bought until 2050: 289 thousands

32,53

25,86

21,57

20,00

Source: Feiler, rge-Vorsatz, 2010

137

As a consequence, it may be stated that the increase of domestic GHG emission in the
next few years may cause that the compulsory decrease of the emission in the period after
2020 should be greater than the planned quantity, it may be even 3% per year. The longterm decrease plans show an important limiting factor: it is almost impossible to fulfil the
required reduction until 2050 by increasing the efficiency of the present technologies. In
general, basic structural changes are needed tin those sectors, where the opportunity for
reduction of the emissions is existing. The most important problem is that these structural
changes may affect the physical infrastructure in a great extent, and their normal renewal
cycle is longer than the available period. Finally, these changes need significant financial
and economic sources and their physical realization takes very long time. (Feiler, rgeVorsatz, 2010)
The biosphere of the temperate and northern zones of the northern hemisphere is CO2
absorber. It means, that a smaller amount of CO2 is produced by the auto- and
heterotrophic respiration, than it is absorbed by the photosynthesis. This fact is certified by
O2 and carbon isotope calculations (13C/12C).
Table 7: Activities inducing carbon dioxide emission
Natural factors

+ Anthropogenic factors

Anthropogenic factors

Climate change (temperature,

precipitation, radiation, etc.)
caused by the increased CO2
absorption level in the
biosphere.
Increase of the wood
production of savannas and
shrubs.

Absorbed CO2 by
afforestation.

Increased CO2 absorption

caused by increased nitrogen
inputs (air emissions, nutrient
supply)

Decreasing the net CO2

emissions caused by changes
of agricultural activities.

Accumulation of organic
materials in waste deposits,
construction works etc.).

Improving the fire protection

(decrease of the destroying
effects of forest fires).

Accumulation of organic
materials in buildings,
furniture etc.).

The carbon absorption of

plants after abandoning
agricultural land.

Increased carbon
accumulation of the sediments
in rivers, lakes, seas.

Increased adsorption level

caused by the increased
atmospheric CO2 (carbondioxide nutrition supply.

Source: own construction, (nimbus.elte.hu/oktatasi_anyagok/.../11_Szen-vegyuletek.pdf alapjn)

Several international researches were and are conducted in this topic, to make
calculations and models for the balance add the flow of (FLUXNET, GreenGrass,
Carbomont, CarboOcean, CarboEurope-IP).

5.2. Methodology of emission budget calculations

In order to comply with the global emission budget, it is important to determine its
details to be in accordance with the 2C limitation in the given period. The model contains
four parameters, the starting and the endpoint of the financial period, the probability
according to the 2C limitation, and the demographic reference year, according to which
the demographic ratios may be given. In the model, the years between 2000 and 2049 were
used as a basic period of emission budget. Accordingly, the budget is related to this period.
(Feiler, rge-Vorsatz, 2012)
138

T2

C glob ( p) = E globt (t )dt

T1

Total CO2 budget in (T1, T2 period)

which may keep the global warming
process under 2C with p probabiliy
T2

Global CO2 emission

profile integrated in time

C nat = E nat (t )dt = C glob ( p)

T1

National CO2
budget (T1, T2
period)

National emission
profile integrated
in time

M nat (TM )
M glob (TM )

Part of the global CO2 budget, which is

determined by the ratio of national
population (Mnat) and world population
(Mglob) in TM period)

Figure 4: The equations of emission budget calculations

Source: Feiler, rge-Vorsatz, 2012

5.2.1. Measurability of the clearness of air

Until now, there is not any widely used method, or suitable calculations for the
measurement of the clearness of air. A possible way of measurement may be the
determination of the value of correcting the damages of air pollution or the prevention of
its risks. The costs of measures against harmful emissions and environmental impacts are
very high. The task of minimization of these costs is related to the field of atmospheric
environmental management. The total costs of the society are connected to the regulations
of the emission, and the correction of the damages caused by the non-isolated pollutants
(such as costs of isolation, placement, technological investments, operation, human
healthcare and economic costs). The risk factors of the different groups (with different
danger level) shall be minimized, based on the results of the following processes: analyzing
the present conditions and the existing measures, establishing standards and complying
with them, examination of the correlations between doses and impacts related to air and
precipitation parameters. In establishing the official domestic emission-regulating system,
priority shall be given to local and regional atmospheric environmental objectives, of
course, in accordance with the international requirement both in continental and global
aspects.
The basic elements of atmospheric environmental management are the following
(Radnain 2004):
The most important objective is to harmonize the environmental and economic interests.
The quantity and quality features of the resources and inputs shall be manifested in the
price of the products.
Such tools should be used which highlights the specific features of the environmental
aspects:
1. the excessive use of environment will cause high social costs, because
environment is a limited resource,
139

2. the environmentally conscious and sustainable attitude of the producers should be

typical,
3. the decreasing of the environmental pollution is a national interest, therefore its
costs should be borne even by the producers.
In the risk taking process related to the atmospheric environment, the following factors
shall be distinguished:
outcome of known and predictable cases,
outcome of known but uncertain cases,
outcome of suspected atmospheric hazards.
(http://www.levegokornyezet.hu/02.htm)
Another important task in the planning of the costs and values is modelling and
forecasting, based on correct results of former measurements, because if we take the
needed steps against the negative impacts of the climate change steps in time, its profit will
exceed the costs of the measures. Any intervention is made by the society, the impact will
not manifested immediately, but the climatic change has accelerated so much, that the
measures should be taken without delay.

5.2.2. Evaluation of atmospheric resources

Many professionals agree in that the wars of the 21st century will be ecologic wars.
Since the Kyoto Agreement the clean air and the load capacity of the air has become a
product for trade, it should be considered as the part of the national asset. According to
certain estimations, in Hungary, under optimal conditions, the value of the total national
assets represent the GDP of 1,5-2 years, while the ecologic assets including agricultural
land, water, air is two times higher, that means, it represents the GDP of 4-5 years.
(http://www.baross.org/Bogar_L.htm) Thus, the air (or atmospheric resources) shall be
evaluated as a part of the national asset.
One of the most significant sources of environmental degradation is human activity,
which extent has increased by using technological devices; therefore, the most important
reasons of pollution are industrial production and industrial activities. During these
activities we shall take the technologies in such way that may prevent the harmful effects
of production, and to prevent the environmental damages. (Radnain 2004)
The definition of natural resources is very wide. Most of the natural resources have
no market, therefore they have no price (clean air, ozone layer of stratosphere), but they
have importance in economic aspects (both in production and consumption). Fossil energy
sources, mineral resources and the absorbing function of the biosphere are also natural
assets. Moreover, the common goods have no property rights, which may raise another
specific problem. Hankiss cited the opinion of the biologist, Garrett Hardin, for this case:
Hardins study about the common pastures was published in 1968 in the journal Science.
According to his opinion, the demographical boom is the most important social problem.
Its dangerous mechanism was illustrated and evaluated by the example of the study of
Lloyd, a 19th century mathematician. (Lloyd, 1833.; Hardin, 1968.)
The primary problem is that there is no such market for the common goods and
services (such as clean air, forests, wildlife, natural landscape, etc.), which may evaluate
their performance. Economics is a science, which evaluates the attitudes, the decisions of
the human beings connected to the economic questions. It is a social science, which
140

considers the economic-social effects of these decisions in order to find the appropriate
decisions. Most of the resources are limited, and we have to choose which preferences are
more important: to use the resources for creating a new product or service or to use it for
preventing the natural environment? A scale of preferences shall be determined, and we
shall consider that the improving of environmental conditions will produce value even in
economic aspects, because it will improve the wealth of the society as well. For example,
in a city with polluted air, the health problems (lung and respiratory illnesses) may
increase, therefore the costs of healthcare and social insurance will also increase. In
addition, in such places the buildings need more modernization works as a result of the
corrosion effects of polluted air. By quantifying these results, the value of the clean air may
be expresses even in monetary form. (Kerekes, 2007)
In summary, the evaluation of natural assets should be conducted in monetary form,
because the importance and the value of the clean environment is improving therefore it
shall be ranked among the social preferences, and it shall be evaluated in order to ranking.
The evaluation may have several aspects. Some of them are connected to the expectations
and needs of the society, which may give the directions, but not the exact value of the
goods. The social expectations should be evaluated in monetary form, because of the
abovementioned ranking process. In many cases the monetary value of natural resources
(biodiversity, flora and fauna) are not taken into consideration. Activities that may cause
health risks shall be limited, but they cannot be avoided. In this case compromises play the
key role in the decision process. It is highly important in environmental questions, because
all living organisms and natural resources need some kind of protection, and they shall be
used in a reasonable way, that consider their limited availability and vulnerability.
(Kerekes, 2007)
In the evaluation of natural resources, the different preferences of the society shall
also be considered. The methods of its evaluation shall find the answer for the question:
What is the real value of the given asset for the society? How much money the people will
pay for it? These methods consider the societys willingness to pay. (Kerekes, 2007)
In the evaluation of the natural environment, the science of environmental economics
differentiates the use value and the non-use value of the assets. The direct methods are used
for determining the value in quantified form; the indirect methods determine the extent and
the effects of the pollution at first, which may be quantified later. (Kerekes, 2007)
Table 8: Evaluation methods according to different markets
Behaviour
type
Actual behaviour
Intended
behaviour

Traditional
market
Changes of productivity,
Calculation of non-realized
income,
Inputs
Replacement costs,
Shadow project

Implicit
market
Travel cost method,
Wage differences,
Property values

Constructed
market
Artificial market
Contingent
valuation

Source: Kerekes, 2007

As it was mentioned before, the changes of the natural resources and the quality of
the environment shall be a primary task. We shall differentiate the monetary and nonmonetary evaluation methods, because the non-monetary methods use a very wide scale of
factors (physical values, qualitative information etc.) while monetary evaluation
summarize all effects according to money terms.
141

As the evaluation of natural resources have several problems that is originated from
their role as common good, special methods shall be used for the calculation of their real
value. These methods may be used in five fields (Navrud-Pruckner, 1997):
cost-benefit analysis of new investments that influence the environment and natural
resources;
establishing new regulations for environmental protection;
evaluation of the possible changes in the value of natural resources;
determination of the external marginal costs resulted by environmental pollution;
evaluation of the natural assets in the system on natural assets. (Marjain Szernyi,
2001)

5.3. Evaluation methods of atmospheric resources

The importance of the evaluation of the damages in natural resources and the
environment increased significantly in the past few years. One of the most important
supporters of this point of view is Great Britain. The Natural Capital Committee was
designed to provide Government with enough information for understanding of the value
of natural capital and to make evaluation based on the experiences of GDP calculation
on the quality of air, natural waters, wildlife and other natural resources in accordance with
the welfare of the society. They suggested that it is essential to account for natural capital
in a comparable manner to financial accounts, which include the features of the rivers,
forests, and other landscape factors of a given country. By measuring the countrys stocks
of natural capital and how they are changing overtime we can properly evaluate how these
resources are being eroded and by how much and what the costs are for society. In
compliance with the Rio+20 world conference experiences, the prevention of the natural
environment may be implemented only by radical steps. Within its framework, the
following main objectives were determined: implementing sustainable agricultural
production, prevention of oceans, setting a new international justice court for
environmental crimes, and establishing a special commission (or commissioner) that may
improve the attitudes of the younger generations towards the environmentally conscious
behaviour. Accordingly, the most important task is to think about what shall be protected,
therefore the method for evaluation of natural capital shall be defined. The British Office
for National Statistics has started finding an appropriate method for evaluating the General
Well-being, GWB) for a few years. According to this theory, the introduction of GDP+
could be a good solution for the assessment of Great Britains natural assets, the financial
situation and the societys wealth and satisfaction level. The enterprises should measure the
impacts of their CO2 emission and water consumption on the environment, which data
could be an important database for the governments. By knowing these data the quality of
natural waters, the forests and the green areas which are key factors of the societys wellbeing and economic activities, e.g. tourism could be better protected.
(http://www.greenfo.hu/hirek/2012/02/13/altalanos-jolet-es-zoldkonyveles)

The concept of total economic value

The initial point of the evaluation of the economic value of natural resources is the
relationship between the evaluator (the individuals or group of people) and the evaluated
goods. It is quite important to give the reason of that why is the given natural resource is
important for the people. The aggregated values of the natural resources may be considered
142

as total economic value (TEV). The total economic value includes several components, in
which the two main groups are utilization and non-use values. The total economic value,
therefore, equals with the sum of the use value and the non-use value.
Use values are those components, which are related to the actual use of the elements
of the environment (direct or indirect, present or future use). A third component is the socalled option value, which refers to the value that is placed on private willingness to pay
for maintaining or preserving a public asset or service even if there is little or no likelihood
of the individual actually ever using it. Another part is the quasi option value, which is a
term used to describe the welfare gain associated with delaying a decision when there is
uncertainty about the payoffs of alternative choices, and when at least one of the choices
involves an irreversible commitment of resources. (Pearce-Turner, 1990) The quasi option
value can be considered as a link towards the non-use values, because in some cases the
primary goal of the preservation of the resources is not their future use.
According to the other classification method, two groups may be differentiated; the
first is when the environmental and natural goods are evaluated according to the demand
curve, and the other, when demand curve cannot be connected to these goods. In case of
methods estimating the demand curve, the personal preferences shall be used as the starting
point of the evaluation, i.e. how much money are the people willing to pay for these goods,
or for the changes in the conditions of the given goods. In those methods, where the base of
the evaluation is not the demand curve, those costs should be estimated and quantified, by
which the negative impacts may be avoided or reduced. (Turner - Pearce - Bateman, 1994)
According to Mitchell and Carson (1989), the methods may also be classified in other
aspects:
1. Are the evaluation methods based on real answers and behaviour of the individuals, or
on answers on hypothetic questions and situations?
2. The methods may be differentiated into two groups: in the first group, there are
monetary valuating methods which consider directly the peoples willingness to pay, in
the second are those methods which calculate the value indirectly. By the second
technique, the evaluation is made indirectly, on based on the experiences of former
certain events and examples where the change of the environmental conditions
influences the behaviour of the market participants, their consuming habits and
decisions, the market prices.

Munasinghe (1993) suggested the use of the following evaluation methods:

The method of lost income is based on the health effects caused by the environmental
pollution and degradation. The value of environmental pollution is determined by the
loss of income, which is derived from the health problems, or early death of the
population (the costs of therapies and the prevention should also be considered).
Replacement costs: the costs of replacement or the substitution of any natural resources
in case of their degradation or need for their reconstruction which may be used as the
value of natural resources.
Substitution goods: if a natural good has no market, and does not have any price, we can
use its substitute products value in the evaluation process of natural resources.
Shadow projects method: This approach may be used when certain officially
implemented sustainability limitations are given providing for substitute environmental
services to compensate for environmental assets lost under the ongoing investment.
143

 Defensive costs: In many cases, defensive expenditures should be paid to avoid or

reduce unwanted environmental effects. In this approach, we assume that these costs are
the minimum benefits of reducing or avoiding the harmful impacts, ant the value of the
benefits will exceed the costs of prevention.
Change in productivity: Those environmental impacts may be evaluated in economic
aspects more easily, which have direct impacts on the production costs or the quality
and the quantity of the products.

Evaluation methods using the demand curve

Methods based on revealed preferences (RP)
Travel cost method: this method is used to estimate economic use values of a given
area (recreation site) by the travel cost expenses (train or bus ticket, petrol price, etc.) that
people incur to visit the recreation site. According to the estimated demand curve the
consumers value of the site (or the changes of its environment) may be estimated.
(Garrod-Willis, 1999)
Hedonic pricing method: This method is used to estimate economic values for
ecosystem or environmental services that directly affect market prices. It is most
commonly applied to variations in housing prices that reflect the value of local
environmental attributes. In this case, the economic benefits and costs of the changes in
environmental quality may be quantified by the changes of the value of properties. This
method needs numerous data, and may be used successfully in such areas, where the
housing market is vibrant. (Hanley-Spash, 1993)
Wage differentials: this method assumes that wages include such components, which
affect the environmental quality and the hazards of the working places. (Munashinge,
1993)
Preventive expenditures: This method evaluate the non-market goods through that
amount of money which the people are willing to pay for different goods in order to avoid
the negative environmental impacts, by which they may increase their well-being resulted
by the more favourable environmental conditions. When the environmental conditions
improve, people will not spend money for certain goods (for example bottled drinking
water). By this method, the value of environmental benefits may be calculated by the
reduction of peoples expenditures. (Garrod-Willis, 1999)
Artificial market: These markets are constructed for experimental purposes, to
determine consumer willingness to pay for a good or service, which may reflect the
peoples need for a given environmental quality level.
Methods based on stated preferences (SP)
The common feature of the methods of stated preferences is that it requires
individuals to state their preferences for environmental qualities and to make a rank of their
preferences. (Boxall et al., 1996) In general, this valuation technique is made under
hypothetic circumstances and events.
Contingent ranking method: in this method, the different quality levels of the
concerned environmental goods and the different factors of ranking are given. The value of
environmental goods (and the changes in their quality) are calculated according to the
ranks. The disadvantage of this technique is that the values of willingness to pay (WTP) are
influenced by the ranking process and the indirect utility function.
144

Contingent choice method: this method asks the respondent to state a preference
between one group of environmental services or characteristics, at a given price or cost to
the individual, and another group of environmental characteristics at a different price or
cost. Individuals will choose that hypothetic situation, which is the first among their
preferences. The multiple choices will represent the individuals willingness to change
between the possible options.
Contingent valuation method: One of the stated preferences methods is the surveybased contingent valuation method (CVM). In the survey, a hypothetic market is
determined, where the given goods are sold. The respondents shall answer about their
willingness to pay (WTP) or willingness to accept (WTA) preferences in accordance with
the quantity or quality changes of the referred good. CVM assumes that the sum of the
WTP can be used for determining the preferences of the surveyed persons. The method is
widely used in environmental valuation process, which is suitable for the calculation of the
total economic value of non-market goods. The improvement of the quality of air in
Hungary is examined by the survey based contingent valuation method. (Marjain
Szernyi, 2001)
Table 9: Methods of monetary valuation
Evaluation methods using the demand curve
stated preferences
direct
indirect
contingent
choice
contingent
valuation
contingent
ranking

revealed preferences
direct
indirect
travel cost method

Evaluation methods without using the demand

curve
impact-response
lost income
replacement cost

direct market
prices

substitution product

hedonic pricing
method
artificial
wages differentials
market
preventive
expenditures

Hicksian demand function

shadow project
defensive costs
changes in productivity

Marshallian demand function

Demand function cannot be formulated

Welfare
functions

Consumers
benefits
Real welfare value cannot be determined
Information for the decision makers

Source: based on Munasinghe (1993), Mitchell-Carson (1989),

and Turner-Pearce-Bateman (1994)

Contingent valuation
The contingent valuation method is the most widely used method for estimating the
economic value in environmental assessment. It is a survey-based valuation technique, in
which people are asked for the amount of compensation they would be willing to accept to
give up specific environmental services, in this case, for the clear air. Of course, it is also
important how much compensation will they need for the deterioration of the quality of
environment. The price of the good should be determined as if there would be a real market
for it. The results will be more precise when the imaginary and the real market are
approximately similar. The surveyed people should have knowledge about the real
economic situation. Problems may be arisen from that the respondents may show a more
environment friendly behaviour and more willingness to pay during the survey, than in real
situation. Nevertheless, the problems may be solved by using the correct techniques. The
145

method is universal. The reliability of the results shall be assessed and may be accepted
only if they are comply with the results reached by other methods, and the cross analyses
will not show any contradictions between the data. (Kerekes, 2007)

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147

6. THE STRUCTURAL FORMATION OF OPTIMIZATION

PLANNING AND PRODUCTION-PROGRAMMING MODELS
(Production of a marketable copyright product)
va Bede Szke Lszl Szelnyi

Intoduction
Nowadays most agricultural companies farm on a relatively small area that is
between 50-500 hectare. Less plant breeds are grown, and often no animals are kept. Farms
have less machines. The product structure is more simple, and so the production plan. In
these small size farms they do traditional planning. However only those producers can keep
pace in economic competition who can adapt to new challenges, environmental and
conservation aspects. It can only be executed with optimization planning considering
possibilities.
The value of the arable land as an asset is continuously changing according to the
mode of land usage. Thus the long-term planning of production structure and preparing of
optimization versions is important for the top management of a company.
Within the framework is this research topic we prepare a kind of model which can
come useful for smaller agricultural companies. In a previous research (BIOENKRF 5.2)
we were already dealing with linear programming, however on that occasion we made
energetic-purpose optimization.
During our research we had two aims. First to compile a model for farmers which
assists in decision making concerning production structure, second to give such a
methodological solution using the up-to-date informatics possibilities which gives a
background that can be adjusted to any kind of farm sizes.
Our first research aim is to compose an easily reviewable, flexible LP model. The
model is a case study made for a standard farm, sample technology but it can be adapted to
any other farms as well. Possible plants, resource-limits and market potentials can vary
from farm to farm. The situation is the same concerning yield. Prices always vary and this
change can be handled according to the logic of the system.
Our second aim is to prepare the copyright version of the model on a CD format.
The basic model can be found on this CD which contains a database containing plants
considerable concerning energy biomass production with technology parameters, proposed
condition system and target functions which can be adjusted to parameters of the given
farm. Filled with the given farms data the plan-versions can be prepared fast and easy. The
system can be operated with a version simplified by ourselves of WINQSB software used
also at Operation research subject.

6.1. Materials and methods

6.1.1. Databases used for the studies
During the collection of data we followed two principles. First, with collection and
systematization of data of a chosen sample farm we built such a database which is suitable
for examination and optimization of the farms structure according to determined target
functions or rather establishing a theoretical database with which it is possible to analyze
the production structure of any kind of agricultural company.
148

For the preparation of the input table we need to take the resources and capacities into
account, the technical-technological data of producible plants and then to determine the
mathematical condition-system and target functions. For description of the parameters the
data were used from bibliography and internet pages and information received from
company experts working in production.
A family farm provided us data from the last few years about plants produced on 380
hectares of land, the quantity of used physical work, machine work per month, type and
procedure and the quantity of used fertilizers and plant protection costs per plant-types. In
case of potentially producible plants present in the model we worked with data from the
Research Institute of Agricultural Economics and the Agricultural Machinery Institute, and
also used the data from the 2005 coursebook Plantproduction I.-II. of Jzsef Antal. The
averaged data per hectare were built into the model.
The yield averages were calculated from a 20 year long period. Regarding income
average prices and costs of year 2012 were considered.

6.1.2. The applied data-analyzing methods

The methodological pith of our research was the suitable and adjustable adaptation of
linear programming problem perfectly appropriate for analyzing production structure. The
general description of the used model can be found inter alia in books of Krek (1966),
Felleg-Ugrsdy (1998).
In the linear programming model the condition-system and the target-function
contain only primal relations.
We executed the optimization of the biomass model by the help of WINQSB
computer program which is made for Windows operation system and can be freely
downloaded from the Internet.
The optimal production structure can be determined as the primal solution of the
linear programming problem.
On the basis of the dual solution the shadow prices can be evaluated which can be
used for the sensibility test of the linear programming problem. Knowing the shadow
prices the exhausted resources can be evaluated, namely we can study how much we can
change the components of the b capacity-vector in order the optimal solution not to
change.
The aim of the production programming problem is to reach the maximum profit.
During sensibility test the subject of examination is the maximum degree of price beside
which the present production program stays optimal, in other words what is the maximum
degree with which we can change the co-efficients of the target-function for the optimal
solution to remain unaltered.

6.2. Results
Model-calculations underlying company plans have three major stages.
a) Definition of the input system, which means the determination of the technicaltechnological matrix, the capacity-vector and target-coefficients.
b) Execution of actual model-calculations. After fill-up of the developed linear
programming problem and determination of target-coefficients the solution can be
calculated by the help of the computer, the optimal production structure can be
determined.
149

c) Evaluation of calculation results, balancing of different alternatives, professional

controlling and judgement of information referring to the direction of improvement,
series of common consultations of experts making planning and doing business. In case
of development demands of new alternatives, new thoughts born during the evaluation
the input-pages may be modified and calculation can be repeated.

6.2.1. The production model

Optimization of the production model production is based on linear programming and
it allows us to determine the optimal crop structure for a chosen agricultural area, in case of
different target-functions.

Plants
potentially
coming into
question

Different
capacity levels

Parametric
model-versions

on the basis of average yield

according to optimistic estimation
according to pessimistic estimation

Boundaries of
production
resources

Sensibility test
results

Variables

Optimal solutions
maximum profit

The structural logic of the model is shown on Figure 1.

Figure 1: The structural logic of the model

Source: Szcs I. et al. (2009)

Variables of the model

Selection of plants coming into question concerning production happened with
leaving the possibility of generalization open. We worked out hypothetic production
parameters for possible producible plants which were built into the model. The variables of
the model are summarized in Table 1.
150

Table 1: Variables of the model

Denomination

Variable

Unit

Wheat

x1

ha

Corn

x2

ha

Oat

x3

ha

Rye

x4

ha

Barley

x5

ha

Potato

x6

ha

Rape

x7

ha

Sunflower

x8

ha

Source: own compilation

Condition system of the model

In order to prepare the input table of the model we need to take the resources and
capacities and the technical-technological data of producible plants into account and then
determine the mathematical condition-system.

Framing of balance conditions:

1. Determining the non-negativity conditions.
2. Composing the balance conditions of land area usage. Variables mean the sowing area
of the certain plants. (The land area is mostly qualitatively divided, the area of a
company is generally composed by many types of soil thus it can be necessary to build
the divided balance conditions into the model according to different soil-types. The
simplified model is not specified for this.)
3. According to viewpoints of crop rotation we must determine the maximum sowing area
of the certain plants with introduction of unique barriers.
We only note down the labour force and machine capacity for the rush-season because
in all other seasons they are not determinative considering production structure. In this
way we can significantly decrease the number of balance conditions or rather the size
of the model without influencing the solution. Simplification deviating from reality
came because of better transparency.
According to technology the following rows can be inserted into the model:
4. Labour force need (hour/ha) in the 8th, 9th and 10th months.
5. Prime mover need (hour/ha) in the 1st, 2nd and 3rd seasons.
6. 2nd-type machine need (hour/ha) in the 1st, 2nd and 3rd seasons.
7. 3rd-type machine need (hour/ha) in the 1st, 2nd and 3rd seasons.
8. The necessary fertilizer quantity (kg/ha) nitrogen, phosphorus and potassium agents.
151

We prepared the input table according to the balance conditions (Table 2).
Table 2: Input table
Denomination
Area (ha)
Cornsmax66%
Rapemax25%
Sunflmax25%
labour07 (h/ha)
labour09 (h/ha)
labour10 (h/ha)
prmover-1
(h/ha)
prmover-2
(h/ha)
prmover-3
(h/ha)
2-mach-1 (h/ha)
2-mach-2 (h/ha)
2-mach-3 (h/ha)
3-mach-1 (h/ha)
3-mach-2 (h/ha)
3-mach-3 (h/ha)
N agent (kg/ha)
P agent (kg/ha)
K agent (kg/ha)

x1

x2

x3

x4

x5

x6

x7

x8

Wheat

Corn

Rye

Rye

Barley

Potato

Rape

Sunflower

1
1

1
1

b
relation

capacity

2
1
1

2
2
5

4
1
2

3
0,5
2

1
0,5
1,5

4
4
4

2
1
1

2
1
1

1,5

500

0,9

500

1
1

1
1

1
1

0,5

380
251
95
95
600
500
420

0,8

500

1
1
1
2
0
0
121
50
81

0
0,9
2
0
0
2
121
50
81

1
0,9
0,8
1,5
0
0
70
30
73

2
1
1
3
0
0
53
25
55

1,5
1
2
3
0
0
70
32
62

1
1
1
0
2
4
125
50
225

1
0
1
1
0
3
126
80
100

1
2
1
0
1
3
100
75
175

500
500
500
400
400
400
35 000
20 000
35 000

Source: Own compilation on the basis of data of the sample farm and literature sources

Target-functions of the model

Generally the aim of production is the achievable maximum profit. For determining
the co-efficients of the target-functions we used data of HHCSO from the last 20 years
regarding average yields, and data from www.farmit.hu and www.agrarkamara.hu
regarding takeover prices and production costs.
Within the framework of this research topic we were also dealing with the
mathematical estimation of the effect of the climate change (Klra Tthn Lks - Lszl
Lks Jr.: Examination of climate-sensibility of domestic wheat croplands on county
level). Taking those results into consideration we established the different variances of the
target-functions. We regard this to be important because according to diffenet prognoses
climate change significantly modifies the structure of Hungarian agriculture.
We determined three target-functions:
1. Achievable maximum profit on the basis of average yield.
2. Achievable maximum profit according to optimistic estimation.
3. Achievable maximum profit according to pessimistic estimation.
We assumed average yield in case of the first, high yield in case of the second and low
yield in case of the third target-function.
According to our calculations:
high yield = average harvest + dispersion;
152

low yield = average harvest dispersion.

Data used for determination of target-function co-efficients can be seen in Table 3 and 4.
Table 3: Data used for determination of the first target-function
Variable

Denomination

average
yield

take-over
price
HUF/t
67 271

income

costs

profit

273,1

thousand
HUF/ha
217,7

thousand
HUF/ha
55,4

thousand HUF/ha

x1

Wheat

t/ha
4,06

x2

Corn

5,54

68 250

378,1

304,8

73,3

x3

Oat

2,43

50 323

122,3

81,1

41,2

x4

Rye

2,15

48 224

103,7

60,6

43,1

x5

Barley

3,49

61 500

214,6

166,1

48,5

x6

Potato

18,7

67 000

1252,9

1175,5

77,4

x7

Rape

1,87

135 468

253,3

188,8

64,5

x8

Sunflower

1,93

142 820

275,6

203,3

72,3

Source: Own calculation based on bibliography sources

Table 4: Data used for determination of the second and third target-functions
According to optimistic
estimation
average
profit
yield
thousand
t/ha
HUF/ha
4,74
100,9

Based on timeline

According to pessimistic
estimation
average
profit
yield
thousand
t/ha
HUF/ha
3,39
9,9

average
yield

scattering

profit

x1 Wheat

t/ha
4,06

t/ha
0,68

thousand
HUF/ha
55,4

x2 Corn

5,54

1,37

73,3

6,91

167,2

4,16

-20,6

x3 Oat

2,43

0,43

41,2

2,86

63,1

1,99

19,3

x4 Rye

2,15

0,34

43,1

2,49

59,3

1,82

27

x5 Barley

3,49

0,59

48,5

4,08

74,9

2,9

2,2

x6 Potato

18,7

3,47

77,4

22,17

210,3

15,21

-155.6

x7 Rape

1,87

0,45

64,5

2,32

105,2

1,42

3,8

x8 Sunflower

1,93

0,35

72,3

2,28

102,1

1,58

22,6

Denomination

Source: Own calculation based on bibliography sources

Table 5: Summarizing table of target-functions

Target-function
Average profit
(thousand
HUF/ha)
Profit according
to optimistic
estimation
Profit according
to pessimistic
estimation

x1

x2

x3

x4

x5

x6

x7

x8

Wheat

Corn

Oat

Rye

Barley

Potato

Rape

Sunflower

Target

55,4

73,3

41,2

43,1

48,5

77,4

64,5

72,3

max

100,9

167,2

63,1

59,3

74,9

210,3

105,2

102,1

max

9,9

-20,6

19,3

27,0

2,2

-155,6

3,8

22,6

max

Source: Own compilation on the basis of data of the sample farm and literature sources

153

6.2.2. Evaluation of model-calculation solutions

After computer input of the formerly circumscribed basic data, upload of input tablesystem of the linear programming problem and determination of the target co-efficients the
solution of the problem can be calculated by the help of the computer and the optimal
production structure can be determined.

Calculation solutions of the basic model

When the target is the achievable maximum profit in case of average yield, the
optimal production structure:
Wheat
Corn
Barley
Rape
Sunflower

154,7 ha
7,4 ha
19,1 ha
33,5 ha
95 ha

Achievable maximum profit: 19 057 330 HUF

When the target is the achievable maximum profit in case of yield according to optimistic
estimation, the optimal production structure:
Wheat
Corn
Barley
Potato
Rape
Sunflower

140,5 ha
18,5 ha
28,3 ha
8,8 ha
34,2 ha
75 ha

Achievable maximum profit: 32 501 090 HUF

When the target is the achievable maximum profit in case of yield according to pessimistic
estimation, the optimal production structure:
Oat
Rye
Sunflower
Achievable maximum profit:

4 ha
131,3 ha
95 ha
5 766 073 HUF

The received solution must be analyzed in details. Knowing the shadow prices and
the reduced costs the program can be modified. The upcoming problems can be solved by
increasing the size of the model, giving more details, describing relations, increasing
capacity, inducing new activities, introducing new limits. New thoughts, new alternatives
emerging during evaluation input pages may be modified and calculations may be
repeated.

Sensibility and efficiency tests

We executed sensibility tests in case of some plants concerning the effect of factor
usage change. Accordingly we studied how the change of input-output prices affect
154

production structure, how the competitive position of some bio-energetic end-products

depend on resource capacity change, how the optimal crop structure and achievable
maximum profit is influenced in case the quantity of area, labour force, chemical fertilizer
and machine capacity increases or decreases. Along of change how the below efficiency
and demand indices shape.
In the course of the sensibility test we can study the maximum price-change by which
the present production program stays optimal namely how much we can change the coefficients of the target function in order the optimal solution remain unchanged and how
the profit alters in case of price change.
From another viewpoint we can analyze the change of capacity vectors because
beyond a certain limit in case we use more from a given resource paucity of the other
resources will affect revenue increase.
Shadow prices help to execute analyses.
Shadow price of resources shows how the value of the target-function would increase
in case of increasing the resource with one unit. This value is the absolute value of the rate
at the segment of the free surplus variable and target-function in an optimal table. It grants
the maximum price on which we can buy accessary quantity from the given resource.
In case of free variables the absolute value of the original price and the reduced cost
is called the shadow price of the products. This value shows the price of the given product
in order to get into the optimal production structure.
The reduced cost in case of a variable not applied into production SHOWS? how the
value of the co-efficient of the variable in the target-function should be corrected in order
to get into the production program. Correction means increase in case of maximum and
decrease in case of minimum problem. The sign of the reduced cost in computer
calculation programs is negative in case of maximum and positive in case of minimum
problems (Z. Tth, 2009).
The optimization of the model for separate target-functions was executed by the help
of the WinQSB program. From the tables given by the computer program the value of
primal- and dual variables and the optimal production structure can be determined without
circumstantial calculations.
The aim at the first target-function was achievement of maximum profit in case of
average yield. The value of the primal variables and the target-function can be read out
from Table 6.
Table 6: Optimal solution presuming average yield in
case of maximalizing achievable profit

Source: own calculations

155

In case the aim is to achieve maximum profit (1st target function) the primal solution
(the optimal production structure) is: wheat 154,7 ha; corn 7,4 ha; barley 19,1 ha; rape 33,5
ha, sunflower 94,95 ha the achievable maximum profit is 19 057 330 HUF.

Table 7: Table of reduced costs in case of the first target-function

Source: own calculation

From Table 7 the reduced costs of each plant can be read out. Oat, rye, potato do not
appear in the basis solution. These so-called free variables have reduced costs.
The sign is negative at the maximum problem because the co-efficient was this much
less in order for the questionable plant to get into the optimal production structure.
This way it can be determined within which limits each co-efficient can change
without modifying the optimal production structure. The admissible minimum and
maximum give the limit of the suitable target function coefficient change within which the
optimal solution of the problem does not change (of course the value of the target function
does).

The sensibility of the optimal production structure for the

target-function co-efficients
Examining the data in Table 7 for example in case of oat the reduced cost means
that the oat can only get into the optimal solution if it can reach 20,26 thousand HUF more
profit which is 61,64 thousand HUF profit per hectare. If the achievable profit per hectare
is less than this, the program does not choose it into the basis. In case of oat the optimal
production structure and of course the value of the target-function is the same calculating
from 0 to 61,64 thousand HUF co-efficient.

Sensibility of the optimal production structure for the components

of the capacity vector
From the dual solution table (Table 8) we can read out how many was used from each
resource, is there any free capacities. Those resources have shadow price which were
totally used in the optimal production structure. These only worth increase if a unit from
the given resource can be bought for lower price. This way we can increase the value of the
target-function till another resource will be the bottleneck.
156

Table 8: Dual-variables

Source: own calculation

Table 9: Sensibility of the optimal production structure for the components

of the capacity vector

Source: own calculation

157

From Table 9 it can be determined that within which limits the quantity of the
resources having shadow price can change one by one without significantly modifying the
optimal production structure.
Thus the shadow price shows the solution of the dual problem. The admissible
minimum and maximum gives those limits of the right hand-side changes of the correct
condition within which the basis belonging to the optimal solution of the problem does not
change (of course the basis variables do).
In Table 8 and 9 we can find shadow price at seasons 1 and 3 of machine nr. 3 in
July, and in case of nitrogen and potassium.
In case we would increase the quantity of labour force in July, profit would increase
with 7,3 thousand HUF. Taking the admissible minimum and maximum values into
consideration we can see that the optimal solution would remain unchanged within 580,19
and 600,06 work-hours. Thus in case we would have one hour more work-hour the solution
would change another plant would get into the optimal structure.
In case we increase the capacity of the 3rd machine (harvester) in season 1 with one
unit (one work-hour) the profit would increase with 7,69 thousand HUF, in case of season
3 it would increase with 4,07 thousand HUF. The optimal production structure does not
change significantly between 474,37 and 496,61 work-hour capacity.
We would get more profit in case the quantity of nitrogen and potassium fertilizer
would be also increased.

6.3. The generalized copyright version of the model

During our research for possible sale we prepared the copyright version of the
model in CD format. The basic model can be found on the CD which is practically a
database about plants coming into question concerning energy-purpose biomass
production, with general basic technical parameters, recommended condition system,
recommended target functions which can be adjusted to the parameters of a given
company.
The system can be operated with WINQSB software (simplified by ourselves) used in
Operational Research subject. For usage the knowledge of basic principles of Windowsbased computer programs is sufficient. Learning this is simple, the sufficient fundamentals
can be easily acquired for unaccustomed users in computer science.
We reckon that usage of the CD can significantly help efficiency of planning.
Uploading data of the given company plan-versions can be made fast and easy.
The model prepared for optimization of production can be suitable for farmers to
make such economic analyses within their own scopes on company level which can
evaluate technologies applied among the given ecologic facilities, specific expenditures
and achievable market prices in the framework of a single model on a complex way.
Application of the model can be also of great importance for agricultural
entrepreneurs because it forces them to cast an account, to check the applied technology (in
relation to ecologic facilities), specific expenditures, demand indices, achievable market
prices, etc., thus it inspires and forces them for innovative thinking.

Concrete utilization suggestion

The calculation method is available in Copyright format. The generally usable LP model is
available and orderable on hard disc. The expert of running the program is Ms. Eva Bede
Szoke associate professor.
158

Conditions of the application:

the executable problem must be clearly defined,
data collection, data systematization (filling up put-up input tables, check-up of
data, field study),
Fill-up of the model with data of the company, running the basic version,
Evaluation of the result with the management, running of further versions
according to demands, execution of sensibility tests,
comparison of actual results and results suggested by the program,
improvement of programs for the next year.

Summary
We made an LP model for optimizing production on company level, which gives an
opportunity for agricultural companies to make simple but simulation operated model
calculations.
The Producing Model is based on linear programming and it allows us to determine
the optimal sowing-structure for a chosen agricultural area in case of different targetfunctions. Optimization for different target-functions was needed because of the economic
environment, mainly the change of regulatory system, which makes the biggest profit
among given conditions.
The first step of optimizing the production structure is the definition of the inputsystem, composition of the input table-system underlying the fill-up of the model. First of
all, we have to prepare the flowchart of the production of the considerable plants and
obtain the necessary data (soil-, precipitation-, heat-, fertilizer-, machine and human labour
needs, etc. based on a given production technology).
Seasons are of great importance in agriculture and the needs for production resources
shows big fluctuation. That is why the number of balances and so the conditions built into
the model is multiplying which can significantly enlarge the model and so there can be
more faults. It is practical to aggregate concerning balance-conditions until the solution is
not influenced or we should only take really important coherences into account and build
the balance-conditions into the model in periodic divisions. Data used for determination of
the target-functions were collected from production and studying or indices were
calculated by us.
After filling the input table of the linear programming exercise and determining the
target-function coefficients the solution of the exercise can be calculated by the computer
and the optimal production structure can be determined.
With reference to the modelfarm, after solving the optimization exercise the
following profitmass can be prognosticated: if the reachable profit is considered 100% in
case of average yield, a 70% higher profit can be obtained according to optimistic
estimation. If the target-function co-efficients are determined on the basis of pessimistic
estimation, the accessible profit hardly reaches 30% of the expected profit in case of
average yield.
The model is perfectly suitable for making sensibility tests. Accordingly we studied
how the change of input-output prices affect the production structure, how the optimal
sowing-structure and the available maximum profit are affected if the quantity of land,
labour, fertilizer and machine capacity is increasing or decreasing.
We prepared the copyright version of the model on a CD format. With
generalizing the model, the users can modify the variables and the condition-system
according to their own features so the model can be widely used.
159

References
1. Felleg L. - Ugrsdy Gy. (1989): Matematikai programozs I. ktet, egyetemi jegyzet,
Gdll. 115 p.
2. Krek B. (1966): Lineris programozs, Kzgazdasgi s jogi knyvkiad, Budapest,
558 p.
3. Szcs I. et al. (2009): A bioreaktor zemeltetsnek komplex konmiai vizsglata, a
rendszerfelttelek (hatrpontok) meghatrozsa, a be- s kimeneti jellemzkkel val
sszefggsei s reverzibilitsa. A BIOENKRF-5.2 sz. kutatsi jelentse. Gdll.
40 p.
4. Tth Z. (2009): Lineris algebra s lineris programozs. Fiskolai jegyzet.
Kommunikcis s zleti Fiskola, Budapest, 135 p.
5. www. agrarkamara.hu
6. www. farmit.hu
7. www.ksh.hu
8. ftp://ftp.wiley.com/public/college/techsupport/winqsb.exe

160

7. ANALYSIS OF CLIMATE SENSITIVITY OF PRODUCTION

AREAS ON COUNTY-LEVEL
Klra Tth Lks Lszl Lks jr.
Introduction
Significant changes and fluctuations in weather conditions require an increased focus
of attention on the volatility of climate regarding the agricultural production. It includes the
analysis of the adaptability of varieties and the determination of crop lands providing
higher safety of production. The safety of crop production high yields in a changing
environment is a result of many other factors.
It depends on the genotype, the environment and the genotype environment
interaction as well as on the growing area, which includes the land, the cultivation methods
and the microclimate of the land.
In the following, we examine the utilized arable lands at county level and introduce
an alternative method to identify the climatically sensitive areas. This method is a complex
analysis of the factors affecting yield.
Data is sourced from HCSOs (Hungarian Central Statistical Office) county series
average yield tables for 12 years (2000-2011). Wheat was chosen as the first test plant, but
then analyses were performed for corn yield data as well. This made it possible to compare
the information content of the method for different test plants.
This method allows us to evaluate and rank order the stability of the production areas,
in our case on a county level, regarding the different test plants included in the study. The
effect of the climate sensitivity of the land on yield stability of a given crop is now
examined by its responses given to the climatic changes of the tested plant. This also shows
the exposure of the risk linked to the yield of the lands.
By choosing the right varieties and agro-processing technologies, mapping of the
climatic sensitivity of the growing areas can help increase crop safety as well as develop
more efficient production processes against the adverse impact of climate change.
The presented method analyses and describes the climate sensitivity of growing areas
which represent complex environmental effects. It musters many factors such as soil,
climate, type of composition, and the effects of the use of agricultural techniques (tillage,
fertilization, pest control). Joint effects of these factors are examined when determining the
stability of agricultural lands.
Assuming that the most suitable variety is grown on a given area and the most
appropriate production technology is used, first of all the stability will be analized by its
reaction to year effect which has the most significant impact on yields. This analysis
determines the vintage (directly uncontrollable by human intervention) on average yields.
Our aim is to characterize and categorize the growing areas (as natural and
production resource) on a county level based on time-series yield data. It will also support
the identification of lands being sensitive to climate change.

7.1. Materials, method

The data sources for the analysis were the wheat average yield tables of 19 counties
(and Budapest as the twentieth observed unit) publicly available at KSH. The effect of
161

climatic changes was examined for the period between 2000 and 2011. The initial datamatrix enabled us to demonstarte both the effects of the counties (land-line data) and the
year effect (time series data). Furthermore, graphical analysis can be executed to illustrate
their interaction. For data analysis, along with descriptive statistical methods, single-factor
analysis (for comparison of the average data of the years and regions) and regression
analysis (to measure the ability of adapting) were used. With the regression analysis, the
linear relationship between the averages of the individual counties (dependent variable)
and the combined average of the counties (independent variable) were examined. It showed
the connection between the average yield of wheat of the individual counties and the
combined average yield year by year.
The same principle used for valuation of the adoptability capacity of plants was used
to determine the stability of production of the counties (Eberhart and Russel, 1966).
According to that a given variety can be considered to be stable if the regression coefficient
is less than one (b < 1), stability is average if it is one (b = 1), and unstable if the value is
greater than one (b > 1). The counties were characterized by several stability parameters (s,
CV%, b, r2) which formed the basis of the cluster analysis of the counties. Standard
deviation (s) was derived from the time-series data of each countys annual average yield
of wheat. The coefficient of variation (CV%) is the coefficient of variation of the countys
annual average yield of wheat, that is the standard deviation in terms of the percentage of
the countys average. The linear regression coefficient (b) is the regression coefficient of
the function describing the connection between a countys annual average and combined
annual average of the counties. This figure shows that if the value of combined average (x)
increases by 1kg per hectare then how many kg average yield increase is expected for the
given county. The correlation coefficient (r) indicates the closeness of the linear
relationship between a given countys average and the combined average. The coefficient
of determination (r2) describes that at what extent the change in combined average explains
the yearly fluctuation of average yield of a given county.
The groups of counties formed based on the dendogram of the cluster analysis were
compared to each other by box plot and their locations were illustrated on a map. For
calculation and illustration Excel and Minitab were used.

7.2. Results
Wheat average yields by county
Figure 1 shows the wheat average yields by counties for the studied period. Line
charts show a volatile but moderate yield growth. It also presents that year effect has
outstanding impact on yield and beside that the impact of the region is significant, too. In
addition, interaction can be observed between year and region, as indicated by the different
order of the counties annual wheat yields in each year. It was also observed and illustrated
by the length of the arrows in Figure 1 that in certain years the regional effects are more
significant than in other years.
In case of the unfavorable years (2002, 2003) of wheat yields, counties show larger
coefficient of variation than in favorable years (2004, 2008), as preseneted in Figure 2.
This suggests that the buffering effect of lands is more significant in unfavourable year.

162

Figure 1: Evolution of the county average wheat yield (kg/ha) from 2000 to 2011
Notation: 1) Bp - Budapest, (2) Pe - Pest, (3) Fe - Fejr, (4) KE - Komrom-Esztergom, (5) Ve Veszprm, (6) Gy - Gyr-Moson-Sopron, (7) Va - Vas, (8) Za - Zala, (9) Ba - Baranya, (10) So Somogy, (11) To - Tolna, (12) BA - Borsod-Abaj-Zempln, (13) He - Heves, (14) No - Nogrd,
(15) HB - Hajd-Bihar, (16) JN - Jsz-Nagykun-Szolnok, (17) Sz - Szabolcs-Szatmr-Bereg, (18)
BK - Bcs-Kiskun, (19) Be - Bks, (20) Cs - Csongrd
Source: own calculation based on data from Hungarian Central Statistical Office

Figure 2: Coefficient of variation (CV%) values for the county average yields of the
period of 2000 to 2011 per year
Source: own calculation based on data from Hungarian Central Statistical Office

7.2.1. Examiningthe year effects by analysis of variance

When the effect of year is examined, the yearly average yields are compared on a
county level. The descriptive statistical summary of the database is represented in Table 1.
The summary also supports our aforementioned statement; i.e., in favourable years
the coefficient of variation of averages of crop lands is less (9.4% and 9.2% in 2004 and
2008), than in unfavourable years when values are considerably higher (23.4% and 24.4%
in 2002 and 2003). A close negative linear relationship can be found (r = -0.86) between
163

yield and relative standard deviation. The volumes of average yields per county per year do
not depend on favourable or unfavourable year. Both years of favourable 2004 and
unfavourable 2003 had an average yield of approximately 2000 kg/ha. The biggest range
(2910 kg/ha) in average yields per county was observed in the unfavourable year of 2002.
Meanwhile, 2005 is considered as a favourable year shows the smallest range (1300
kg/ha). (Figures 1 and 3)

Figure 3: Range of wheat average yields of the period of

2000 to 2011 per year (kg/ha)
Source: own calculation based on data from Hungarian Central Statistical Office

Table 1: Descriptive statistic characteristics of the wheat yields of the

examined years based on county-series data (19 counties and Budapest)
years
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

mean
(kg/ha)
3.557
4.258
3.541
2.579
4.949
4.488
4.098
3.565
4.933
3.856
3.724
4.192

s (kg/ha)
581.1
468.5
827.1
630.3
466.5
350.5
587.3
485.0
452.2
666.0
498.9
467.1

CV
(%)
16.3
11.0
23.4
24.4
9.4
7.8
14.3
13.6
9.2
17.3
13.4
11.1

Minimum
(kg/ha)
2.540
3.460
2.240
1.600
4.150
4.020
2.900
2.780
4.370
2.660
2.810
3.500

Maximum
(kg/ha)
4.520
5.200
5.150
3.620
6.190
5 320
5 100
4 390
5 980
5 090
4 600
4 970

Range
(kg/ha)
1 980
1 740
2 910
2 020
2 040
1 300
2 200
1 610
1 610
2 430
1 790
1 470

Source: own calculation based on data from Hungarian Central Statistical Office

The table above highlights the importance of varieties with better capacity of
adoptability to extreme weather that provides high yields in different years.
Analysis of variance based on county-series data was used to investigate the variance
in annual yields. Years were used as treatments and counties as replications. (Table 2)
164

Table 2: Result of analysis of variance for study of year effect

Source of variance
SS
Df
MS
F
Among groups (Factor)
96 585 228
11
8 780 475
29
Within groups (Error)
69 810 690
228
306 187
Total
166 395 918
239
Source: authors calculations based on data from Hungarian Central Statistical Office

Based on the table above, 58% (H2 = SSF/SST = 0,58) of the fluctuation in county-level
wheat yields can be explained by year effect, meaning that the climatic factors have
important roles.
Years ranked by wheat yields can be grouped into five well-separated groups, which
show significant differences in terms of average wheat production.
Group 1: 2003
Group 2: 2002, 2000, 2007, 2010, 2009
Group 3: 2006, 2011, 2001
Group 4: 2005
Group 5: 2008, 2004

The highest yields are found in group 5 (2008 and 2004), which can be considered as
optimal for wheat production, while the lowest yield provided by group 1 (2003) as a dry
and drought year.
Within the single groups the yields for the different years do not show significant
variances. However, significantly different yields are recorded for the years in different
groups. Exceptions are the two extreme members of group 3 (2006 and 2001). They do not
show significant differences from their direct neighbours (2009 and 2005) in the ranking,
even though the neighbours belong to different groups. The least significant difference in
yields among the years is between 345 kg/ha ( = 5%) and 289 kg/ha ( = 10%).

7.2.2. Investigating the effect of the counties by analysis of variance

During the analysis of variance, the average yields of the counties for the period of 2000 to
2011 were examined. (Table 3)
Table 3: Result of the analysis of variance for testing effects of the regions
Source of variance
Among groups (Factor)
Within groups (Error)
Total

SS
46 723 052
119 672 867
166 395 918

df
19
220
239

MS
2 459 108
543 968

F
4.52

Source: own calculationbased on data from Hungarian Central Statistical Office

The result of the variance analysis supports the statement that the region (H2 = 28%) has
less effect on yields than years (H2 = 58%).
That is why regions do not show as separated groupings as years, since the variance
caused by year in a region is higher than the variance caused by growing areas in a given
year (Figure 4). This explains the fact that the least significant difference value
(LSD=662.7 kg/ha, = 5%) among the counties is almost the double of the one got when
comparing the years.
165

14 16 13 5

17 12 20 7

18 19 6

15 4

10 3

11 9

Figure 4: Groups based on analysis of variance

Legend: the numbers designated to counties are in line with the ones used at Figure 1
(different groups are separated by the dashed lines).
Source: own calculation based on data from Hungarian Central Statistical Office

Yields of counties from the groups sitting around a common line do not show
significant differences, while the ones without common line show significant differences.
Based on the similarity of average yields, four groups were formed (indicated by
dotted lines in Figure 4) and another analysis of variance was carried out to justify the
results.
Group

Counties belong to group

1.

Budapest, Ngrd, Jsz-Nagykun-Szolnok, Heves, Pest, Veszprm

2.

Szabolcs-Szatmr-Bereg, Borsod-Abaj-Zempln, Csongrd,

3.

Vas, Bcs-Kiskun, Bks, Gyr-Moson-Sopron, Hajd-Bihar

4.

Komrom-Esztergom, Zala, Somogy, Fejr, Tolna, Baranya

Group 1 contains the counties with the lowest yields, while counties with the highest yields
are categorized into group 4.
The result of the analysis of variance supports the correctness of the clustering of the
four groups. The averages of the groups show significant differences which can be also
seen by the separation of the intervals of the groups mean values (Table 4).
Table 4: Analysis of variance for the examination of the four groups
Illustration of the confidence intervals of the means

Source: Output of analysis of variance made by Minitab based on data from HCSO

166

7.2.3 Analysis of the yield stability of the regions

In the followings, the counties are characterized by their major parameters of stability
and their reaction to the effect of year (Table 5). Groups of counties derived from the
cluster analysis are described by their average parameters of stability (Table 6) and their
separation is demonstrated by boxplot (Figure 10).
Table 5: Major parameters of stability of the counties for the
period 2000 to 2011

Bp

mean
(kg/ha)
3.337

s(kg/ha)
864

Pe

3.573

Fe

CV%

r2

26

1.28

0.96

903

25

1.30

0.91

4.479

778

17

1.09

0.86

KE

4.220

628

15

0.90

0.90

Ve

3.567

545

15

0.77

0.87

GY

4.126

533

13

0.73

0.82

Va

4.073

576

14

0.64

0.54

Za

4.256

486

11

0.60

0.68

Ba

4.876

603

12

0.78

0.75

So

4.360

512

12

0.70

0.83

To

4.773

713

15

0.92

0.74

BA

3.798

723

19

1.02

0.88

He

3.438

974

28

1.43

0.94

No

3.383

885

26

1.29

0.93

HB

4.136

760

18

1.07

0.87

JN

3.405

944

28

1.34

0.88

Sz

3.713

687

18

0.91

0.78

BK

4.079

722

18

1.02

0.87

Be

4.121

851

21

1.13

0.77

Cs

3.851

770

20

1.07

0.85

Counties

s = standard deviation
CV% = coefficient of variation
b = coefficient of regression
r2 = coefficient of determination
Marking of counties is in line with Figure 1
Source: own calculation based on data from Hungarian Central Statistical Office

Using cluster analysis, the counties are grouped by their major standardized parameters of
stability (standard deviation, coefficient of variation, regression coefficient, and coefficient
of determination). (Figure 5)
The four groups of counties created by the dendogram are clearly separated from
each other based on their parameters of production stability. The only exception in the
comparison based on yields, is the first group (Group A) which differs significantly from
the other three groups.
167

Figure 5: Clusters of the counties based on their major stability figures for the
intervals of the period 2000 to 2011
Source: own analysis made by Minitab based on data from HCSO

Group A: (1) Budapest, (2) Pest, (14) Ngrd, (13) Heves, (16) Jsz-Nagykun-Szolnok,
Group B: (3) Fejr, (15) Hajd-Bihar, (12) Borsod-Abaj-Zempln, (18) Bcs-Kiskun,
(20) Csongrd, (4) Komrom-Esztergom (11) Tolna, (17) Szabolcs-SzatmrBereg, (19) Bks,
Group C: (5) Veszprm, (6) Gyr-Moson-Sopron, (10) Somogy, (9) Baranya,
Group D: (7) Vas, (8) Zala.

Figure 6: Wheat yields for counties in group A for the

period 2000 to 2011 (kg/ha)
Source: aown calculation based on data from Hungarian Central Statistical Office

In the first group (group A), low average yields of the counties are associated with
low production stability. This is also indicated by high standard deviation and coefficient
of regression values (Table 5 and 6, Figure 6). The second group (group B) shows higher
yields and moderate stability (Figure 7).
168

Figure 7: Wheat yields for counties in group B for the

period 2000 to 2011 (kg/ha)
Source: own calculation based on data from Hungarian Central Statistical Office

The third group (group C) shows a more heterogeneous picture in terms of yield, which can
be explained by the fact that this group contains Veszprm county which has low yield
value as well as counties like Somogy and Baranya which have high yield values (Table 5
and 6, Figure 8).

Figure 8: Wheat yields for counties in group C for the period 2000 to 2011 (kg/ha)
Source: own calculation based on data from Hungarian Central Statistical Office

The reason for being in the same group for certain counties are explained by their
favourable parameters for stability (b<0,8 and s%<15%). From the wheat production point
of view, counties with stable high yield values are favourable. Finally, group 4 (group D)
contains the counties with high but not outstanding yields (Figure 9).
To this group, on the one hand favourably low coefficients of regression are
associated (0.64 and 0.6), which is the characteristics of absolute stability, and on the other
hand, unfavourably low coefficients of determination (0.54 and 0.68) is associated, which
indicates that in case of these two counties (Vas and Zala), the annual average yields are
significantly differ to the combined average yield of the counties.
169

Figure 9: Wheat yields for counties in group D for the period 2000 to 2011 (kg/ha)
Source: own calculation based on data from Hungarian Central Statistical Office

Based on this, these two counties can be considered as the ones which have buffer effect on
country level. This means that if the countrys wheat yield is high, the yields in these two
counties are low and vice versa.
Table 6: Averages of the stability parameters of the four groups formed by
cluster analysis
Stability parameters
Group A Group B Group C
Mean yield of groups (kg/ha)
3 427
4 130
4 232
Standard deviation of mean yields (s)
914
737
548
Coeff. of variations of mean yields (CV%)
26.6
17.9
13.0
Regression coefficient (b)
1.33
1.02
0.75
Determination coefficient (r2)
0.93
0.84
0.82
Source: own calculation based on data from Hungarian Central Statistical Office

Group D
4 165
531
12.5
0.62
0.61

The separation of the groups based on different parameters of stability is shown by

boxplots in Figure 10.
30

5000

s%

atlag

4500

20

4000

3500
10

stabil

Mean of yield

stabil

Coefficient of variation
1.0

1.5
1.4

0.9

1.3
1.2

0.8

r2

1.1
1.0

0.7

0.9
0.8

0.6

0.7
0.5

0.6
1

stabil

Regression coefficient

stabil

Determination coefficient

Figure 10: Graphic illustration of the stability parameters of the four groups by boxplots
Source: output of analysis made by Minitab based on data from HCSO

170

The grouping of the counties based on yields and stability is summarized in Table 7.
Table 7: Two-aspect grouping of counties (based on wheat yields)
Groups of mean yield

Groups of yield
stability
A (sensitive)

1. weak

3. above the
average

Sz, BA, Cs

BK, Be, HB

KE, Fe, To

Gy

So, Ba

4. favorable

Bp, Pe, No, He, JN

B (relatively stable)
C (stable )

2. below the
average

Ve

D (stable)
Va
Source: own editingbased on data from Hungarian Central Statistical Office

Za

The grouping of counties and their locations based on joint consideration of yields and
stability is illustrated by the cartogram under Figure 11.

Figure 11: Clustering the counties by yields and stability values

Legend on header and sidebar of Table 7
Source: own editing according to own calculations

7.2.4. Conclusions based on the analysis

Weather conditions have significant effect on the value of winter wheat yields.
Despite the extreme weather conditions, which assume an increase in the variance on
average yields, no one-way increase in standard deviation of the counties average yield
was experienced throughout the years. Fluctuation in the standard deviation of the
counties average yields was in line with the 4-5 year cyclic movement of the yield.
Extreme weather condition causes huge fluctuation in yields among the counties; while in
terms of wheat production in a favourable vintage there is smaller relative variance can be
observed.
171

Approximately 22% of the total wheat growing area of Hungary can be considered as a
highly sensitive area against climatic impacts (counties of three regions, namely Ngrd-,
Jsz-Nagykun-Szolnok-, Heves-, Pest county and Budapest), 54% of the whole shows an
average sensitivity (Eastern part of the country and Transdanubia) and 24% (Western part
of Hungary, Western and Southern Transdanubia) is relatively stable. (Figure 11)
With the generated indicators for stability, the presented method to analyze yield
stability and its findings enable us to describe the correlated climate sensitivity of the
counties for a given plant wheat in our case.
In order to prove the applicability of the method an analysis for the climate
sensitivity of the counties, they were utilized with corn yield as well. Here, only the final
result is presented. (Table 8, Figure 12)
Table 8: Two-aspect grouping of counties (based on corn yields)
Groups of mean yield

Groups of yield
stability

1. weak

A (sensitive)

2. below the
average
Pe, BK

3. above the
average

4.
favorable
Fe, To

B (relatively stable)

JN

Ve

Gy, Va, Be

KE, So, Ba

C (stable)

He, No

Sz, BA, Cs

Za

HB

Source: authors creation based on data from Hungarian Central Statistical Office

Figure 12: Counties grouped by maize yields and yield stability

Legend on header and sidebar of Table 8
Source: authors editing according to own calculations

It is clearly shown by the two stability maps (Figure 11 and 12) that different areas are
considered as climate sensitive for wheat and corn production. Year has less effect on
wheat yields in counties Somogy and Baranya, meanwhile for corn production county
Hajd-Bihar provides standard high yields. As for the wheat production, areas more
sensitive for climatic changes give lower yields. Although counties like Fehr and Tolna
are considered as climate sensitive, they provide high average yields.
The above mentioned facts show that an assessment of an area based on its reaction
to climatic changes depends a lot on the crop grown there. A same area can be stable for
one plant and sensitive for another.
172

Mapping of cultivated lands based on the climate sensitivity for different plants helps
to locate the most appropriate area for the production of a given plant. It also helps the
specialization of the areas towards the production of the most eligible plants.
In order to reach higher stability in production in areas with unfavourable stability a
higher emphasis should be put on the good choice of varieties and agro-techniques.
The aim of the presented analysis was to compare the growing lands and climate (as
a natural resource) and to illustrate their effects on yields, thus it can be considered as a
method to examine natural resources.

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173

8. SCARCITY OF NATURAL RESOURCES: TO WHAT EXTENT

DO REAL PRICES REFLECT RESOURCE SCARCITY?
Roland Tth Mria Fekete Farkas
Introduction
There has been long running concern about resource depletion. Some argue this
concern is misplaced, while others consider it to be an urgent problem requiring immediate
action. For many, the oil crisis in 1973 was the event that drew peoples attention to the
seriousness of resource scarcity. Actually, we have always been worried about resource
security. The famous best-seller Limits to Growth (Meadows et al., 1972) also placed
substantial emphasis on this issue, claiming that gold reserves would be exhausted by
1981, silver and mercury by 1985 and zinc by 1990. These predictions proved inaccurate.
Economists, suggest that long term prices, adjusted for inflation (real prices), provide
an effective and useful indicator of resource scarcity, pointed out that these fears were
erroneous, as long term real prices had been falling. In 1980 Julian Simon struck a wager
that the real price of any given material chosen by his challenger would have fallen at least
one year later (Lomborg, 2001). The bet was finally determined ten years later in 1990.
Simon won the wager, as the price of total basket of minerals and also each individual
mineral had decreased. The weight of evidence supports a trend of falling long run mineral
commodity prices (Krautkraemer, 1998). It is generally accepted that this trend is driven by
factors that increase supply relative to demand, such as discovery of new deposits, new
technologies allowing more efficient use of the minerals and increasing availability of
recycled materials.
However, it has been shown that the hypothesis that real long term commodity prices
are falling is dependent on the choice of deflator used (Svedberg and Tilton, 2006). In
earlier work on commodity prices, nominal prices denominated in US dollar are converted
to real prices using the US producer price index and other standard deflators, but the choice
is rarely examined in detail. However, deflators frequently overstate inflation and
understate the change in long run commodity prices. For example, Svedberg and Tilton
(2006) examined the real long run price of copper and found that when no adjustment was
made to the deflator (in this case, the Consumer Price Index (CPI)) a downward trend was
quite apparent, but a reversal in trend occurred when a CPI that was adjusted by subtracting
1% point every year from the annual rise in the CPI was applied. This has important
implications, as not properly adjusted deflators can misinform resource policy about the
real level of scarcity, provided that real prices are reliable indicators of scarcity in fact.
The aim of this paper is to investigate the usefulness of real prices as an indicator of
scarcity in consideration of the accepted upward bias inherent in the CPI, using a case
study of two metals considered to be expensive (platinum and rhodium) and two
considered to be relatively inexpensive (copper and lead).
The paper is structured as follows: Section 2 elaborates on the methodology that was
followed to produce this paper. Section 3 provides a review of the theory behind scarcity
indicators and resource extraction. Section 4 summarizes the reason why the CPI
overestimates inflation. Section 5 briefly presents the importance of the metals selected for
the study. Section 6 gauges the long term trends in the real prices of the chosen
commodities and provides a discussion of the results.
174

8.1. Methodology
The method for this study is divided into two different parts. Stage 1 is research,
while Stage 2 is modelling.
In the field of resource scarcity and inflation bias there are great many articles
published, and these provided insights with regard to scoping this study and gaining a
better understanding of the issues mentioned above. They also played a crucial role in
helping to find the tools to approach the method as well as were useful and reliable to
extract data for this study. Data related to demand and supply, metal prices, reserves and
the price deflator stem, among other, from the United States Geological Survey (USGS),
the US Bureau of Labor Statistics (BLS) and Platinum Today, the worlds leading authority
on platinum group metals, and cover the period 1913-2012.
First, nominal prices were converted to real prices (adjusted for inflation) using the
US CPI. The reason for selecting CPI instead of the more commonly used Producer Price
Index (PPI) is that Svedberg and Tilton (2006) argue that the CPI reflects the real price of
metals studied in reference to a representative basket of consumer goods and services.
Accordingly, the effect of commodity price trends on the welfare of the society is
displayed more accurately. To correct for the upward bias in the CPI the equation
calculated by Cuddington (2009) was used. It is the following:
Pt = CPIt*e-gt
where Pt is the corrected deflator, g is the correction factor (coefficients that adjust prices to
account for inflation bias) and t is the time trend that takes the value of 1 in the first year
and increases by 1 for each succeeding year. Three bias correction factors were considered
(g= 0.005, 0.01, 0.015).
Once the different real prices had been calculated, long term price trends were
determined by an autoregression model (only the trends were used). It was assumed that
the long-run trends in real prices were linear. The equation estimated is the following:
Pt = 0 + 1t1 +t
where Pt is the average US producer price of the selected metal for year t, deflated by the
CPI adjusted by subtracting 0.5% or 1% or 1.5% points (depends on the correction factor
chosen) from the CPI each year. Variable t is the time trend taking the value of 1 and
increasing by 1 each year. The s are the parameters to be estimated and t is the error
term.
The final step involved econometric modelling to determine the existence or
otherwise of correlations between real prices of the selected metals and other recognised
indicators of scarcity. This involved the implementation of linear regression in
STATISTICA to identify the relationship between the independent variable (in this case,
the reserves-to-production ratio) and the dependent variable (in the case, the real prices of
the metals examined).

8.2. Scarcity indicators and resource price changes

8.2.1. Scarcity indicators
Concern with the alleged increasing resource scarcity and the possibility of depletion
of indispensable raw materials, and energy sources, is by no means new. But, a question
lingers: is there any evidence of increasing resource scarcity? There are a number of
175

economic indicators of resource scarcity, such as: physical indicators (quantity of resources
in the ground), the real marginal resource extraction cost, marginal exploration and
discovery costs and real market prices (Perman, 2003).

Physical indicators
A wide range of physical indicators can be used as an indicator of scarcity, including
measures of physical known reserve and reserves-to-production, or reserves-toconsumption ratios. However, natural resources are heterogeneous in quality, and their
locations as well as their available quantities are often uncertain, limiting the usefulness of
these indicators.

Real marginal extraction cost

Barnett and Morse (Perman, 2003) argued that an index of real unit costs (c) could
also be an indicator of resource scarcity:
c = (L + K)/Q
where L is labour, K is capital and Q is output of the extractive industry, and and are
weights to aggregate inputs. They suggested that rising scarcity was proxied by increasing
real unit costs. However, ideally marginal costs should be used, but this is difficult because
of data limitations. A crucial advantage of extraction costs indicators is that they take into
account technological change. If technological advancement relaxes resource constraints
by making a given quantity of resources more productive, then this increase in resource
availability will be reflected by falling costs. However, this measure is also problematic:
first, the measurement of capital is difficult, as the aggregation required to obtain a single
measure of the capital stock is complicated; it is also difficult to obtain valid aggregates of
inputs used; second, this indicator is backward-looking rather than forward-looking, so it
does not indicate future scarcity. Finally, it may well be the case that resources are
becoming more scarce, but because of sufficient technical progress prices are falling.
Accordingly, extraction cost data alone are insufficient to draw inferences concerning
resource scarcity.

Marginal exploration and discovery cost

Although this is an alternative measure of resource scarcity that is not often used, it
deserves a mention. It focuses on the opportunity cost of resource discovery, by locating
as-yet-unknown reserves. Higher discovery costs are assumed to signal increased resource
scarcity. This measure is rarely used, largely because it is difficult to acquire reliable long
run data. Furthermore, similar to the real marginal resource extraction cost, it can also
indicate increasing resource availability even if the case is just the opposite, thanks to rapid
technological advancements.

Real market price indicators and net price indicators

The most commonly used scarcity indicator is real (inflation-adjusted) market price.
Time-series data on market prices are widely available, relatively easy to use and are
forwardlooking (to some extent) unlike real marginal resource extraction costs. However,
price data are an imperfect indicator too. For example, taxes, subsidies, exchange rate
controls and other governmental interventions will distort prices, obscuring market signals.
176

Real price indices are also sensitive to the choice of deflator used. There is disagreement
regarding what index deflator should be used to deflate nominal prices. Despite these
limitations of real prices, Perman (2003) concludes that market price data are broadly the
most appropriate existing measure of resource scarcity.

8.2.2. Resource price changes

When examining movements in the price of different natural resources two
contrasting effects should be noted: the cost-increasing and the cost-reducing effects. The
former is related to resource depletion. As society uses its existing mineral deposits, higher
commodity prices are likely to prevail, as resources are becoming harder to obtain and
require more resources to obtain it. The latter relates to new discoveries increasing the
magnitude of known stocks and technological changes that increase the quantity of
minerals that are economically recoverable. If cost-increasing effects of depletion exceed
the cost-reducing effects of new discoveries and technological changes, real prices should
increase, indicating that resources are becoming more scarce. When the cost-reducing
effects of discoveries and technological changes exceeds the cost-increasing effects of
depletion the opposite occurs.
The theory of exhaustible resources is based on Hotelling's seminal article, The
Economics of Exhaustible Resources (Hotelling, 1931). It takes the example of a mine with
a fixed stock of resources and attempts to determine the optimal mine production over
time. The fixed stock paradigm considers exhaustible resources as non-renewable over any
time horizon of relevance to humanity, because they need such a long time to replenish.
This means that the supply of exhaustible materials at any point in time is a fixed stock that
can only diminish with use. In a world with increasing per capita income and growing
population, absolute depletion may become a severe problem in the near future (Tilton,
1996). It is important to note that some strong assumptions are made by Hotelling
including fixed and homogenous mineral stocks, no changes in extraction technology over
time, perfect competition and perfect information. Aware of the caveats, he argues that a
mine should continue mineral exploitation to the point where the marginal cost of
production and the user cost together become equal to the actual market price. User cost is
the present value of the future profits foregone by producing an extra unit of output now
instead of saving it for future consumption. If a company behaves in accordance with
Hotelling's theory, the unit value of the mineral reserves kept in the ground rises at r% a
year, where r is the discount rate of the capital. If the return rate on other investments were
higher, this would make mine owners exploit all of their stock and move the profit to those
investments. This would result in higher minerals prices in the future and increase user
costs accordingly. The opposite occurs if user costs have increased so much that it exceeds
the r% a year. Mines would have an incentive to insist on keeping their reserves, slowing
the pace at which user costs rise. This rule implies decreasing resource availability over
time, contradicting the empirical studies that have not found statistically significant upward
trends in long term real commodity prices.
Since Hotelling's work, his theory has been developed further, relaxing his restrictive
assumptions (Tilton, 1996). The most substantial development is that the focus has been
shifted from the optimal behaviour of an individual mine to the optimal behaviour of the
society as a whole. Moreover, these new models allow for new discoveries and
heterogeneous reserves, technological changes, uncertainties and market conditions
different from perfect competition. Some of these new models, however, move away from
the fixed stock paradigm toward the opportunity cost paradigm, which states that nonrenewable resources will not necessarily be depleted even with high levels of exploitation.
177

This assumption requires that the cost-reducing effects of new discoveries, technologies
and other developments outweigh the cost-increasing effects of depletion. The opportunity
cost, in this case, is the activities foregone to fund resource discovery and new extraction
activities, as well as the external environmental costs related to mineral extraction. Unlike
Hotelling's model these new models suggest that resource scarcity can decline over time,
accordingly, are consistent with the empirical studies indicating no upward trends in longrun real prices.

8.3. Inflation bias inherent in the CPI

Assertions that consumer price indices and similar price series in the United States
and elsewhere overstate inflation arose 50 years ago (Svedberg and Tilton, 2006). Inflation
measured incorrectly will over, or understate aggregate economic growth and productivity,
budget deficits, government spending programs, industry prices and productivity, real
financial returns, real median incomes and real wages and the competitive performance of
economies (Gordon, 1990). The Boskin Commission was appointed by the United States
Senate in 1995 to measure inflation bias and devise subsequent improvements to the CPI.
They found that the CPI overestimated inflation by around 1.1% per year (Boskin et al.,
1996). Several economists have tested the robustness of the findings of the Boskin
Commission. For instance, Costa (2001) analysed the CPI between 1888-1994 and found
different biases for different subperiods ranging from -0.1% to 2.7% points a year, Stewart
and Reed (1999) examined the CPI in the period of 1978-98 and found that the CPI bias
was 0.45%.
Inflation measured incorrectly also has an impact on long-run real price trends of
mineral commodities, which is the focus of this paper.
The Boskin Commission paid particular attention to three important problems
concerning the calculation of consumer price indices: substitution bias, new goods, and
quality change.
Substitution bias arises when consumers change their behaviour in response to price
changes. In creating the consumer price index the Bureau of Labor Statistics in the US used
a Laspeyres index or Lowe formula. This formula presumes zero substitution, as initial
quantities used in the formula are assumed to stay fixed until the next expenditure weight is
updated (in the Laspeyres index the weights of the different items are derived from
consumption expenditure survey). However, buyers tend to shift toward goods with lower
price more frequently than the weights are updated. Accordingly, the Laspeyres formula
will result in an upward bias in the index. The Boskin Commission (Boskin et al.1998)
conclude that the use of such a formula is extreme, unrealistic and unnecessary and
estimates bias attributable to substitution effect to be 0.4% point per annum in the 1974-95
period.
The most fundamental problem in constructing price indices is that the market basket
constantly changes and price indices have to adjust to these changes (Johnson et al., 2006).
New goods can enter the CPI basket of goods during repricing, through sample rotation
and during a revision of the item structure (Johnson et al., 2006). When handling new
products on the market at least three biases can arise. First, new products are included in
the indices years after they emerged on the market. Gordon & Griliches (1997) find that
both air conditioners and personal computers were all introduced in the index years after
they had been first appeared in the market place (Boskin et al., 1997). This means that the
accumulated price fall for these products during the years they were on the market were not
captured in the price indices. Second, many products that were improved in quality were
included as completely new goods ignoring the quality improvements they reflect. Third,
178

new products are introduced in the indices without allowing for consumers surplus they
generate. Boskin et al. (1997) estimates that the new goods bias has caused the CPI to
overstate inflation by 0.3-0.4% per year.
Over time the quality of goods and services in the market basket changes. Because of
such changes, consumers receive more for the price paid (Johnson et al., 2006). This
quality change is highly visible if we take the example of computers and related electronic
products. According to several estimates made by Jorgenson and Stiroh (2000) quality
improvements have outstripped prices increases by some 15-30%. Although it is inevitable
that CPI should make some quantitative estimate of such changes, it has been a source of
disagreement, as consumers preferences are different, accordingly, their valuation of
changes in quality vary. Changes in quality that are unrecorded cause an upward bias in the
CPI. The size of quality change bias was estimated to be 0.3-0.4% points (Boskin et al.,
1998).

8.4. Overview of the examined materials

Several sources indicate that platinum and rhodium are the two most expensive
metals in the world with their prices moving around $1,600 and $1,200 per troy ounce
respectively, while copper and lead cost approximately $7600 and $2100 per ton
respectively (Platinum Today, 2013; US Geological Survey, 2013). Platinum and rhodium
are important factors of production in the automotive, jewellery and hi-tech industries.
Their demand is highly dependent on the success in the recovery from the economic crisis,
but is projected to expand in the coming decades, consequently prices are expected to rise
further (Johnson Matthey, 2013). Both copper and lead are important industrial metals too
(coppers principal uses involve construction, electrical and communication infrastructure,
domestic and industrial equipment and transport; 75% of the worlds lead is used in
batteries); in 2013 the global annual production is approximately 16 and 4.7 million tonnes
respectively (USGS, 2013).

8.5. Results and discussion

8.5.1. Price trends
For each metal studied, there is a base case, where the inflation bias is taken to be
1.0% point a year throughout the period that varies depending on the data available, but
roughly covers the whole 20th century till present. The inflation bias of 1.0% was chosen
to be the benchmark case as it is close to the estimates reported by Boskin et al. (1996),
Lebow and Rudd (2003) and Nordhauss (1997) thought-experiment estimation. Beside
the base case alternative estimates are provided taking a bias of 0.5% (low) and 1.5%
(high) points per year, and the case when the CPI was left unchanged (conventional) is also
examined. The objective, similarly to Svedberg and Tilton (2006), is to demonstrate how
the long-run trends in the real prices change when different adjustments are employed.

Platinum
Figure 1 illustrates the average annual US producer price for platinum for the years of
1913-2012 deflated by the CPI and the CPI minus 1.0% points a year. The difference
between the two cases is quite apparent. When no adjustment is made to the CPI then there
is a moderate downward trend, but when there is a correction for the bias the trend
reverses, showing an upward trend in the price index.
179

Figure 1: Index of the US producer price of platinum from 1913-2012 with 1950=100.
Platinum price deflated by the CPI and the CPI minus 1.0%.
Source: Own creation based on Platinum Today and USGS statistics.

Table 1 contains the results related to the statistical significance of the trends in
Figure 1, it also shows two other alternative cases (bias correction of 0.5% points and 1.5%
points per year). The long-run trend in real platinum price calculated with the unadjusted
deflator is downward, though significant only at the 70% level. In contrast, the results for
the other three cases (0.5%, 1% and 1.5%), when adjustments were applied, suggest that
the real price of platinum has trended upward over the period studied, and the three trends
were significant.
Table 1: Results for the US producer price of platinum deflated by CPI and
adjusted CPI
Conventional
(0,0%)
Constant
Coefficient
t-Statistic
Probability
Time
Coefficient
t-Statistic
Probability
Adjusted R2
F-statistic

Low (0,5%)

Base case
(1,0%)

High (1,5%)

126,50
12,24
0,00

95,31
8,39
0,00

61,66
4,54
0,00

23,69
1,37
0,17

-0,07
-0,39
0,70
-0,01
0,15

0,73
3,75
0,00
0,12
14,03

1,67
7,15
0,00
0,34
51,12

2,79
9,42
0,00
0,47
88,68

Equations are estimated using both linear regression and autoregression (only
the trends are used) models.

Rhodium
Even when the inflation bias is not taken into account the trend already seems to be
upward rather than downward, but when inflation bias is considered the upward trend is
more obvious. Results for each case proved significant at the 1% level.
180

Copper
The annual average US producer price of copper over the period 1913-2011 is shown
in Figure 2, both with correction for the inflation bias and without. In case of no adjustment
to the CPI a downward trend is conspicuous, but the index for the base case (adjustment by
1.0% point) exhibits a reversal in the trend.

Figure 2: Index of the US producer price of copper from 1913-2011 with 1950=100.
Copper price deflated by the CPI and the CPI minus 1.0%.
Source: Own creation based on Platinum Today and USGS statistics.

The results for the US producer price of copper are reported in Table 2. The long-run
trend in real copper prices when unadjusted by a deflator is downward, but the coefficient
on the trend variable is significant only at the 33% level. When the CPI is reduced by 1%
point a year, the trend is upward and statistically significant at the 1% level. The use of the
two other alternative bias factors, a correction of 0.5 and 1.5% points per year, also result
in significant upward trends.
Table 2: Results for the US producer price of copper deflated by
CPI and adjusted CPI
Constant
Coefficient
t-Statistic
Probability
Time
Coefficient
t-Statistic
Probability

Conventional
(0,0%)

Low (0,5%)

Base case
(1,0%)

High (1,5%)

117,83
13,60
0,00

94,58
10,27
0,00

69,94
6,60
0,00

42,58
3,26
0,00

-0,15
-0,98
0,33

0,47
2,91
0,00

1,17
6,37
0,00

2,01
8,88
0,00

Adjusted R2
0,00
0,07
0,29
0,44
F-statistic
0,97
8,49
40,61
78,83
Equations are estimated using both linear regression and autoregression (only
the trends are used) models.

181

Lead
When no adjustment is made to the CPI the long-run trend in the real US producer
price of lead is downward and significant at the 1% level. When the CPI is reduced either
by 0.5% or 1% or 1.5% points a year, the trends are all upward, however, the coefficient on
the trend variable for the low case is significant only at the 6% level.
There is much to suggest that inflation bias does exist. Numerous studies (Johnson et
al. (2005)) and the fact that the US Bureau of Labor Statistics made important changes to
improve the CPI all underpin this statement. However, it is hard to ascertain the exact
value of the inflation bias but it is likely to fall between 1.0% and 2.0% points a year,
varying year on year.
For all the selected metals, adjusting the deflator value changed the long term trend
in real prices from downward to upward sloping. Therefore, the choice of deflator used to
judge long term trends is crucial. Given the assumption that the point estimate of the bias
range from 1.0% to over 2.0% points per year, it seems that long-run price trends have
trended upward over the period studied and are statistically significant if either an
adjustment of 1.0% or 1.5% is applied. When the unadjusted CPI and the one that is
adjusted by 0.5% points a year are used to calculate the trends, the findings are different.
With the exception of rhodium the use of the unadjusted CPI results in a downward trend,
though is significant only for lead. When the CPI reduced by 0.5% point a year results
already indicate upward trends that are significant for each metal except lead. For rhodium
both the conventional and the low case lead to upward trends that are both significant.
Upward trends in the long term real prices of the metals examined show the issue of
resource depletion is more pressing than previously thought. Higher real prices are thought
to indicate that resources are becoming less available and this contradicts the dozens of
empirical investigations that have failed to detect statistically significant upward trends in
the long-run real price of mineral commodities that Krautkraemer (1998) and Brown
(2000) noted.
With rising mineral commodity prices indicated by the base case it is worth
examining how the growth of mine production and of real prices (adjusted by 1% per year)
relate to each other. Results vary. In the case of platinum, the real price growth exceeded
mine production growth over the period studied. While its supply increased 2.5 fold, its
real prices increased more than three times (3.6 fold). In contrast, for copper increase in
real prices (3.1 fold) had been significantly smaller than the increase in mine production
(16.2 fold). For lead and rhodium, the growth rate of mine production surpassed that of real
price, though not as significant (1.25 and 2.5 fold, respectively) as in the case of copper.
It is important to note that a more exhaustive research could have been undertaken,
but limited time and data prevented this. A lack of data and time hindered more robustness
tests such as the construction of price trends using London Metal Exchange (LME) prices
or the US producer price index (PPI) as a deflator instead of the CPI. Moreover, it would
have been worthwhile to see how long-run price trends would have changed if they had not
been linear, but, for instance, inverse or quadratic, or if non-competitive market periods,
when interventions and collusive actions distorted the market had been excluded.

8.5.2. Material scarcity

This section gives an estimation of the current, 2011, reserves-to-production ratios
(R/Ps), a frequently used indicator that gauges the number of years that a particular mineral
will still be present, of the materials studied. Table 3 shows that lead is the most scarce
metal from the list with a little more than 18 years of availability if the production is
presumed to continue at the current rate. Lead is followed by copper with almost 43 years
182

of availability. According to the calculations, the world is not likely to run out of platinum
and rhodium in the foreseeable future.
Table 3: Estimates of current (2011) availability of metals
2011
Mine production
Reservesa
Reserves-toproduction ratio

Platinum
(tons)
195
31 350

Rhodium
(tons)
23,8
6 600

Copper
(million tons)
16,1
690

Lead
(million tons)
4,7
85

160,77

277,31

42,86

18,09

Reserves: that part of the reserve base which could be economically extracted or produced at the
time of determination. Reserves include only recoverable materials. Platinum and rhodium
reserves are based on Patricia J. Loferskis (Ph.D. Platinum-Group Metals Commodity Specialist,
National Minerals Information Center, U.S. Geological Survey) estimation that platinum accounts
for 47.5% of Platinum Group Metals reserves, while rhodium accounts for 10% of it.

However, considering the results for the trends in the reserves-to-production ratios of
the examined materials, it seems that platinum and rhodium (especially rhodium, its time
coefficient equals to -8.64) should be paid greater attention, as their R/Ps are falling at a
significantly faster rate than those of copper and lead (in fact, R/Ps for copper show an
increase in trend with time coefficient of 0.71, while leads time coefficient is -0.25).
Results for all metals are significant.
These numbers have been found to approximately match the outcomes of other
studies undertaken in this area. For instance, according to Wouters and Bol (2009),
Diederen found that copper reserves would last for 25 years, lead for 19 and platinum
group metals (PGMs), that include the relevant platinum and rhodium besides others, for
more than 70 years. Frondel et al. (Wouters and Bol, 2009) concluded that copper was
likely to be available for 32 years, lead was for 21 and PGMs for another 177 years.
It is crucial to note that new discoveries increasing the amount of available reserves
might occur and technological progress also can relax resource constraint by boosting
productivity and turning resources that can not be economically extracted or produced at
present into economically available.
In order to answer the question of Are mineral prices a reliable signal of resource
scarcity? linear regression was carried out. Reserves-to-production ratios were taken as
independent variables, while real prices constructed by using both the unadjusted and the
adjusted deflator were selected to be the dependent variables. Results of the regression are
shown in Table 4.
Table 4: Results for correlations between R/Ps and real prices of selected metals
Copper
Conv.
(0,0%)

Base case
(1,0%)

Lead
Conv.
(0,0%)

Platinum

Base case Conv. Base case

(1,0%) (0,0%)
(1,0%)

Rhodium
Conv.
(0,0%)

Base case
(1,0%)

-0,50
-11,28
-2,23
0,04
0,50
0,25
0,20
4,96

-0,51
-13,53
-2,29
0,04
0,51
0,26
0,21
5,24

Variable (R/P)

Beta
0,69
0,71
-0,42
Coefficient
9,97
12,68
-0,04
t-Statistic
3,68
3,93
-1,79
Probability
0,00
0,00
0,09
Multiple R
0,69
0,71
0,42
0,47
0,51
0,18
Multiple R2
0,44
0,47
0,12
Adjusted R2
13,57
15,44
3,20
F-statistic
Equations are estimated using linear regression.

-0,46
-0,05
-2,02
0,06
0,46
0,21
0,16
4,07

-0,66
-7,08
-3,38
0,00
0,66
0,43
0,39
11,41

-0,65
-8,79
-3,29
0,00
0,65
0,42
0,38
10,85

183

Independent of the deflator used, in the case of lead, results were found to be
statistically insignificant. This means that there is no linear relation between the real prices
and the reserves-to-production ratios. In contrast, the numbers for copper, platinum and
rhodium indicate a linear relation between the observed variables. For platinum, the
Pearsons r coefficient shows a strong negative correlation of 0.66 that is significant at the
1% level. For rhodium, the multiple R indicates a weaker negative relation of 0.50 which is
significant at the 4% level. In the case of copper, a strong positive correlation of 0.69 was
found, suggesting that the examined variables moved in the same direction in the examined
period.
An other linear regression was also carried out to test for the hypothesis that long
term commodity prices provide a useful and effective indicator of resource scarcity. The
annual percentage changes in the R/Ps (independent variable) of the metals were regressed
against the annual percentage changes in their real prices (dependent variable).
Independent of the deflator used, all results were found to be insignificant, indicating that
there were no correlations between the examined variables.
It is important to stress that resource scarcity is not the only factor that can have an
impact on commodity prices. Morley and Eatherley (2008) claimed that resource scarcity
by itself is insufficient to map material security. They set out numerous factors that might
influence material prices. These are the following: global consumption levels, lack of
substitutability, global warming potential, total material requirement, scarcity, monopoly
supply, political instability in the key supplying regions and vulnerability to the effects of
climate change in the key supplying regions.
Hall and Hall (1984) also note, that although scarcity is reflected in real prices, this
does not mean that physical scarcity is the only factor that influences price, consequently,
real prices may not fully reflect scarcity. They also suggest that changing relative prices are
just a possible consequence of resource scarcity, but not identical to that. They suggest that
activities of foreign and domestic governments distorting prices, market failures and
recycling that plays an ill-defined role in total supply all hamper the relationship between
real prices and resource scarcity.
When searching for the possible underlying reason why there is no or a positive
relationship between real prices and the reserves-to-production ratios for copper and lead
the following have been found: compared with other metals, lead enjoys an extremely high
recycling rate. According to the International Lead Association (ILA, 2013), more than
half of the lead produced and used each year across the world is recycled and furthermore,
its quality is identical to that of primary metal. In the case of copper, where a statistically
significant positive correlation was detected, it is demand volatility that might play an
important role. According to a report of the United States International Trade Commission
Chinas copper consumption increased by 5.1 million tonnes (215%) between 2001 and
2011 (ICSG, 2011). In 2011 the countrys total copper consumption reached 7.9 million
tonnes, accounting for 40% of global demand and is expected to grow in years to come, as
well. China satisfies two-thirds of its copper demand from imports and this may well be a
major driver of global copper prices despite the increasing quantity of economically
recoverable copper.
In the light of the reserves-to-production ratios the fact that the price of platinum and
rhodium is approximately 5,000 times more than copper and lead might seem surprising.
However, there are some reasonable factors that are likely to account for this huge price
difference. Platinum and rhodium belong to the group of precious metals that comprises
rare metals with high economic value. It can be argued that their demand is driven by their
practical use, but also by their role as investments and a store of value. Hi-tech industry
use, growing demand in the jewellery sector and physical investments and the fact that they
184

have become a symbol of wealth in recent years all contribute to high prices. Moreover,
their substitution is limited only to other platinum group metals that are also precious.
Although accurate data were not found on extraction costs, but Morley and Eatherley
(2008) suggests that the total material requirement, which expresses the weight of rocks
and other substrate that need to be moved in order to obtain a given weight of metal, of
platinum and rhodium is about 10,000 times more than that of copper and lead. A higher
total material requirement is assumed to result in higher extraction costs as well. Finally,
while platinum and rhodium supply are highly dependent on the production of one country,
namely South Africa (77% of worlds platinum supply and 87% of the worlds rhodium
supply in 2009), copper and lead has a dispersed supply (Platinum Today, 2013; USGS,
2013).

Abstract
There has been a long running concern about resource depletion. Some argue this
concern is misplaced, while others consider it to be an urgent problem requiring immediate
action. Economists suggest that long term prices, adjusted for inflation (real prices),
provide a useful and effective indicator of resource scarcity. This study tests this
hypothesis in consideration of the accepted theory that traditional price deflators, such as
the US consumer price index, overestimate inflation-, and accordingly-, are likely to
underestimate long term commodity prices.
To investigate the usefulness of real prices as an indicator of scarcity, a case study of
two metals considered to be expensive (platinum and rhodium) and two considered to be
relatively inexpensive (copper and lead) was used. Real long term price indices were
constructed and econometric analysis used to determine the direction and significance of
long-term price trends and whether real prices were correlated with other scarcity
indicators such as the Reserves-to-production ratio.
The results show, when an appropriate adjustment is made to the deflator, long-run
trends in real metal prices are all upward, and there is a significant relationship between the
real prices and scarcity indicators, such as the reserves-to-production ratios, for platinum
and rhodium, but not for copper and lead. These findings suggest that real prices of
platinum and rhodium are more affected by their scarcity, while copper and lead prices are
likely to be more dependent on other factors such as demand volatility and high recycling
rate.

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http://minerals.usgs.gov/ds/2005/140/#data;
http://minerals.usgs.gov/minerals/pubs/metal_prices/;
http://minerals.usgs.gov/minerals/pubs/commodity/ [accessed 20th June 2013]

187

9. MODELING SCARCITY IN ECONOMIC GROWTH

Mrk Molnr
Introduction
The first step towards the comprehension of the role of natural resources in
economics and indirectly sustainability was taken by Malthus in 1798 whose main
concern was about the growing population of Britain and the finite supply of land. In 1865
Jevons provided some insights on sustainability while studying the finite coal supplies and
the growing energy need of Britain. A major step in this line was the research of Hotelling
(1932) who has provided the foundations of the economic analysis of finite resources.
In 1972 Meadows considered the sustainability of our civilization given the physical
limits of the planets resources to provide inputs to production and dealing with the waste
products thereof. The general concern raised by Meadows was that we can run out of
resources, and this inspired economists like Dasgupta and Heal (The Optimal Depletion of
Exhaustible Resources 1974), Solow (1974), and Stiglitz (Growth with Exhaustible
Natural Resources: Efficient and Optimal Growth Paths, 1974) to develop new ideas and
models on economic growth when a depletable natural resource, together with humanmade capital, is a significant input to aggregate production. Their additions to the theory of
nonrenewable resources were not followed intensively in the next decade but their
significance in growth theories is everlasting.
Economists interested in sustainability issues returned to the scene in the late 1980s
with the publication of Our Common Future by the World Commission on Environment
and Development (WCED 1987). This publication helped to launch a new agenda for both
development and environmental economics. It voiced new and urgent environmental
concerns (deforestation, desertification, the loss of biodiversity, the enhanced greenhouse
effect, and the effects of poverty on the environment in mainly developing countries) that
were especially relevant to developing countries and the global environment. It thereby
challenged many of the fundamental goals and assumptions of the conventional,
neoclassical economics of growth and development. In addition, it propelled the ideas of
sustainability and sustainable development to the forefront of public debate.
However, sustainability proved a remarkably difficult concept to define and use
precisely. A common agreement is reached however over efficiency of resource use. In the
following we outline a possible approach which underlines the importance of efficiency
improvements in the economy.

9.1. Production function extended with energy use

We define the production function with the usual denotation as follows:
Y = F ( K , E, L) = K E L

(1a)

where K denotes capital used, E the utilised (non-renewable) resources (e.g. fossile energy,
etc), and L for labour used in production. It is assumed that the sum of factor productivity
is + + = 1 = 1-( + ): ,, >0, we have constant returns to scale. The
production function is thus assumed to be a Cobb-Douglas function. Resource used is
interpreted as the complete economy's primary energy demand, but it can be easily
extended to the complete natural resource demand.
188

Further assumptions concern the dynamics of the respective factor inputs:

E& = E
K& = sF ( K , E , L) K = sY K ,
L& = nL

s, , n, > 0

(1b)

Energy utilisation and labour use (population is assumed to move together with
labour) follows an exponential process, where and n are respectively growth rate of
energy use and population, s denotes the rate of saving and the rate of amortisation.
Following the mainstream, we use the labour intensive form of the production function,
which we denote with f(k,e) and derive as follows:
f ( k , e) =

F ( K , E , L) K E L K E L(1( + )) K E
=
=
= = k e ,
L
L
L
L L

(2)

where k and e denotes capital and energy use per worker:

k=

K
,
L

and

e=

E
L

(3)

Lets now examine the time derived form of the labour intensive indicators. We can easily
formulate, that
K
& LK
&
&
KL
sF ( K , E , L) K LK
k& = L =
=

= sf (k , e) (n + )k ,
t
L
LL
L2

(4)

using also (1) and (3). Energy use per capita is derived as follows:
E
& LE
&
EL
E
E
e& = L =
= n = ( n)e.
2
t
L
L
L

(5)

The above equation simply states that growth in per capita energy consumption is the
difference of energy consumption growth of the society and population growth. Lets now
examine the time derived form of the production function, the dynamics of production:
f (k , e)
k e &
e&
k&
= k 1e k& + e 1 k e& =
k + e k = f (k , e) + (e n) f (k , e)
t
k
e
k

Checking the RHS of (4) and (5) it is visible, that

f (k , e)
sf (k , e) (n + )k
= ( (
) + ( n)) f (k , e)
t
k
ln f (k , e)
sf (k , e) (n + )k
= ( (
) + ( n))
t
k

(6)

Thus, we can deduce the following, energy consumption increases per capita
production in our model economy. Output grows proportionally with the difference of
energy growth and population growth, thus population growth does not automatically mean
output growth (for example because larger share of the resources have to be allocated to
189

self preservation). The model economy can be put on a growth path only if energy use or
resource use is permanently increased (efficiency improvement is not introduced in our
model yet). We can deduce in a similar manner that the increasing population will imply an
increasing energy demand which can not be met by production and which intuitively will
be constrained by our natural resources. Similarly interesting question is if negative
population growth can effect per capita production. Total production can be positively or
negatively influenced depending on how elastic is our production function with respect to
labour use. A target of research can be to analyse if modern societys decreasing
population is in connection with per capita (energy) consumption maximisation.

9.1.1. Introducing energy efficiency in the model

To analyse the problem of sustainability in depth we extend our model with (energy)
efficiency, applying this as a multiplier on energy consumption. We consider this more
important than labour intensive growth as from the beginning of the industrial revolution
the economic development is based on automation and machinery thus our production is
characterised increasingly with our energy consumption and labour is not a primary
constraint. Labour intensivity of production is decreasing even further with advanced
computerised methods, production control, CAD and CAE, etc. As an example, in the past
a design of a machine element took at least 100 engineer hours while nowadays a
workstation can do this process with testing in a couple of hours without the need to
produce a test copy.
Thus we introduce labour and energy (or resource) efficiency on the macro level,
denoting these respectively with L and E. Energy efficiency can also be interpreted as the
proportion of depletable/renewable energy used: the higher this ratio the more efficient an
economy is, or the less non-renewable is required to produce a unit of output. This notation
allows for a sufficient flexibility in interpreting our results. Lets write the production
function in the following form:
Y = K ( E E ) ( L L)

+ + = 1 = 1 ( + )

(7)

It is to be noted that -s are not thermodynamic efficiencies but simple multipliers

indicating factor efficiency in an economically sound measure23. Additionally the
following assumptions are made:
&L = hL L
&E = hE E

(8)

showing that factor efficiencies change and improve (a logical postulate). We use the
simplifying assumption that technological development improves labour efficiency and
energy efficiency with constant rates, respectively (hL, hE). We assume that the amount of
resources (energy sources, etc.) is finite, E0 = Et in all t time periods. Notice that this does
not mean the depletion of our energy reserves as this amount is available in each period but
implies a constraint as an upper limit of energy use for the time being. Trivial solutions for
the differential equations on labour and efficiencies are as follows:

Correspondance between thermodynamical efficiency (TD), and productive efficiency (eg. L) can be
easily achieved by applying the equation (L = 1/(1-TD).
23

190

Lt = L0 e nt

Lt = L 0 e h t
L

Et = E 0 e

(9)

hE t

Log-linearising the production functions time derivative gives the following:

Y ln Y
ln E ln E
ln L ln L
ln Y
ln K
=
+ (
+
) + (1 ( + ))(
+
)=
t
t
t
t
t
t
ln K
=
+ hE + 0 + (1 ( + ))( hL + n)
t

(10)

We denote with (dont mistake it with k) the ratio of capital to output:

=

K
ln ln K ln Y
ln = ln K ln Y
=

t
t
t
Y

Substituting this into (10) yields:

ln ln K
ln K
+ hE + (1 ( + ))(hL + n)) =
=
(
t
t
t
ln K
= (1 )
hE (1 ( + ))(hL + n)
t

Utilising the identity

(11)

ln K K&
, and using the definition of K& from (1) we get, that
K
t
(1 )(s

Y
ln
) he (1 ( + ))(hL + n) =
K
t

(12)

If we examine the usual growth paths then we require that the share of output and
capital remains constant, thus the RHS of (12) is zero, then rearranging the equation to
yields equilibrium capital:
e =

he (1 ( + )) hL (1 ( + )) n
+
+
+
1
1
1

(13)

The denominator is the weighted average of the two efficiency growth factors which we
denote as h:
h=

he
(1 ( + ))hL
+
1
1

(14)

Thus the equilibrium path of capital expansion is reduced to the following:

e =

s
(1 ( + ))n
h+
+
1

(15)

It is well visible that changes in energy and labour intensity have significant impact
and efficiency improvements reduce equilibrium capital intensity requirements. Let us now
examine the per capita output change using
191

 ln( y )
=
t

Y
ln( )
L = (ln Y ln L) = ln Y ln L = ln Y L& = ln Y n
t
t
t
t
t
L
t

(16)

and
Y = K ln K = ln + ln Y

(16b)

Substituting the above and the equilibrium intensity, E into (10) yields
ln(Y )
ln K
ln ln Y
=
+ hE + (1 ( + ))( hL + n) = (
+
) + hE + (1 ( + ))( hL + n)
t
t
t
t
ln

ln(Y )
ln
ln(Y )
(1 )) n
(1 )
=
+ h(1 ) + (1 ( + )) n
=
+h+
=h+n
n
t
t
t
1 t
1
1

Using equation (16) yields

he
h + (he n)
hL
ln( y )

=h
n=
+

n= L
t
1
1 1 1
+

(17)

This results shows that the negative impact of population growth in the intensive
form of the production function is proportional with the ratio of energy/resource used (),
the rate of efficiency improvement increases per capita output growth. The macroeconomic
impact of population growth is also prevalent through the increasing energy consumption
which results in decreasing per capita production and per capita consumable energy (we
have fixed the amount of E). Increasing efficiency on the other hand directly increases
economic output.

9.2. Impact of energy efficiency improvement

We fix our energy consumption, and as a simplification we assume that labour use
has reached its optimal efficiency which can not be further improved, and L =1. We also
assume that population and labour supply of wealthier societies increases faster after
reaching a critical per capita income level (Ye/Le)
nt = (

Yt Ye
)
Lt Le

(18)

where n is population growth rate and is a constant parameter. We seek equilibrium

where productivity of unit of labour is constant, labour-capital ratio is constant and we
assume that the rate of energy efficiency improvement equals population growth rate: n=he
ensuring that population increase is not increasing energy consumption (Et = constant,
assume for simplicity that Et = 1), then expressing Y/L from (18),
Y YE nt YE hE
=
+ =
+
L LE LE

(19)

Furthermore constant labour efficiency implies hL = 0, substituting back to (13) yields:

e =

192

he (1 ( + )) hL (1 ( + ))n
+
+
+
1
1
1

he (1 ( + ))n
+
+
1
1

s
he +

(20)

Thus equilibrium capital growth rate equals the ratio of saving rate and the sum of the
rate of energy efficiency improvement and amortisation rate assuming that energy
efficiency improvements are assured by new infrastructural investments, renewable energy,
energy saving measures, etc. Along the balanced growth path (e) substituting into the
output per capita equation and exploiting our assumption on efficiency statics yields output
per capita as:
Y = K ( E E ) ( L L)

(21)

Y K ( E E ) ( L L) e Y E E L1 L1
=
=

L
L
L
L
L1
1

Y 1 Y
=
L1 L

e E
L

Y 1
= e E L = e1 E1 L1
L

Here we used that + + = 1, = K/Y, E = 1, and that labour efficiency does not
improve further and is equal to 1. If we express L from the last equation of (21) and
substitute (20) we get that

L 1
L
L
L
1
=
=
Y E
Y
E

s Ye he
L=
+
he + Le

(22)

Applying the denotation y*=Ye/Le yields

L=
*

h
+
y
+
h
e
e

(23)

This result shows that employment can be further increased by energy efficiency
improvements. If we denote the first two factors of the RHS of (23) with then this can be
interpreted as a characteristic parameter typical for a given economy:

he + y + he

(24)

Substituting (23) into (7) yields

Y = K ( E E ) ( L L ) = K ( E E ) ( L E ) = K E E + L = K E +
Y = K E +

(25)

where the following variable was introduced

L =

and we utilised that L is constant and energy use is stabilised (Et = 1), thus a single
constant containing can be used. The constant is characterising a given country as it
depends on several macroeconomic parameters.
The result attained in (25) shows that if energy use is stabilised and labour is used
optimally than the output of the economy can be increased with energy efficiency in a
higher ( + ) proportion than expected from the factor share () of energy use from the
production function.
193

Thus we gave a proof to the general idea that improving energy efficiency can assure
economic development intensively, without increasing energy consumption. As energy
efficiency here was used in a broad sense as a multiplier it can include renewable energy
and any measures which result in a higher energetic rate of return on a unit of depletable
energy source used.

9.3. Estimation and assessment of a domestic production function

The domestic production function in the form of f (K, L, E) was estimated for a
simple application of our results.
The data used for the estimation came from Eurostat and HCSO. The validity of the
estimation is limited, since the estimation was performed on data from the 1994-2009
period, first because data availability was limited, and the methodology of GDP calculation
was changed beginning from 1994. Not lastly, it is very likely that there was a structural
break between the periods before and after 1993 (or 1990). The low number of elements
nevertheless reduces the value of the estimation.
Running Eviews yields the following result with a good fitting (R2adj=0.984) for the
logarithmised time series
ln Y = 0.497 ln E + 0.389 ln K + 0.145 lnL Y = E 0.48 K 0.38 L0.14

for macroeconomic production, energy used, capital goods, and labour utilised.
The next step is the assessment of the domestic Energy Efficiency Action Plans
effect on macroeconomic production. According to the Action Plan, 12% energy efficiency
improvement would be achieved if the planned measures are implemented.
For simplicity everything else is assumed to remain unchanged and the conditions under
(25) to be satisfied among others energy use is stabilised then the macroeconomic
output can be deduced with the aid of comparative statics:
That is, domestic product would be increased with 7% if the assumed 12% efficiency
improvement is undertaken according to the data available. If no conditions are made then
efficiency improvement would roughly enhance production by 5.6% compared to the base
value everything else the same.

9.4. Conclusions
The above analysis shows that consideration of energy as a macroeconomic input
factor significantly modifies equilibrium trajectories and solutions of the conventional
model.
Increased energy consumption in any case increases macroeconomic production
extensively. Combined with population increase nevertheless this extensive growth quickly
meets its limitations of depleting resources and environmental problems.
With the introduction of energy efficiency and its dynamics numerous important
results are gained in my opinion. One is that the equilibrium capital intensity can be
reduced by increasing energy efficiency; another is that increase of production per capita is
proportional (weighted) with energy efficiency improvements.
In the economies which stabilise their energy consumption improvement of energy
efficiency leads to increases in macroeconomic output higher than proportional to energys
role in production.
194

This leads to the conclusion that energy efficiency measures beside their direct
energy policy and environmental benefits have direct macroeconomic benefits besides the
trivial economic reasons (cost reduction, rationalisation).

Abstract
After giving a brief overview of economic modeling of exhaustible resources we
present a possible approach of modeling scarce resources and economic growth. We
highlight the importance of energy efficiency and energy saving measures in providing
background for economic growth through the extension of the Solow-model.

References
1. Hotelling, H., (1931). The economics of exhaustible Resources. Journal of Political
Economy, 39(2):137-175.
2. Meadows, D.H., Meadows D.L., Randers J., and W.W. Behrens (1972), The Limits to
Growth, Universe Books, New York.
3. Molnr Sndor: (1997) Assessment of Mitigation Measures and Programs In Hungary,
Applied Energy 56:(3-4) pp. 325-332. (1997)
4. Molnr S., Takcs T.: (1995): Energy-economic modelling in Hungary , "(Proceedings
of the Eastern European Regional Workshop on ""Greenhouse Gas Emissions and
Response Policies in Central and Eastern Europe"", Idjrs, Quarterly Journal of the
Hungarian Meteorological Service, Vol. 99. No. 3-4, July-December, pp. 419-428.)",
1995.
5. Molnr S.: (2008) Klmavltozs s az alkalmazott matematikai-informatikai
mdszerek, Informatika, Gbor Dnes Fiskola Kzlemnyei, Vol. 10. No. 2, pp. 19-26,
2008.
6. Molnr Sndor, Tnczos L-n, Trk (2009): A kzlekedsi szektor
energiafogyasztsnak lehetsges s szksges vlaszai a klmavltozs kihvsaira.
Energiagazdlkods. 50:(6) pp. 25-28.
7. Molnr Sndor (2008): The Influence of External Costs on Power System Expansion
Planning. Mechanical Engineering Letters (Szent Istvn University) pp. 26-40. (2008)
8. Solow, R.M. (1974), Intergenerational Equity and Exhaustible Resources, Review of
Economic Studies 41, Symposium on the Economics of Exhaustible Resources, pp. 2945.
9. Stiglitz, J.E. (1974), Growth with Exhaustible Natural Resources: Efficient and Optimal
Growth Paths, Review of Economics Studies 41, Symposium on the Economics of
Exhaustible Resources, pp. 123-137.
10. Constantinovits M.: Magyar nemzetgazdasg 2025-ben, a globalizci korszakban, In:
Agcs Sndor (szerk.) Nemzet s Gazdasg, Lakitelek: Antolgia Kiad, 2000. pp. 6569.
11. Constantinovits Miln: The Hungarian economic policy in the light of the EU accession
(2004-2013), In: Vmos Imre (szerk.) Conference on Hungarian-Polish friendship -History, economy and culture, Budapest, Magyar Fiatalok Hatrok Nlkl Alaptvny,
2013. p. 31. (ISBN:978-963-88986-5-4)

195

10. MEASUREMENT OF SUSTAINABILITY OF

AGRICULTURE
Gbor Valk Mria Fekete Farkas
Introduction
Sustainable development has become one of the most important issues in
environmental policy. The objective of integration of environmental dimension in
Community policies has been set in the EU. The importance of developing indicators to
assess the impact of different economic sectors on the environment; and to monitor the
progress in integrating environmental concerns has been underlined.
There has been a general agreement between researchers and policy-makers that
agriculture plays a crucial role with respect to the three pillars of sustainability, namely the
environment, the society and the economy. It is also accepted that in order for a certain
system to become sustainable it has to exploit its resources the most efficient way possible.
However, studies centering on sustainable development have paid only a little attention to
agriculture, especially in developed countries where the sector has only a marginal share in
the national economy. This study attempts to set up an indicator system that enables us to
measure sustainable development of agriculture.

10.1. The concept of sustainable agriculture

Several researchers and organizations have defined the concept of sustainable
agriculture in many ways. However, there are some common items in the different
definitions (SARE, 1997; Smith and McDonald, 1998; USDA, 1999; Kirchmann and
Thorvaldsson, 2000; National Research Council, 2010; Robertson and Harwood, 2013):

preservation of environmental quality,

the provision of good quality food,
the viability of agricultural operations, profitability,
social justice, equality.

The EU defines the main goals regarding the sustainability of agriculture as follows (EU,
2012):

producing safe and healthy food,

conserving natural resources,
ensuring economic viability,
delivering services to the ecosystem,
managing the countryside,
improving quality of life in farming areas,
ensuring animal welfare.

These definitions correspond to the 3 dimensions of sustainability: environmental (or

ecological), economic and social dimensions. There are several approaches to the concept
196

of sustainability. The most commonly used models are based on the 3 dimension and on
the capital approaches. The latter one requires that at least the same amount of wealth is
given to our children that we have inherited from our ancestors. The dimensional model
(also known as mosaic approach) defines three components of sustainable development
(Smith and McDonald, 1998):
ecological sustainability which requires that development is compatible with the
maintenance of ecological processes,
economic sustainability which requires that development be economically
feasible; and
social sustainability which requires that development be socially acceptable.
There are different requirements of the three dimensions. The ecological sustainability
gives priority to the preserving and enhancing the soundness of environment and
management practices. The economic sustainability aims for the profitability of the
production and the income generated from agricultural activity while from a social
perspective the equal possibilities, the living standard of rural areas are in the focus.
The criteria of the three approaches must be met at the same time. A farm can not be
sustainable if it is productive but it does not take into consideration the environmental
requirements or it follows an environmentally-friendly production pattern that is not viable.
There is a controversial relation between the different dimensions of sustainability,
especially between the environmental dimension and the other dimensions. Usually, the
increase of the agricultural output, which is favourable for the indicators of the economic
and often of the social dimension, involves the worsening of the environmental
performance. The aim can be the decoupling of the economic performance and the pressure
on the environment. According to the OECD definition, decoupling occurs when the
growth rate of an environmental pressure is less than that of its economic driving force
(e.g. GDP) over a given period. (OECD, 2002) In the case of agriculture, decoupling
means that the increment of the pressure on the environment (e.g. emission of nitrous oxide
due to the use of fertilizers) is less than the growth rate of the crop production (relative
decoupling). The term absolute decoupling can be used when the production grows while
the pressure on the environment remains the same or it lessens.

10.2. Indicators of sustainable agriculture

Several international and national organizations have worked out their systems of
sustainable development. As for the indicators of sustainable agriculture, there are also
plenty of institutions and researchers formulating different sets of indicators with various
goals, structure and methodology. Before compiling the indicator set, we had studied the
available major indicator systems of sustainable agriculture (Eurostat, 2013a; OECD, 2013;
SARE, 1997; Van Cauwenbergh et al., 2007). Summaries of the existing indicator systems
are given by Binder et al. (2010) and Van Passel and Meul (2012). Previous research in this
field was also used (Fekete-Farkas et al., 2007; Valk and Fekete-Farkas, 2008). Since the
European Union is in our focus, priority was given to the indicator sets compiled
particularly for this region.
We chose the mosaic (3 dimension) approach for setting up the indicator system. The
indicators were selected for the three dimensions separately and compiled taking into
consideration the following requirements of indicators:
relevance,
197

reliability,
accuracy,
comparability,
easy interpretation and
good quality basic data.

There are two possibilities of selecting an indicator for a particular topic:

using raw data (e.g. consumption of energy in agriculture),
using a ratio (e.g. ratio of agriculture in energy consumption),
using a relative indicator (e.g. energy consumption per gross value added).
When making a temporal comparison, pure raw data is the most proper indicator
since there is no distortion of the information by another data. If our aim is a spatial
comparison, using raw data may be misleading because there are considerable
discrepancies between the different countries in size and in production patterns. Let us take
the example of the indicator of energy consumption: using a relative indicator (energy
consumption per gross value added) may not show the pressure on the environment
correctly. In a certain year it may decrease because the gross value added increases due to
the favourable weather for crop products while the energy consumption remained the same.
The same applies, though less likely, to the ratio type indicators. It may also be misleading
to compare the indicators of different countries using raw data. The environmental
performance of Hungary and France regarding the energy consumption of agriculture
without using a ratio or a relative indicator can not be compared. It is a choice that has to
be made when compiling an indicator set. Since our main goal is the temporal comparison,
we usually use raw data and ratio type indicators in our compilation. In the future research,
this compilation of indicators is intended to be used as a starting point in developing
composite indicators for the dimensions of sustainable agriculture. In the process of
developing composite indicators, a normalization will be executed which makes the
indicators spatially comparable.
The main data source was the database of Eurostat for the compilation of indicators.
Our main goal was to compile comparable data for the EU Member States for the years
2000 to 2010 therefore national data sources were not used. When selecting indicators, the
data availability was an important factor. The main problems can be summarized as
follows:
relevance,
no data available,
data availability for certain countries (e.g. environmental expenditure),
only short time series,
problems with data quality (e.g. waste generated in agriculture, 10-fold increase
within 4 years for Hungary).
The indicators not included in the set of indicators are listed in Table 1.

198

Table 1: Indicators not selected in the initial set of indicators

Indicator

Reason for non inclusion

Environmental dimension

Emission of carbon monoxide in agriculture

Not relevant for agriculture

Emission of particulates < 10m in agriculture

Problems with data availability - only partial data for

the EU Member States

Problems with data availability - only partial data for

the EU Member States
Percentage of holdings with manure storage facilities Data only available for 2000 and 2003
Emission of particulates < 2.5m in agriculture

Generation of waste in agriculture

Land cover data on heavy environmental impact
Percentage of high nature value land
Percentage of NATURA 2000 areas of agricultural
land
Soil conservation
Tillage methods
Soil quality
Nitrate content of water
Pesticide content of water
Landscape
Genetic resource conservation
Erosion
Environmental expenditure of agriculture

Data are not reliable e.g.10-fold increase within 4

years for Hungary
Only 2009 data are available, not really relevant
No available data
Partial data are available
Only 2010 data are available
Only 2010 data are available
No available data
No available data
No available data
No available data
No available data
Partial data are available
Partial data are available

Economic dimension
Production of renewable energy
Volatility of agricultural prices
Production of inputs
Ratio of land owned and rented

Only 2010 data are available

Methodology is not available
Partial data are available
Not relevant
Social dimension

Quantitative or qualitative information on rural

infrastructure
Quality of houses and flats in rural areas
Volatility of food prices
Percentage of food products in total purchase
Percentage of genetically modified products

No available data
No available data
Methodology is not available
Partial data are available
Partial data are available

Source: own compilation

The result of the compilation of indicators is 26 indicators for the environmental

dimension, 15 indicators for the economic dimension and 16 indicators for the social
dimension.
Missing data were handled by trend function of Excel in case a clear trend could be
observed and by repeating the last (or first) available data if data were volatile.
199

Environmental dimension
Environmental data can be grouped according to Pressures-State-Response
framework developed by OECD. A wide range of data is available for the pressures that
are harmful to the environment. These domains include energy consumption, emission of
air pollutants, use of fertilizers and manure, sale of pesticides, irrigation and production
patterns (livestock density, share of arable land). Much less data is available on the state of
the environment (nutrient balances and bird index of farmland species). Concerning the
responses, data only exists on the participation in agro-environmental schemes and on
organic farming. The 26 indicators give a wide selection of information however some
areas (waste generation, tillage, pollutant content of water and soil, landscape) could not be
covered in the indicator set.
Environment statistics and other related areas of statistics (e.g. agro-environmental
statistics) face various problems. Environment statistics is a relatively new area of
statistics. The methodologies and important definitions are still under construction. This
field of statistics has a low priority in most of the statistical institutions. It includes various
areas (waste, water, air, forest, etc.) and it is very difficult to acquire the professional
experience of these areas that sometimes differ completely from each other in terms of
methodology. Part of the data related to environment statistics stem from measurements or
monitoring systems instead of statistical surveys. Since it is usually not the statistical
institution that performs such measurements, sometimes it is very difficult to gain this
information and to use it in a coherent way with other information of environment
statistics.
The factors that hamper the use of environmental data in the environmental policy
process are as follows (Srebotnjak, 2007):

environmental science is complex and uncertain,

environmental issues often carry negative perceptions,
constructive environmental debates are still hampered by ideological and
emotional prejudices,
the divide between environmental policy and science has contributed to persistent
language barriers between environmental statisticians on one side and policy
makers and subject-area scientists on the other.

In order to have a reliable picture in terms of sustainability, there is a need for the
development of environment statistics. The international and national statistical institutions
have to give priority to this area of statistics. The methodologies used in the different
countries should be harmonized so that spatial comparisons could be done. Statistical
institutions should try to reach an agreement with other data owners in order that important
information on environment can be used by analysts and scientists.

Economic dimension
15 indicators cover the performance, gross value added and income generated by
agriculture. Foreign trade, structure of the production, research and development and
subsidies were also included in the indicator set. Prices were taken out from the set of
indicators as it is not relevant for sustainability. The volatility of prices could be a possible
sustainability issue; proper methodology should be developed for this indicator. Data were
only partly available for the wealth of agricultural sector in terms of buildings, machinery
and land prices.
200

Social dimension
Data were available and used in the system of indicators on farm managers with
respect to their education, age and gender. Data were also applied on agricultural education
and labour force used in agriculture. Rural development indicators on the ratio of rural
population over 65 years, on changes in population and on unemployment rate were
selected as well. Additional data from income statistics concerning thinly populated areas
were included in the system. Data were not available for infrastructural supply and its
quality and on food safety and security. In social statistics, the main problem is that usually
information can not be used for reflecting to the issues of farmers and rural areas. Some
indicators could only be created using data of the thinly populated areas which have an
overlap with rural areas but are not the same.

10.3. Examination of indicators

In order for the association of indicators to be measured, correlation matrices of
Hungarian data were created separately for the three dimensions using the time series from
2000 to 2010. The objective of the analysis was to select those indicators that had a strong
correlation with each other therefore they would not bring significant additional
information to the system of indicators. For this purpose, the correlation matrices were
analyzed and those indicators were selected whose correlation value is larger than 0.9 (or
less than -0.9). In future research we plan to repeat this exercise with the data of other
Member States so that a properly selected indicator set would be available.
Three indicators were taken out from the environmental dimension as a result of the
analysis (Table 2.):
Emission of sulphur oxides in agriculture (strong correlation with 5 indicators)
Irrigable area in percentage of utilized agricultural area (strong correlation with 6
indicators)
Livestock density (livestock units/utilized agricultural area) (strong correlation
with 6 indicators)
Table 2: Indicators of sustainable agriculture for Hungary environmental dimension
Code

Indicator

Unit

EN7

1000 tonnes of
oil equivalent
Emission of greenhouse gases in
1000 tonnes of
agriculture
CO2 equivalent
Emission of ammonia in agriculture
Tonnes
Emission of sulphur oxides in agriculture Tonnes
Emission of nitrogen oxides in agriculture Tonnes
Emission of non-methane volatile organic
Tonnes
compounds in agriculture
Emission of methane in agriculture
1000 tonnes

EN8

Emission of nitrous oxide in agriculture

EN1

2007

2008

2009

2010

501

530

444

491

9237

9113

8578

8531

Y
N
Y

68 457
437
2206

75

445

437

443

194

194

Tonnes

16 715

15 949

EN9 Use of inorganic fertilizers - nitrogen

EN10 Use of inorganic fertilizers - phosphorus
EN11 Nitrogen balance per hectare of UAA

kg/ha
kg/ha
kg/ha

Y
Y
Y

76
9
35

67
6
-24

194
15
258
61
4
-4

185
15
547
60
4
9

EN12 Phosphorus balance per hectare of UAA

kg/ha

-6

-20

-17

-16

EN2
EN3
EN4
EN5
EN6

Final energy consumption of agriculture

Selec
-ted

66 915 66 032 63 656

924
771
790
2385 2104 2122

201

EN13 Use of manure per hectare of UAA

EN14 Sales of pesticides
EN15
EN16
EN17
EN18
EN19

Irrigable area in percentage of UAA

Water use of agriculture per UAA
Biomass production of agriculture
Ratio of low input farms
Share of mixed crops-livestock farms
Share of not utilised area in the
EN20
agricultural area
EN21 Share of arable land in UAA
EN22
EN23
EN24
EN25
EN26

kg/ha
tonnes of active
ingredients
%
M3/ha
1000 tonnes
%
%
%

%
livestock units /
Livestock density (livestock units/UAA)
ha
livestock units /
Grazing rate (livestock units / fodder area)
ha
Bird index of farmland species
2000 = 100
Share of UAA under agro-environmental
%
measures
Share of organic farming in percentage of
%
UAA

27

24

24

23

11178

12084 11103

9911

N
Y
Y
Y
Y

3.3
71
29773
62
15

2.3
1.9
1.5
63
59
55
43361 36784 33094
62
62
62
15
15
15

10

12

13

15

84

83

82

81

0.6

0.5

0.5

0.5

1.0

0.9

0.9

0.9

99

105

88

91

27

27

19

21

1.7

1.4

1.1

0.8

UAA: utilized agricultural area;

Source: Eurostat (2013b), own estimation

In the economic dimension two indicators were selected to be taken out (Table 3.):
Agricultural income indicator "A" (strong correlation with 2 indicators)
Entrepreneurial income/utilized agricultural area (strong correlation with 2
indicators)
Table 3: Indicators of sustainable agriculture for Hungary economic dimension
Code

Indicator

EC1

Output per intermediate consumption in

agriculture

EC2

Gross value added

EC3

Gross fixed capital formation

EC4

EC6
EC7

Exports of agricultural products

Foreign trade balance of agricultural
products
Agricultural income (Indicator "A")
Crop output / animal output

EC8

Factor income

EC9

Output of non agricultural activities

EC5

202

Unit

Selected

2007

2008

2009

2010

1.3

1.7

1.6

1.5

1 478

2 677

2 051

1 601

643

689

820

619

3 462

3 850

3 476

4 058

million Euro

900

1185

709

975

2005=100

N
Y

116
1.2

153
1.8

104
1.6

122
1.4

million Euro, at
current basic
price

2 267

2 944

1 912

2 337

million Euro,
constant prices
(2005=100)

175

149

125

111

million Euro,
constant prices
(2005=100)
million Euro,
constant prices
(2005=100)
million Euro

EC10
EC11
EC12
EC13
EC14
EC15

Number of holdings with other gainful

activities
Research and development in
agriculture
Subsidies in percentage of
entrepreneurial income
Total area under 20 ha / total area over
100 ha
GDP of the rural territories
Entrepreneurial income / UAA

number of
holdings

million Euro

10

Euro per capita

Euro per ha

42 020

47
270

10

11

13

93

83

143

112

0.2

0.2

0.2

0.2

Y
N

7 246
281

7 720
421

6 511
195

6 605
280

31 830 36 925

UAA: utilized agricultural area;

Source: Eurostat (2013b), own estimation

Two indicators proved to be needless in the social dimension (Table 4.):

Share of standard output of farm managers over 65 years (strong correlation with
2 indicators)
Severe material deprivation rate in the thinly populated areas (strong correlation
with 2 indicators)
Table 4: Indicators of sustainable agriculture for Hungary social dimension
Code
SO1
SO2
SO3
SO4
SO5
SO6
SO7
SO8
SO9
SO1
0
SO1
1
SO1
2
SO1
3
SO1
4
SO1
5
SO1
6

Indicator
Share of farm managers with full agricultural
training
Share of standard output of farm managers
over 65 years
Share of standard output of farm managers
under 35 years
Share of standard output of female farm
managers
Labour force in agriculture
Share of graduates in agriculture and
veterinary field as % of all fields
Ratio of rural population over 65 years
Rate of natural change of rural population
Rate of net migration of rural population
Share of households with risk of poverty or
social exclusion in the thinly populated areas
Share of households with very low working
intensity in the thinly populated areas
Share of households below 60 % of the
median equalised income in the thinly
populated areas
Share of households with housing cost
overburden in the thinly populated areas
Severe material deprivation rate in the thinly
populated areas
Severe housing deprivation rate in the thinly
populated areas
Rate of unemployment in the thinly populated
areas

Unit

Selec
-ted

2007

2008

2009

2010

56

51

46

42

1000 annual
working units

459

430

442

440

2.6

2.0

2.0

2.4

%
%
%

Y
Y
Y

16
-3.9
-2.5

16
-3.9
-2.5

16
-4.4
-1.9

17
-5.1
-2.1

34

32

33

35

14

15

15

15

11

11

11

22

19

21

23

14

22

12

19

10

12

13

Source: Eurostat (2013b), own estimation

203

For the rest of the indicators the correlation is acceptable. The indictors to be taken
out are unnecessary or have an overlap with other indicators. For example in case of the
economic dimension, the content of the two indicators to be taken out is similar to the
remaining indicator Factor income.

10.4. Conclusions and further research

In our research it was proven that it is possible to set up an indicator system of
sustainable agriculture using data available for the EU Member States. The analysis of
correlation proved to be a proper method of taking out redundant indicators. Although
there is considerable lack of available information and also there is a need for imputation
of the missing figures, the database that was compiled seems to be appropriate for
developing composite indicators of the three dimensions of sustainable agriculture. There
are indicators with conflicting meaning from the viewpoint of different dimensions. This
problem needs to be dealt with.

Abstract
There has been a general agreement between researchers and policy-makers that
agriculture plays a crucial role with respect to sustainability. However, studies centering on
sustainable development have not paid sufficient attention to agriculture, especially in
developed countries where the sector has only a marginal share in the national economy. In
order to measure the sustainability of agriculture it is necessary to create a system of
indicators that makes it possible to monitor the development of agriculture with respect to
the three pillars of sustainability, namely the environment, the society and the economy.
This study attempts to set up an indicator system that enables us to measure sustainable
development in the agriculture.

References
1. Binder, C. R., Feola, G., Steinberger, J. K. (2010), Considering the normative, systemic
and procedural dimensions in indicator-based sustainability assessments in agriculture,
Environmental Impact Assessment Review, Vol. 30, pp. 71-81.
2. EU (2012), Sustainable agriculture for the future we want, European Commission,
http://ec.europa.eu/agriculture/events/2012/rio-side-event/brochure_en.pdf, accessed:
30 August 2013
3. Eurostat (2013a), Agri-Environmental Indicators,
http://epp.eurostat.ec.europa.eu/portal/page/portal
/agri_environmental_indicators/introduction, accessed: 8 September 2013
4. Eurostat (2013b), Statistics Database,
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10 September 2013
5. Fekete-Farkas, M., Molnr, J., Szcs, I., Valk, G. (2007), Sustainable Growth and its
Measurement in Agriculture, Perspectives on Economics Volume 1: Selected
Poceedings of the Third International conference on Business, Management and
Economics, Organized by Yasar University, 13-17 June 2007, Cesme-Izmir, Turkey,
Yasar University, pp. 267-284.

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6. Kirchmann, H. and Thorvaldsson, G. (2000), Challenging targets for future

agriculture, European Journal of Agronomy, Vol. 12, pp. 145-161.
7. National Research Council (2010), Toward Sustainable Agricultural Systems in the
21st Century, The National Academies Press, pp. 598.
8. OECD (2002), Indcators to Measure Decouplng of Envronmental Pressure from
Economc Growth (SG/SD(2002)1/Final), OECD, 2002
9. OECD (2013), OECD Compendium of Agri-environmental Indicators, OECD
Publishing, p. 185
10. Robertson, G. and Harwood, R. (2013), Agriculture, Sustainable, Encyclopedia of
Biodiversity (Second Edition), Editor-in-Chief: Levin, S. A. pp. 111-118.
11. SARE (1997), What is sustainable agriculture?, Sustainable Agriculture Research and
Education, http://www.sare.org/Learning-Center/SARE-Program-Materials/NationalProgram-Materials/What-is-Sustainable-Agriculture, accessed: 31 August 2013
12. Smith, C. S. and McDonald, G. T. (1998), Assessing the sustainability of agriculture at
the planning stage, Journal of Environmental Management, Vol. 52, pp. 15-37.
13. Srebotnjak, T. (2007), The role of environmental statisticians in environmental policy:
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14. USDA (1999), Sustainable agriculture: definitions and terms. Special reference briefs;
99-02, U.S. Department of Agriculture,
http://www.nal.usda.gov/afsic/pubs/terms/srb9902.shtml, accessed: 30 August 2013
15. Valk, G. and Fekete-Farkas, M. (2008), Indicators of Sustainable Agriculture with
Special Attention to those of Climate Change, International Conference on Social
Sciences, Izmir, Turkey, 21-22 August 2008. pp. 1-10.
16. Van Cauwenbergh, N., Biala, K., Bielders, C., Brouckaert, V., Franchois, L., Garcia
Cidad, V., Hermy, M., Mathijs, E., Muys, B., Reijnders, J. Sauvenier, X., Valckx, J.,
Vanclooster, M., Van der Veken, B., Wauters, E., Peeters, A. (2007), SAFE-A
hierarchical framework for assessing the sustainability of agricultural systems,
Agriculture, Ecosystems and Environment, Vol. 120, pp. 229-242.
17. Van Passel, S. and Meul, M. (2012), Multilevel and multi-user sustainability
assessment of farming systems, Environmental Impact Assessment Review, Vol. 32,
pp. 170-180.

205

11. THE LEVEL OF PERCEIVED TECHNOLOGICAL AND

NATURAL RESEOURCE RISKS AND ALTERNATIVES FOR
RISK MITIGATION IN THE HUNGARIAN FOOD
CONSUMERS BEHAVIOUR
Jzsef Lehota Nndor Komromi Annamria Fredi Kovcs
Zsuzsanna Lehota

Introduction
As a consequence of the growing needs for sustainability (natural, social and
economic alike) the production of agricultural raw materials and the technologies of food
processing are bound to undergo profound changes during the coming decades. The
conditions for the technology change are highly complex and they range from R&D
expenditures to the introduction and utilisation of innovations. Besides adaptation by
companies (in terms of financial management, and human resources and marketing) the
spreading of innovations requires persuading consumers to accept innovations and the
creation of the requisites for introduction to the market. These are all fundamentally
determined by the advantages offered and the disadvantages and risks entailed by the new
technologies. The objective risks, measured on the basis of scientific criteria and the
subjective risks perceived by consumers may differ from each other considerably.
Accordingly, it is crucial that types and levels of the perceived risks be assessed and that
risk mitigation alternatives be worked out and offered for businesses and consumers.
This research project was carried out with support under the programme No.
SoROP:4.2.1/B-11/2/KMR-2011-0003: Raising the standards of education and research at
Szent Istvn University.

11.1. The definition and role of risk in food purchase decisions

The term risk is applied in relation to the interpretation of consumer behaviour with
two different meanings. On the one hand, it stands as a synonym for uncertainty. It means
the possibility that the product or service may not meet the requirements it is expected to
meet. On the other hand, it stands for threat, meaning that the product or service may cause
damage or harm to the consumer or his/her household (Robertson and Kassarjian, 1992).
Risk is always linked to some loss that the buyer intends to avoid (Bauer and Bercs, 2002,
Hawkins, Best and Coney, 1986, Dowling, 1986 in Alden, 1993). It is when the consumer
is short of information and it results in an uncertain situation for him or her that the
consumer recognises that there is a risk (Bauer and Bercs, 2002, Loudon, Della Bitta,
1984, Dowling 1986 in Alden 1993.) The consumers are interested in having this condition
eliminated as quickly as possible. Accordingly, risk has a motivating function as well,
since the detection of a risk usually prompts consumers to adopt behaviour patterns
mitigating the risks that are perceived (Kroeber, Riel and Wwinberg, 2003).
Research aimed at clarifying the role of risk is justified by a change in attitude that is
described as follows: as a consequence of the immense amount of the information
continuously bombarding consumers they are less and less able to maximise utility in
206

making purchases therefore they make efforts to reduce their risks.24 Based on the theory
of perceived risk the purchase decision is always regarded as a form of risk taking since
certain consequences of the chosen alternative are not foreseeable. (Bauer, 1960 in Specht,
Wiswede, 1976., Bauer, 1960 in Boone,1977.
The importance of perceived risk stems in the case of food products from the
experienced nature of the product. It is not until the product is consumed that the consumer
can say whether it was up to his expectations. Moreover, Nelson, 1970 in Boccaletti, 1999,
Kotler, 2001 classify food products as credence quality products in that in many cases the
consumer may have difficulties in actually evaluating or appreciating the quality even after
consuming the product. Accordingly, there is a high degree of uncertainty when buying
foodstuffs and managing the risks is an important task while doing so.
Consumers are faced with a variety of risks when making purchase decisions. Most
literature list five or six risk factors, in some cases applying different terms to the same
risk. The risk factors discussed by most authors in relation to food products are defined as
follows (Lehota 2001, 2006).
1. Physical/safety risk: the products effects on health such as by way of its toxicity (e.g.
certain types of grains), by being past its shelf life (presence of toxins) or as a
consequence of its allergenic effects. These together qualify as health risks.
2. Functional risk: this risk is related to the possibility of making a wrong purchase
decision. The product is not fit for the purpose for which it is purchased or it is not
suitable for preparing what the consumer wants to prepare.
3. Financial risk: this is related to the quality to price ratio, in other words, the risk of
buying the same quality for a higher price or paying the same price for a lower quality.
4. Social risk: on the one hand, it is encountered in the case of consumption that is
different from the patterns of the culture or subculture concerned or when a food
product is purchased as a present.
5. Psychological risk: non-conformity to the customers own requirements. (e.g. animal
welfare issues, ecological production)
6. Time related risk: it is related, in essence to the process of product purchase. If one
spends more time on collecting information and assessing and evaluating alternatives,
one may make a good decision but the advantage achieved relative to the time input will
be smaller. (Packaging is important in this aspect.)
Food marketing research is focused predominantly on the detection and mitigation of
health related risks, a consequence of increased interest among professionals and the public
concerning nutrition-health issues, the growing importance of food safety, the spectacular
development of food processing technologies and an increase in scandals involving food
products. Risks relating to consumers physical integrity and health are discussed by
authors under the heading of physical or safety risks. This category is then subdivided
into food safety and nutrition-health risks (Smink and Hamstra, 1994 in Lehota, 2001).
In the case of the health-conscious consumer segment purchase decisions are often made
after the contemplation of the assumed consequences of the two risk categories (their
subjective risks). The reason for this is that foodstuffs that would be suitable from a
nutrition-health aspect, carry high food safety risks. Certain sea fish species may, for
24

It follows from Herbert Simons limited rationality theory that consumers are neither rational nor fully
informed therefore they cannot exactly assess the advantages and disadvantages when buying goods or
services. (Cox, 1967 in Horvth, 1996)

207

example, be dangerous as a consequence of their high mercury content whereas otherwise

they should be part of a healthy diet. On the other hand, in the case of products that have
been optimised from the aspect of food safety, one may be facing a higher nutrition-health
risk. Organic food products may for example be disadvantageous owing to their high sugar
or salt content.
In regard to their physiological effects food-related risks may be assigned to the
following five categories (Molnr, 2008):
1. short term effects it is easy to find the relationship between the factor causing the
problem and the related effects. Even the laymans conclusions are often right in
relation to such relationships (e.g. food infection).
2. Long term effects the relationship can only be identified scientifically, through
research and experiments (e.g. carcinogen substances).
3. Likely accumulating effects (e.g. the effects of artificial additives).
4. Impacts affecting future generations (e.g. effects on fertility of various chemicals used
in crop production).
5. Impacts on sensitive consumer groups (young, elderly, pregnant and immune-deficient
consumers respond to risk factors more markedly).

11.2. Detection and management of food risks

Food scandals in recent years, particularly in the case of microbiological risks of
zoonotic origin, imported to Hungary from abroad, have shown a wide variety of examples
of how differentiated consumers evaluation of any such danger may be, sometimes even
completely independently from experts position statements. For example, in the autumn of
2005 the bird flu virus appeared in Hungary as an animal health problem and authorities
went out of their way to communicate that there was no risk of people falling ill with this
particular virus in Hungary. Nonetheless, the epidemic caused major losses for Hungarian
poultry producers and distributors as a consequence of the dramatic drop in demand for
poultry products.25 This is because perceived risk is a subjective factor that has or has no
relationship with the objective risk26 (Loudon, Della Bitta, 1984, Hofmeister-Tth, 2003).
In the course of our food marketing research projects we found that neither the range of
risks perceived by consumers, nor consumers views of the severity of those risks matched
the range and severity of the objective risks identified by experts.27 Great differences have
also been found between how individuals (or consumer segments) viewed the same
particular risks (Hawkins, Best, Coney, 1986). It is always the given situation the
influencing environmental factors and the consumers individual characteristics that
determine whether a given risk turns out to be crucial when a purchase decision is made
(Loudon, Della Bitta, 1984, Hawkins Best Coney, 1986) The way in which and the means
by which a consumer then tries to reduce uncertainty after realising the existence of a risk
also depends fully on the individual concerned.
25

Interviews were conducted in 60 meat shops in the summer of 2006 and some two thirds of the shop
managers said that their sales of poultry products had decreased as a consequence of the epidemic. (Fredi
Kovcs, 2009)
26
Objective risks are characterised by data relating to the level and the likelihood of the materialisation of a
risk, always determined by experts on the basis of scientific research and experiments.
27
Some 65-83% of the Hungarian population finds infections affecting foodstuffs to be dangerous, along
with modern food processing and agricultural technologies. (Fredi Kovcs, 2009)

208

Based on Rosenstiel and Ewalds (1979) recommendation risk is assessed separately

as a dependent and as an independent variable. As a dependent variable it is examined in
the course of the identification of the factors affecting risk perception: the basic question is
how the consumers risk perception is affected by various personality traits, product
attributes and situations. As an independent variable risk is studied in the course of the
research of risk reducing behaviour. In this case the questions are in what way and by what
means consumers try to mitigate perceived risks28.
Literature on risk perception deals primarily with models relating to the spreading
and processing of risk-related information. These models highlight primarily the orienting
function of the earlier acquired attitudes (e.g. Gutirezz et al., 2006, Thalmann and
Wiedemann, 2006) and the amplifying effect of the external environment (primarily that of
the media, trade organisations and consumer protection organisations) (e.g. social arena
theory (Renn, 1992 in Lehota, 2001). A number of research projects have lead to the
conclusion that public opinion concerning sources of danger or hazards are much more
deeply influenced by the media than by professionals position statements or actual
research results (pl. Trail 1992 in Lakner, Somogyi and Horvth, 1998).Emotional factors
also play an important role in the disputes relating to food-related risks. For instance,
arguments emphasising the advantages and the safety of a given new technology are
usually countered by arguments highlighting the disadvantages and the threats entailed by
the same technology, and the majority of people do not have the background knowledge on
the basis of which they could answer such questions therefore they are typically exposed to
emotionally loaded messages by those intending to manipulate (e.g. frighten) them.
According to surveys conducted by Rundmo and Moen (2006) (n=1716 Norwegian
residents) the level of concern is the strongest and surest indicator of the need for
mitigating risks.
Businesses have a wide variety of instruments and techniques to alleviate customers
uncertainty, ranging from putting quality assurance systems into place, through promotion,
a variety of guarantees, intensive use of communication channels, pricing, strengthening of
personal experience, to third party/organisation guarantees and the role of the place of
origin. The most important means that are available for the management of food risks
include quality assurance systems, guarantees provided by independent
persons/organisations and the specification of the place of origin.
Referring to the outcomes of numerous studies29 JOUNGE et al., 2007 point out that
doubts relating to the safety of food products may affect the choice of product, (avoidance
of certain products and favouring other (e.g. organic) products), choice among brands and
the place of shopping. (See Figure 1)
Figure 1 presents a summary of the considerations on the basis of which consumers
find a product, brand or shop to be safe in the course of their purchase decisions.30

28

One important but less researched element of dealing with risk as an independent variable is the question
why consumers accept certain risks.

29

E.g. Mitchell, 1998, Pennings et al, 2002, Saba-Messina, 2003, Verbeke-Van Kenhove, 2001, VerbekeVianne, 1999

30

A summary of works by Schweiger-Mazanec-Wiegele, 1976, London - Della Bitta, 1984, Hawkins-BestConey, 1986, Lehota, 2001, Horvth, 1996, Hofmeister-Tth, 2003, Alan Ching Biu Tse, 1999, Li-Wei, Mai,
2001, Kolos-Bercs, 2000, Hofmann, 1990.

209

Risk perception
Loss of confidence
Choice of
ProductBrandShop
Rejection of offers
considered to entail risks

Preferring offers considered to be

safe

Figure 1: Risk reducing behaviour forms

Source: Fredi Kovcs, after 2009 Jounge et al. (2007)

Table 1: Possible means for risk mitigation in choosing product, brand or point
of purchase
Safe product
Proven product
Product already used earlier
on
Most expensive model

Safe brand
Proven brand

Safe point of purchase

Proven store

Brand already used earlier on

Well-known store

Well-known brand

Most highly elaborated model

Brand of big enterprise

Store with a good image

Personal relationship with the
shop assistant

Product manufactured in
accordance with rules of
quality assurance system
Product from a developed
country
Product manufactured using
advanced technology
Product manufactured with
great expertise
Product containing the
smallest possible amount of
added artificial materials
Copyrighted product
Domestic product

Brand of famous, recognised

manufacturer

Advice/consultation available

Expensive brand

Pleasant store atmosphere

(generating trust)

Brand controlled by private

firm or state/governmental
office
Brand with manufacturers
guarantee

Specialised store
Obtaining direct experience
concerning the product

Brand advertised by typical

consumer

Money-back guarantee

Brand advertised by wellknown person

Domestic manufacturer

Shortest possible route from

manufacturer to consumer
Domestic store(chain)

Source: Fredi Kovcs, 2009.

The choice of store plays a particularly important role in risk mitigation in the case of
unprocessed raw meat products. Customers have the strongest trust in points of purchase
where they can have direct experience with products. They find products
grown/raised/produced by the seller entity itself and they find specialised stores to be of
average reliability (Lakner, 2003). This is why specialised stores play a greater role in the
case of meat products than in the case of other goods, where it is possible to build up a
direct relationship with the seller/shop assistant (Kocsis, 2006), while in a critical situation
210

the possibility to trace the place of origin of the product, the quality assurance system and
the brand mark play key roles when customers make their decisions on purchasing meat
products (Fredi Kovcs, 200931).

11.3. Food risks and risk mitigating consumer behaviour patterns

in Hungary
The Institute of Marketing of the Faculty of Economics and Social Sciences at the
Szent Istvn University conducted a questionnaire based survey - with the participation of
a market research firm called Cognative Piackutat Kft. in March and April 2013 on a
nationwide representative sample comprising of 1030 individuals aged over 15 years. One
of the key subjects of the questionnaire survey was to find out about perceived food risks
and the associated risk mitigating consumer behaviour patterns. The study analyses
primarily perceived food risks and risk mitigating consumer behaviours and the
components of the latter. A total of 23 food and non-food risk factors were studied in the
framework of the survey, where each of the risk factors had high perceived level, as the
value of 17 risk variables were over 4.25 (on the 1-5 Likert scale) and the perceived level
of only one risk variant was not significantly over 4.00 (4.01).

Table 2: Perceived food risk levels, 2013

Risk factors

Value (on 1-5 scale)

Toxic heavy metals in raw and processed foodstuffs

4.45

Chemical residues in raw and processed foodstuffs

4.39

Diseases spreading from animals to people

4.36

Microbiological infections of foodstuffs

4.34

Toxins produced by mould fungi in foodstuffs

4.33

Foodstuffs of unknown origin

4.31

Animal drug residues in meat and dairy products

4.31

Additives and preservatives in raw and processed foodstuffs

4.28

Genetically modified foodstuffs

4.27

Risks stemming from new food manufacturing technologies

3.98

Source: Based on survey data

The findings of the survey are in line with those of the surveys conducted by EUROBAROMETER in 2005 and in 2010 (European Commission, 2010), which showed
consistently high perceived food risks even in comparison to the average of the EU-27. The
high perceived food risk levels were driven by the food scandals that had occurred in both
Hungary and in the European Union as well as the medias activities raising the risk levels
even higher. According to the arena theory parties and organisations with contrary
interests also contribute to the magnifying of risks.
31

A 2005-s madrinfluenza jrvny idejn is jelentsen nvekedett a fogyaszti etno-centrizmus.vf

211

Figure 2: Food risks as an average of the EU-27 countries and in Hungary (2010)
Source: European Commission (2010)
Apart from one factor the Hungarian food consumers risk perception is equal to or
over the EU average. In the case of the majority of the factors under review Hungary is in
the top third, among the 7-9 countries with the highest perceived risk levels.
The survey was carried out by means of factor analysis whereby the factors are
brought together in two combined factors: the factor of direct, experienced factors (factor
loading: 29.4 %), and the distant, not experienced risk factors (factor loading: 25.5%).
Table 3: Rotated risk factor matrix

Drinking water contamination.

Toxic heavy metals (lead, mercury, cadmium etc.) in raw and processed
foodstuffs.
Depletion of drinking water and other water reserves.
Accumulation of hazardous, poisonous and nuclear waste.
Air pollution.
Contamination of arable lands.
Animal drug residues in meat and dairy products.
Chemical residues in foodstuffs (grain, fruits, vegetables).
Deforestation, reduction of the area of woodlands.
Diseases spreading from animals to humans (e.g. BSE, poultry and pigs).
Additives and preservatives in raw and processed foodstuffs.
Risks relating to the new food consumption technologies (e.g. nanotechnology).
Foodstuffs of unknown origin.
Extinction of certain plant and animal species.
Pollutant emission of passenger and commercial vehicles and aircraft.
Depletion of energy (e.g. mineral oil, natural gas etc.) reserves.

Source: Own research

212

Component
1
2
0.782
0.748
0.744
0.705
0.666
0.633
0.625
0.593
0.582
0.567
0.518
0.692
0.672
0.659
0.636
0.602

The following four clusters were separated with the aid of cluster analysis:
Cluster 1: risk-indifferent segment; except for drinking water contamination and heavy
metal contamination in which it raises the rate, 84 persons, 9.4%,
Cluster 2: generally risk sensitive, raising the rate of all risks, 362 persons, 40.4%,
Cluster 3: selective risk sensitive segment, raising the rate primarily of risks relating to
animal products and environmental risks, 239 persons, 26.7%,
Cluster 4: lowers the risk rates in general, except for the risks associated with harmful
fungal toxins and with new food processing technologies, 211 persons, 23.5%.
More than two-thirds (67.1%) of those comprised in the sample perceives food risks
at average or high risk levels and only 32.9% have relatively lower levels of risk
perception. The perceived risks exceed a rate of 3.0 - showing average risk level - even in
the case of the risk down-rating behaviour. In the down-raters groups in 87.5% of the
individuals showed rates over 3.51, 9.4% of them showed rates of 3.0-3.5 and only 3.1% of
them (Variable 1) showed rates between 2.5 and 3.0.
Table 4: The key attributes of the risk segments
Risk types
1. Environmental risks
(drinking water, arable
land, air).

Cluster 1
down-rater,
except for
drinking
water

2. Risks relating to plant

products (chemical,
fungal toxin,
additives).

down-rater,

3. Risks relating to
animal products
(animal drug residues,
microbial
contamination, heavy
metals, diseases
spreading from
animals to humans).
4. Technological risks
(GMO, new food
processing
technologies,
foodstuffs of unknown
origins).

average in
the case of
heavy
metals,
down-rater
in the case
of the other
two
general
down-rater

Cluster 2
down-rater,
except for
arable land
(strongly uprater)
strongly uprater of each of
the three risks

strongly uprater in all

cases

general uprater

Cluster 3
strongly uprating of each
of the three
risks

Cluster 4
down-rater of
each of the three
risks

strong uprating of
harmful fungal
toxins,
moderate uprating the
other risks
strongly uprater, except
for microbial
contamination

generally downrater, less so in

the case of
fungal toxins

up-rater,
except for new
food
processing
technologies
(down-rater)

strong downrating of GMO

risks, downrating the other
risks

strongly downrater in all cases

Source: Own research

The high level of perceived food risks is a major obstacle to generating increased
demand for a given food category or sub-category, therefore it is crucial that risk
mitigation opportunities be explored and that customer segments be identified on the basis
of those opportunities. A total of 23 alternative behaviour factors were assessed in
213

analysing food risk mitigating behaviour patterns, where the measured levels were
significantly below the risk levels, i.e. consumers have no adequate risk mitigating
solutions or alternatives. The values of only the following 3 of the assessed factors
exceeded 4.00 on a scale of 1-5: I do not buy food from illegal or suspiciously cheap
sources, I regularly buy products in the same store, I prefer Hungarian food products to
imports. The average rates of 10 of the assessed factors fell in the range of 3.5-4.0, the
average of 6 factors fell between 3.00 and 3.5, while three averaged below 3.0.
Table 5: Rotated matrix of factors mitigating food risks
1
I purchase produce and products from local farmers and
processing entities rather than products originating from
distant sources
I regularly buy products in the same store
I prefer Hungarian food products to imports
I purchase produce and produce food that I consume,
directly from farmers and processing entities
I purchase, eat and drink products during their respective
prime seasons
I prefer food products manufactured by traditional
technologies
I do not buy food from illegal or suspiciously cheap
sources
I purchase food product geographical markings and
identification of origin
I prefer products not coming from large-scale farms or
factories
I have confidence in the food risk mitigating activities of
the food controlling authorities
I trust the system of quick and efficient withdrawal of
food products by authorities from the market (in a system
of quick alarm, withdrawal from the market and disposal)
I have confidence in the food identification and tracking
system of the food chain (from farmer through processing
firm to trader)
I have confidence in the plant and animal health checks
carried out by Hungarian authorities
I alter my food consumption habits
I gather more and more information on foodstuffs
(doctors, nutritionists, magazines, internet)
I purchase organic and eco food products
I purchase industry and manufacturer branded food
products
I keep an eye on the product parameters and attributes
listed on the food product labels
I purchase food product with private labels (e.g. Tesco,
Spar)
I prefer foodstuffs produced with low water input
I prefer foodstuffs produced with little carbon dioxide
emission
Source: Survey data

214

Component
2
3

0.679
0.650
0.628
0.615
0.615
0.577
0.554
0.473
0.469
0.786
0.772

0.768
0.764
0.718
0.700
0.660
0.584
0.558
0.498
0.602
0.552

Factor analysis was carried out in order to categorise the risk factors as a result of
which variables could be aggregated in the following four main groups of factors:

The factor of choosing purchasing sources: 17.0%,

The factor of controlling authorities and food chain participants: 16.9%,
The factor of food consumer behaviour components: 15.5%,
The factor of sustainability considerations: 6.5%,
Cumulated factor value: 55.9%.

Consumers were analysed and grouped by means of cluster analysis (C-mean). The
number of clusters was determined on the basis of the rule that none of the clusters should
be smaller than 10 % of the original sample. Accordingly, the following 4 clusters were
distinguished:
Cluster 1: active, complex food risk mitigating consumers, 321 persons (38.6%),
Cluster 2: careless consumers generally down-rating the risk mitigating possibilities,
263 persons (31.6%),
Cluster 3: customers trusting conventional sources of procurement and traditional
technologies 99 persons (11.9%),
Cluster 4: consumers trusting legal and institutional participants 149 persons (17.9%).
Table 6: Main attributes of each consumer cluster and segment
Attributes
1. Consumer and customer
behaviour factors (information
from experts and product labels).
2. Choice of procurement sources
(avoidance of illegal or
suspiciously cheap sources,
frequenting the same stores,
preparation for purchases).
3. Branded, marked and organic
foodstuffs, food products from
Hungarian or local farmers and
processing entities.

Cluster 1
up-rating

Cluster 2
slightly
down-rater

Cluster 3
moderately
down-rater

Cluster 4
strongly downrater

moderately
up-rater

strongly
down-rater

strongly uprater

moderately uprater except

for, illegal
sources

strongly uprater

strongly
down-rater

moderately
down-rater,
except for a
foodstuffs of
Hungarian
origin

4. Sustainability criteria (the

seasons foodstuffs, foodstuffs
produced with traditional
technologies, low water
consuming and low carbondioxide emitting foodstuffs).

strongly uprater, except

for traditional
technology

strongly
down-rater
of all
factors

5. View taken of authorities and

market participants

moderately
up-rater,
except for the
role of plant
and animal
health
authorities

strongly
down-rater
of all
factors

down-rater of
commercial
and industrial
brands, and
organic
foodstuffs,
up-rater of
Hungarian and
local foodstuffs
slightly downrater of all
factors, except
for foodstuffs
produced with
traditional
technologies
strongly downrater of all
factors

slightly downrater, or
average

strongly uprater

215

Comment: significant differences were found below 0.05 in all risk mitigating factors
among the clusters.
A substantial Cluster 1 consumer segment can now be identified among Hungarian
consumers, who find both branded and marked foodstuffs and food products meeting the
relevant sustainability criteria as major risk mitigating factors. This may be the key target
group for companies. Cluster 2 consumer segment is also rather large and its members
moderately or strongly down-rate practically all of the risk mitigating factors. Those in
Cluster 3 consider the choice of the sources of purchases as the key risk mitigating factor,
along with focusing on foodstuffs produced with traditional technologies. Cluster 4
segment is that of customers trusting primarily the controlling activities of the authorities
and market participants legal compliance.

Summary
Food risk including technological-related risk awareness observed among
Hungarian food consumers has increased substantially during the past two decades and
according to the findings of a recent international comparative survey they are higher than
the EU-27 average with the exception of 1-2 specific risk types. The rates of the risk
mitigating options available for food consumers are a lot lower than the perceived risk
levels that have become a major obstacle to the growth of demand for foodstuffs. A
significant role should be assigned to the mitigation of risks to the recognition that new
technologies should be developed in view of consumers expectations and risk perceptions
in the first place and that their advantages should be effectively communicated. The food
risks stemming from the technologies and from the application of technologies in the
production of agricultural and manufacture of food products can be most efficiently
mitigated by the enterprises participating in research and development and by those
intending to apply the technologies. Large proportions of the costs of research and
development and the spreading of innovations may be lost if these requirements are failed
to be met. To this end, there is a need for efficient and effective collaboration among
different scientific fields including natural and economic sciences, including the science of
marketing.

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217

12. THE EVALUATION OF NATURAL RESOURCES

Practices an endeavors in the Central Statistical Office (HCSO)
Edited by: va Laczka
Authors: Gbor Szilgyi Lajos Franczen Nra Borbly-Dienes
Pl Aujeszky Tmea Cseh
While conducting this TMOP research project, we established a constant and vital
connection with the employees of the HCSO who specialize in evaluating natural resources
and registering these values in the national accounting system. This cooperation proved to
be remarkably efficient and influenced the direction of research endeavors in a certain way.

Summary
Since the beginning of the 1970s the experts of environmental statistics in countries
with developed statistical methods have been dealing with the issue of how the economic
and social role of the environment could be considered in national accounts.
It has been recognized that the economy should be run on behalf of and according to
the needs of the society in the long run as the environment serves as the basis of economic
and social development. It is the place from where resources are taken up by the economy
and society and where the wastes and hazardous emissions are released by the economy
and society, respectively. However, the picture could be distorted if the interrelationships
between these three main statistical areas are disregarded in well-established statistical
systems.
The philosophy of sustainable development reinforced this approach, which suggests
the joint examination and monitoring of the three basic areas (society, economy and
environment) for all the developed countries by means of statistics as a measure of unit
among others.
In Hungary environmental statistics as a professional, independent branch became
part of special statistics in 2006 as a result of the international practice used by the
developed countries and the philosophy of sustainable development.
Environmental statistics trace down the situation and changes in the environment, i.e.
its parts, elements, systems, processes and structures by recording, processing, storing,
transferring, receiving, analysing, declaring, publishing and disclosing environmental data
by statistical methods.
Within its framework the environmental elements (soil, air, water, biology as well as
man-made (artificial) environment and their components) are monitored by means of
statistical methods together with the quantitative and qualitative parameters of measures
that are taken to prevent and eliminate possible harmful effects in the national economy.
Environmental statistics establish correlations between social and economic statistical
data by the help of an environmental statistical indicator system (environmental load,
economic and social response, industrial development, sustainable development etc.) and
environmental satellite accounts as well as their derivate indicators to assist in making the
right environmental political decisions, exploring the reasons for changes in environmental
conditions and also measuring environmental protection as a social reaction.
The characteristic of environmental statistics is that it uses almost all the other
professional statistics as basic data for estimates (international ones are still in progress)
and transfers a lot of data.
218

The present paper includes the presentation of attempts made at evaluating natural
resources as well as the methodological development that makes evaluation possible in
Hungarian Statistical Office (HCSO). It also presents the system of national Air Emissions
Accounts, the methodology of water accounts, the processes used for assessing soil and
environmental accounts designed to measure the efficiency of managing natural resources,
environmental accounts (material flow and mineral asset accounts) used for measuring the
efficiency of natural resource management and also the integration of the term assets in
the system of national accounts.

12.1. MATERIAL FLOW, MINERAL ASSETS

Gbor Szilgyi
Environmental economic accounts are complex instruments to describe the connection
between the environment and the economy whose data give a scope for analysing special
policies such as sustainable development, moderating the effects of climate change,
decreasing the impacts of environmental pollution, water and energy safety as well as
resource management and productivity. The latter one is an organic part of evaluating
different material flows and mineral assets. Significant methodological improvements were
made in both areas by the Central Statistical Office in the past few years.

Material flow accounts

The Department of Rural Development, Agricultural and Environmental Statistics of
the Central Statistical Office started working out material flow accounts in Hungary in
2005. As it was a totally new and unknown statistical area we greatly relied on
international methodology, primarily that of the European Union. Practically, the
methodology of the EU can also be regarded relatively new. Eurostat published its
methodological handbook entitled Economy-wide material flow accounts and derived
indicators A methodological guide, EC, 2000) in 2001 to help candidates activities in the
topics above and assist in methodological harmonization. The handbook contains
recommendations and practice about how single member states should start drafting
material flow accounts on the level of the national economy, what are the parts of the
accounting system that can easily be prepared and what are the ones where there are not
enough data available even on the international level.
Eurostat funded the methodological improvements of the HCSO on material flow
accounts by two so-called Grant projects which provided ample opportunities for open
professional consultations with the colleagues of the Austrian Umweltbundesamt and IFF
Social Ecology Institute. Their advice and recommendations greatly contributed to the
success of the project.

Methodological basis
Economy-wide material flows (Material Flow Accounts, MFA) and their derivatives
serve to monitor the total metabolism of national economies. The real significance of
describing material flow lies in the fact that it examines economic activities in physical
(tonne, joule) units and not in monetary units like the traditional economic indicators (such
as GDP).
MFA is the basis for physical accounting and compatible with the system of national
accounts to a great extent. The structure of material flow accounts is balance-like, material
219

flows from the environment to the economy are displayed on the input side while material
flows from the economy to the environment are on the output side. The former one informs
us about the material use of the economy while the latter one is about the environmental
impacts of economic activities.
At the first stage of methodological improvements the so-called input side of the
account system was worked out. Input contains all material flows that are transferred from
the environment to the economy, i.e. all natural resources used in the economy during the
period of observation including domestically extracted minerals, biomass and imported raw
materials and products.
One of the most important indicators is Domestic Extraction (DE) which includes all
extracted raw materials in the production process during the given period of time. Data
derive from different administrative data sources and databases for statistical purposes.
Concerning minerals, the databases of the Hungarian Office for Mining and Geology,
in terms of the biomass the Department of Rural Development, Agricultural and
Environmental Statistics of the Central Statistical Office are the most important.
By categorizing the input data in line with Eurostat methodology the basic indicator
of national material accounts can be created:
Direct material input (DMI): domestic extraction + import
If exported raw materials and total products are extracted from direct material input, we
will gain the indicator of domestic material consumption.
Domestic material consumption (DMC): domestic extraction + import export
The difference between import and export results in physical trade balance.
Physical trade balance (PTB): import export
This chapter of material flows is probably the most elaborate one regarding standard
methodology and availability of data. The least problems are/were caused by compiling
this chapter for the member countries of the EU and also in our country. In Hungary the
necessary data are almost entirely accessible, methodologically based estimates are needed
in a few cases only.
According to the standard international methodology domestic extraction has four
compounds whose parts are presented in details by the table below by taking national
special features into account.
1. Biomass
In Hungary it includes:
1.1. different harvested crops (main products)
1.2. hay for economic use
1.3. leftovers from foraging
1.4. biomass grazed by animals
1.5. biomass from lumber and forestry
1.6. biomass from fisheries
1.7. biomass from hunting
1.8. biomass from the harvested by-products of agriculture
2. Metal ores
In Hungary they include:
2.1. bauxite
2.2. manganese ore
220

3. Minerals with precious metals

In Hungary they include:
3.1. precious clay
3.2. industrial and precious sands
3.3. turf
3.4. other minerals extracted (limestone, dolomite)
3.5. raw materials in construction and ornamental stones
3.6. clay in handicraft and construction
3.7. sand and gravel in construction
3.8. raw materials of the cement industry
4. Crude oil raw materials (fossil fuels)
In Hungary they include:
4.1. black coal
4.2. lignite and brown coal
4.3. crude oil
4.4. natural gas

The main data of material flow accounts (2000-2011)

Domestic extraction
Domestic extraction fluctuated between 92 and 164 million tonnes between 2000 and
2011. By the end of the period a dramatic fall can be observed. The value of the indicator
did not exceed 100 million tonnes either in 2000 or 2011. The figure below illustrates the
breakdown of the indicator by compounds.
180
160
140
120

Fossil fuels

100

Non-metallic minerals

80

Metal ores

60

Biomass

40
20

20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11

Figure 1: Breakdown of domestic extraction in Hungary

Source: HCSO

Minerals
By examining the different components of domestic extraction we can conclude that
a significant part of total extraction is that of minerals, more precisely, raw materials for
construction (including construction sand and gravel).
221

In 2000 construction material made up 40 per cent of the total domestic extraction.
There was a year (2005) when the ratio of extracting construction materials exceeded 50%.
The reason for this was the needs for a lot of gravel and sand due to the increased pace of
motorway expansion (in 2005 and 2006 216 km new sections were built).
Biomass
Biomass extraction greatly depends on weather conditions. The decisive part of
extraction takes place in agriculture as the ratio of our arable land significantly exceeds the
European average while the ratio of our forests is smaller. The dominance of arable land
cultivation goes together with the relatively great fluctuation in plant formation, which
mainly depends on the moisture of the vegetation period.
The main products make up approximately half of the biomass extract while the ratio
of residues/forage lags behind by 10 % on the average. Significant fluctuations can be
noticed in extraction and there was a year (2004) when total biomass extraction exceeded
50 million tonnes while in 2003 the indicator showed 32 million tonnes.
Raw material import export
In 2000 Hungarys raw material and product input was more than 34 million tonnes
and its exports reached nearly 20 million tonnes. Turnover in trade was continuously
increasing till 2008 and after that a slight decline in raw material import and a significant
one in import could be noticed.
In the case of import the primarily or processed precious metal minerals comprise
nearly half (47-50%) of total import. In the case of exports the amount of biomass and
biomass products are the most significant (39-45%).
Domestic material use
The indicator of domestic material use, the sum of domestic extraction and physical
balance of foreign trade gives the most punctual possible picture what raw materials
economic processes require in a given country. The indicator is also available in Hungary
reflecting the data above to assist in complex environmental and economic analyses.
Domestic material use showed an obvious decrease between 2000 and 2011 even
despite the fact that the value of the indicator in the middle of the period (in 2005) almost
doubled the value of 2010 and 2011, respectively.
Resource productivity
The joint analysis of material use and economic growth makes other observations
possible. The indicator of resource productivity is the quotient of GDP and domestic
material use. It shows how well a country can manage its resources. By means of the
indicator the extent of using natural resources in parallel with economic growth can be
defined. The increase in the value of the indicator signals the rising productivity of
available resources, which makes economic growth with less economic harm possible.
In Hungary using a kilogram of resources in 2000 contributed to gross national
income by 0.59 euro. By the end of the period between 2000 and 2009 the value of the
indicator significantly increased as of the beginning of the period (in 2009 0.8 euro/kg),
which is mainly due to the decrease in material use.
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Further plans
The output side of national material flow accounts deals with all material flows that
cause changes (mostly negative) in the environment when emitted from the economy.
Regarding the main components of the output of material flow accounts there is data
available for the period between 2000 and 2003 as a result of an EU Grant project. The
data is partly based on data collection for statistical purposes or administrative data sources
as well as internationally accepted estimates. The methodology of the output side is less
elaborated so the Hungarian data still need to be corrected or amended. The revision and
amendment of the output side of material flow accounts are expected in the near future by
the Hungarian Central Statistical Office.

12.2. AGRICULTURAL LAND

Nra Dienes-Borbly
Introduction
Observing the price of agricultural land and the changes in its price has been in the
centre of the interest of several researchers and institutions and even nowadays it is getting
more and more prioritized. Agricultural land is such a resource of production whose price
is influenced by a lot of factors so expressing it numerically is extremely difficult.
HCSO did not use to have proper data on land transactions till April 2012 when
access was granted to the database of the National Tax and Customs Administration.
According to the cooperation agreement between the two institutes the Office is given the
records of land purchase transactions every quarter of a year on the basis of which
calculations are carried out using its own views and the methodological requirements of
EU.
However, Eurostat pointed out that there actually are significant differences between
land prices in certain countries. The comparability of data is also made more difficult by
the different methodology they use. That is why in 2009 the statistical office of EU with
the participation of the member states drew up standards that are to be used in land price
statistics. Although the current regulation is based on gentlemens agreement, efforts are
made to create an official legal environment.
Member states have been using harmonised methodological principles since 2011.
HCSO went back to EU requirements of 2009 so the entire timeline available is based on
similar methodological bases.

The definition of agricultural land prices

Agricultural land price is the settled counter value of land purchased for agricultural
purposes per hectare where the area of concern includes the purchase of all land uses by
farmers or agricultural organizations and does not include non-agricultural transactions
(lifestyle purchases, construction etc.) or land exchange between relatives. (Eurostat
definition)
HCSO carries out calculations on the following five land uses:
Arable land
It includes all areas under regular cultivation regardless the way agricultural tasks are
carried out or the area is not used for crop production temporarily (left fallow). It includes
223

nursery gardens (ornamental and fruit trees, vine, forests) except nursery in the forest
established to satisfy the own needs of the farms, perennials (such as alfalfa and
strawberry) and the area of herbs and spices. It may also include the garden planted with
cereal crops and horticultural plants if production is not intended to satisfy the needs of
persons working in the farm. The so-called temporary grassland, which is part of the crop
rotation in the farm planted within 5 years, is also accounted. (HCSO definition)
Land transaction must also comply with the followings:

at least 1500 m2 continuous area not exceeding 300 hectares;

situated in the outskirts;
the average sale value of 1 hectare is between 100 000 and 3 000 000 HUF;
includes the value of connecting taxes and subsidies (except deductible VAT);
does not include titles of land;
does not include the value of compensation;
does not include the value of the building on the land and
does not include the cost of transferring inheritance.

Grassland
The land used as pastures and meadows belongs here, i.e. area situated on the same
land and used primarily by mowing or grazing at least for 5 years. (HCSO definition)
Vineyard
The term is applicable for areas of continuous vineyards where vinestock can be
found at a regular distance between rows and stocks and the main cultivar is grape.
Vineyard is also applicable to the area within the garden (trellis) provided its area reaches
200 m2. Vineyards not productive yet and vineyards already non-productive are accounted.
(HCSO definition)
Orchard
Area covered by fruit bearing trees or bushes where the main cultivar is fruit tree or
bush. Orchards can contain different species. Orchards also contain in addition to the
productive plants ones that are not productive yet or already non-productive. In terms of
land use orchard also means an area around the house covered by fruit trees or bushes (at
similar distances between rows and stocks) if it reaches or exceeds 400 m2 in the case of
trees and 200 m2 in the case of berries. (HCSO definition)
Forest
Forests are areas covered by trees or shrubs including nurseries in the forest
established within the forest for the private use of the farm. Protective forests against the
wind and hedges etc. belong to the category of forest (except forestry nurseries for
commercial use and those out of the forest) if they are accounted as forests. It also includes
the area of Christmas tree plantations. (HCSO definition)

Source of data
The source of land price used in calculations is the list of land purchase transactions
taken from the National Tax and Customs Authority within the framework of cooperation.
The database includes unique records with non-identifiable identification at transfer.
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Several variables are attached to each record, which make it possible to examine data
reliability and punctuality and it also contributes to complex examinations.
The necessary variables for calculations are the following:

settlement;
land usage;
land size (m2);
ownership;
officially registered sale price
sale value, the expected price of land
built-up area, i.e. if there are buildings and if so, on what size of area;
situation of land (outskirts, central or closed garden);
distance from roads in metres (not always applicable);
quality of land on a scale from 1 to 8 (not always applicable)

To avoid distortion, the data of Budapest are not included in the calculation.

Applied correlation analyses

One of the disadvantages of administrative sources is that databases are not intended for
statistical purposes. The range of data transferred is much wider than the one observed
when recorded for statistical purposes. These databases are not recorded in statistical
systems and they also lack proper controlling mechanisms so special attention must be paid
to possible errors and shortcomings.
Outlier filtering
Correcting the seemingly faulty data is an inevitable part of precise data processing.
The fact that prices fall into a wide acceptable range must be considered when it comes to
modifications. Due to influencing factors (such as culture, land quality etc.) they can move
within a wide range. An issue can arise from here, namely, if it is obvious to tell apart what
an error is and what a real but significantly moderated or extremely high price is.
During the outlier filtering the Office relied on the minimum and maximum average prices
of land sale transactions observed at the general agricultural census of 2010. Acceptable
intervals were defined in this way per land size, which differ from county to county. On a
national level this scale is relatively wide in the case of arable land, e.g. 100 000 and
3 000 000 HUF per hectare.
Replacement by average
There are transactions where no necessary data are available. Lack of data in the main
categories (area sold, sale value) can be replaced by statistical estimates. Average prices
necessary for the replacement are fixed regardless the transactions which were not properly
recorded per area. Then the missing value can be defined so the database can be completed.
Replacement from other sources
The situation is more complicated when it comes to making up for qualitative losses
as they are so-called subjective categories such as land quality. That is why it is necessary
to transfer these variables from other sources (e.g. general agricultural census, HCSO data
225

collections) and link them at the lowest possible level to carry out further analyses. It can
also act as a controller whether the more expensive areas are of better quality in real.
Steps of data processing
Although prices of agricultural land are worth examining on a local level, due to the
significant differences it is necessary to prioritize the methodology of national data.
National data are the ones that are also compared on an international level so the objective
of the EU is to standardise the national land prices of the member states.
Eurostat also requires regional average prices in addition to the national ones, which
need several preliminary calculations as they are defined by balancing lower average
prices.
Producing county data

Pm =

p *t
t
e

where, p stands for average price; t is the size of the land purchased, e basic data;
m county data

Figure 1: Average price of 1 hectare arable land (HUF) in 2012

Source: NTCA, preliminary data

The Farm Structure Survey (hereafter referred to as FSS) is a structural database that
meets the requirements of the EU carried out by the Central Statistical Office thoroughly in
every 10 years (Agricultural Census, 2010) and on a huge sample in every 2 or 3 years.
The basic principle of Eurostat methodology is that the calculated balanced county average
prices are balanced by the size of the used area in the county during the FSS observation
period. Weights in the year n, n+1 and n+2 are unchanged where the data of FSS for the
year n are decisive.
According to the methodology this balance eliminates changes in the compounds
from one year to another so, if there were a sudden significant change in the sales of a
region its distorting effects would not be included in the calculation. Regardless the
number of transactions and size of land on sale, the area where the size of the used land is
226

greater weighs more, i.e. the theoretical opportunity of sales is the most probable. This
methodology is also used to supply regional (NUTS 2) and large regional (NUTS 1) data.
The calculation of national, large regional and regional data

Po ,n ,r =

p *w
w
n ,r ,m

n ,r ,m

n ,r ,m

where, p stands for average price; w is the size of used land, m county data; r
regional data; n large regional data; and o national level

Land balance
HCSO prepares land balance annually that shows the breakdown of cultivated and
non-cultivated areas in the given year and also the breakdown of land use within the
cultivated area.
In 2012 7368 thousand hectares were productive, which accounts for 79% of total
land. The first datum available dates back to 1990 when this ratio reached 89% so for more
than twenty years the ratio of non-cultivated land has doubled. By 2012 only the ratio of
forests rose by 14%. The greatest decline can be experienced in terms of gardens where the
observed area decreased to almost its one-fifth. Of the most notable land use the size of
arable land decreased by 8% and grassland by 36% as of 1990.
In 2012 46% of the total area is arable land while 21% forest, 8% grassland and the
remaining 4% is shared between vineyard, vegetable garden, orchard, reed and pond.

Figure 2: Land use by branches

Source: HCSO

The land use of the regions also differs when, for example, their natural endowments
are considered. However, arable land dominates all of them. The figure also serves to
illustrate the ratio of each region in the calculation. The greatest dominance is assigned to
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the two Great Plains regions while the region of Central Hungary has the slightest
dominance.

Figure 3: Land balance of 2012 per region, 1000 ha

Source: HCSO

Main data of agricultural land prices

Agricultural land index
Agricultural land index presents the price changes of the five observed land uses.
Similarly to price calculation, the Office applies a fix balance system during two censuses
to avoid the effects of change in compounds.
In 2012 agricultural land index was 33.3% higher than in 2009, the base year. The
most typical land use was arable land whose price increased to the greatest extent by
36.5%. The price of forests increased by the smallest extent (by 24.4%).

Price changes in the most significant land use categories

Regional data on arable land and grassland are available while in the case of
vineyard, orchard and forest only national data were calculated on the basis of their
situation.
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Price changes of arable land

Figure 4: The price of arable land per region, 2009-2012 (HUF/hectare)

Source: NTCA / preliminary data

A continuous price rise can be observed in all regions, to the greatest extent in North Great
Plains and South Transdanubia where prices exceeded the one three years before by 51.2%
and 46.8%, respectively. The price rises of other regions is also significant. Prices
increased to the smallest extent in Central Transdanubia, by 16.0%.

Price changes of grassland

Figure 5: Price of grassland per region, 2012 (HUF/hectare)

Source: NTCA/preliminary data

229

The price of grassland on a regional level shows similar tendencies to arable land but
regional differences are slighter. Grasslands were on sale for 250 430 thousand HUF in
2012.

Structure of land sold, 2012

There were huge regional differences in the breakdown of land use of land on sale in
the country in 2012. In all counties selling arable land was decisive. In Ngrd county it
was the cheapest (nearly 47%) and the highest in Bks county (96%). Significant turnover
could be observed in Zala, Veszprm, Ngrd and Borsod-Abaj-Zempln counties
regarding grassland and forest.
Sales in vineyard were slight both on a national and regional level and it accounted
for only 1% of total sales in some counties. Heves and Bcs-Kiskun counties sold the most
vineyards (3-3%). A similar tendency was observed in orchard where Szabolcs-SzatmrBereg county had the biggest turnover i.e. 8% of total sales.

Figure 6: Structure of sold land, 2012

Source: NTCA/preliminary data

Changes in arable land sale value, 2011

The examination of changes was based on two criteria and positive and negative
changes were also differentiated. In this way sale value can be divided into four
categories, which is practical to illustrate in a frame of reference to make it more
transparent.
After creating the standardized variables of county-level land sale value (horizontal
axis) the standardized value of sale value change as of previous year is placed on the
vertical axis.
The four categories are the following:
230

In the first quarter (positive-positive) we find counties where derived sale value is
above the average and there was an increase as of previous year. (booming quarter)
In the second quarter (positive negative) there are counties where derived sale value
is above the average but there was a decrease as of previous year. (declining quarter)

In the third quarter (negative negative) we can find counties where derived sale value
is below the average and there was a decrease as of previous year. (stagnating quarter)

In the fourth quarter (negative positive) we can find counties where derived sale
value is below the average and there was an increase as of previous year. (vigorous
quarter)

Figure 7: Changes in the sale value of arable

Source: HCSO

Most counties are situated in the first and third quarter, which shows that interest in
the preferred areas are on the rise and also the regions where in 2011 turnover was low
with a few number of business contracts, did not even reach the turnover of the previous
year.

Summary
The analyses presented above reflect the present tendencies of the Hungarian land
market, which are now based on a unified regulation. The methodological system can be a
231

successful attempt to establish comparisons with the European Union. However,

experience reflects that the member states still have to face serious challenges to put
comparability in practice.
Several negotiations with the member states preceded the finalization of the new
methodology where the EU surveyed the main difficulties for the countries. Multiple price
differences can also be seen between different regions in other countries so aggregation
raises some methodological problems.
Member countries provide data for the smallest possible aggregate because if
differences are significant, they can better describe the country by regional price
differences than the national average price. Another measure that is inevitable in this
situation is to solve the question of aggregation both in time and space, which can be used
for long term by avoiding the impacts of compound change.
There were countries who could not classify the observed data by land use and solely
agricultural land was subject to observation. This can raise problems of controlling as there
are huge differences even between land uses. When data are checked knowing the
characteristics of the single categories is essential. Calculations have to be done on land
uses where the area of cultivated land exceeds 5% of the total although data disclosure on
arable land and grassland is obligatory.
The EUs efforts to improve statistics will by all means be fruitful in the near future if
the possible obstacles are eliminated. Presumably in the near future preliminary results on
common methodology will be available, which can provide further opportunities to analyse
this issue.

Further plans
In the future HCSO would wish to make the calculated data in a database available to
researchers and anyone interested. Its objective is to publish the available regional data
broken down into counties in terms of land use where size allows (arable land, grassland).
It also plans to extend publications by such variables as the size of the average sold land
and the number of transactions.

Bibliography
1.
2.
3.
4.
5.
6.

232

Eurostat, Agricultural land prices and rents, Task force summary, 2009.
Eurostat: Agricultural land prices and rents, common harmonized methodology, 2010.
Eurostat: Agricultural land prices and rents, Grant project meeting, 2012.
Mezgazdasgi termfld rak s brleti djak, KSH, 2013. (Agricultural land prices
and rental fees, HCSO, 2013)
KSH Metainformcik (HCSO Metainformation).
KSH Stadat tblk (HCSO Stadat tables).

12.3. WATER
Pl Aujeszky
The role of water, water management
Water is the basis of life, the prerequisite of human life and hygiene. The nonreplaceable freshwater has played a decisive role in the history of mankind and
accompanies us through the stages of development. The role of water in life, the natural
circulation of water, the impact of human activities, the transformation of water for
different purposes and the necessity of water management are well-known facts.
It is not by accident that while searching for the signs of life on Mars in the Solar
system researchers primarily look for any form of water as a natural resource. Water can
simultaneously mean food for people, fuel (hydrogen) when broken down into its
components and air (in the form of oxygen).
Freshwater on the Earth is such an exposed and definite natural resource that is vital
for sustaining life, development and protecting the environment. That is why social and
economic development must be achieved together with the protection of social and
ecological systems and in water supply management the prevalence of ecological priorities
must be considered.
All in all, land and water use with special regard to the entire catchment area of both
surface and underground water should be harmonized to achieve the sustainability of
efficient management.

The necessity of compiling water accounts, the methodological

publication of UN
Since the beginning of the 1970s the experts of environmental statistics in countries
with developed statistical methods have been dealing with the issue of how the economic
and social role of the environment could be considered in national accounts.
It has been recognized that the economy should be run on behalf of and according to
the needs of the society in the long run as the environment serves as the basis of economic
and social development. It is the place from where resources are taken up by the economy
and society and where the wastes and hazardous emissions are released by the economy
and society, respectively. However, the picture could be distorted if the interrelationships
between these three main statistical areas are disregarded in well-established statistical
systems.
The philosophy of sustainable development reinforced this approach, which suggests
the joint examination and monitoring of the three basic areas (society, economy and
environment) for all the developed countries by means of statistics as a measuring
instrument among others.
The System of National Accounting (SNA32) elaborated by the statistical office of
UN provides an internationally recognized framework for the statisticians to compile
national accounts primarily those of economic statistics.
The published national accounts include internationally comparable data and
indicators from the data that describe the economy. One of the best known indicators is

32

System of National Accounting

233

Gross Domestic Product, GDP33, which is frequently used to measure and compare the
development level of countries.
However, GDP does not directly measure the environmental and social situation of
certain countries. That is why supplementary (proxy) indicators are used to present
economic, social and environmental processes.
However, a lot of consistent data are necessary to work out systems of indicators that
present environmental processes beyond economic development. That is why primarily it
was the countries with developed statistical methods that started the methodological
development to create environmental accounts as soon as possible.
The statistical office of UN (UNSD34) took the lead in the methodological
development and in 2003 the revised methodological publication on this subject was
published entitled System of Environmental-Economic Accounting (SEEA)..
In this revised version the experts regarded it necessary to publish a methodological
guide to present an independent environmental economic accounting system (hereinafter
referred to as water accounts in short), SEEAW35 , that deals only with water as a natural
element and resource.
Working out a separate SEEAW was primarily justified by the fact that even the
developed countries interpreted water accounts in a very different way so it became
difficult to compare initial results and indicators. Certain experts only meant a quantitative
water balance by the term water accounts while others took water quality data also in
account, or the monetary evaluation of water supplies was also dealt with.
The 2012 edition of SEEAW36 primarily served to lay the foundations of an
internationally harmonized methodology of water accounts by unifying and recording the
necessary methodology for water accounts: definitions, terms, classification, tables etc.

Stages of developing SEEAW publication, its structure

The initial steps were made within the framework of the London Group37 meetings
launched in 1993 in cooperation with Eurostat. The latter one formed a so-called Task
Force (TF) working group especially to work out the methodology of water accounts.
Afterwards by means of the electronic negotiation forum of UNSD the handbook was
revised and amended in which UNDSD38 also collaborated to further harmonise the terms
and definitions.
Eurostat launched a research project for the member states at that time to compile
water accounts for the first time whose results were published in 2002 in the form of a
publication.
The initial chapters were revised at the LG meetings (2003. 2004) by the experts.
Within LG itself in 2003 a separate water accounts working group was established to
finalise the drafts of the handbook. Negotiations were carried out via the electronic forum.
In 2005 to so-called Final Draft was presented at the preliminary UNCEEA39 meeting
in New York.
The handbook was divided into two main parts following UNCEEA recommendations:

33

Gross Domestic Product

United Nations Statistical Division
35
System of Environmental-Economic Accounting for Water (SEEA-Water)
36
http://unstats.un.org/unsd/envaccounting/seeaw/seeawaterwebversion.pdf
37
The London Group on Environmental Accounting
38
United Nations Division of Sustainable Development
39
United Nations Committee of Experts on Environmental-Economic Accounting
34

234

Part One includes the basic terms and classification and the tables prepared for resource
utilization for physical and hybrid water accounts as well as water supplies. Chapters
(II-VI.)

Part Two includes the tables in which decision makers on water policies could be most
interested but they are only on an experimental stage and there is no best practice
accepted as far as the tables on the economic evaluation of water and the qualitative
parameters of water as well as the examples for the implementation of SEEAW are
concerned. (Chapters VII-IX.)

The predictable modifications to SNA in 2008 were also considered when completing
the handbook in 2007.
UNSC40, following the recommendations of UNCEEA, accepted the first part as an
international statistical standard and encouraged the member states to work out water
accounts.
The handbook was published in 2012 which can be downloaded from the website of
UNSD.

The water statistical recommendations of SEEAW and UN-IRW

The IRW41 handbook of UN published in 2012 provides assistance for working out
several indicators in water statistics primarily by creating a unified conceptual system and
methodology.
The guidelines of the handbook were compiled following suggestions made by the
experts of both the developed and developing countries by taking their suggestions into
account. Hungary also took part in expressing opinions about the publication in several
rounds.
IRW handbook pays attention to the recommendations of SEEAW42 handbook. We
can mention the so-called water assets accounting tables and water emission tables that
present the flow of water pollution from the economy to the environment according to
NACE Rev.2. In this way water pollutants can directly be assigned to industries.

The planned physical water accounts of Eurostat

Eurostat, authorized by the European Strategy for Environmental Accounting, ESEA
2008 established a working group in 2010 to develop environmental statistical water
accounts including the representatives of the member states and international organisations
(e.g. EEA) as well as other experts.
The task of the working group was to assist Eurostat in working out the tables of
environmental statistical water accounts (at the first stage physical flow accounts) and their
methodology.
Hungary took part in the developing process of this working group as well as in the
annual Eurostat meetings organized on this issue.
Eurostat first started working out the physical flow accounts by paying attention to
the principle of gradualism in environmental statistical water accounts.
The monetary water accounts are still not intended to be worked out nowadays.

40

United Nations Statistical Commission

International Recommendations for Water Statistics, United Nations New York, 2012
42
System of Environmental-Economic Accounting for Water, Final Draft, United Nations Statistic Division,
New York, 2007
41

235

The tasks of Eurostat concerning environmental statistical accounts are based on the UNs
System of Integrated Environmental and Economic Accounts - SEEA43.

Physical supply and use tables on water flows

Physical supply and use tables on water flow consider all possible water flows.

Figure 1: Structure of physical supply and use tables on water flows

Source: Eurostat

Water flows considered in tables:

water flows from the environment to the economy;

water flows in the economy and
water flows from the economy to the environment.

Due to the special features of applied supply and use framework (SUT) the following
accounting principles prevail:

double-entry bookkeeping;
the rows and columns of both tables include the same denominations and
headings;
the rows and columns of both tables are balanced.

Of Supply and use tables on water emissions

Supply and use tables on water emissions obviously keep record of the characteristics
of the general supply and use framework to ensure connection with supply and use tables
that contain monetary data.
Supply and use tables on water emissions follow the pattern of the physical supply
and use tables on water flows regarding the headings and the columns follow the so-called
breakdown by activities.
Rows include the lists of the most important pollutants emitted in water/qualitative
parameters: BOD5, biochemical oxygen demand, COD, chemical oxygen demand, total
suspended solids, total nitrogen, total phosphorus, cadmium, chrome (to be defined later,
e.g. chrome VI), copper, lead, nickel, zinc, arsenic.
43

http://unstats.un.org/unsd/envaccounting/seea.asp

236

Figure 2: Structure of physical supply and use tables on water emissions

Source: Eurostat

Gross emissions will be considered in tables of water emission resource use including
indirect emissions to sewage systems.
Eurostat and its experts will make recommendations on the determinations of diffuse
emissions (e.g. agriculture) later.
The most important indicators have also been defined by Eurostat experts on the basis
of the tables above.

SEEA-Water physical tables vs. Eurostat PSUT44 system

The main differences between SEEA-Water physical tables and Eurostat PSUTsystem can be summarized as follows:

SEEA-Water physical tables do not entirely correspond with either the SUT
framework or any of the accounting principles mentioned above.
SEEA-Water does not consider all cases of water flow into or out of the economy
(e.g. the capillary water content of soil or evapotranspiration).
Regarding emissions PSUT tables instead of SEEA-Water make proper net
balance-like accounting possible by disregarding double consideration or
accounting (e.g. in the case of direct and indirect emissions).

To finalise the tables further negotiations are necessary on national level about the
relevancy of data and their disposal.

The compilation of the Hungarian water accounts (2008, 2010)

The water statistical grant applications announced by Eurostat play an important role
in developing the methodology of European water statistics/water accounting. In 2012
eleven new grants were signed (including the Hungarian one in 2012) which strengthen the
internal data flow of the member states and promote the publication of water statistic data
by region (i.e. NUTS452 and catchment area).
Since 2006 Hungary has regularly taken part in all biannual grant applications
announced for water statistics and water accounting (6 grants) and managed to develop its
water statistic methodology acknowledged by Eurostat.
44
45

Physical Supply and Use Table

Nomenclature des Units territoriales statistiques

237

HCSO closely cooperated in the development of international methodology on water

accounts within the framework of the following two Eurostat grant applications:
2008: NAMEA-Water: physical water accounts on water emissions,
2010: Water assets accounts (physical).
The following part summarizes the main findings of these projects. The final reports on the
projects are available in English on the website of Eurostat.

Compilation of the first Hungarian water emission accounts

(NAMEA46-Water)
The theoretical basis and background of the first Hungarian emission physical
account rely on the methodology of the Statistics Netherlandsby taking the Hungarian
special features into account. VITUKI47 was included in the project as an external expert.
Practically, it is a table similar to NAMEA-Air that incudes emissions into water per main
pollutant.
Unlike in the case of air (NMS48), Hungary has no thorough, updated water emission
inventory, emission data declared in compliance with Government Decree 220/2004. (21
July)49 and compiled by environmental agencies serve as the basis although they only rely
on particles, data supply is self-admitted and applicable just above a certain threshold
limits.
However, more than 900 measuring points are connected to only 440(!) enterprises in
2006. According to the data of HCSO business register in 2006 there were almost 230
thousand active companies (number of employees >1 and turnover >0). That is why
specific emission coefficients by industries were defined and we applied grossing-up on
basis of the number of employees. Of course, due to lack of information different emission
values deriving from technological differences could not be considered.
Social water use within a plant was separated from pubic water use to avoid double
counting.
In the case of agriculture (incl. forestry and game management) diffuse emissions
were calculated on the basis of annual livestock and annual land use categories by means
of available specific emission values from professional literature.
In the case of public services (health care, education, social security, government
etc.) only social water use was considered (employees, patients, pupils etc.) while in
tourism emission values were calculated on the basis of guest nights.
It is estimated that in Hungary the biggest pollutants concerning direct emissions of
BOI5, N, and P are agriculture (A) and public waste water treatment industry (E 37
industry) (branches with most of the monetary funds). However, it can vary from country
to country.
Water emission tables can be linked to the data of national accounts to form different
emission or polluting intensity indicators such as pollution/GDP, pollution/GVA, pollution/
employees etc.

46

National Accounting Matrix with Environmental Accounts

VITUKI Environmental Protection and Water Management Research Institute Nonprofit Kft. (being
wound up at the moment)
48
National Meteorological Service
49
Regulation on the protection of quality of surface waters
47

238

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

A
B
C
D
EA_36 corrected
EB_37 corrected
EC_38
ED_39
F
G
H
I
J
K
L
M
N

BOD5

P total

N total

Turnover,

Employees

Figure 3: Allocation of emissions to industries (A-N) and contribution of industries to the

national economy, % 2008
Source: HCSO

Experiences on the first Hungarian water asset accounts

An environment-conscious society preserves drinking water resources and
economises on them to realise the principles of sustainable development in society, as well.
According to the National Sustainable Development Strategy in Hungary the objective is to
create a quantitative balance in artificial water circulation. A further objective is to promote
water efficient and pollution-free techniques.
The temporal and geographical situation of our surface water resources is rather
extreme. Generally there are two floods per year on the rivers in Hungary: one in early
spring caused by melting snow and the other in early summer caused by maximum
precipitation (green flood). Due to Hungarys geographical position, relief and climate the
Carpathian Basin is regarded especially exposed to flood and inland inundation.
Nearly half of the country, 44 500km2, is flat and significant strips of land lie low
without drainage. More than 20 000km2 area is flood area of which 5 610km2 lie in the
catchment area of the Danube and 15 641km2 can be found in the catchment area of the
Tisza, respectively.50
Approximately 60% of plains is threatened by inland waters every year.
Protection against floods and inland inundation has a tradition of more than 150
years. Approximately a 4200 km long dam system was built alongside the rivers. The
extreme weather conditions of the past few years (floods and droughts) make changing the
previous water management practices (fast water drainage in the river bed) necessary. At
the time of floods a significant part must be drained to reservoirs, which can be used for
irrigation when drought comes.
50

Source: Ministry of Environment and Water 2010

239

When working out the Hungarian water asset accounts the framework of SEEAW
was used as Eurostat did not establish its own water asset account tables. VITUKI was also
involved in the project as an expert.
When estimating renewable water asset, data of the NMS were considered in
calculating the average annual precipitation and evaporation. Evapotranspiration was
calculated by means of the Turc formula and by paying attention to the special features of
Hungary.

Table 1: Estimation of actual annual inflows and outflows (million m)

Inflows from neighbouring countries

LTAA51

Austria

1 142.23

1 041.63

Croatia

15 321.45

14 410.69

Romania

13 070.74

20 611.94

Slovakia

72 330.33

83 597.82

Ukraine

7 032.53

8 293.97

Outflows to neighbouring countries

LTAA

2006

88 378.47
27 278.64

96 997.79
38 789.28

Croatia
Serbia

2006

Source: VITUKI

Table 2: Estimation of renewable freshwater resources (million m)

Renewable freshwater resources

LTAA

Precipitation

55 707.00

54 220.00

Actual evapotranspiration
Internal Flow
Actual external inflow
Total actual outflow
into the sea
into neighbouring territories

48 174.00
7 533.00
108 897.28
115 657.11

115 657.11

49 290.00
4 930.00
127 956.00
135 787.00

135 787.00

TOTAL RENEWABLE FRESHWATER RESOURCES

116 430.28

132 886.00

3 326.70
2 400.29

..
..

Recharge into the Aquifer

Groundwater available for annual abstraction

2006

Source: VITUKI

Of the available data only the parameters of changes in stocks in 2006 are published
in the relevant SEEAW table as there was no information available about stocks at the
beginning and at the end of the inventory in 2010.
51

Long-term Annual Average

240

Table 3: SEEAW table(Chapter VI. 1) for Hungarian water assets, 2006 (million m)
EA.131 surface water
DenominationName

EA.
1312
lakes

EA.
133

EA.
1313

EA.
Total
1314
Ground Soil
water
snow, ice, water
rivers
and glaciers

1.
Increases in stocks

Opening stocks
returns
precipitation
inflows
from upstream
4.a.
territories
from other
4.b. resources in the
territory

EA.
1311
artificial
reservoirs

EA.
132

2.
3.
4.

decreases in stocks

5.

Abstraction
Actual
6.
evapotranspiration
7. Outflows
To downstream
7.a.
territories
7.b. to the seas
to other resources
7.c.
in the territor
Other changes in
8.
volume
9.
Closing stocks

4.25
0.70

0.20

53.30

128.00

3.74
1.20

128.00
1.25

1.25

0.87

4.61
48.50

135.80

4.25
54.20

49.70

135.80

Note: Dark grey cells indicate zero entries.

Source: SEEAW, VITUKI

The correlation between traditional water statistics

and water accounts
In Hungary environmental statistics as a professional, independent statistical branch
became part of special statistics in 2006 according to the international practice used by the
developed countries and the philosophy of sustainable development.
Environmental statistics trace down the situation and changes in the environment, i.e.
its parts, elements, systems, processes and structure by recording, processing, storing,
transferring, receiving, analysing, declaring, publishing and disseminating environmental
data by statistical methods.
Within its framework the environmental elements (land, air, water, flora and fauna as
well as man-made (artificial) environment and their components) are monitored by means
of statistical methods together with the quantitative and qualitative parameters of measures
that are taken to prevent and eliminate possible harmful effects in the national economy.
Environmental statistics establish correlations between social and economic statistical
data and environment statistical data by means of, environmental statistical indicator
241

system (environmental pressure inidcators, economic and social response indicators,

sectoral (i.e. agriculture, industry, tourism etc.) environmental indicators, sustainable
development indicators etc.) and by environmental satellite accounts as well as their
derivate indicators to assist in making the right environmental political decisions, exploring
the reasons for changes in state of environment and also measuring environmental
protection as a social response.
The characteristic of environmental statistics is that it uses almost all data of the other
statistical domains as basic data for estimations (international ones are still in progress) and
environmental statistics receive a lot of data.
Of course, the statements made on the environmental statistics above hold true for water
statistics as part of environmental statistics with one amendment: besides the abovementioned facts water statistics examine correlations with other domains of environmental
statistics.
Based on the facts above one of the possible tasks of water statistics is to work out,
maintain and improve the accounting- and indicator system in water statistics and also to
present the current situation by means of statistical methods, which are particularly
necessary to measure sustainable water management statistically.
Sometimes experts overestimate the elaboration of environmental accounts against
the traditional environmental statistics.
Considering things realistically, it is about an environmental statistical evolution
process that arranges the traditional environmental statistical data in new tables. They can
be related to economic and social data so in this way more information can be obtained and
new indicators can be formed to examine the complex correlations between the
environment and economy and also the environment and society.
However, we have to note that the traditional environmental statistical instruments
and indicators give more reliable information on decisions that can be made in several
cases in local or regional analyses.
Methodological development began with a similar dissent concerning water accounts
but soon it turned out that only countries with extremely developed water statistics and
updated administrative databases on water can start elaboration of water accounts.
The experts of the developed countries recognized that constructing artificial walls
between these two interrelated statistical areas that, otherwise, can support each other must
be avoided. Fortunately, Hungary managed to avoid the division that would lead to
breaking down resources and slowing down information flow and could also result in
double workload.
That is why Eurostat, following Hungarys proposals among others, will draw up
such a water statistic questionnaire (Joint Reporting Vehicle on Water (JRV)) in the near
future that can supply data both for traditional water statistics and water accounts. By
developing a joint questionnaire the methodological development process of traditional
water statistics and water accounts will basically be unified.

Joint Reporting Vehicle on Water by Eurostat

A separate working group within Eurostat was established to draw up the so-called
Joint Reporting Vehicle on Water (JRV) questionnaire whose members are professionals of
either traditional water statistics or those who work out environmental accounts of other
domains. The participants of JTF are NSIs52, Eurostat, DG ENV53, EEA54,
OECD55..Hungary also took part in the work of this JTF.
52
53

National statistical institutes

The Directorate-General for the Environment

242

Drawing up a unified questionnaire that meets the data needs of both traditional water
statistics and physical water accounts took place within the framework of Joint Task Force
following DiMESA56 authorization in November 2012. (Joint Task Force on Water
Statistics and Accounts, JTF)
The Statistical Data and Metadata Exchange, SDMX57- also used by Eurostat, was
developed by these seven international organisations58 to standardize international data
exchange. Eurostat and JTF recommended that the opportunity for a database connected to
JRV should possibly comply with SDMX standards to make data exchange in the future
easier. To this end, priority no. 1 is to define the structure of the database (DSD59).
As the initial step to develop water accounts, a separate working group of Eurostat
drew up the so-called physical, water supply and use table systems (Water PSUTs60) in the
past few years with Hungarys participation. Among others, Hungary also proposed,
together with the former only water accounts TF61, drawing up a joint questionnaire
(JRV) that meets both the data needs of traditional water statistics and physical water
accounts to ease reporting. (Joint Reporting Vehicle on Water)
According to the joint mandate of JTF DiMESA the development of three modules are
targeted:

Physical Water Flows incl. Emissions to Water

Physical Water Assets, Resources
Public Water Utility Infrastructure (water supply and waste water collection and
treatment)

However, the development of monetary water accounts is not planned by the EU for the
time being due to the significant lack of data on physical water statistics (monetary data
cannot be linked to anything).
According to Eurostat JRV data flow system will replace the old Excel based water
statistical questionnaires too (JQ-IW62, REQ-IW63), that also include the data requirements
of physical water accounts as stated by the three modules above.
The three planned modules will be based on the ideas below:
1) Eurostats planned JRV table on physical water flows contains the data
requirement of both traditional water statistical questionnaire and water accounts. The
columns of the table contain industries, services households and RoW64 while rows
describe the possible water flows between the environment and the economy and those
within the economy.
54

The European Environmental Agency (EEA) in Copenhagen

The Organisation for Economic Co-operation and Development
56
Director's meeting on Environment Statistics and Accounts
57
The Statistical Data and Metadata Exchange
58
The Bank for International Settlements, The European Central Bank, Eurostat, IMF, OECD, The United
Nations Statistics Division, The World Bank.
59
Data Structure Definition
60
Physical Supply and Use Tables for Water
61
Task Force
62
OECD/Eurostat Joint Questionnaire on Inland Water
63
Eurostat Regional Environmental Questionnaire on Inland Water
64
Rest of the World
55

243

The planned connecting database structure stores values on the basis of the following
possible characteristics: geographical location (countries, regions, catchment areas), period
(years), unit of measure, origin and purpose of water flow, intended use and water type.
In general, JTF added the following comments to the table above and the planned
databases:

to avoid information loss at least the details of the present JQ-IW levels must be
maintained;

water statistics and water account terms must be harmonised;

regional codes must be entered to the geographical dimension (NUTS2, RBDs65

and RBDSUs66) and

the obvious correlation between the meta-data of JRV and JQ-IW must be
recorded.

2) The planned emission JRV table of Eurostat on physical water flows contains the
data requirements for both the traditional water statistic questionnaire and water accounts.
The columns of the table include industries, services, households and RoW while its rows
include the possible water flows between the environment and the economy and those
within the economy.
The recommended database structure stores emission values on the basis of the
possible characteristics described above: geographical location (countries, regions,
catchment areas), period (years), unit of measure, origin and purpose of water flow,
intended use and water type.
In general, JTF added the following comments to the table above and the planned
databases:

waste water treatment within the plant must be displayed in the table;

the concept of the water content of the soil must be refined later;

RoW category must be included in the purpose of water flow;

the category of waste water treatment (mechanical, biological, advanced stage III)
must be included in water types and;

the cases when pollutants change and degrade during transport processes must be
analysed.

3) The planned JRV module of Eurostat presenting public water utility infrastructure
was practically based on the current Table 5, Table 6 and Table 7 of JQ-IW. According to
JTF the following points must be considered when working out JRV tables on public water
utility infrastructure:

65
66

Data on inhabitants can be omitted from Table 5 of JQ-IW as these data could be
taken over from demographic statistics, censuses.

Eurostat will analyse an EEA project on small-scale waste water treatment

agglomerations.

River Basin Districts

River Basin Districts Subunits

244

The question of improving Table 6 JQ-IW was raised to collect more precise data
on the types, technologies and efficiency of waste water treatment plants.

As in the EU it is forbidden to dump sewage sludge into seas the omission of this
category from Table 7 of JQ-IW is recommended.

The possibility of taking over sewage sludge data from waste statistics must be
considered on EU level.

According to Eurostat the results of methodological improvements in JRV will be

presented at the DiMESA directorate meeting in 2014.
In parallel with JTF the Strategy on European Environmental Accounting will also be
revised including water accounts. ESSC67 would approve the revised strategy in May 2014.

Activities of DG ENV and EEA on water accounts

Reliable, updated water statistic/water account data are vital for drawing up the
common water policy of DG ENV and EU. That is why experts, commissioned by DG
ENV, carried out a regional physical water balance project in 2011-2012. The project
provides data on river basins based on models as stated in UN SEEA-Water68 handbook.
EEA regularly collects water data on a voluntary basis within the framework of
EIONET69 cooperation on which EEA WISE database is established. It contains interactive
data retrieval and geoinformatic-based (GIS) information. The software applied is ESRI
ArcGIS also used by the HCSO.
The cooperation of Eurostat and EEA, the possibilities of data exchange in water
statistics can further decrease parallelism on the EU level and the burden of data supply of
ESS70.
To this end, working out data correspondence tables (not exactly the same is asked
and not in the same way from the member states) together with the consensus on using
terms are of great importance.

Further tasks for compiling water accounts

It can be seen from the above stated facts that the main instruments to evaluate water
as the most important natural resource by means of water statistics and water accounts and
measure sustainable water management statistically are at our disposal but further
significant harmonization, data collection and methodological improvement are necessary
both on national and international level.
The main areas for improvement can be the following:

keeping continuous and punctual administrative records and other data sources;

making statistical registers more punctual and amending them with water statistic
(environment statistic) criteria;

improving basic statistics: public utilities, housing etc.;

67

European Statistic System Committee

System of Environmental-Economic Accounting for Water (SEEA-Water)
69
The European Environment Information and Observation Network
70
The European Statistic System (ESS)
68

245

integrating water statistic (environmental statistic) points in existing data

collection systems or questionnaires of economic statistics and social statistics;

harmonisation of the housing statistics part of censuses on water supply and waste
water collection or disposal in order to achieve the international comparability
and benchmarks;

alternative unique small-scale sanitary systems; measuring near-natural sanitary

systems statistically;

extending the number of possible indicators (UN, Eurostat, OECD) of supply,

emission, waste water treatment etc.; considering the development level of
countries (technical and administrative capacity);

improving emission registers to define emission intensity per pollutant and

industry;

water use and water pollution footprint (per product, settlement, country etc.);

considering micro pollutants such as hormone residues in medicine for humans

and animals, pesticides;

creating the real, implementable and unified methodology of environmental water

accounts;

collecting best practices and estimates in handbooks and

improving statistical dissemination (analyses, maps, dynamic graphs etc.).

The establishment of internationally and nationally organised working groups is necessary

to harmonise water statistic improvements.

Summary
From these statements it can be concluded that the main instruments to evaluate water
as the most important natural resource by means of water statistics and water accounts and
measure sustainable water management statistically are at our disposal but further
significant harmonization, data collection and methodological improvement are necessary
both on national and international level.
A healthy way of life, well-being, safety of feeding mankind, industrial development
and ecosystems serving as their basis can all be threatened if water as a natural resource is
not managed properly in quantity and quality.
Water management and also the extent and quality of water requirements together
with the method of water supply are defined by the situation, standard of living, housing,
industrial development and general sanitary standards of the given society.
What level of comfort public water utilities can provide plays an important role in
increasing the civilized living standards of settlements. To create the necessary comfort,
water not only in proper quantity but also of good quality is necessary for the inhabitants.
Also, it must be served at a proper technical level and safety providing total water supply
and waste water treatment systems at the same time if possible with special regard to total
cost recovery principles.
To sum up, we can state that water statistics, including water accounts, as a unit of
measure is suitable for the complex measurement of a sustainable water management that
pays attention to the objectives above.
When selecting the proper units of measure special attention must be paid as there
can be significant differences in the general economic, social and administrative
246

development level of countries as well as their natural endowments (primarily water

resources and climatic conditions).

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4.

5.
6.
7.
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Haan, de M. and S.J. Keuning 1996: Taking the environment into account: the
NAMEA approach.
IPPC Directive.
Jrn Kristian Undelstvedt et al, Statistics Norway, 2006 Statistics on Environmental
Accounts: Water Use by Industries.
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M.A. Frhacker et al, Umweltbundesamt, Austria: NAMEA - Water 1999.
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Development: the NAMEA-based approach.
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247

Additional explanation of HCSO-chapters

Additional exptanation 1: Water resources and water use indicators
M.1.1. Public Water abstraction by public water supply industry
The indicator of annual water abstraction by public water supply industry per person
includes the amount of water both from surface and groundwaters. The primary goal of
water abstraction by public water supply industry is the drinking water supply and to
provide water for industrial, irrigation and cooling purposes; in business applications.
In Hungary the annual water abstraction by public water supply industry per person
was gradually decreasing (15%) between 2000 and 2011 primarily due to high water prices
and also significantly high waste water treatment fees.
75,0

71,5

70,6
70,0

73,0
69,4

67,5

67,2 66,4 66,3

63,8 63,1

65,0

59,8 60,2

60,0
55,0
50,0
45,0
40,0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure M.1.1: Water abstraction by public water supply industry, m3/person

Source: HCSO

Comparing the regions the extracted amount of water per person is the highest in
Central Hungary and the lowest in Southern Great Plain, which hardly reaches 61% of the
specific vlaue of Central Hungary in 2011. The main reasons for regional differences are
different water production techniques and the different level of water utility equipment of
houses. Water abstraction from own wells (free of charge) is typical in the Great Plains
primarily with the exception of Budapest and the big cities.
Hungarys indicator of extracted water by public utilities per person (in 2011 it was
60 m3/person) falls into the second lowest quintile as of other EU member states. From the
point of view of environmental protection it is desirable and it means water efficiency. The
value of the indicator is generally lower in the new member states (EU12) than in the older
ones71. The main reasons for differences are e.g. different climatic conditions, the
ownership of public water utilities (state owned/private), the price of water and the role of
own wells etc.
71

Source: Eurostat

248

M.1.2. Water consumption from public water supply

The most important indicator of water consumption refers to the changes of water
consumption from public water supply of inhabitants. Municipal water consumption from
public water supply includes the amount of water provided for households by public utility
waterworks together with the water serviced through public taps.The indicator assists in
evaluating the changes in municipal water consumption from public water supply in a
region. To achieve comparability of regional water consumption, annual regional water
consumption was projected to mid-year population.
In Hungary annual water consumption from public water supply per person was
gradually decreasing by more than 10% between 2000 and 2011. The main reasons for it
are e.g.the high price of drinking water, the high price of public waste water collection and
treatment fees and the increasing role of own wells etc.
The annual values of municipal water consumption are significantly influenced by the
annual climatic conditions. Extreme consumption values can be experienced for example in
the droughty years of 2000, 2003 and 2007.
40
39
38
37
36
35
34
33
32
31
30
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure M.1.2: Water consumption from public water supply, m3/person

Source: HCSO

Significant differences in regional water consumption per capita can be due to

different prices and infrastructural differences. It can be concluded that the annual water
consumption per person is the highest in Central Hungary and the lowest in North
Hungary. With the exception of Central Hungary regional municipal public utltity water
consumption is below the national average.
Examining the amount of water per person provided by public water supply industry
in the member states of the EU we can state that Hungarys indicator (more than 34
m3/person in 2011) falls into a category of the second low quintile, which can be regarded
as environmentally desired and signals thriftiness with water. The value of the indicator in
the newly accessed member states (except Cyprus) is usually lower than in the older ones.
The main reasons for differences possibly are different water production
technologies, the comfort level of domestic water utilities, different climatic conditions, the
ownership of water public utilities (state owned/private), the price of water and the role of
own wells etc.
249

Additional exptanation 2: Community water emission indicators

The application of public water emission indicators presented herewith is suitable for
introducing different state of developmentof public sanitary supply as well at regional level
(NUTS2). While estimating the basic data of 1062 OSAP report can be used.
In the following part the indicators are presented using Eurostat methodology which
most importantly enables the measurement of the extent of public sanitation.
M.2.1. Estimated proportion of population connected to waste water treatment plants
with at least secondary (biological) treatment technologies, %
The estimated ratio of population connected to waste water treatment plants with at
least secondary (biological) treatment technologiesshows the results of a country or region
in municipal waste water treatment in line with the objectives of Council Directive
91/271/EEC (21 May 1991) concerning urban waste water treatment modified by
Commission Directive98/15/EC (27 February 1998).
The implementation of the Urban Waste Water Treatment Directive of the EU had a
positive impact on the situation of municipal waste water treatment, e.g. in Hungary.
In 2011 72.4% of the population was connected to some type of public waste water
treatment plants. It is important to note that the ratio of the population connected to the
waste water treatment plants with tertiary (advanced) treatment technologies has
significantly been increasing and reached 37.2% in 2011.
In 2011 the ratio of the population connected to waste water treatment plants with at
least secondary (biological) treatment technologieswas 71% primarily due to the new
central waste water plant in Budapest that was installed in 2010.
80,0
70,0

69,4

71,0

2010

2011

60,0
50,0
40,0

29,8

29,1

2000

2001

30,0

38,9

40,2

41,7

2003

2004

2005

49,8

50,0

2007

2008

52,0

45,2

32,4

20,0
10,0
0,0
2002

2006

2009

Figure M.2.1: Estimated proportion of population connected to waste water treatment

plants with at least secondary (biological) treatment technologies, %
Source: HCSO

M.2.2. Estimated annual nitrogen and phosphorus emissions from households

after waste water treatment , kg/inhabitant
The indicator shows the annual nitrogen and phosphorus loads of surface waters that
derive from the annual household emissions after waste water treatment.
Emission data were calculated on the basis of estimated ratio of population connected to
waste water treatment plants by using the emission specific factors below:
nitrogen emission factor 4.4kg N/inhabitant,
phosphorus emission factor 1kg P/inhabitant.
250

When calculating, the theoretical efficiencies of waste water treatment plants were also
considered.
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
2000

2001

2002

2003

2004

Nitrogen

2005

2006

2007

2008

2009

2010

2011

Phosphorus

Figure M.2.2: Estimated annual nitrogen and phosphorus emissions from households after
waste water treatment, kg/inhabitant
Source: HCSO

M.2.3. Estimated annual BOD5 emissions from households after waste water
treatment, kg/capita
The indicator reflects the changes in biochemical oxygen demand (BOD5) after waste
water treatment in kg/capita /year.
Due to the lack of statistical data on the efficiency of waste water treatment plants,
their efficiency is estimated by applying average technical data. Technical data refer to the
possible efficiency after municipal waste water treatment and actual efficiency can differ
from other calculated values. That is why this indicator can be regarded as a source of
potential BOI5 load from households.
After the possible BOI5 load from households after waste water treatment is
calculated while considering 60g/capita/day emission factor and stages of clearance. The
efficiency of waste water treatment stages are 30% for only mechanical treatment, 85% for
biological treatmentand 95% for advanced treatment technology.
9,0

7,97
8,0

7,41

7,27

7,0

6,07

6,27

6,27

6,18
5,60

6,0

5,68

5,43

5,0
4,0

2,66

3,0

2,39

2,0
1,0
0,0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure M.2.3: Estimated annual BOD5 emissions from households after waste water
treatment, kg/capita
Source: HCSO

251

M.2.4. Volume of non-treated municipal waste water connected to public sewerage,

m3/capita/year
The indicator presents changes of surface water loads by non- treated municipal
waste water in time.
Non-treated municipal wastewater is the most important pollutant of surface waters
primarily causing eutrophication problems in surface waters.
6
5,0
5
3,9

3,8

3,7

3,6

3,9
3,4

2,6

2,5

2,4

2
1

0,4

0,3

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure M.2: Volume of non-treated municipal waste water connected to

public sewerage, m3/capita/year
Source: HCSO

M.2.5. Municipal waste water treatment index, %

The municipal waste water treatment index presents the development of waste water
treatment based on treatment efficiency of waste water treatment plants.
To describe the efficiency of municipal waste water treatment stages the average
weights factors developed by Eurostat are applied: non-treated waste water: 1.00, primary
(mechanical) treatment only: 0.86%, for additional secondary (biological) treatment: 0.49and for additional tertiary (advanced) treatment: 0, 00%.
The index of municipal waste water treatment is 100% if there is no treatment and the
municipal waste water treatment index is 0% if all municipal waste water is treated by
tertiary (advanced) treatment.
85

79,8
80

79,3
76,0

75

68,9

70

67,6

65,6

66,7

65

61,8

60,6

60

59,0

55

48,1

50

45,3
45
40
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure M.2.5: The index of municipal waste water treatment, %

Source: HCSO

252

12.4. AIR
Lajos Franczen
Introduction
Air Emissions Accounts contain the emission of greenhouse gases and other
pollutants per emitting industries. Air Emissions Accounts provide the opportunity for
integrated environmental-economic examinations that can amend traditional economic data
by linking air pollution data with the economic ones that derive from the national accounts.
By using them a direct correlation between available statistical data per national industries
and information on the emission of air polluting agents (such as the greenhouse gas
emission of the national economy per 1 million HUF as of GDP) can be established. The
presentation of the emission of air pollutants and greenhouse gases (GHG) per national
economic industry has gradually shifted to the centre of public and political attention as it
is important to know which national economic industry is to blame for emitting GHGs and
air pollutants to the greatest extent in order to achieve sustainable development. Energy
reaches the Earth from the Sun in the form of electromagnetic radiation. Approximately
30% of the incoming energy is reflected back to universe; the remaining part is absorbed
while heating the surface and the atmosphere. Greenhouse gases act as a kind of wall
between the surface of the Earth and the space. They allow the suns rays to go downwards
but make it impossible for heat-rays to go upwards from the surface which cause
significant warming up. Climate change, the decrease in the size of biologically active
areas on Earth and the support function of the environment, scarce water supplies, bad
consumption habits and state of health as well as pricing that does not reflect the scarcity of
natural resources can all result in problems of sustainability in the long run. Certain air
pollutants can cause respiratory problems, heart failures and other health problems.
Moreover, their excess concentration can lead to the increase in algae, lower agricultural
yields and deforestation. As a result, the consequence of these factors is weaker economic
performance.
Emission inventory and the system of emissions accounts are used to describe
anthropogenic air pollution. The inventory is technology based while the system of
emission accounts, in line with the national accounts, has a national economic approach.
The Hungarian Central Statistical Office (HCSO) in line with the requirements laid
down in Regulation (EU) No 691/2011 of the European Parliament and of the Council of 6
July 2011 on European environmental economic accounts (Regulation) compiles Air
Emissions Accounts per industry regarding 14 air pollutants (such as greenhouse gases,
acidificators, ozone precursors and particulate matter).
This chapter presents the methodological development, past, present and future
possibilities of Air Emissions Accounts. Furthermore, the most important areas of using
Air Emissions Accounts are also dealt with.

The presentation of Air Emissions Accounts

The NAMEA (National Accounting Matrix including Environmental Accounts)
system was established by the Dutch Statistical Office at the beginning of the 1990s, which
is implemented by the EU member states within the framework of Eurostat environmental
accounts programme. Every member state was asked to prepare its own emission accounts
-at this time not prescribed by law. In 2005 Eurostat published its guidelines on NAMEA
253

air emission followed by a handbook in 2009. The Regulation laid down in 2011 is legally
binding for compiling Air Emissions Accounts.
In the introductory part a reference was made to the emission inventory and the
system of emissions accounts used to describe anthropogenic air pollution. The
methodology of Air Emissions Accounts, in cooperation with the Hungarian
Meteorological Service (HMS) based on the data of the Hungarian Energy and Public
Utility Regulatory Authority, HMS and HCSO, creates a close connection between the
output of the national industries and the environmental load deriving from production.
Economic activities comprise both production and consumption. Air Emissions Accounts
record the flow of gases and particles of residuums deriving from the national economy
and going into the atmosphere. The territory principle is followed in the inventory, i.e. all
pollution is considered that take place within the borders of the country including the
extraction of raw materials and energy resources (coal mining, oil and natural gas
production). Moreover, the production of services and products (combustion in power
plants, pollution of the manufacturing industries, agricultural emissions), the consumption
of goods and services (heating, cooking and transport), managing industrial and solid waste
as well as natural processes (e.g. forest fires) are also considered. The inventory is based on
technology-based classification. The system of emissions accounts is based on the
residence principle, which means that instead of the principles of territory or law a resident
business unit or person is considered as a pollutant in a country whose economic interests
are tightly related to the given country. The pollution of non-residents (e.g. tourists and
vehicles in transit) are not taken into consideration in the emissions accounts. To sum up
Air Emissions Accounts only take into account the pollution caused by residents regardless
the exact geographical location of these emissions. The data structure of Air Emissions
Accounts are consistent with the classification of economic activities (NACE rev.2.).
The two systems are interrelated and the main difference lies in emissions caused by
transport (e.g. the car use of foreign tourists in Hungary is included in the inventory but not
in the account system while the pollution of the Hungarian vehicles abroad is part of the
account system but not included in the inventory). The differences between these two
systems are calculated by using so-called bridge tables that are suitable to define
differences in air pollutants from tourism, transportation etc. as part of international
methodology.
The NAMEA system consistently includes economic and environmental data alike in
a matrix. Such a system can serve as the basis for scientific calculations, models, costefficiency analyses, as well as economic, political decisions, scenarios and forecasts. By
using it the source of air pollution can be defined and due to its comparability, it can act as
the basis for international benchmarks. Its main advantage lies in the fact that the emissions
of air pollutants can be correlated with macroeconomical and socio-demographic data so it
can also be used for exploring deeper connections. This system comprises units of
production and consumption and describes the connections between the origins and the
final objective of environmental load. Data are collected on the basis of their use by the
national industries and households regarding the origins of air pollution in the emission
accounts. These accounts also consider air pollution that derives from international
transportation, transport and tourism and also the one caused by residents.
The emission of the households is not calculated in the emissions of the national
economy and their value is included in the total emissions. The classification system of the
Union differentiates between household emission from transport, heating and other
purposes. The emission from transport can only be assigned to households if it derives by
using own vehicles. Emission by public transport is part of transportation and storage
industry. Heating belongs to households only if the household uses a unique type of
254

heating and in this way the emission from purchased electric energy is part of energy
supply industry. As a main rule, emissions must be assigned to the national economic
industry in which the given business unit acts. The same applies to transportation and
storage industry: emissions must be assigned to the business units that have performed
polluting activities.
Member states compile their air emission accounts based on two types of
methodology. Hungary used energy-first approach up to 2012, i.e. on the basis of the
energy data of the national economy, the pyrogenic pollutions from the use of fossil fuels
were assigned to industries while the technology-based ones were accounted by means of
multipliers of international standards. The inventory-first approach derives data that are
necessary to create Air Emissions Accounts from air pollutant emission registers. If the
elements of a register category can be assigned to several national industries, these data are
specific data. Moreover, other economic and technical information help allocation. The
inventory-first approach is based on the national emission inventory and these data are
made consistent with the national accounts.

The system of the Hungarian Air Emissions Accounts

The methodological bases of the system of the Hungarian Air Emissions Accounts
were laid down in 2001 and were in effect till June 2003 within the framework of a
bilateral Dutch-Hungarian statistical cooperation as one of the priorities. In the project
HCSO cooperated with the Ministry of Environment and Water and its background
institution, the Institute of Environmental Management. Two members of the Dutch
Statistical Office Department of National Accounts also helped collaborating in the project.
Based on the recommendations of the Dutch experts and Eurostat the first emission table
contained air pollution data in two digits in line with NACE rev1 (TEOR 03). This table
reflected the data of the three most important greenhouse gases (carbon dioxide - CO2,
methane - CH4, dinitrogene-oxide - N2O), three acidificators (sulphur-dioxide - SO2,
ammonia - NH3, nitrogene-oxides - NOx) and non-methane volatile organic compounds
(NMVOC). The data were re-classified from the CORINAIR database managed by the
Environmental Protection Directorate of Institute of Environmental Management.
CORINAIR mixes parts of a top-down system in which data of smaller units are defined
from the national data and also a bottom-up system where smaller units comprise national
data. During the compilation of the emission accounts a problem occurred, namely NACE
classification is based on the economic activity of the single national industries while
CORINAIR database includes the technical-based classification of activities. As the
records of the two databases were not obviously corresponding, CORINAIR data had to be
re-coded to comply with NACE. The conversion of data could not be performed by any
general algorithm so the content of SNAP classification (Selected Nomenclature for Air
Pollution) in CORINAIR had to be interpreted and also the origins of single SNAP
activities had to be identified within the national industry. Afterwards a matching NACE
classification had to be found and emissions that belong to single SNAP codes had to be
rearranged in line with NACE classification. If a certain SNAP activity did not directly
correspond with any NACE classification then the emission linked to the activity could be
divided only on the basis of other information (such as GDP, professional estimates).
The next step in adapting the Hungarian methodology to the international one and
creating a new, more transparent system was a Grant application in 2005. Within the
framework of this project HCSO made use of the experience and knowledge of several
office departments and external institutions, which resulted in establishing a time series
between 2000 and 2008 by the national industries, which was consistent with the data of
255

other Union member states and complied with the statistical requirements of the Union.
The application used the data sources and experience of the Hungarian Meteorological
Service, the Ministry of Rural Development, Energy Centre Non-profit Ltd. and HCSO
Department of National Accounts related to this issue.
The system of Hungarian Air Emissions Accounts was based on fossil fuel utilization
and other technological data (waste, animal, plant coverage, industrial production) up to
2012. The actual factors of the effective international methodology were assigned to this
information, which resulted in emissions per national industry expressed in two digits in
NACE rev.2.. The data of Air Emissions Accounts were first published in this form in 2012
by the HCSO. These factors connect the amount of production, consumption and the extent
of hazardous agents emitted in the air. In 2013 in addition to the above-mentioned energyfirst approach HCSO applied the inventory-first approach concerning the national
industries with significant air pollutant emission in order to improve data consistency.
The Regulation orders all member states including our country to publish an annual
report to Eurostat about Air Emissions Accounts in line with NACE rev.2., i.e. TEOR 08
classification. The 2013 report includes the previously outlined pollutants from 2008 or
even from 1995 if applicable. Hungary has available data of the emission accounts from
2000. Prior to this, reporting to the Eurostat was voluntary.

Further plans to improve emissions accounts

From 2014 the Hungarian Central Statistical Office is totally shifting to inventorybased approaches in creating emission accounts. This change is justified by the fact that
this modification diminishes the difference of data on inventories that are based on the
emission inventory data of the Hungarian Meteorological Service. There is no need for
continuously updating different technological factors so the possibility of errors deriving
from here is also excluded. According to the Manual for Air Emissions Accounts revised
by Eurostat in spring 2013 air emission accounts can directly be produced and derived
from CRF (the classification system of GHGs in emission inventories) and NFR
(classification system of air pollutants other than GHGs in emission inventories) codes in
line with NACE rev.2 classification.

Areas of using emissions accounts

Hereinafter some of the most typical areas of using Air Emissions Accounts are presented.
The environmental-economic profiles of national industries
Air Emissions Accounts include emissions per national industry in line with the
national accounts. That is why there is the possibility of comparing emissions per national
industry with other economic parameters (e.g. gross added value, production output,
number of employees). As households do not contribute to gross added value and
production output, they should not be considered in such comparisons. A national industry
of significant importance can perform low pollutant emission and conversely, an industry
of slight importance can also pollute the environment intensively.
Decoupling of production-related environmental pressures from economic
parameters
By means of decoupling we can express the relative pace of change for the variables
that have either economic or environmental importance and are related as cause and effect.
The environmental variable can be stable or decreasing while the economic one is
256

increasing (absolute decoupling). However, the environmental variable can also be

increasing while the economic parameter is rising at a faster pace (relative decoupling). It
can also happen that the growth rate of the environmental variable exceeds the one of the
economic parameter. The change in the above mentioned parameters can be due to
structural changes in the economy, altering patterns of consumer behaviour, the application
of a more environmental friendly technology, more efficient waste management etc.
Air emission intensities of industries
This indicator is the quotient of the direct air pollutant emission of a certain national
industry and the economic output of the given industry. By means of this indicator we can
compare the national industries on the basis of eco-efficiency, define the countries with the
least air pollutant emission per industry or examine the progress made in eco-efficiency by
a national industry or the entire national economy in case of which a commodity is
produced with lower environmental pressure using fewer natural resources.

Structural Decomposition Analyses (SDA)

Air pollutant emissions from production
Applying SDA for air pollutant emissions shows what percentage of total air
pollutant changes can be due to certain reasons given the fixedness of all other factors.
Such reasons can be, among others, the increase in economic output, the change in the
intensity of air pollutant emissions and also the industry mix effect that denotes the
structural changes of the economy. The latter one describes how the ratio of intensively air
pollutant and less intensively air pollutant national industries have changed.
The reasons for the decrease in the total emission of air pollutants can lie in the ecoefficient development of the national industries or the structural changes in the economy.
The latter ones can, for example, occur if the relative weight of air pollution intensive
industries decreases within the entire national economy by assigning more importance to
industries of lower emission intensity. Often it is economic growth itself that can be made
liable for the increase in air pollutant emission.
Air pollutant emissions from consumption
Assuming the fixedness of other factors the changes in the emission of air pollutants
from consumption can be explained by the following effects.
a. Changes in consumption growth: This explanatory variable shows how the emission of
a particular air pollutant was affected by the increase in consumption.
b. Consumption mix: This variable shows how the changes in the compounds of
consumed products affect the worldwide indirect air pollution emissions in connection
with domestic consumption. A case in point is the great shift from the consumption of
goods to the use of services which has a decreasing effect on indirect air pollutant
emission.
c. The intensity of air polluting emissions of the production cycle: if decreasing air
pollutant emission intensity can be noticed at the production chains of the world, it
decreases consumption-related air polluting emission.
To sum up, it can be concluded that according to SDA methodology the more we
aggregate national industries, the less reliable the factor that presents the composition of
the economy is. This method is not suitable for drawing precise, numerical statistical
257

conclusions. It is only recommended for observing and concluding the general reasons for
describing emission levels.

Environmentally extended input-output analyses (EE-IOA)

The method combines Air Emissions Accounts with symmetric input-output tables.
This method can be used to calculate indirect air pollution emissions that derive from final
use.

Air Emissions Accounts in numbers

Figure 1: Breakdown of the total emission of greenhouse gases in Hungary by

compounds, 2000-2011
Source: HCSO

Carbon-dioxide (CO2) is the most significant greenhouse gas. Its amount relatively
less dynamically decreased in 2011 as of 2000 that that of di-nitrogen-oxide (N2O) or
methane (CH4). In Hungary the amount of carbon-dioxide emission increased in 2005 as of
2000 but from the middle of the decade a significant decrease could be experienced.

Figure 2: Breakdown of the total sulphur-dioxide emission in Hungary by

industries, 2000-2011
Source: HCSO

258

The total sulphur-dioxide emission of Hungary gradually decreased to 8.3% of the

emission level of 2000 by 2011. The reasons for it can be the technological changes
primarily occurring in the industry of electricity, gas, steam and air conditioning supply
(energy supply).

Figure 3: Amount and structure of the ozone precursor emission of the

Hungarian national economy, 2000-2011
Source: HCSO

Figure 3 illustrates that of the industries with significant emission the emission of
transportation and storage, agriculture, forestry and fishing increased while emissions in
other industries decreased. In total, the ozone precursor emission of the national economy
was significantly lower in 2011 than in 2000 (by 30.6%).

Other data of air pollution

Apart from Air Emissions Accounts there is another possibility for analysing the
following data of HCSO produced by the HMS which are displayed on the website of the
HCSO.
1. Immission shows the concentration of an air pollutant in the air or the deposition of
the air pollutant on surfaces within a given period of time.
a. Data on air pollution
b. Average regional background concentration which reflects the concentration of
pollutants at settlements away from densely populated areas
c. The wet deposition of sulphur and nitrogen due to cloud formation or
precipitation.
d. The changes in the concentration of inorganic ions in precipitation based on
the measures of background stations
2. Heavy metal emission
3. Use of ozone depleting materials
259

Bibliography
1.
2.

3.

4.
5.
6.
7.

Nemzetgazdasgi gak lgszennyez anyag kibocstsa 2000-2010 (The emissions of

air pollutant by national industries) (HCSO-December 2012).
Az Eurpai Parlament s a Tancs az eurpai krnyezeti-gazdasgi szmlkrl szl
691/2011/EU rendelete (Regulation (EU) No. 691/2011 of the European Parliament
and of the Council on European environmental economic accounts) (06 July 2011).
Blint, Orsolya: Krnyezeti szmlk rendszere A NAMEA-rendszer
Magyarorszgon (The system of environmental accounts-The NAMEA system in
Hungary (Gazdasg s Statisztika December 2004).
Final Report on NAMEA Air Emissions in Hungary (October 2010).
Manual for Air Emissions Accounts version as of 23 Feb 2009.
Environmental statistics and accounts in Europe (2010 edition, Eurostat).
Krnyezeti helyzetkp (Environmental Outlook), 2011 (HCSO).

12.5. INTEGRATING ASSETS IN NATIONAL ACCOUNTS

Tmea Cseh
The system of national accounts incorporates the economic data of business units in
the form of integrated accounts. The sequence of accounts consists of production accounts,
income (source of income, distribution, redistribution and utilization accounts) and
accumulation (capital, financial, and other changes in assets) accounts. These accounts
illustrate the impacts of economic activities and other changes on the change of net worth.
This change is reflected also by the different of balance sheets made at the beginning and at
the end of the period.
In the member states of the European Union the statistical compilation of national
accounts is regulated (Regulation (EC) No 549/2013 of the European Parliament and of the
Council of 21 May 2013 on the European system of national and regional accounts). The
Regulation describes the methodology used to calculate the figures of the account system
(Regulation (EC) No 549/2013 Appendix A hereinafter referred to as ESA 2010) and in
this way it ensures the objective comparability and harmonization of the economic
performance of member countries. The system of the European accounts is consistent in its
contents with the worldwide accepted international account methodology, i.e. the
handbook entitled System of National Accounts (SNA) published by the UN.

Types of assets embodying the worth

National worth shows the value of economic assets at a particular point of time.
Ecnomic assets are such sources of value that ensure economic benefit for their owners by
using or holding them. An economic benefit could be the income earned by ownership or
leasing ownership and the holding gains (profit or loss) deriving from selling or terminated
the asset. Economic statistics observes the economic assets owned or used by
organizational units.
At first level, the groups of financial72 and non-financial73 (real) assets are
distinguished. (Figure 1)
72

The paper does not cover the interpretation of financial assets and their role in the account system.

260

Figure 1: Classification of assets

Source: own compilation based on ESA (2010)

Non-financial assets can be classified on the basis of their relationship to production

(produced vs. non-produced assets) and that of physical as well as technical characteristics.
Produced assets are fixed assets, stocks and valuables; such non-financial assets that are
the output of production processes. On the other hand, non-produced assets are such
economic assets that are the output of non-productive activities such as natural resources,
namely land, minerals, energy reserves, uncultivated biological resources, water supplies
and other natural resources together with construction originating from legal or accounting
activities by society (e.g. contracts, leases, licenses, purchases less sales of goodwill and
marketing assets). Natural resources do not include cultivated biological resources (e.g.
plantations). As these assets are produced assets, they are regarded as fixed assets. Land as
a non-produced asset represents the value of an area of land with its sovereign soil surface
and internal waters. Surface waters are such areas of water that can be subject to
ownership.
Assets and production are not only related with each other in terms of their origin.
Both produced and non-produced assets contain such elements that are used in production
(e.g. fixed assets or land) and also others that are not directly used in production (valuables
and not economic assets). (Table 1)
Table 1: Relationship between non-financial assets and production
Assets
Used in production
Not used in production

Produced
fixed assets, inventories
valuables
(e.g. art objects)

Non-produced
land, minerals, radio
spectra etc.
Non-economic assets
(free goods such as
rainfall, water)

Source: own compilation based on HTTL VITA [2005]

A decisive part of economic assets used in production is taken up by fixed assets.

Fixed assets are such non-financial assets originating from the production process that are
73

The system of national accounts uses the term non-financial instrument instead of real instrument widely
used in Economics

261

repeatedly or continuously used in production at least for more than one year. Fixed assets
include real estates, machines, cultivated biological resources as well as software and
databases as intellectual property products. This latter one includes parts of immaterial
goods, supplemented by the assets of research and development. The term, immaterial
goods was used in the former methodology (ESA 1995) for national accounts. As it derives
from non-productive processes, land or minerals are not regarded as fixed assets. From the
value of these assets only melioration and the extraction of minerals can be accounted as
fixed assets because they are regarded as productive activities. Major improvements on
non-produced assets and the costs of ownership transfer originate also from productive
activities like in the example above so they form part of the value of fixed assets.
It has been debated for a long time which kind of resources can be accounted in the
national assets. At present the following items are not economic assets, i.e. not part of
assets in the system of national accounts:
1. human capital,
2. natural resources which are not subject to ownership (e.g. free goods)
3. consumer durable goods in households74 and
4. the value of contingent assets (not a financial assets and liabilities with
conditions).

Balance sheets, dilemmas of evaluating assets

According to ESA 2010 terms balance sheet is such an economic account that shows
the value of economic assets and liabilities of a given business unit or group at a specific
time (usually on 31 December). Balance sheets are generally made in an aggregated form
(e.g. in the institutional sector) and not individually (e.g. to account the assets of a given
enterprise) in the system of national accounts.
Balance sheet contains stock data and presents the impacts of items of production,
income distribution and use as well as accumulation accounts on the economic worth. In
this way the sequence of accounts is completed by the balance sheet. The difference
between the opening and closing balance sheets could be directly observed in accumulation
accounts.
During a given period of time the value of the assets can be changed due to
1. transactions related to the assets (capital formation and consumption of fixed
capital) or
2. other changes in assets such as extraordinary events (other volume changes) or the
change in the value of money as a unit of account (revaluation).
Value of assets in opening balance sheet
+ value of purchased assets minus value of assets sold
consumption of fixed capital
+ other changes due non-economic activities
(such as new deposits, destruction of natural disasters)
+ nominal holding gains and losses resulting from price changes of assets

in the
accounting
period

= value of assets in closing balance sheet

74

E.g. cars owned by households if they are not directly part of production, it is accounted as consumption in
the system of national accounts. At the same time, if a car is owned by an enterprise and used in the
production process for more than one year, it is accounted as an economic asset in the system.

262

Accumulation accounts
Accumulation accounts have a priority in accounting changes in net worth.
Accumulation accounts include
1. capital account
2. financial account75
3. other changes in volume of asset account and
4. revaluation account.
Capital account shows the accumulation of non-financial assets by residential
business units. Moreover, it also records the change in net worth due to saving (the last
balancing item of current accounts) and to capital transfers. Capital accounts make it
possible to determine the ratio of financing the capital formation of non-financial assets
from savings and from capital transfer.
The gross capital formation accounted on the capital account shows changes in fixed
assets, valuables and inventories during a given accounting period (e.g. one year). Gross
fixed capital formation (GFCF) is the value of net fixed asset purchases (purchase minus
transfer/sale) by resident producers within a period of time. Furthermore, it also includes
the value of fixed assets that are produced for own use or acquired under financial lease
within a period as well as major improvements to produced or not produced assets and also
the cost of ownership transfer. It is a gross indicator including the value of consumption of
fixed capital (depreciation). The balancing item of the account shows the value of net
lending or borrowing. The value of net lending, is a surplus of a unit or sector which is
loaned out to other units or sectors directly or indirectly. The value of net borrowing is the
sum of a unit or sector, which is borrowed in the form of credit from other units or sectors.
Other changes in the volume of assets must also be differentiated from capital
account transactions on the balance sheet. Accounting other changes in the volumes of
assets makes entry to or exit from the system possible (such as a new appearance of a nonproduced asset or unanticipated discards of assets before the end of the expected lifetime).
Revaluation accounts show changes due to the value changes of assets and liabilities. Items
accounted on accumulation accounts affect the net asset value of the unit/sector/subsector
concerned in the balance sheet.

Depreciation of real assets

Assets lose value as a result of their use in production and from technical and moral
amortization76. On one hand, this change is subject to the age of the instrument although
physical (historical) time does not affect it in a sense that the efficiency and value of fixed
assets of different age groups should also differ at a given point of time. On the other hand,
demand for the given assets and service lives (lifetime) can also decrease as a result of
appearance of new, technically more developed and modern assets. This latter depreciation
is called obsolescence. Consumption of fixed capital is the value of depreciation of an asset
in a given period of time (usually one year).
Statments for accounting and taxation purposes rarely consider price changes during
the service lives of assets. They usually reflect the sum of amortization of fixed assets and
immaterial assets from the purchase price by means of a rate of amortization. This rate is
often regulated by law and differs from country to country and from one asset group to
75

The present study does not describe financial accounts and financial assets and liabilities in details
The extent of technical depreciation is significant especially in the case of information and communication
technology equipment
76

263

another. However changes of expected service lives can influence operating surplus of a
company. The objective of statistics is to show the consumption of fixed assets used in the
production for the real service lives. Changes in price level and rate do not affect the extent
of depreciation. Statistics use the term consumption of fixed capital to show difference
from the accounting term in order to point out amortization. The present study interprets
depreciation as a synonym of consumption of fixed capital and it is not regarded as the
equivalent of the definition used in accounting and taxation.

Fixed assets
Fixed assets realized in gross fixed capital formation transaction are not regularly
exchanged in the market. It is more typical that owners keep the assets longer to use them
in production. In addition to estimate the replacement value of assets in production another
problem can be defining the extent of wear and tear. That is why the real (actual market)
value of fixed assets cannot be observed directly. Although accounting reports include
information on the assets of organizations, the value shown here is based on the original
purchasing value according to the principle of cautious evaluation. Revaluation is allowed
only in few cases e.g. if a permanent and significant difference exists between the market
price and book value of assets that comply with the requirements laid down in the
accounting act. Summing up the market prices of different periods is meaningless and does
not correspond with the evaluation method used in the system of national accounts. Assets,
compared to the items of national accounts, should also be evaluated at the price of the
examined period/time, at the general market price when current price data of the account
system are calculated. It is the only method of aggregating values of assets of different
condition and age. As it is difficult to gain information on the price changes of the wide
range of assets, calculations assume that changes in the price of used assets due to inflation
are identical with the price changes of new investments.
As the first step in calculating the stock of fixed assets the value of used assets
regardless of their age and condition has to be estimated assuming a new condition at a
price level that corresponds with the prices of the current period.77 This is the gross value
which is necessary to calculate the consumption of fixed capital for measuring depreciation
of assets and also to define the value of net capital accounted at real market price. The net
value of assets is calculated by subtracting accumulated value of consumption of fixed
capital from the gross value of capital stock.
On the level of the national economy there are three possible ways to define assets:
surveying at certain times,
continuously recording investments and discards and
by mixing the first two methods.
Statistics are forced to employ estimates of fixed assets used in production instead of
the costly and complicated annual observation. It is made possible by the Perpetual
Inventory Method, i.e. PIM78. In this model the value of assets per unit (industry, sector)
are calculated by aggregating gross fixed capital formation values considering consumption
of fixed capital and discards of assets.
The value, as a result of the calculations in the model, is the net or gross fixed capital
depending on the condition of assets. In the case of gross all the fixed assets are accounted
at the price level of new ones. The value of existing assets is calculated at the price level of
77

Assets can be evaluated in the case of fixed price calculations at the price of the selected year by supposing
a new condition.
78
Perpetual Inventory Method

264

the given year by means of their price at purchase and the price index which is typical for
the given asset.
Net asset value is the price of the real/used condition of the instrument.79 Fixed assets
that are in use but purchased some years ago are evaluated at the level of the given year but
their value is depreciated with obsolescence and physical wear and tear. This is expressed
by the cumulated consumption of fixed capital in time at the price level of the given year.

Evaluating assets in Hungary

The Hungarian Central Statistical Office (HCSO) collects annual data on fixed
capital formation transaction at present in the Hungarian statistical practice (and also
quarterly data on non-intellectual properties). Units of observation for data collection are
the organizational units that own the assets. Annual data collection applies to non-financial
and financial enterprises with at least 20 employees or above while it is fully
comprehensive in the public sector.
Fixed assets are defined on the questionnaires as follows:
buildings and other structures
domestic machines, equipment
domestic vehicles
imported machines, equipment (new and second hand)80
imported vehicles (new and second hand)
plantations
breeding and dairy animals
land, ground and other, non-produced assets (there are exclusively appreciation
investments such as melioration that basically influences soil productivity or
investment to turn swampy areas into productive ones although land purchase
itself is not investment) and
intellectual property products (mineral exploration and evaluation, software,
databases etc.)
These data on gross fixed capital formation are used to estimate data calculated by
the perpetual inventory method.
As mentioned above, evaluating fixed assets are either possible by the costly method
of direct observation with several uncertainties and/or by the perpetual inventory method
(PIM) due to the above mentioned inadequacy in accounting records.
As Hungary has not got consistent and long-term data on investment, an initial value
was set at the start when PIM was introduced. Surveying initial data took place in 2000.
Data were collected at non-agricultural corporations and entrepreneurs working with 5 or
more than 5 employees and carry out double-entry bookkeeping. Then, data of the sample
survey were grossed up. Experts estimations were made on the fixed assets of enterprises
that employ fewer than 5 employees and/or carry out single entry bookkeeping.
Estimations of fixed capital statistics in government were based on the database of
Treasury Property Managing Institute, on data records of local authorities and on experts

79

Gross and net values are only assumed as information on discards and market prices is missing. This is
because of a great part of used assets are not part of market transactions.
80
As import instruments are counted as new ones regardless their real condition (new or second hand) in the
Hungarian economy, no difference is made between new and second hand instruments in terms of
investments

265

estimates (in the field of infrastructure). Datacollection was limited to tangible fixed
assets81.
Data from direct survey were aggregated on TEOR double digit (industry) level by
asset group and sector. In this way initial data values in line with PIM structure were made
available. These data can be further processed by using the method of perpetual inventory
(PIM model).
Basic data of the PIM-model are detailed in three dimensions:
number of national accounts sectors,
breakdown by industry (double digits) by TEOR 03 and
distinguishing six groups of assets.82
Average service life can vary by asset group, industry and by sector. Details of the
basic data determine the parameters of applied price indexes and average service lives. The
investment price index per industry or assetgroup makes possible to convert the value of
assets to comparable price levels.83 Moreover, the results of estimates are greatly
influenced by presumptions on discards and that on consumption of fixed capital per year.
The values of consumption of fixed capital are calculated with the linear description
method, which means that the gross value of stock on fixed capital (replacement value) is
decreased by the same extent in every year during the estimated average service life.
The incomplete and inconsistent time series of investment can be improved by
knowing the initial stock data and by setting the parameters of the PIM model. These data
can be processed further by employing the annual investment data in the frame of the
pereptual inventory method. The flowchart of the model can be divided into three parts.
(Figure 2)
Time series of GFCF at current prices
by (6) asset categories, by (56) industries and by sectors (5)
Annual price indices (of purchased new assets) by
type of assets

Long time series of GFCF at 1999 prices

by (6) asset categories, by (56) industries and by sectors (5)

PIM

Discard Function
(normal distribution)

Linear depreciation
function

Average service lives

(+)
Distribution of retirements
(+)
()
Gross Stock of fixed assets
at (1999) constant prices

Distribution of CFC
(+)
Consumption of fixed capital
at (1999) constant prices

()

Net Stock of fixed assets

at (1999) constant prices

Annual price indices (of purchased new assets) by asset categories and by industries

Gross Stock of fixed assets

at current replacement value

Consumption of fixed capital

at current prices

Net Stock of fixed assets

at current replacement value

Figure 2: Calculation of fixed assets and consumption of fixed capital using the Perpetual
Inventory Method
Source: HCSO [2011] p. 230.
81

Tangible fixed assets: dwellings, other buildings and structures, machines and equipment and cultivated
assets which are used in production more than one year.
82
Asset groups: buildings, other constructs; machines, equipment; including vehicles; software; originals of
literary and art works
83
Price indexes by industries and asset groups are identical in every sector

266

The input data of the model are the price indices by asset category and by industry
and gross fixed capital formation from the annual data collection. In order to add the value
of assets which are the input of the model to the value of existing assets there is a need for
values counted at the same price level. The Hungarian PIM model calculates with 1999
prices so the value of investments had to be converted accordingly.
The second part illustrates the calculating mechanism of the model. Service lives of
fixed assets were derived from the life expectancy estimated by the data providers in the
survey. Annual fixed assets and consumption of fixed capital data can further be processed
at 1999 prices on the basis of gross fixed capital formation (investment) at 1999 prices
level by knowing the general average service lives, applying linear depreciation and
delayed survival function in the national practice.
In the third part data of fixed capital and consumption of fixed capital are converted
into current prices by using investment price indexes by asset group which are also
employed for input data.
Of the balance sheet items estimates were made on the value of fixed capital and
inventories so far. The highest ratio of net value on fixed assets are comprised by other
buildings and construction (54%) followed by the value of dwellings owned by households
(29%). Machinery and equipment used in production (together with vehicles) make up
16% of fixed assets while intangible assets, which can quickly depreciated, as well as
cultivated assets represent only 1% of the total.
1%
4%

12%
29%

Dw ellings
Other buildings and structures
Machinery, equipment
Transport equipment

54%

Other

Figure 3: Breakdown of the net value of fixed assets by categories, 2010

Source: own compilation based on HCSO data

Summary
Net worth, or its changes measures economic well-being more precisely than income
generated during a certain period of time. However the extent and changes of net worth are
rarely used as a statistical indicator for well-being primarily because it is complicated to
measure. As a result of the problem of measuring assets accounted in the balance sheet, the
EU has made mandatory provisions for its member states only for calculating gross and net
fixed assets by industry for the whole national economy and sectoral breakdown only for
dwellings.84

84

Regulation (EC) No 549/2013 of the European Parliament and of the Council

267

Further plans
With regard to an increasing demand for widening the range of data on net worth, the
assets on the balance sheet will be amended by non-financial assets which are not produced
(the value of natural resources as well as contracts, leases and licenses). Moreover, new
tasks will be given as to estimate the changes (also for new asset groups) come from the
new methodological regulation (ESA 2010) effective from September 2014 in the member
states of the European Union.

Bibliography
1. Httl A. - Vita L. [2005]: Gazdasgstatisztika. Egyetemi jegyzet. BCE Statisztika
Tanszk. Budapest. 308 p. (Economic Statistics.University coursebook-BCE
Department of Statistics, Budapest .308 p.)
2. KSH [2002]: A nemzeti szmlk eurpai rendszere (ESA 1995). Nemzetkzi
Statisztikai Dokumentumok 5. ktet. Budapest. 625 p. (European System of National
Accounts (ESA 1995). International Statistical Documents. Vl. 5. Budapest. 625 p.)
3. KSH [2006]: A nem pnzgyi eszkzk felhalmozsa s llomnya 2000-2004,
interneten megjelent kiadvny:
http://www.ksh.hu/docs/hun/xftp/idoszaki/pdf/nempenzugyieszk.pdf (HCSO (2006)
Capital Formation and Stock of Non-financial Assets 2000-2004).
4. KSH [2011]: GNI Inventory of Hungary. Version 2.2. Budapest.
5. OECD [2009]: Measuring Capital. OECD Manuel 2009. Second Edition. OECD. Paris.
232 p.
6. Az Eurpai Parlament s a Tancs 549/2013/EU rendelete (2013. mjus 21.) az Eurpai
Unibeli nemzeti s regionlis szmlk eurpai rendszerrl. (Regulation (EC) No
549/2013 of the European Parliament and of the Council of 21 May 2013 on the
European system of national and regional accounts). Az Eurpai Uni Hivatalos Lapja.
L 174. 56. vfolyam. 2013. jnius 26. (Official Journal of the EU, L. 174/56. 26 June
2013).
7. Az Eurpai Parlament s a Tancs 1392/2007/EK rendelete (2007. november 13.) a
2223/96/EK tancsi rendeletnek a nemzeti szmlkkal kapcsolatos adatszolgltats
tekintetben trtn mdostsrl (Regulation (EC) No 1392/2007 of the European
Parliament and of the Council of 13 November 2007 on amending Council Regulation
with respect to the transmission of national accounts data).

268

12.6. SUBSOIL ASSET ACCOUNTS

Gbor Szilgyi
Introduction
The Department of Rural Development, Agriculture and Environment of the
Hungarian Central Statistical Office prepared the first subsoil asset accounts for Hungary
in 2008. Like in the case of material flow accounts, improvements started from the basics
by using the relevant methodology of Eurostat (Guidelines for harmonised monetary
estimates for Natural Resource Accounts for Oil and Gas A methodological guide, EC,
2002 and Natural Resource Accounts for Oil and Gas, 1980-2000, EC, 2002). In addition,
Eurostat also funded improvements in the form of Grant project among others for
Hungary, too. The most important objective of improvement was to create a system in line
with the methodology of the Union that serves with a proper review of Hungarian mineral
assets. During the process carbo- hydrates (crude oil and natural gas) and the extraction
data and evaluation of carbon dioxide were prioritized that comply with the available
methodological guidelines.
The double objective of the project was (1) to review the information on extraction
and (2) to calculate the resource rent. The final objective, however, was to create an
integrated hydrocarbon account whose data were provided for the period between 2000 and
200685 during the project. The accounts include both non-financial and financial data.
The basic data of the subsoil asset accounts (extraction and hydrocarbon supplies
etc.) were provided by the Hungarian Office for Mining and Geology, who, as a partner,
also cooperated in the project. Harmonisation with the national account system was
ensured by the experts of the National Accounts Department of the Hungarian Central
Statistical Office.

Methodological bases
The Hungarian mineral asset account incorporates physical data with the material ones on
hydrocarbons in an integrated system. The following parts from the database of the
Hungarian Institute of Mining and Geology were used for working out the account:
initial supply of hydrocarbons
extraction data of hydrocarbons
other changes in supplies
Basic data derive from the administrative database of the office, which were sent to
the Hungarian Central Statistical Office (as a project partner). All the basic data of physical
hydrocarbon balances originate from the Hungarian Office for Mining and Geology.
The following method, in line with the Eurostat methodology, was used to calculate the
resource rental fee of crude oil, natural gas and carbon-dioxide:

+
+

Net operating surplus

balance of product tax and subsidy
balance of other production taxes and subsidies
return to fixed capital
resource rental fee

85

Indicators at current prices were available between 2000 and 2006 while the not fixed ones with the
average of 3 years were available between 2001 and 2005.

269

Net operating surplus is calculated as follows:

production (at basic price)

intermediate consumption
gross added value
compensation of employees
other production taxes
other production subsidies
consumption of fixed capital
Net operating surplus

Regarding Hungarian national accounts enterprises are classified on the basis of their
main activity so economic sectors cannot be regarded as homogenous. Therefore, estimates
were used to define data on mining activities.
The following estimates were used to define the compounds of resource rental fee:
1. Extraction data of crude oil, natural gas and carbon dioxide gas were necessary for the
revenue of enterprises from their extraction activities. Data were taken from the
Hungarian Office for Mining and Geology. When defining prices, the crude oil and
natural gas prices of the Energy Information Authority of the United States were taken
into consideration and then exchanged into forint on the basis of the official exchange
rates of the National Bank of Hungary. In general, the extraction costs of oil are not
broken down per energy resource in the national accounts. That is why revenue was
defined prior to the definition of the resource rental fee of crude oil, natural gas and
carbon dioxide gas.
2. Data, if they were available per unit to define extraction at basic price, originate from
integrated economic statistical reports. If data (mainly for small-scale enterprises) were
not available, it was necessary to work out estimates based on other administrative data
sources (most frequently on the revenue data of the tax authority).
3. Quarterly integrated economic statistical reports were used to define immediate
consumption if they were available per special unit. If not, other data such as output in
the case of small-scale enterprises were used for estimates.
4. A similar method was used to define employee income and product tax and subsidy. In
the case of small-scale enterprises again, estimates were used.
5. Primarily the annual accounts and reports of enterprises served as the basis to define
consumption of fixed capital and return to fixed capital. If no proper data were
available, estimates were used based on revenue and the total tangible fixed assets of the
company. Following Eurostat recommendations on a unified methodology the 8% rate
was used to define return on capital.
Resource rental fees per energy resource were primarily defined at current prices. A
great disadvantage of using this method is that data fluctuate significantly and differ from
year to year as they depend on the world market price of crude oil and natural gas. To
eliminate this, the resource rent was also defined by using another method. By means of
not fixed averages for three years the impact of possible price changes could significantly
be diminished.
270

Principal data of mineral account

Physical carbon dioxide balances (1995-2006)
The closing supply of both crude oil and natural gas shows a decrease from 1995.
The former one decreased from 12.2 to 6.7 million tonnes while the latter one from 48.1 to
30.1 giga cubic metres. As in parallel, the amount of extraction also shows a decline (from
1.7 to 0.9 million tonnes and from 5.2-to 3.2 giga cubic metres, respectively), the supply
value can be regarded as more or less constant (8-10 and 9-11 years, respectively). Only a
very small part of the total supply of carbon dioxide gas was extracted during the period
from 1995 and 2006 (approximately 100 million cubic metres of the total 8 billion) its
supply is the highest of the three examined carbon dioxides.
120
100

years

80
Oil
60

Gas
CO2

40
20

19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06

Figure 2: Physical balances of oil, gas and carbon dioxide in Hungary

Source: HCSO

Resource rent (2001-2005)

Calculations both at current prices and not fixed averages of three years were made
to define resource rent for the period between 2001 and 2005. The results of using basically
different methods are presented by the following figures.
45 000
40 000

million HUF

35 000
30 000

Resource rent, oil

25 000
20 000

RR oil, 3-year
moving average

15 000
10 000
5 000
0
2001

2002

2003

2004

2005

Figure 3: Resource rent, crude oil

Source: HCSO

271

120 000

million HUF

100 000
80 000

Resource rent, gas

60 000

RR gas, 3-year
moving average

40 000
20 000
0
2001

2002

2003

2004

2005

Figure 3: Resource rent, natural gas

Source: HCSO
120

million HUF

100
80

Resource rent, CO2

60

RR CO2, 3-year
moving average

40
20
0
2001

2002

2003

2004

2005

Figure 3: Resource rent, carbon dioxide

Source: HCSO

Further plans
In the future one of the possible steps to finalise underground asset accounts can be
to supplement them by other raw materials and also produce related data sources on nonfinancial items and monetary units. To this end, however, only theoretical steps were made
mainly in connection with some metal ores and minerals.
Physical data are also available here-thanks to the Hungarian Office for Mining and
Geology. They are used when national material flow accounts are compiled although
significant problems can arise from calculating production costs and resource rental fee due
to lack of data per special unit. To sum up, in the near future further improvements in this
area are not expected as it is not prioritized within the European Union either, while
environmental accounts are improved.

Bibliography
1. Drahos - Herczeg - Szilgyi: A nemzetgazdasgi szint anyagramls-szmlk
Magyarorszgon, (National material flow accounts in Hungary), Statisztikai Szemle,
September 2007.
2. Economy-wide material flow accounts and derived indicators A methodological
guide, EC, 2000.
3. Guidelines for harmonised monetary estimates for Natural Resource Accounts for Oil
and Gas A methodological guide, EC, 2002.
4. Natural Resource Accounts for Oil and Gas, 1980-2000, EC, 2002.
5. System of Environmental-Economic Accounting Central Framework, UN 2012.
272

13. MICROECONOMIC MODELLING METHODS FOR

UTILIZING RENEWABLE AGRICULTURAL
ENERGY SOURCES
Csaba Blint Ills Anna Dunay Adrienn Vida

13.1. Literature review

The use of renewable energy sources (RES) has been an important topic of scientific
researches and many studies since the first energy crisis (1973) in different aspects through
either specific or complex examinations. The concept given by Figure 1, is based on the
principles of economic value of natural resources, considering the main aspects of
environmental economics. The classical aspects of environmental economics consider the
human values as the initial point, but in case of renewable energy sources, the non-human
values are also important. Some authors do not classify the Value of options group into
the Utilization value, their place is depending on the initial base of classification. When
we classify the values according to the utilization options of the natural resources, the
Value of options group shall be connected to the Value of origin. If we make the
classification based on the prevention of natural resources or the costs of prevention, then
the Value of options should be connected to the Non-utilization value group.

Figure 1: Total economic value of renewable energy sources

Source: Own construction (2013) based on Menegaki (2008. p. 2244.) and Szlvik (2006)

273

In that case, when the ultimate goal of a research is to evaluate the financial value of
natural resources, then the Value of options category will mean a transition stage or a
link between the two main groups. The macroeconomic evaluation of renewable energy
sources gives another aspect of the assessment of the possible solutions. The classification
of energy sources is based on the renewal period of the resources, thus, we can differentiate
renewable and non-renewable energy sources. Figure 1 does not show the differences
between the renewable energy sources; therefore we shall define and distinguish the
different elements examined in our research.
The renewable energy sources originated from loving organisms (biomass) may be
classified as follows:
origin (Lng et al., 1985. p. 5.)
place of origin (Lukcs, 2009. p. 100.)
state of matter (Lukcs, 2009. p. 100.; Strbl, 2000.)
area of utilization (Bartfi et al., 1993. p. 765.)
Several researches were conducted in the evaluation of the potential of renewable
energy sources and by determining different scenarios for the future (see for example Lng
et al., 1985; Lukcs, 2009; Pylon, 2010; Greenpeace, 2011), the results of these researches
shall be differentiated according to the different categories used in the international
literature of this topic.
Figure 2 illustrates the hierarchy of the potential of renewable energy sources
according to the Hungarian Academy of Science. As it is shown, the broadest category is
the theoretical regional potential, in which no determination constraints are taken into
consideration, only the real or the potential energy producing capacity of the different
regions is taken into account. When some constraints (such as the change of the production
yields in some sectors, or the production for food supply) are given, then the convertible
potential can be calculated. After optimization of technical and economic factors, we can
determine the technical and the efficient potential.

Figure 2: The hierarchy of the potential of renewable energy sources

Source: Own construction (2013) based on Pylon (2010, 72. p), Strategy for the improvement of
RES use in Hungary (2008)

274

The well-known long-term use shall be considered only as a general term. As it is

illustrated by Figure 2, the use of renewable energy sources may be differentiated
according to the length of time focusing on the different potential values. The longest
period is about 50 years long, which refers to the possible potentials that are based on
calculations with long-term data. Sustainable potential is for 15-20 years period, which is
used in EU and national policies. A smaller part of this period is medium term period,
which means the potential that may be realized within 5-10 years. This period may refer to
the feasibility of long-term strategies, and in within this period the threats and the
opportunities at macroeconomic level may also become clear. The narrowest category is
sustainable potential, which includes the ecologic, economic and social aspects as the main
criteria of the long-term use of these resources.
In addition to defining the different categories of renewable energy sources, it is also
important to introduce the quantifiable data of the different potentials. Table 1 summarizes
the most recent calculations made by governmental and EU institutions and different
NGOs.
Table 1: Calculations of different professional governmental bodies and NGOs on
Hungarys energy source potential

Energy sources

Used
renewable
energy
sources in
2005 (PJ)

Sustainable
potential
until 2020
(PJ)
estimations
of Pylon Kft.

Strategy until
2020 (PJ)
BAU
Plan

Estimations
of Energy
Club
until
Policy
2020 (PJ)
plan

Wind energy

0,04

15,50

4,00

6,10

6,30

Solar energy

0,08

22,00

0,40

1,70

2,00

Water energy

0,73

2,30

0,90

0,90

1,20

Geothermal energy

3,63

29,30

7,30

11,40

20,00

43,56

150,00

93,70

130,90

143,90

Biogas

0,30

13,20

6,80

12,50

15,00

Biofuels

0,21

Calculated at
solid biomass

19,60

19,50

12,90

Solid waste

1,38

4,30

3,30

3,40

3,30

49,93

221,10

136,00

186,40

204,60

Solid biomass

TOTAL

Legend: BAU: Business As Usual

Source: Own construction (2013) based on the Strategy for the improvement of RES use in
Hungary (2008) and Hungarys Action Plan for Utilization of Renewable Energy Sources (2010)

As it can be observed, in every document of the different organizations solid biomass

is the basic element of renewable energy use. Therefore, it is important to define the proper
role of agricultural and forestry sector, because they are the key sectors producing solid
biomass.
It is essential to determine the role of agriculture in energy production, what kind of
features and how can they influence the different energy sources. The energetic role of
agriculture in biomass production may be evaluated at two different levels, the producers
and the users aspects (see Figure 3).
275

Consumer

Oil seed

gasoline
diesel

fuel
Grain

Forestry

Short rotation wood

heat
Long rotation wood

coal

Agriculture

Agriculture

Crop prod.

Producer

gas

Animal husbandry: manure

(solid, liquid)
electricity
Organic waste and residuals

Figure 3: Energetic role of agriculture

Source: Ills et al., 2012

Every raw material of biomass energy may be connected to the agricultural sector
either crop production and animal husbandry, or even forest management assuming
sustainable production for energy purposes. The use of organic matters for energy
production is constrained by different limiting factors. The most significant and complex
issue is that farmers prefer to produce crops for food consumption, therefore its byproducts and the manure produced in the livestock sector are primarily used for preserving
and improving the fertility of the soil.
On the right side of Figure 3, there is agriculture, as an important energy-consuming
sector. Figure 4 shows that total energy consumption has decreased, but it might not be due
to the positive effect of development processes but rather to the decreasing tendency in the
animal husbandry sector and its reduced input use.

Figure 4: The energy consumption of the Hungarian agricultural sector (2004-2010)

Source: Ills et al. (2012) based on AKI (2008; 2012. p. 20.)

276

In the past years, the volume and the composition of agricultural investments show
varying tendencies (Figure 5), which may be due to the availability of different subsidies.
In 2011, the measures for the energetical modernization of buildings and machinery
represented only 1%, which is in accordance with the formerly mentioned literature
sources. (AKI, 2012)
180 000
Machinery

160 000

Buildings

Million HUF

140 000
120 000
100 000
80 000
60 000
40 000
20 000
0
2004

2005

2006

2007

2008

2009

2010

2011

Figure 5: Volume and composition of agricultural investments in Hungary (2004-2011)

Source: Ills et al. (2012) based on AKI (2008; 2012. p. 13)

At the present, there are several problems in the agricultural sector, which must be
solved in order to establish a good cooperation with the players of the energy sector. One
of these problems is the profitability of investments in processing plants or devices.
(Darczi, 2004)
The left column of Table 2 (Bai, 2008) summarizes those factors which are important
from the investments or the investors aspects. In the right column are those factors that
determine the farmers attitudes and willingness towards energy crop production are
collected. In the course of energy policymaking process, the policy makers should take into
consideration the opinion of both sides; this is the key to successful operation. Ills and
Kohlhb (1999) highlighted the importance of taxation issues.
Table 2: Two aspects of the determining factors of the profitability of biomass energy
production
Determining factors of
profitability of biomass production
farmers willingness to biomass energy
(investors aspects) (Bai, 2008; p. 73.)
production (Villamil et al. 2008, 2012)
price of the raw materials and the
legal form of production (contractual or nonagricultural products competing for the
contractual),
agricultural land,
period of land use for energy production,
processing technologies in use,
usability of present infrastructure,
utilization of possible by-products,
effects of the new crops on the landscape,
energy prices at the world market,
possibilities for support,
institutional and regulation system
predictable net income values,
influencing the raw material production
safe marketability,
and processing industry
innovative attitudes
Source: Own construction based on Bai (2008) and Villamil et al. (2008, 2012)

277

According to ngyn et al. (2006) agriculture can be defined as self-supporting in

energetic aspects when it is operating not only as an energy consumer, but it uses selfproduced energy sources as well.
The economic aspects of biofuel and biogas production was examined by different
authors, from the introduction of the special programmes in Hungary based on German
experiences (Kohlhb et al.; 1995) until the latest evaluation of the present situation of this
sector (Ills and Vida, 2009; Lakner et al.,2010).
In our research in addition to the economic aspects of biomass energy production, we
focused on the technical and environmental effects, and made our examinations in
accordance with these three pillars. The theoretical base and the structure of our researches
are illustrated by Figure 6.

Figure 6: Theoretical aspects of the microeconomic (farm-level) assessment of renewable

energy sources of agricultural origin
Source: Ills et al. (2012)

13.2. Production of raw materials of biomass energy ion of raw materials

of biomass energy
A wide range of plants may be used for biomass energy production (see Table 3.).
This diversity allows the flexibility of production that makes easier to adapt the new
technologies into the former plant production structure. In economic aspects, the
application of existing infrastructure as well as the additional investments and financing
opportunities are also very important.
In case of energy plantations, the bottleneck condition is the growing area, while in
case of herbaceous plants the constraint is the differences in the willingness for production
and the sectors that compete for the product. The use of energy crops as biomass in close
connection with forestry products has a well based infrastructure and supply chain. On
the contrary, the use of the by-products of herbaceous plants as biomass, because of the
huge volume, the relatively low energy content, needs preliminary processing (pelleting or
briquetting). The main economic decision is connected to the opportunity cost and will
appear at the producers side. For the products of herbaceous plants (e.g. field crops) which
are used for biofuel production, both the food processing industry and the livestock sector
will compete. It raises another problem from the side of sales, creating a profit-maximizing
278

objective for the producers, and investment assessment tasks for the processing industry
side.
Table 3: Classification of energy crops
Energy crops
Woody
Energy
wood

Arboraceous

Herbaceous

Plantations
Poplar
species

Arboraceous
Willow
Acacia
species

Poplar

Willows

Acacia

Ailanthus

Poplar
clones

Willows
clones

Acacia
species

Firmiana
and other

Other

Annual
Shrubs
Willow
Other
species
Amorpha
Willows
sp.
Willows
Other
clones

Hemp
Triticale
Rape
Other

Perennial
Reed
Energy
grass
Chinese
reed
Other

Source: Ivelics (2005)

Although not emphasized by Table 3, it is clear that biomass production may be an

intended process (direct energetic purposes) and it may be both a by-product or main
product of plant production, or even the solid manure or the slurry produced in the
livestock sector. In the plant production (grain and oilseed production, energy woods), the
circumstances of the production should also be evaluated. Until present, the use of
renewable energy sources has not changed the land use structure in Hungary, thus, the
surplus of grain production for human consumption is mostly used in the energy sector.
The positive or negative impacts of the use of renewable energy sources on the
environment are influenced by the following conditions:

the technical efficiency of the production,

the quantity and quality of chemicals used during the production process
intensity of production technology,
water consumption.

Figure 7: Energy balance and emission savings of bioethanol produced from

various raw materials (*estimation)
Source: Ills et al. (2012) based on BNDES* (2008; 96 p.) and Gallagher (2008; p.24.)

279

Figure 7 illustrates the energy balance of bioethanol (Be) and biodiesel (Bd) made by
different raw materials (BNDES, 2008) and the possible reduction of greenhouse gas
(GHG) emissions (Gallagher, 2008 and BNDES, 2008). The cellulose-based bioethanol is
the only category where a significant difference can be observed between the two
calculations. As it is a secondary generation method and the results are estimated, therefore
both sources were indicated. It is shown well in Figure 7, that by the transformation of the
corn, wheat and sugar beet produced by intensive methods, the reduction of the harmful
emissions is very low, therefore the energy balance is just slightly higher than zero.
The level of possible ethanol production may be an additional important determining
factor of the environmental effects (see Figure 8).

Figure 8: The carbohydrate ratios and ethanol yields of the raw materials
of bioethanol production
Source: Own construction (2012); based on Boros 2007)

Although the opinion of different authors is not unified regarding the mechanism of
the cost level and the standards of chemical use and production process, it is inevitable to
take the cost structure of plant production into consideration during the optimization
method. (Table 4)
Table 4: Different cost levels of plant production in different European regions
Proportion
Unit
of total
costs %
Fertilizer (N)
Fertilizer (P)
Fertilizer (K)
Glyphosate
Working power
Ploughing
Spraying
Fertilization
Cost level

kg
kg
kg
l
h
ha
ha
ha

12,9
1,7
2,1
0,7
21,7
20,3
20,3
20,3
100

Source: Ericsson et al. (2009. p. 1581.)

280

Northern
Europe
0,88
1,21
0,44
5,05
18,13
91,21
14,29
15,38
100

Price (EUR/unit)
Great
Britain Western
South
and
Europe
Europe
Ireland
0,71
0,82
0,63
0,71
1,33
0,67
0,36
0,36
0,67
5,60
4,45
4,00
16,00
17,00
8,00
74,13
90,60
90,00
17,30
13,18
14,00
14,83
10,43
15,00
93,70
89,20
83,20

Eastern
Europe
0,46
0,55
0,30
6,40
3,80
38,00
6,50
7,00
41,3

In addition to the information about the energetic value, the costs and the different
connection between the raw materials, other features, about the material and energy flow
features of the biomass processing should also be evaluated. When the material and
financial flows are evaluated together, we will be able to conduct a microeconomic
optimization process either for producers, enterprises or the whole lifecycle of the product.

13.3. The course of biomass processing

The next stage of the evaluation of the biomass production is the processing of
energetic raw materials, in which different additional materials, water and energy shall be
used. The amount of those materials and the level of CO2 emission and the possibility of
reutilization will influence the assessment of the whole technology and the amount of
processed biofuel.

13.3.1. Liquid biomass

Figure 9 shows the process of biodiesel production, in which according to literature
sources the material flows are given for 1 hectare or 1 ton of raw material. A single
hectare of land, which produces 2 tons of oilseeds, will produce 1,15 tonnes of oilseed
flake, 0,75 tonnes of biodiesel and 0,1 tonnes of crude glycerol, which produce 0,07 tonnes
clear glycerol after the refining process. 1 tonne raw material will produce 0,58 tonnes of
oilseed flake, 0,375 tonnes of biodiesel and 0,5 tonnes of crude glycerol and 0,04 tonnes of
clear (pharmaceutical) glycerol after the esterification process.
The by-products of biodiesel production may be used as raw materials of the
cosmetics industry, livestock feedstuff or for biomass (burned or fermented form). In the
latter case the energy balance may be improved when the place of utilization is close to the
production plant, therefore it is generally accepted to build a biomass fired energy plant
next to the biofuel factories. By this operation method, the efficiency of the whole
production process can improve.

Figure 9: Process and material flows of biodiesel production

Source: Hancsk (2004); Bartfi (1993) in Katz and Nemnyi (1998., p 84.)

281

Production of liquid biomass either biodiesel or bioethanol is a result of complex

chemical processes, which energy and water demand is very high. This fact may raise the
question: are these products real bio products? For this reason, it is very important to
analyse the efficiency of the technology in energy consumption and energy production
aspects as well. This approach is illustrated by Figure 10.

Figure 10: Energy balance of biodiesel production

Source: Bartfi (1993) in Katz and Nemnyi (1998.; p. 84.)

Oilseed cake may be used in many ways, but another by-product, the glycerol raise
different problems, because the cosmetics industry, its principal user, does not need this
product in such large volume.
In Europe, biodiesel is produced dominantly from oilseed rape. For bioethanol
production many other plants may be used, considering that the production surplus is
utilized in this way.
Bioethanol production compared with the biodiesel production process is more
complex process which may not be interrupted86. The material flow illustrated by Figure 11
shows average values, which may differ from these values depending on the used
technology and raw materials (dry or wet grinding method), the amount, the type and
temperature of materials applied for starch extraction. CO2 emission, which is generated
during the fermentation process, is another influencing factor. DDGS (Dried Distillery
Grain with Solubles) which is a by-product of bioethanol production can be used as feeding
stuff, or for biogas production. The figure summarizes both raw materials that are used in
Europe for ethanol production: corn and wheat.
Although it is not shown in this figure, water is produced during the distillation of
distillers grain, which may be recovered at the end of the process, and may improve the
economical and ecological features of this technology.

86

Plant oils which were purifies before estherisation, may also be used for biofuel production, while
dehydrated alcohol cannot be used. In this aspect the process may be distinguished by different parts, but the
product will not have the same function.

282

Figure 11: Process and material flows in bioethanol production (corn, as raw material)
Source: Hancsk (2004); Bartfi (1993) in Katz and Nemnyi (1998)

Despite that, the targeted research objectives can be accomplished through the
evaluation of quantitative data, but in this case specific qualitative features should also
improve the assessment of this process. These qualitative features are summarized in Table
5.
Table 5: Summary of the most important features of bioethanol and biodiesel production
Raw material

Bioethanol

Biodiesel

Grain
(wheat, corn)
Sugarcane
Oilseeds (rape,
sunflower)
Palm oil

Decrease of
GHG
emission
Moderate
low

Production
costs

Biofuel
production per
hectare

Soil
requirements

Moderate

Moderate

Fertile soil

High

Low

High

Fertile soil

Moderate

Moderate

Low

Fertile soil

Moderate

Moderate
low

Moderate

Wet or coastal
soil

Source: BNDES, 2008. p. 65.

The first three columns of the table have already been discussed, therefore the last,
and the most important question shall be answered. As it may be seen, fertile soil is needed
for the raw material of both bioethanol and biodiesel production, thus, in most cases, the
disadvantageous areas cannot be used for biofuel production.

13.3.2. Solid biomass

Figure 12 summarizes the origin and the material flows of solid biomass. This figure
follows that approach, which suggests that only that biomass may be used for energetic
purposes, which cannot be used for other purposes. This approach support the priority of
283

nutrient supply, which is in compliance with the concept of sustainable agriculture and the
production of green energy.
The easiest method for utilization of solid biomass is burning, which is connected to
forestry, mostly through physical processes. The problems arise from the production and
the organizational process of the supply chain.
The other option is connected to biogas production technologies, which may be
considered similarly to biofuel production.

Figure 12: Process of the production of solid biomass in agriculture

Source: Own construction (2013)

The first step of the economic analyses and the assessment of energetically selfsupporting agriculture is the examination of raw materials and the technology. Table 6
introduces the classification of the raw materials used for biogas production.
Table 6: Classification of biomass according to different authors
Biological origin
Patay (2007)
dendromass,
products and byproducts of plant
production,
secondary biomass,
tertiary biomass.

Sectorial origin
Rkosi and Nagy (1982)

Agricultural origin
Boros (1994)

agriculture,
forestry and wood
processing industry,
livestock production
(secondary biomass).

products, by-products and residuals

of conventional agricultural
production,
waste of forestry and wood
processing industry,
plants grown for energetic
purposes,
secondary biomass (manure).

Source: Own construction (2013) based the given authors

284

There are two main technologies of biogas production, the mesophilic process at
medium temperature (32-40C), and the thermophilic process at high temperature (above
40C). There are many differences between the two methods according to the raw
materials and the different bacteria needed. The processing of the solid and liquid biomass
and the production of heat and electricity may be conducted in different ways, its general
scheme is illustrated by Figure 13, with an initial splitting of organic components.

Figure 13: Simplified process of biogas production

Note: CHP: Combined Heat and Power
Source: Bartfi (2000)

The amount of energy produced depends on the quantity and quality of raw materials
(Figure 14) and the technology level (Figure 15).

Figure 14: Quality features of the most important field crops

Source: Own construction (2013) based on Hajd (2009)

285

During the biogas production process, the speed of the hydrolisis has a strong
influencing effect. In this stage, the composition of the different bacteria plays the key role,
therefore optimization of the composition of the biomass and the bacterial culture is the
most important task.
As it may be seen in Figure 15, the second-generation technology is more effective,
even considering the raw materials or the energy balance, which has strong influence on
the environmental impacts.

Figure 15: Comparison of first and second-generation technologies

Source: Bartfi (2000)

The biogas yield and the methane content per 1 tonne of substrate is the highest in
case of by-products of the food industry, which may result parallel with organic manure
an important volume of biogas production.

Figure 16: Comparison of typical raw materials according to their main characteristics
Source: Own construction (2013) based on Hajd (2009)

286

13.4. Methods used in microeconomic analysis

For the microeconomic analysis of renewable energy sources, we chose two methods
from the available procedures. Life-cycle assessment (LCA) allows to determine the
logical framework of the further examinations and the determination of the used variables,
while by linear programming we could finalize the optimization process.

Life-cycle assessment (LCA)

As a result of the macroeconomic trends and the increasing interest of the society in
connection with the renewable energy sources, many sectors reacted by opening towards
the green or greener products and technologies. As a consequence, may companies
started to use the life-cycle assessment for the evaluation of their environmental
performance. Despite that the environmental impacts of the production of the products or
services and their operation shall be evaluated according to the cradle to grave principle
of LCA, the analysis could be made also on the different stages. The evaluation of the
results of the analysis will help to explore the cumulative environmental impacts, and in
many cases, such processes and impacts may be detected, which are not considered when
using other methods.
Life-cycle assessment is an international standard method, which is a strict but
reliable tool in the environmental management processes. The process of LCA is shown by
Figure 17.

Figure 17: Process of Life-Cycle Assessment (LCA)

Source: Curran (2006)

One of the most important features of the LCA is that it makes possible to analyze
the environmental factors and the impacts, in connection with the product, the process or
the service. It includes the following steps:
summarizing the relevant energy and material inputs and the environmental
impacts,
287

 evaluation of the possible environmental impacts due to the detected inputs and
environmental burden,
the application of the results in the decision making process of the policy makers.
Life-cycle assessment refers to those main activities which may be examined through
the life of the product or the service. All the inputs and outputs shall be assessed which
may be the partial or the final results of the activities. By using the LCA the following
tasks may be realized (Curran, 2006):
improving the evaluation of the environmental burden of a given product,
analysing the environmental optimum level for one or more certain products or
processes, for convincing the stakeholders of a given project,
quantifying the environmental impacts on water, air and land use, in all stages of
the lifecycle and the most important processes,
describing the impacts of material use and the use of the environment on the
human beings and the whole ecosystem,
recognizing of the different impacts of certain areas of greater importance.
Figure 18 summarizes the logical framework of the LCA for the production processes of
the utilization of biomass.

Figure 18: The logical framework of the life-cycle assessment of biomass energy
Source Heller et al., 2002

Because the quality and reliability of the data used in the life-cycle assessment, additional
calculations may be conducted for controlling the method:
1. uncertainty analysis,
2. sensitivity analysis.
By these methods the most frequent problems of evaluation may be avoided, for example
the distorting effects of data, or the representativeness problems of technologies,
geographical features and time.
288

Linear programming
Operations research which most widely used method is linear programming is a
discipline that deals with the application of advanced analytical methods to help make
better decisions, by which the complex social and economic systems and the interactions
between their elements may be analysed. Depending on the type of economic problems, we
can choose among several optimization methods. In agriculture, linear programming is the
most frequently used method. (Szkely, 2000)
When considering any modelling methods the processes are quite similar: the first
step is the description of the problem, then an appropriate method shall be chosen, and at
the end of the process, the final results shall be applied. It is very important to highlight
that in both operations research methods and life-cycle assessment the processes shall be
defined accurately, and a well based database should be formulated in order to make
reliable results, which may be used during the decision making process. It is also suggested
to find a simplified solution method, which contain easy to use data, which can be used by
the producers. Such methods are the so-called expert systems, which can be used within
MS Excel.
Table 7 summarizes the different technology versions and the criteria of evaluation.
Table 7: Objects and attributes of the research (in different plant production technologies)
Objects (rows)
BAU corn
BAU rapeseed
SUS corn
SUS rapeseed
BAU corn + energetic wood fuel
BAU rapeseed + energetic wood fuel

Attributes (columns)
Price of raw materials (HUF/ha)
Income from by-products (HUF/ha)
Average yield (t/ha)
Amount of fertilizers needed (kg/ha)
Amount of used water (m3/ha)
Usability of biomass (10-point scale)
CO2 burden (10-point scale)
Need for additional investment (HUF/ha)

Note: Variations of raw material production: BAU - Business As Usual; SUS - SUStainable
Source: own construction, 2013

It should be noted, that expert systems can not be used for optimization, they only aid
choosing between different options and ranking them according to the given criteria.
Despite this their use is highly recommended because of simplicity for example in rotation
planning decisions, or before the introduction of production of energetic plants, finally it
may be used for the initial calculations of the more complex linear programming methods.
Linear programming, despite it uses many simplifying methods, is one of the most
widely used method for optimization processes of complex agricultural systems. The
objective functions may be assigned to those input-output data, which were used in the lifecycle assessment of the biomass use or its raw material production process.
The objective functions of the optimization of biomass production (Bedn, 2011)
available maximum income,
maximum amount of the produced biomass,
289

maximum amount of biogas originated from the produced biomass,

maximum income originated from biogas production,
maximum amount of bioethanol originated from the produced biomass,
maximum income originated from bioethanol production,
maximum amount of biodiesel originated from the produced biomass,
maximum income originated from biodiesel production.

The main deficiency of the abovementioned calculations is that they calculate with
amounts and income values of field crop production, the different costs of energy
production and the environmental effects are disregarded by the method. Table 8
summarizes those calculating options, which may be used in the more complex assessment
of renewable energy sources of agricultural origin.

Table 8: Traditional and economic programming system

INPUT
(field crop production)
Agricultural land
Air
Water
OUTPUT
(production process/consumption)
Air
Water
Biogas
Biodiesel
Bioethanol
Energy wood

Objective function
Minimum amount of fertilizers
Minimum cost of fertilizers
Minimum of CO2 emission
Minimum transportation distance of raw materials
Minimum of water consumption
Objective function
Minimum of CO2 emission
Minimum of water consumption
Maximizing quantity
Maximizing profit
Maximizing gross margin
Maximizing quantity of by-products
Maximizing profit derived from by-products
Maximizing energy content
Minimizing of energy loss

Source: Own construction (2013) by completion of Bedn (2011)

When the initial point of the simplified and the more complex methods are
compared, it may be observed that the criteria of the two systems are quite similar, but the
results may affect the decision making process diversely. Linear programming is a
dynamic and complex method; therefore, it can be used for calculations in life-cycle
aspects. Expert systems are static methods to help selection between available options.

290

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292

APPENDIX

293

Appendix 1.

MAIN CHARACTERISTICS OF NATURAL RESOURCES AND

SOME EVALUATION PROBLEMS
Mrk Molnr
Natural resources and natural conditions
Natural conditions are those features of the different elements of the natural
environment, the deposits of natural resources or their products, which may influence the
economic value of their utilization assuming that the most efficient or optimally operated
technologies are used in the socio-economic environment, by stochastic functions.
(Burger et al., 1983).
Accordingly, natural conditions are the location, the extent, and the quality of the
mineral occurrences, or the quality, the heat and kinetic energy, the therapeutic effects, the
yield etc. of natural waters, or, the topographical and climatic features or the water supply
of the agricultural land, etc. Their geographical location and the distance between deposits
and processing plants which determine the transportation needs, shall also be considered as
important natural conditions. Certain elements of the natural environment (for example
climatic factors) can be natural condition for several, different natural resources (for
example for agricultural land, surface mineral deposits or recreational places) but others
(e.g. energy producing solar radiation) may be considered as an independent natural
resource.

Taxonomy issues of the products of natural resources

The primary products of mineral occurrences in general are identical with the in
situ raw material of the deposits, in case of hard coal occurrence with the coal, ore
occurrences with the different ore types, or water occurrences with the water sources. On
the contrary, the primary products of agricultural land (plants, crops, woods) are different
from the in situ material (the soil) of the place of occurrence.
The in situ non-renewable character of mineral occurrences is derived from the
infinitely long time demand of the Geological (physical and chemical) processes. On the
contrary, the renewable character of the land is resulted by the relatively shorter time of the
production the primary products (plants, woods) and that the biological processes may be
influenced by artificial methods and this process may be repeated several times, among
specific conditions. This difference may be formulated in such way, that mineral
occurrences, which include the primary product from the origin is an object of work, while
the agricultural land (fertile soil) because of its renewable character shall be considered
as a working tool in the production of its primary products.
Raw materials originated in the natural resources are considered as such mineral or
organic materials, which can be used in the form of raw or additional materials or energy
carrier in the production process. These materials are transformed or reconstructed during
this progress resulting finished or semi-finished products. Any products of the preceding
stages shall be considered as raw materials, until they reach the form of finished or semifinished products. According to this process, the raw materials extracted from the original
place of occurrence are called as primary products, the homogeneous raw materials that are
ready to use for producing finished or semi-finished products are called as ultimate
products.
294

This process complies with the ranking of the mineral deposits with similar primary
products, which base is the alternative opportunities of utilization and the optimal use of
the ecologic potential. Examinations that have been conducted in such bases can be used
for the evaluation of the primary products according to quantified standards expressed in
terms of the given basic product (i.e. the cereal production yields in case of agricultural
land, or the main ore material in complex ore occurrences). In addition, the variability and
the substitutability of the products shall also be determined in the evaluation of the
essential resources.
We shall mention the differences of the technological modernization between the
agricultural and the mineral raw material production. While the technological improvement
of mineral production technologies are restricted to the improvements of the production
process, than in agricultural production as the land is a tool of the production there are
other type of modernizations (for example melioration or biological innovations) which
may also improve the final characters of the primary products, i.e. the object of the
production.
This product innovation process which is resulted by the biotechnological and
breeding improvements, or technologies optimized to the given conditions may increase
the yields without direct additional inputs. Therefore, there is an increased demand for
methods by which the agro-ecological potential may be used in a better way. By these
methods, the local invariability of the products may be balanced by giving preferences for
the more advantageous processes. This situation is similar to the case of mineral deposits,
where the more favourable deposits are preferred in the exploitation process. The working
power and the needed devices are primarily allocated to these places, but, of course, the
unfavoured deposits are not closed out from the exploitation process, but they are ranked
backwards.
Regarding the technological developments, the following aspects shall be considered.
As the yield increasing impacts of technology developments are favourable, that means,
that with more favourable natural resources are, the impacts of technology improvements
will be more efficient, therefore, the value of more favourable natural resources will
increase. In economic aspects apart from special cases it is not suggested to compensate
the unfavourable conditions with using the most recent technological improvements, until
their use will cause increased effectiveness in places the more favourable conditions.
As the possible economic results of the natural resources shall be maximized in
longer terms, therefore an overall assessment and ranking of the different products shall be
conducted prior to the evaluation process.
The degree of the processing of the primary products of natural resources shall be
determined according to the detailed domestic demand, although in export possibilities, it
shall be decided upon the economic performance (the efficiency) of the different stages of
the vertical system. The transformation of the primary products of the supply chain into
intermediary or ultimate products is depending on the physical and economic
transportation processes in the vertical system.

Evaluation problems due to limited volume of natural resources

One of the reasons of the restricted availability of natural resources is their fixed
location, or the limited extent of certain elements of the natural environment, for example
the total lack of mineral raw materials in a given area, or the total utilization of land surface
as agricultural land.
Limited availability may also derived from that the given resource is not renewable
in situ, which means that the given natural resource or its deposit will be terminated in the
course of the utilization process, therefore its product shall be replaced by a product from
295

another deposit. Such migrating type of resources are the mineral deposits, which energy
resources will be destroyed during the utilization process, while the metallic, building or
other mineral resources and water resources may be partly reused as waste materials in
the next stages.
It is derived from the different features and limitations of natural resources that the
prices of the raw materials of 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.
An important feature is derived from this context, while the long-term production
opportunities of the processing industry may be illustrated by slightly increasing curves,
and then these curves for the natural resources are steep curves.
When assuming the utilization of natural resources, it is probable that the features of
those natural resources, which are needed for fulfilling the increased demand, will be
deteriorated in function of time. While in the processing industry the development of the
technologies may result the reduction of the production costs, in case of raw materials of
natural origin (at least in case of mineral resources) this reduction will be eaten up by the
deterioration of the natural conditions. Therefore, the terms of trade between the products
of processing industries and the raw materials of natural origin will increase in time
(Molnr, 1987). The efficiency of the researches for broadening the opportunities and the
improving tendencies of the utilization of natural resources may more or less modify this
diverse process, even when a revolutionary change may occur in the substitution of certain
natural resources
The decrease of terms of trade in the world market does not mean principally the
decrease of the economic efficiency of the imports of raw materials. In fact, when we
consider such a country which have adverse conditions of natural resources, and there is an
opportunity for improving the technical and economic level of the products of the
processing industry, the deterioration of terms of trade may be balanced by such a decrease
of the costs of the replacement products that exceeds the decrease of the world prices. (Gl
et al, 1983a)
In this sense, the efficiency of a countrys raw material production is depending
inversely on the economic and technical level of that industry, which produces the
substitute products. Accordingly, the strategy of the utilization of natural resources is
strongly influenced by the development of other sectors of the economy.

Opportunities for increasing the production and the long-term reserves of

natural resources
The long-term reserves of natural resources when we not consider the substitution
are influenced by the different elements of the processes, which may be increased by
technological development or the results of natural sciences, and by those elements, which
are still hidden; therefore we do not know in details. While in the first case the certain
element of the natural environment is known, and the economic way of utilization and the
method of increasing efficiency is unknown. In the first case, the element of the natural
environment is known, and the method for increasing the efficiency or the yields is
unknown, while in the latter case the optimal utilization method is known, while the natural
environmental element is unknown. (Szcs, 1979)
As the time and input demand of the exploration of undiscovered (but possible)
natural resource deposits is often lower than the time and input demand of the installation
of new technologies for utilization, therefore, the prospective natural sources (which of
296

course may have positive and negative results as well) should rather be considered as a
future reserve of than those non-economic deposits which have already been explored. The
exploration and the exploitation of a prospective natural gas deposit at the given technical
level needs shorter time and less inputs, than the introduction of a new technology that
enables to produce gas from the coal of certain coal deposits. In case of crude oil, the
increase of the volume of exploitation in operating deposits and the increase of the
exploration of new, undiscovered oil sources the latter case is more efficient. Moreover, the
discovering of new mineral deposits generates more social inputs. The increasing of the
quality of agricultural land by different agro technical methods may also generate more
social inputs than the value of introduction of new cropping areas. Therefore, the
evaluation of prospective natural resources particularly the exploration of mineral
deposits has significant importance.
The economically optimal volume of mineral deposits (as one of the in situ nonrenewable natural resources) is influenced by the yearly profit of the optimal technology,
while in case of agricultural land (in situ renewable sources) it is determined by the yield
per year, which is based on the optimal product and the yearly volume. These economic
optimum levels as other certain elements of the evaluation are not necessarily are
equivalent with the microeconomic (company level) optimum values.
The volume of products of natural resources obtained in the optimal way is less than
the theoretically available level, because of the optimal production losses. The optimum of
the production losses (or of the production yields) is determined by the input demand and
its growth. The in situ production losses have increased importance, because they are
generally cause ultimate loss of assets in terms of decreased lifetime.
Production losses can arise not only in the utilization process of the natural resources
(i.e. production of primary products), but also during the transformation of primary
products into ultimate products. These losses are (mainly in case of energy resources)
significantly higher than the losses of exploitation. The reduction of exploitation losses up
to the optimum level although the final result is the same may be taken into
consideration as the decreasing of the needs, and not as the broadening opportunity of the
natural resources.
The production capacity of the natural resources (per time unit) may be improved in
two different ways:
a) The intensive increase of presently used deposits, using the eco-potential, and by
R&D development of production technologies (results of chemistry and biology).
b) in an extensive way, by increasing the number of present or prospective
exploitation.
Although the intensive expansion of in situ non-renewable natural energy sources
including mineral resources is an existing process (for example, in case of intensive
production of crude oil, or the processing of poor quality bauxite, or the intensification of
capacity of burning fuels etc.), the extensive development that is based on the results of
geological researches and the utilization of new deposits is more typical for these resources
(Gl et al., 1980). On the contrary, renewable natural resources (such as agricultural land)
which deposits are widely known and utilized may be broadened only with intensive
technologies. (Szcs, 1982). In case of utilization of water resources both the extensive
utilization methods and the intensive water purification technology is existing.
The economic assessment of the elements of the ecologic potential namely the
extensive and intensive broadening methods of the natural resources is an important step
of the evaluation of the resources, which may determine the long-term development
prospects and directions.
297

Production capacities of the natural resources are all those means of production,
which are needed for the optimal production level or the optimal utilization of the natural
resources. These are mostly single investments with higher costs, such as buildings, special
production equipment, melioration devices etc.).
The period of the primary production process (production cycle) which can be
realized by the installed production capacity in case of mineral deposits it lasts from the
exploration of the products until its transportation to its destination, or in case of
agricultural land it lasts from sowing until harvest time is generally takes one year.
Therefore, the operational costs and the usable products of the production process will be
realized almost in the same time. The situation is different in case of plantations and
forests, where the time required biologically for the production process from the
plantation until its logging may be longer, even more decades, and during this time, other
production value is not generated.

The reliability of the information on natural resources hypothesis and

technical and economic prognosis
The information in connection with natural resources is more or less uncertain. One
of its possible reasons is that for example the detailed features of mineral occurrences
cannot be predicted accurately even by detailed researches before the exploration, or, on
the other hand, the impacts natural conditions which may influence the different natural
resources (for example weather, or different hazards) may be just predicted, their impacts
are also uncertain.
The economic assessment should be performed prior to the decision making about
the development process. In this case, the methods of hypothesis making and the
prognostic process shall be determined. The different factors of evaluation should be
considered as probability values in the course of the evaluation process.
The scientific researches may be directed for the cognition of certain unknown or not
enough known conditions, or to the future state of a known state. Accordingly, although
these concepts have similar meanings hypothesis is connected to the exploration of the
present conditions, while prognosis is for the prediction of the future state.
Hypothesis is the presumption of the present conditions and its relations, based on
previous observations and experiences, for example, hypotheses may be connected to the
structure of the earth crust, or prospective mineral occurrences. The question of the
hypothesis is the present situation.
Prognosis is the method for prediction of the future events and the future changes in
the present conditions, for example forecasting the possible economic changes or technical
development. The subject of a prognosis is the change itself, or the future conditions
generated by the changes. Thus, the geologic assessment of the prospective mineral assets
is a hypothesis, but the assessment of industrial mineral deposits or the agricultural land
(either prospective or known) is prognosis. (Gl, et al. 1980). In the utilization of mineral
occurrences and the agricultural land in contrast with the presumption of prospective
assets the technical level and the economic conditions already play an influencing role. In
case of agricultural land, this contrast may be observed at the different levels of ecologic
and technical-economic assessment.
A special feature of in situ non-renewable mineral occurrences is the reliability of the
information about their quantity and natural conditions, which directly influence the
capacity of the given resource and their economic performance. This information may
carry several possible errors, and it is influenced by the data available for the given mineral
assets.
298

The reliability of information about the less known prospective mineral occurrences
is an important element of those economic calculations which objective is the evaluation of
the risks of future utilization.

Prognostic methods of the utilization and evaluation of natural resources

For the evaluation process of natural resources, at least 10-20 years long periods shall
be taken into consideration, because the decisions will determine the future processes.
Therefore the social demand, the utilization level, the technology of processing, the costs
and the future world prices shall also be calculated for this period. This method, despite its
complexity and the problems of its use, shall be used for these long-term plans. Only these
long-term methods may determine objective points, which are needed for making the
directions and the extent of the development process and for considering the corrections
needed for the planning process in different sectors of the national economy. (Szcs, 1974).
In the economic evaluation of the utilization of natural resources, we shall consider
the use of that technology, which may have the maximum economic results, and which will
probably available in the future period. In case of mineral occurrences, the primary
products are specific, therefore they cannot be a subject of optimization, and thus, only the
technology may be optimized under the given natural conditions. In case of agricultural
land, both the product and the technology shall be optimized according to the given natural
conditions.
A technology may be considered optimal when it complies with the natural
conditions and the resources of the society (fixed assets, working power) and will produce
the maximum economic results. The optimal technology is not equals with the most update
technology; particularly in case of natural resources that have been already is use.
Prognoses assuming the optimal technology and the possible domestic cost level
are made for predicting the product prices and production value, and even the changes of
the world prices. In the processing industries, it is enough to evaluate the demand, the
substitution and the technological level of the production, but in case of natural resources,
the possibility of the realization of prospective resources and the increase of the production
shall also be taken into consideration during the prognostic process. (Szcs, 1977).
These factors are in close relation and may influence each other. The closest
relationship is between the demand, world prices and the domestic cost level. The increase
of the demand will generate the increase of the prices, which may reduce the demand. The
technological development may also influence the demand by generating substitute
products, and strongly determine the yields of the production.
The strength of the different factors, of course, may be different. For example, the
yield increase of mineral raw materials and the increase of the agricultural area are less
important factors.
Substitution of mineral raw materials, which are able to influence the world price of
the products, should be considered as specific in that sense, that its process needs longer
time than the in agriculture and the processing industry. Thus, the most expensive products
of the processing industry in well-based and flexible economic circumstances will not
differ significantly from the average price, while the price of the most unfavoured natural
resources may be several times higher than the average. (Molnr et al., 1988)
The future price of non-renewable natural resources is determined by the extent and
conditions of the non-utilized (known, but not used and prospective) mineral assets, the
price of renewable natural resources is influenced by the possibility of the increase of its
yields. This factor is not considered in the processing industry, except for the special case
when the main objective is the environment friendly production without or with less waste.
299

The price of the prospective mineral assets may strongly influence the world prices;
this is why the different countries keep their geological survey results as confidential data.
The changes of the demand and supply as well as the monopole situation of the
producers and consumers may also misdirect the world prices from the predicted prices. A
special case is, when the production for export strongly exceeds the domestic demand,
which may influence the prices. In case of export production, the world prices should be
calculated as decreasing in function of the yield level.
The future world prices of the natural resources may be corrected according to a
common utilization value, considering the options of substitute resources. For example, the
world price of coal may be calculated from the price of nuclear materials. In agricultural
prices, the substitutability has less importance in determining of prices. The transportation
cost should be added into calculation of the world prices, which may be different in case of
exports and imports.
The economic factors of natural resources is expected to be changed in the future (as
a result of non-predicted changes of the economic environment or the realization of
prospective possibilities etc.), the value and the volume of natural resources may be
different in the different stages of the planned period. It is especially important for in situ
non-renewable natural resources, namely for the deposits of mineral resources.
The evaluation of the natural resources due to the risks mentioned and the uncertain
conditions shall be considered as a continuous task.

300

Appendix 2.

CLASSIFICATION OF NATURAL ASSETS

The System of National Accounts of the United Nations (SNA) provides an
unequivocal classification system, for measuring and evaluating the different assets. It is
based on market prices, which may be applied for assets made by production activities and
land. In some countries, it may concern to underground resources, but in several European
countries, these assets are owned by the state and they are unmarketable, therefore in their
case the market price cannot be used.
The starting point of the evaluation of the total macroeconomic production is the
assessment of the produced assets and the material and non-material services. Earlier, the
range of assets to be assessed was determined differently in the different countries. In the
former socialist (COMECON) countries, the economic activity was measured by the
material services, the non-material services (such as education, health service, governance)
was disregarded. These countries used the MPS (Material Product System) assessment
system.
The SNA (System of National Accounts) covers all products, services and organized
activities of the national economies and it covers the non-material activities as well. The
SNA was elaborated by the United Nations and was introduced in 1953. It was amended by
several new options in 1993, and renewed in 2008; it is the only international system for
such assessment. In Hungary, the use of this system started in 1968 parallel with the use
of MPS and after 1990 the whole system was introduced and the covered activities
became unified. +
There were some problems of evaluation in the system, for example the assessment
of own consumption and non-centrally organized activities (e.g. the family dinners, or
cleaning the own house). The SNA reforms of 1993 determine that such activities also
shall be assessed, even by inaccurate data. Accordingly, the products for own consumption
are evaluated according to the market prices, while the organized social activities
(governmental institutions, local governments, public education) shall be calculated by
their costs. The physical performance and the value of the natural resources raised several
methodological problems. In different countries different assessment practices were in use,
therefore it was hard to compare their national assets. The first step was to develop a
unified system for the different categories of natural assets.

EA. 1.
11.
111.
112.
113.
12.
121.
122.
13.
1311.
13111.
13112.
+

Categories of assets
Natural resources
Minerals and energy resources
Fossils and minerals (m3, tonne, oil
equivalent, jouls)
Metallic minerals (tonne)
Non- metallic minerals (tonne)
Soil (m3, tonne)
Agricultural land
Non agricultural use
Water resources (m3)
Surface waters
Artificial resources
Resources for human use
Resources for agricultural production

SNA system
(AN. 212) [1]

Non-SNA system
[2]

(AN. 2121)
(AN. 2122)
(AN. 2123)
(non applicable) [3]

(non applicable) [4]

Tmpe: Bevezets a makrokonmiba. 22. o.

301

12113.
13114.
1312.
13212.
13122.
132.
1321.
1322.
14.
141
1411.
1412.
142.
1421.
14211.
14212.
1422.
143.
1431.
1432.
144.
1441.
14411.
14412.
1442.

Resources for energy production

Resources for mixed use
Natural waters
Ponds
Rivers
Groundwaters
Groundwater
Other under surface waters
Biological resources
Resources from wood (m3, ha)
Cultivated
Non cultivated
Crops and non-woody plants (m3, tonne,
pieces)
Cultivated
Perennial crops
Annual crops
Uncultivated land
Water resources (tonne, pieces)
Artificial
Non artificial
Animal sources, (non-water animals),
pieces
Livestock (domestic animals)
Breeding animals
Slaughtering animals
Non-domestic animals

N 2. Land and surface waters (hectares)

Recreational use
21. Underground buildings and constructions
211. City areas
2111. Housing areas
2112. Non-housing areas
2113. Trade and other use
212. Extra city areas
2121. Housing areas (plots)
21211. Farm
21212. Non-farm
2122. Non-housing areas
21221. Farm
21222. Non-farm
2123. Trade and other use
21231. Roads
21242. Railways
21233. 21233. Electric wires
21234. Pipelines
Agricultural land and collected surface
22.
waters
221. Cultivated land
2211. Temporarily cultivated land, drainaged,
irrigated

302

(AN. 214)

(part of AN 1221)
(part of AN 213)

(AN. 11142)
(part of AN. 1221)
(part of AN 213 [7]

Non applicable [6]

Non applicable

(Non applicable) [9]

part of AN. 213

Non applicable
(part of AN 11141)
(part of AN. 1221)
(part of AN 213)
(AN. 211)
(AN. 2113)
(AN. 2111)

(AN. 2112)

Non applicable

2212. Permanent plant cover, drainaged,

irrigated
2213. Household garden
2214. Set aside land
222. Pasture
2221. Cultivated pasture
2222. Grassland
223. Other agricultural land
23. Woodlands and collected surface waters
231. Cultivated forests
232. Non- cultivated forests
2321. Harvested
2322. Non-harvested
24. Main water sources
241. Ponds
242. Rivers
243. Wetlands
244. Water reservoirs
2441. Drinking water reservoirs
2442. Irrigation water reservoirs
2443. Maintenance roads for hydropower plants
2444. For other use
25. Other lands (areas)
251. Prairie and grassland
252. Tundra
253. Lack of vegetation
254. 254. Permanent snow and ice
N 3. Ecosystems [14, 15]
31. Land ecosystems
311. City ecosystems
312. Agricultural ecosystems
313. Forest ecosystems
314. Prairie and grassland ecosystems
315. Tundra ecosystems
316. Dry areas ecosystems
317. Other land ecosystems
32. Water ecosystems
321. Sea ecosystems
322. Coastal ecosystems
323. River valley ecosystems
324. Lake ecosystems
325. 325. Other water ecosystems
33. Atmospheric ecosystems
N. EA.M. Theoretical natural goods
M1. Survey of mineral wealth
M2. Applicable inventions and concessions
for exploiting natural resources
M3. Acceptable emission standards
M4. Other theoretical (non-produced) natural
goods
N. Impacts of environmental damages on
profit

(part of AN. 2119)

(part of AN. 2119)

(part of AN. 2119)

(Non applicable)

(AN. 1121)
(part of AN. 222)
(part of AN. 222)
(part of AN. 222)

303

Some notes to the unified assessment of natural goods

(Based on the experiences, results of debates and opinions collected in the course of the
development process of the evaluation system)
1.

Those mineral resources and energy sources are included in the SNA system, which
are undoubtedly, in a proven and confirmed way are available and may be utilized. In
practice, several countries would incorporate a wider spectrum of other resources into
the SNA system (which would overvalue their organizational properties).

2.

Resources, which are considered as possible or potential resources are not included in
the SNA system.

3.

The value of the agricultural land as resource cannot be distinguished from the land
value, as it is its integral part. Therefore the spatial features of the land (its physical
dimensions and size) plays important role in the SNA system.

4.

The value of surface waters is not differentiated from its value integrated in the
national value, therefore, only the measurable physical dimension of the surface water
resources may be classified as natural resource.

5.

Only that part of the natural wood stock (forests) is categorized in the SNA, which
may be exploited and is not under restrictions.

6.

Those parts of the natural wood stock, which cannot be exploited because of low
yields or non-accessible, or under environmental restrictions cannot be classified into
the SNA.

7.

Those resources of plant origin may be added to the SNA system, which may be
harvested, sold or used for providing with food, in addition, they are available and
cannot be exhausted.

8.

Those natural crops and resources of plant origin cannot be included in the SNA
system, which are potentially available, but they cannot be exploited or because they
are unavailable or their areas are under environmental protection.

9.

Those natural water resources may be classified in the SNA system, which are used
for trade (profit oriented) and are in close connection with the national market (nonprotected fish species).

10. Those natural water resources may not be classified in the SNA system, which are
potentially exploitable, but at the present they are not under fishing, or are not profit
oriented, or their areas are isolated zones or under fishing prohibition.
11. Those wild (non-domestic) animals are classified into the SNA system, which are used
for hunting (for trade, subsistence or sports) and their hunting is not prohibited.
12. Those wild animal species may not be classified in the SNA system, which are
potentially exploitable, but at the present they are not hunted for trading or profit
oriented reasons, or their areas are isolated zones or under hunting prohibition.
13. In theory, the total land of a country is included in the SNA value. In countries with
lower density, it may be applied, but in countries with higher density, or with large
extent there are such areas which economical value cannot be calculated. In theory,
ecosystems may be measured in money and by physical indicators. In practice, their
304

evaluation may generate problems, and the physical indicators may be used as only
option for evaluation.
14. According to the measuring method, the different measuring units may be used for the
description of the different ecosystems. For example, diversity of heat may be
measured by the number of different species, or by the special features of the given
areas. The lost assimilation capacity may be measured by the concentration of
different contracts. Different aspects may result different measuring units. The profit
decreasing impact of the environmental damages may be incorporated into the balance
sheet of the national wealth, because they will influence the efficiency and the social
justification of land use. This can be measured by generating a damage matrix, which
shows that how much units of damage may be resulted in the value (or the profit) of a
given land use option by the impacts of production of another type of land use.

305

Appendix 3.

THE VARIOUS PLANTATIONS AND VALUE DERIVATION

Table 1: Hillside supported
WINEGRAPE PLANTATION
(at 2010 prices)
Years to bearing: 5
Typical yield: Years 8-16: 9-10 t/ha
Revenue from grape: 79 500 HUF/t
Year of cutting out: year 26-27
Income relations:

Year

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Annual
income

Cumulated
income

Income due after the

current year

Value of
plantation

[thousand
HUF/ha]
113
225
288
325
335
325
308
291
274
257
240
223
206
189
172
155
138
121
104
88
0

[thousand
HUF/ha]
113
338
625
950
1 285
1 610
1 918
2 209
2 483
2 740
2 981
3 204
3 410
3 599
3 772
3 927
4 065
4 187
4 291
4 379
4 379

[thousand
HUF/ha]
4 379
4 379
4 379
4 379
4 379
4 379
4 266
4 041
3 754
3 429
3 094
2 769
2 461
2 170
1 896
1 638
1 398
1 175
969
779
607
452
313
192
88
0

[thousand
HUF/ha]
1 641
1 868
2 060
2 208
2 331
2 442
2 484
2 508
2 482
2 385
2 239
2 070
1 896
1 726
1 560
1 398
1 240
1 087
939
796
659
529
407
292
185
88

Cut out in autumn of Year 26 after harvesting

Source: Szcs (1998): A fld ra s bre, 133.p. updated by Mrta Spitlszki

306

Loan for rent

value of
plantation
[thousand
HUF/ha]
1 149
1 308
1 442
1 546
1 632
1 709
1 739
1 756
1 737
1 669
1 567
1 449
1 327
1 208
1 092
979
868
761
657
557
462
371
285
204
129
61

Table 2: Traditionally grown medium spaced

WINTER APPLE
(at 2010 prices)
Years to bearing: 6
Typical yield: Years 8-18: 8-11 t/ha
Revenue from apple: 46 587 HUF/t
Year of cutting out: autumn of year 28 or spring of year 29

Income relations:

Year

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

Annual
income

Cumulated
income

Income due after

the current year

Value of
plantation

[thousand
HUF/ha]

[thousand
HUF/ha]

[thousand
HUF/ha]

[thousand
HUF/ha]

121
177
205
216
224
214
203
190
178
166
154
141
129
117
105
93
80
68
56
44
28

121
298
503
719
943
1 157
1 360
1 550
1 728
1 894
2 047
2 189
2 318
2 435
2 540
2 632
2 713
2 781
2 837
2 881
2 909
2 909

2 909
2 909
2 909
2 909
2 909
2 909
2 788
2 610
2 406
2 189
1 966
1 751
1 548
1 358
1 180
1 015
861
720
591
474
369
276
196
128
72
28
0
-

1 393
1 564
1 690
1 760
1799
1 791
1 750
1 688
1 625
1 544
1 443
1 326
1 208
1 092
981
873
768
668
573
482
397
318
245
179
120
70
28
0

Loan for rent

value of
plantation
[thousand
HUF/ha]

975
1 095
1 183
1 232
1 259
1 254
1 225
1 181
1 138
1 081
1 010
928
846
765
686
611
538
468
401
338
278
222
171
125
84
49
20

Source: Szcs (1998): A fld ra s bre, 134.p. updated by Mrta Spitlszki

307

Table 3: Medium spaced

PEACH PLANTATION
(at 2010 prices)
Years to bearing: 4
Typical yield: Years 7-13: 7-8 t/ha
Revenue from peach: 79 500 HUF/t
Year of cutting out: autumn of year 19 or spring of year 20

Income relations:

Year

Annual
income

Cumulated
income

Income due after

the current year

Value of
plantation

[thousand
HUF/ha]

[thousand
HUF/ha]

[thousand
HUF/ha]

[thousand
HUF/ha]

Loan for rent

value of
plantation
[thousand
HUF/ha]

2 021

1 091

763

2 021

1 267

887

2 021

1 388

972

2 021

1 454

1 018

2 021

1 485

1 040

125

125

1 896

1 472

1 030

181

306

1 715

1 396

977

216

522

1 499

1 279

895

223

745

1 276

1 137

796

10

209

953

1 067

994

696

11

195

1 148

873

854

598

12

180

1 328

693

716

501

13

159

1 486

534

583

408

14

139

1 626

395

461

323

15

118

1 744

277

350

245

16

97

1 841

180

252

177

17

77

1 918

103

168

118

18

61

1 979

42

100

70

19

42

2 021

42

29

20

2 021

Source: Szcs (1998): A fld ra s bre, 135.p. updated by Mrta Spitlszki

308

Table 4: Walnut plantation

WALNUT PLANTATION
(at 2010 prices)
Years to bearing: 10
Typical yield:

Revenue:

620 HUF/kg
40000 HUF/m3
6000 HUF/m3
Yield in
walnut
year 50
timber
other wood
total
Income relations
Year

Annual
income
[thousand
HUF/ha]

in years 15- 40 0.8-1.2 t/ha walnut in crust

in year 50
30 m3/ha timber (log)
35 m3/ha other wood
walnut in crust
timber
Revenue:
Income
other wood
HUF/ha
in year 50 HUF/ha
0,65*619900=
402935
185544
30*40000=
1200000
1200000
35*6000 =
210000
19956
1812935
14054999
Cumulated income
[thousand
HUF/ha]

Income due after the current

year
[thousand
HUF/ha]

Value of plantation
[thousand HUF/ha]

Loan for rent value

of plantation
[thousand
HUF/ha]

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49

43
87
130
163
185
206
228
239
250
261
271
282
289
293
293
293
289
289
287
284
282
280
276
271
267
263
261
250
239
228
217
206
195
185
163
152

43
130
261
423
608
814
1 042
1 281
1 531
1 791
2 063
2 345
2 634
2 927
3 220
3 513
3 802
4 091
4 377
4 662
4 944
5 224
5 500
5 771
6 038
6 301
6 561
6 811
7 050
7 278
7 495
7 701
7 897
8 081
8 244
8 396

9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 851
9 807
9 720
9 590
9 427
9 243
9 036
8 808
8 570
8 320
8 059
7 788
7 506
7 217
6 924
6 631
6 338
6 049
5 760
5 474
5 189
4 907
4 627
4 351
4 080
3 813
3 550
3 289
3 040
2 801
2 573
2 356
2 149
1 954
1 770
1 607
1 455

347
499
597
673
706
716
738
749
760
771
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
782
792
803
814
836
879
966
1 075
1 194
1 303

243
350
418
471
494
502
517
524
532
540
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
547
555
562
570
585
616
676
752
836
912

50

1 455

9 851

1 455

1 018

Cut out: autumn of year 50 after harvesting, Source: Szcs (1998): A fld ra s bre, 136.p. updated by Mrta Spitlszki

309

3 000
Ti = J i +

plantation value

if i 10

000 HUF/hectar

2 500

n i

1 100

J (i + k )

k =1

ni
d
if i < 10 Ti = Ji + 1 J(i +k) + Ki
100
k =1
k

Ki: installation
cost
i=

2 000

1 500

1 000

yield

500

income

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

year

Figure 1: Correlations between income-yield-plantation values

Hillside supported wine grape plantation
Source: Szcs (1998): A fld ra s bre, 137.p. updated by Mrta Spitlszki

2000
1800

Ti = J i +

n i

1 100

k =1

J (i + k )

1600

plantation value

if i 10

000 HUF/hectar

1400

n i
d

if i < 10Ti = Ji + 1 J(i +k) + Ki

100
k =1
k

1200

Ki: installation
cost
i=
1000
800

yield

600
400

income

200
0
1

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
year

Figure 2: Correlations between income-yield-plantation values

Traditionally grown medium spaced winter apple plantation
Source: Szcs (1998): A fld ra s bre, 137.p. updated by Mrta Spitlszki

310

1600

1400

1200

000 HUF

1000

800

600

400

200

0
1

10

11

12

13

14

15

16

17

18

19

20

year

Figure 3: Correlations between income-yield-plantation values

Medium spaced peach plantation
Source: Szcs (1998): A fld ra s bre, 138.p. updated by Mrta Spitlszki

2000

1800

1600

000 HUF/hectar

1400

1200

1000

plantation value
800

yield
600

income

400

200

0
0

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

year

Figure 4: Correlations between income-yield-plantation values

Walnut plantation
Source: Szcs (1998): A fld ra s bre, 138. p. updated by Mrta Spitlszki

311

Appendix 4.

THE EVALUATION METHODS OF TR SYSTEM

Market comparative evaluation
Nowadays the conditions for the market based evaluation of soil hardly exist. The
primary basis for this is that there are no comparative data that reflect reliable, real
circumstances of sales, real estate identifications and prices. The preparation of marketbased real estate evaluations are necessitated by the fact that there are some special real
estates whose utilisation for agricultural purposes is temporary. Their value derives from
the possibility or the reality of alternative utilisation that guarantees higher income from
other sources than agricultural cultivation.
Despite problems with information flow at most places the data of concrete sales are
accessible. Information on market prices is primarily obtained from Land Offices, Revenue
Offices, the authorised staff of municipal government as well as the locals (local press).
TR system requires evaluation based on the data of at least three recent comparable
dealings. The comparative data necessary for the evaluation can be displayed either in
HUF/GC or HUF/ha depending on what data are available.
Yield based evaluation
Yield based evaluation derives value from the differences between the future
utilisation of the instrument and the costs incurred by its acquisition. TR evaluation
standard calculates soil evaluation in accordance with Decree 54/1997 of the Ministry of
Agriculture added by some reasonable modifications.
In terms of evaluating plantations in line with Decree 54/1997 of the Ministry of
Agriculture and Government Decree 254/2002 the software sets the value by using cost
based calculations due to lack of yield data. In evaluating plantations differences can be
experienced between regulations by law and the evaluation of the TR system.
Evaluation based on direct regional subsidies
Practically, evaluation based on direct regional subsidies is a yield-based evaluation
where the extent of land-based direct subsidies prescribed by the agreement with the
European Union as well as the additional subsidies forecast in the Budget of the Hungarian
Government will be considered.
In Hungary agriculturally cultivated land amounts to 5.3 million ha of which the EU
acknowledges only approximately 4 million ha as a subsidised part. In order not to exclude
anyone from the benefits, NLF set a ration based on the proportion of the two areas. Its
share is 73.6%, which is multiplied by the EU subsidies in EUR/ha. The medium
HUF/EUR MNB (National Bank of Hungary) exchange rate is fixed in the TR system
quarterly on the basis of which, together with the percentage of the Hungarian subsidies,
the programme automatically calculates the amount of subsidies and by dividing it by the
capitalisation rate the value of soil is defined.
TR evaluation system is suitable for assessing buildings, constructions as well as
forests. In these cases it cannot be mentioned as a separate method as in the case of a
building or a construction the value is added to the value of the soil, while in the case of a
forest and 500 000 HUF value the method of evaluation is the same as the evaluation of
soil. In the case of collateral evaluation the value of a technical construction is not
calculated by NLF.

312

The basic requirements and data of TR evaluation system

Evaluations must be made for a single parcel number as the joint evaluation of
several parcel plots is not possible. The single farming branches and quality classes
belonging to the same parcel plot must be detailed separately. In case there are more than
six farming branches, contracting classes of different quality but belonging to the same
farming branch can be carried out.
The gold crown value of the real estate must be stated per farming branch recorded in
the real estate register.
If the real estate has more than one owner then all the owners, their share and title of
proprietorship must also be displayed.
The negotiability of soil must be accounted for the entire real estate. If an
unfavourable answer is recorded with respect to negotiability then evaluation will
automatically be revised or rejected.
The evaluation system will automatically set the capitalisation rate, which is revised
by the NLF quarterly.
Government Decree set capitalisation rate at 6.5%. Although the further revaluation
is trusted to a mortgage institution, the NLF and the banks themselves set its value.
Like capital rate, discounting rate is also set by the NLF whose current value is 8%
and revised quarterly.
Table 1 illustrates the factors to be analysed in negotiability.
Table 1: Factors to be analysed in negotiability
Factors influencing negotiability
free from liabilities and lawsuit
subject to lawsuit
registered use
factor limiting negotiability on any grounds

Responds
yes
yes
exists
exists

no
no
not exist
not exist

foreign nationality or citizen with limited capability

exists

not exist

other restricting factors(e.g. contract of use for several years)

right of easement
registered elegit
cultivator of land

exist
exists
exists
owner

not exist
not exist
not exist
tenant

Source: Kardos (2004): Termfld-ingatlanok rtkbecslsi rendszere (TR rtkbecslsi

standard). NFA belsanyag, Budapest, in: Czinege A. (2005): A Nemzeti Fldalap fldrtkbecslsi rendszere. Agrrtudomnyi Kzlemnyek, 2005/16. Klnszm. p.320.
Data required for describing the estate properties of soil:
shape of estate
size of estate in ha
situation, position of estate
typographical and sloping conditions
precipitation, water balance, water cover, water management
Soil features:
sol type
structure
solidity and
hydrological features.
313

 Nutrient supply
Special agrichemical interference:
type,
time.
openness or closedness of the area
objects hindering cultivation
buildings or constructions on the estate without separate parcel number
identification of boundaries
description of boundaries
Is the area cultivated? (yes/no)
plants on the estate
typical utilisation of neighbouring estates
the most practical from of utilisation by the valuer
distance from the nearest populated area [km]
distance from town, resort or tourism centre
existing infrastructure
accessibility and length
other factors influencing estate value

Yield based evaluation of soil by TR evaluation system

Soil evaluation calculations by law
As mentioned previously, the yield based evaluation of soil is based on Decree
54/1997 of the Ministry of Agriculture which, in the case of plantations, is annexed by cost
based calculations in Government Decree 254/2002. As a result, the yield based value of
soil can be calculated as follows:
Pj
B
Ft
Ftk
Ftm
Ftm
T
T
Ft

= nj*a
= B*a
= (Pj+B)*p100/(2*i)
= ft*(1+k/100)
= ftk*M
= ftm*t
= (1-k/)*TK
= t*t
= Ftm+T

income of soil [wheat kg/ha],

rental fee [wheat kg/ha],
specific value of soil [HUF/ha]
adjusted specific value of soil [HUF/ha],
specific value of soil multiplied by M [HUF/ha],
soil value [HUF],
specific value of plantation,
plantation value [HUF],
total soil and plantation value

where
a
= value of land per 1 ha [GC/ha],
nj = yield like income of soil typical of the county[wheat kg/GC],
b
= land rental fee for the estate in the vicinity, wheat [kg/GC],
p
= average domestic stock exchange price in the previous year [HUF/tonnes],
p100 = average domestic stock exchange price in the previous year [HUF/100 kg],
i
= capitalisation rate [%],
314

t
= area of land evaluated [ha],
k
= adjustment factor [%],
M = multiplier by farming branch
Arable land: 1
Meadow:
0.8
Pasture:
0.4
Garden:
1
Plantation: 1
k = age of plantation,
= name and longevity of plantation
TK = professionally justified settlement costs

Soil value calculation by TR evaluation system employed by the NLF

Pj
B
Ft
Ftk
Ftm
Ftm
T
T
Ft

= nj*a
= B*a
= (Pj+B)*p100/(2*i)
= ft*(1+k/100)
= ftk*M
= ftm*t
= (1-k/)*TK
= t*t
= Ftm+T

income of soil [wheat kg/ha],

rental fee [wheat kg/ha],
specific value of soil [HUF/ha]
adjusted specific value of soil [HUF/ha],
specific value of soil multiplied by M [HUF/ha],
soil value [HUF],
specific value of plantation,
plantation value [HUF],
total soil and plantation value

where
a
= value of land per 1 ha [GC/ha],
a* = value of GC per 1 ha readjusted by the valuer and applicable hereinafter,
nj = yield like income of soil typical of the county[wheat kg/GC],
b
= land rental fee for the estate in the vicinity, wheat [kg/GC],
p
= intervention price of crops [HUF/tonnes],
p100 = intervention price of crops [HUF/100 kg],
i
= capitalisation rate [%],
t
= area of land evaluated [ha],
k
= adjustment factor [%],
k = age of plantation,
= name and longevity of plantation,
TK = professionally justified settlement costs,
M = multiplier by farming branch
Arable land: 1
Meadow:
0.8
Pasture:
0.4
Garden:
1
Plantation: 1
315

The NLF defines the value of the soil with regard to regulations but also by adjusting
them. These differences and their necessity are presented by Table 2.

Table 2: Differences between the regulations of Decree 54/1997 of the Ministry of

Agriculture and Government Decree 254/2002 and the land evaluation of TR system by
the NLF

name
P = price of
Wheat
(HUF/tonnes)

based on Decree
54/1997 of the Min. of based on TR
evaluation system
Agric. and
by the NLF
Government Decree
254/2002.
average national
intervention price
stock exchange
of crops
wheat price in the
[HUF/100 kg]
previous year
[HUF/tonnes]

h = completeness
of plantation
no

= normative
longevity at the
normative
investment phase longevity
of the plantation
a* = value of GC
per 1 ha readjusted
by the valuer
[GC/ha]

yes

justification of changes
The price in the decree is ot exact
as there are several stock
exchange average prices.
Intervention, i.e. EU guaranteed
sales price is well regulated and
exact.
The introduction of completeness
as an adjusting factor is justified
by two factors: diversion from
normative stock account and
existing real piece number.

Its purpose is that the plantation

normative longevity should not be amortised before
+
the bearing period.
year of bearing

no

yes

Justifies the revaluation of GC

value. It is necessary in the case of
arable land in bad condition or
plantations assets are usually
considered in estate records when
setting GC value.

Source: Czinege A. (2005): A Nemzeti Fldalap fld-rtkbecslsi rendszere. Agrrtudomnyi

Kzlemnyek, 2005/16. Klnszm. p.320.

Adjusting factor that influences soil value

Decree 54/1997 of the Ministry of Agriculture regulates possible adjusting factors
that can be considered in soil evaluation (k). Percentage is used to characterise the special
impact of the single factors on the sales price whose total values the same as k adjusting
factor. The Decree, however, in addition to giving the opportunity of setting the positive
and negative values of factors the regulation does not have any restrictive, regulatory
measure.
The NLF in cooperation with experts displayed upper and lower limits for the single
adjusting factor as they are displayed by Table 3.
Adjusting factors are considered separately in the case of both market and yield
analysis. One of the most basic factors between the two adjusted tables are that differences

316

are discovered by a Market Research Industry directly from the environment while in yield
calculation the difference from the national average is considered. All this results in a fact
that the possible adjustment value in percentage in market evaluation should be smaller of
the same to the adjustment value of yield based evaluation.
The adjustment factors by the NFL are described by table 3.
Table 4: Adjustment factor limits defined by the NFL [%]
adjustment factors

lower

upper

shape, size

-10

10

situation, position

-50

150

accessibility, roads

-30

25

topographical and steepness conditions

-30

proper water management, melioration

-20

20

30

objects that hinder cultivation

-15

Demographic change

-15

15

Economic traditions, receptiveness of the population and their own needs

for agricultural production

-20

20

Above average probability of frost, ice, game

-70

15

aesthetic impression

-10

10

environmental status, pollution

-10

economic situation

-20

20

20

protection of land

-20

cultural state

-10

10

other (e.g. other market, realisation and processing relations)

-25

25

-100

conditions for irrigating

fences

infrastructure, utilities

legal background
total

Source: Kardos (2004): Termfld-ingatlanok rtkbecslsi rendszere (TR rtkbecslsi

standard). NFA belsanyag, Budapest, in: Czinege A. (2005): A Nemzeti Fldalap fldrtkbecslsi rendszere. Agrrtudomnyi Kzlemnyek, 2005/16. Klnszm. 323.p.

Summary and harmonisation of different evaluation methods

The results of market, yield and subsidies based TR evaluation method are different
due to the different nature of methods. They can be slight or significant so the three values
should be harmonised in order to obtain a more objective value.
For the harmonisation the NLF has chosen the option according to which the valuers
themselves assign weight, ratio in percentage to these three evaluation methods.
The National Land Fund only has the restriction that maximum 20% of the value
calculated by the subsidies based method can be considered and also the market based
method has to represent the highest percentage of the three values.

317

Appendix 5.

GENERAL DESCRIPTION OF GRASSLAND

Meadow and pasture are such grass covered areas which are utilised either by
mowing or grazing its grass or by combining these two methods. However, statistics on
land use term this farming branch as grassland. Based on the 2012 land and soil report
79.1% of the country is cultivated. The 759 thousand hectare recorded as grassland
comprises 10.31% of soil. By 2010 grassland decreased in every county as of 2000. A
drastic 60.4% drop characterises Borsod-Abaj-Zempln county. Still, the two counties
with the biggest grassland are Bcs Kiskun and Hajd Bihar county. It can also be seen
from the table according to FMI data that there is a significant difference between the
average gold crown values of meadow and pasture.
Table 1 illustrates the breakdown of cultivation by farming branches and sectors
while Table 2 shows the regional breakdown of grassland as a farming branch per county.

Table 1: Land utilisation by farming branches and sectors 31 May (2004-2012) [thousand
hectares]
Year

Arable
land

Vegetable
garden

Agricultural
area

Forest

Reed

Pond

Production
area

Uncultivated

Total

2004

4 510.3

96.8

102.6

94.5

1 059.6

5 863.8

1 823.4

61.5

33.6

7 782.3

1 521.1

9 303.4

2005

4 513.1

95.9

102.8

86.0

1 056.9

5 854.8

1 836.4

62.0

33.8

7 787.1

1 516.3

9 303.4

2006

4 509.6

96.0

102.8

86.0

1 014.5

5 808.9

1 850.8

61.1

34.2

7 755.0

1 548.4

9 303.4

2007

4 506.1

96.1

101.9

86.0

1 016.9

5 807.1

1 853.2

57.1

34.4

7 751.8

1 551.6

9 303.4

2008

4 502.8

96.1

98.5

82.6

1 009.8

5 789.7

1 890.9

59.4

34.7

7 774.8

1 528.6

9 303.4

2009

4 501.6

96.1

98.7

82.8

1 004.2

5 783.3

1 903.4

60.5

35.8

7 783.0

1 520.4

9 303.4

2010

4 322.1

81.5

93.7

82.8

762.6

5 342.7

1 912.9

65.4

35.5

7 356.4

1 947.0

9 303.4

2011

4 322.3

81.5

92.4

82.1

758.9

5 337.2

1 922.1

65.5

35.4

7 360.3

1 943.1

9 303.4

2012

4 323.6

81.3

92.6

81.6

758.9

5 338.0

1 927.7

65.5

36.8

7 368.0

1 935.4

9 303.4

Orchard

Vineyard

Grassland*

* from 2010 without grassland not utilised

Source: HCSO STADAT 4.1.4

According to the data of the National Rural Strategic Concept from early 2011 and
published in the 2020 Concept Paper the total area of protected natural reserves of national
significance is 846 537 hectares (9.1% of the total area of the country), of which 26% is
grassland.
The ecological network of the European Union, Natura 2000 comprises
approximately 2 million hectares of which grassland and arable land amounts to nearly 1
million hectares.
318

Table 2: Breakdown of grassland by county, 31 May (2000-2012)

2000
breakdown
1000 ha

gold crown per

1ha

meadow

2010

2011

2012

breakdown

breakdown

breakdown

pasture

1000 ha

1000 ha

1000 ha

Budapest

11.4

1.08

16.6

6.0

14.5

1.90

16.0

2.10

16.0

2.11

Pest

45.6

4.34

16.6

6.0

44.1

5.78

43.6

5.75

43.7

5.76

Fejr

34.6

3.29

23.3

6.8

21.6

2.84

22.1

2.91

22.1

2.91

Komrom-Esztergom

18.8

1.79

18.1

4.9

19.2

2.52

19.1

2.52

19.1

2.52

Veszprm

58.8

5.59

19.4

4.9

37.0

4.85

37.8

4.98

37.8

4.98

Gyr-Moson-Sopron

29.8

2.83

16.5

9.6

20.0

2.62

20.2

2.66

20.2

2.66

Vas

22.2

2.11

19.8

7.2

15.8

2.08

13.1

1.73

13.1

1.73

Zala

56.5

5.37

19.0

5.6

31.9

4.19

31.5

4.15

31.5

4.15

Baranya

32.4

3.08

20.8

5.2

25.0

3.28

18.6

2.46

18.6

2.46

Somogy

50.3

4.79

21.7

5.5

31.4

4.11

31.7

4.17

31.7

4.17

Tolna

29.9

2.84

22.7

7.4

14.0

1.84

17.0

2.25

17.1

2.25

124.4

11.83

12.3

4.8

49.3

6.46

48.7

6.42

48.7

6.42

Heves

39.8

3.79

16.3

5.0

34.5

4.52

35.1

4.62

35.0

4.61

Ngrd

33.1

3.15

15.8

4.0

23.3

3.06

23.3

3.07

23.3

3.07

119.2

11.34

11.0

5.1

107.8

14.13

108.1

14.24

108.1

14.24

Jsz-Nagykun-Szolnok

52.4

4.98

17.4

7.2

46.2

6.06

45.1

5.95

45.2

5.95

Szabolcs-Szatmr-Bereg

66.4

6.32

8.2

6.0

65.2

8.56

64.1

8.45

64.1

8.45

Borsod-Abaj-Zempln

Hajd-Bihar

Bcs-Kiskun

129.9

12.36

9.9

4.8

102.3

13.42

103.9

13.69

103.9

13.69

Bks

42.9

4.08

31

14.0

29.3

3.84

30.7

4.05

30.7

4.05

Csongrd

52.8

5.02

12.7

6.4

30.2

3.96

29.1

3.83

29.1

3.83

1 051.2

100.00

762.6

100.00

758.9

100.00

758.9

100.00

Total national

Source: HCSO STADAT

When examining grassland as a branch we have to deal with the variety of definitions
first of all.
We can speak about natural or primary grassland which are such perennial plant
associations where papillonaceae and other dicotyledonous, herbacenous species can also
be found in addition to the dominating gramineae and their number almost reaches 40 on
the average. Natural grassland sparsely contains bushes and shrubs.
Planted grasslands are such perennial plant associations in which gramineae and
papillonaceae or only gramineae are present and the number of species is also a small ratio
of those in natural grasslands. We can also examine grasslands on the basis of their
utilisation. Regarding agriculture grassland for feed is of primary importance.
Grassland for feed can exclusively be utilised for grazing, which is typical of dry
natural grasslands with a low yield. They are pastures.
The other type of grassland is meadow, which is cultivated by reaping and yield is
used after a conservation process. Grassland whose yield is partly harvested by reaping and
partly by grazing is termed as pasture-land. In everyday practice the terms used in
regulations and their glossary must be applied.
Commission Regulation (EC) No.1120/2009 (29 October 2009), I: title Article 2,
point (c) definitions: permanent pasture means land used to grow grasses or other

319

herbaceous forage naturally (self-seeded) or through cultivation (sown) and that has not
been included in the crop rotation of the holding for five years or longer, excluding areas
set aside in accordance with Council Regulation (EEC) No 2078/92 (1) OJ L 215,
30.7.1992, p. 85. (1), areas set aside in accordance with Articles 22, 23 and 24 of Council
Regulation (EC) No 1257/1999 (2) OJ L 160, 26.6.1999, p. 80. (2) and areas set aside in
accordance with Article 39 of Council Regulation (EC) No 1698/2005 (3) OJ L 277,
21.10.2005, p. 1. (3); and to this end, grasses or other herbaceous forage means all
herbaceous plants traditionally found in natural pastures or normally included in mixtures
of seeds for pastures or meadows in the Member State (whether or not used for grazing
animals), in point (d): grassland means arable land used for grass production (sown
or natural); for the purposes of Article 49 of Regulation (EC) No 73/2009 grassland shall
include permanent pasture.
When filing for a Single Area Payments Scheme (SAPS) financed by the European
Agricultural Guarantee Fund, compensation subsidies to cultivate lands with unfavourable
conditions from the European Agricultural Rural Development Fund, requesting
compensation for managing grasslands from the European Agricultural Rural Development
Fund and Natura 2000 and also when using agri-environmental subsidies from the
European Agricultural Rural Development Fund the following definitions must be
considered based on Utilisation Codes 2013 of Appendix 1 of the document entitled
ANNOUNCEMENT 66/2013 (10 April) of the Agricultural and Rural Development
Office on filing a standard 2013 request.
ALL01 permanent pasture (grazed):
Area utilised for growing grasses or other annual feeds (without sowing) or
cultivating (sowed) set aside from crop rotation at least for five years and in addition to
autumn reaping for clearance it is reaped only once but basically grazed. In this sense the
term grasses or annual feeds are the traditional annuals found in natural grasslands or the
annuals usually present in the seed mixes of grasslands/pastures. Permanent pastures must
be preserved.
ALL02 permanent pasture (reaped):
Area utilised for growing grasses or other annual feeds (without sowing) or
cultivating (sowed) set aside from crop rotation at least for five years and in addition to
autumn reaping for clearance it is reaped only once but basically grazed. In this sense the
term grasses or annual feeds are the traditional annuals found in natural grasslands or the
annuals usually present in the seed mixes of grasslands/pastures. Permanent pastures must
be preserved.
GYE01 Other grassland (grazed):
Area that does not belong to the category of permanent pasture and as part of crop
rotation it is grass like feed used for grazing and which has been on the area for more than
one business year but less than five years sown with other grasses or grass mixtures. Before
resowing or replanting the area is ploughed or broken up by other methods or in other ways
plants are cleared away, i.e. by using pesticides.
GYE02 Other grassland (reaped):
Area that does not belong to the category of permanent pasture and as part of crop
rotation it is grass like feed used for hay or silage and which has been on the area for more

320

than one business year but less than five years sown with other grasses or grass mixtures.
Before resowing or replanting the area is ploughed or broken up by other methods or in
other ways plants are cleared away, i.e. by using pesticides.
FRL01 Wooded pasture-meadow:
Wooded pasture-meadow is an area with woods suitable for grazing. Exclusively tree
species laid down in Appendix 3 and 4 of Decree 46/2009 (16 April) of the Ministry of
Agriculture and Rural Development can be planted together with regional fruit trees. The
ratio of the latter ones must not exceed 50%. The following requirements must be met:
minimum 100, maximum 150 trees per hectare. Distance between the trees is minimum 6
metres and also maximum 20% of trees can be found with a smaller root distance in group
or groups. By the end of the fifth year the 1-4 year old species of planted trees will reach
the minimum per hectare.
The regional data of our grasslands in this sense are displayed on the requests for
farming subsidies addressed to the Agricultural and Rural Development Office and funded
by sources of the Common Agricultural Policy and the Hungarian budget.

The economic evaluation of grassland

The official information necessary for the economic evaluation of grasslands is
published by the HCSO where cultivation data are always valid from the theoretical date of
1 May every year. In the 2013 Economic Structural Census with regards to grassland the
following forms can be differentiated:
intensive grassland: piece of land utilised by reaping/grazing which can be found
on good or medium quality soil and turned into intensive management by an
agritechnical operation (e.g. irrigation, fertilisation),
extensive grassland: permanent meadow or pasture on weaker quality soil. Usually
it is not reaped if yield is low and in the case of pasture it is utilised by temporary
or occasional grazing.
Regional data on grassland can be found in the test plot database of the Agricultural
Research Institute divided into arable grassland, permanent grassland and extensive
grassland. Yield is accounted in hay equivalent.
6496 arable grassland,
6497 permanent grassland,
6498 data of the balance sheet for extensive grassland:
opening stocks (+),
purchase (+),
production (+),
sales from own stock (-),
sales from purchased stock (-),
internal use on farm (-),
loss (-),
tommies (-).
Dr et al (2007) while working out the land evaluation and qualification processes of
grasslands within the frameworks of D-e-Meter system were striving to find common
points with basic data used in arable and forest evaluation (such as production site
identification, presenting the most important production site conditions etc.).
321

Figure 1: The livestock sustaining capacity of grassland that reflect its own real value
Source: Dr, F.; Fbin, T.; Hoffmann, R.; Speiser, F.; Tth, T. (2007): Gyepterletek
fldminstse, fldrtkelse s fldhasznlati informcija a D-e-Meter rendszerben. 53.p. In:
Tth T. et al. (Szerk.): Fldminsts s Fldhasznlati informci. Keszthely:
Veszprmi Egyetem, 378 p.

As a starting point of D-e-Meter grassland evaluation system the productivity per

hectare in dry matter (t/ha) was considered. This value was modified by factors that can
greatly influence the quantity of yield and typical of the production site. Recommendations
were made to use livestock sustenance capacity per hectare to measure the productivity of
grassland.
Figure 1 summarises the factors influencing the quality and quantity of grassland
yield and the livestock sustaining capacity that reflects the real value of grasslands used for
producing animal products in the D-e-Meter point calculation system of grassland.

322

Appendix 6.

MONITORING SYSTEM OF NATURAL RESEURCES

Zsolt Baranyai
In our concept, the objective of the monitoring system is the follow up and the
control of the impacts of socio-economical changes related to the different natural
resources, primarily based on quantified data. This monitoring system may be used for
characterizing the present condition of certain natural resources, their in situ valuation
and the assessment of the intermediate and ultimate products, raw materials and even the
results of the primary utilization of the concerned natural resources.
The following table based on the survey of the researchers summarizes the
databases used by our fellow researchers during the project, which may be used in the
monitoring stage and may also give help for further researches.
From the given data, it may be observed that the description and the information on
the utilization process of different natural resources are quite different in their depth and
available data levels, therefore the analyses and evaluation may be conducted at different
levels. This tendency is similar in international terms, thus, the importance of the
standardization of the data and the methodology for the evaluation of the natural assets is
increasing at international level. These processes have also started in Hungary, which
includes the standardization of statistical systems and the formulation of national accounts
according to unified principles.
A study is prepared by the Hungarian Central Statistical Office on the
methodological principles of the unified evaluation of natural resources, which may help to
solve the abovementioned problems. In this study, the research team of this project will
also take part.
No

The databases used in the

research (name and access)
EUROSTAT
(www.ec.europa.eu/eurostat)

Farm Accountancy Data

Network (FADN)
Hungarian database
Research Institute of
Agricultural Economics,
Hungary (AKI)
Database of Hungarian
Central Statistical Office
(www.ksh.hu)

Agricultural
land

Agricultural
land

Main information
used in the research
panel
Land price data and
indicators (time-series
data of European
countries)
Indicators of land use
of enterprises taking
part in the FADN
system (time series
data) and land price
data
Time series data for
land prices and land
lease

Agricultural
land

Natural
resource

European Commission
Agriculture and Rural
Development
Statistics and indicators
Agricultural statistics:
EU agriculture - Statistical
and economic information
(http://ec.europa.eu/
agriculture/statistics/
agricultural/index_en.htm)

Average values of land

prices and land lease in
certain European
countries
Agricultural
land

Problems of the
database
Missing data of
several countries
made the analysis
difficult

The database of land

prices of 2011 is
complete, but for 2012
data has not been
processed yet. Data
are available only at
regional and county
level.
There is no unified
base for comparison
of the land market
data. Data collection
is made at different
levels: according to
land use (arable land,
grassland, etc.) and
agricultural areas.

Proposals for
improving the
databases
x

Standardization of
the collection of
land market data in
the national FADN
systems

323

ITMR Integrlt
Terlethasznlati Monitoring
Rendszer (Integrated Spatial
Monitoring System)
www.okirteir.vm.gov.hu)

MePAR Mezgazdasgi
Parcella Azonost Rendszer
(Land Parcel Identification
System)
(www.mepar.hu)
TeIR Terleti Informcis
rendszer (Regional
Development Information
System)
(teir.vati.hu)
HCSO (Hungarian Central
Statistical Office)

Integrated GIS
database for the Central
Hungary region
(environmental data,
pollution, regional
statistical data, the
Agglomeration Plan of
Budapest)
Agricultural land parcel
data, including their
quality and sensitivity
data, and the supports
related to the parcels
concerned.

The public database is

available in Web
Map Service format,
the shape files are not
downloadable,
therefore cannot be
used for geoinformatic
analyses.
The public database is
browser based and the
access to the
information is limited.

It is suggested to
allow the use of
shp files for
public researches.
The data should be
extended for the
total area of the
country.
It is suggested to
allow unlimited
access to the
information for
public researches.

The database is
operated by the VTI
Nonprofit Ltd. and
contains a wide range
of statistical data at
regional level.

The data are not

referred to their
spatial location;
therefore the
geoinformatic analysis
cannot be done.

By referring to the
spatial information
of the data, the
possible analyses
would be improved
significantly.

Average yields at
county level (time
series data)
The database contains
the data of forest
owners and forest
management data at
forest parcel level. The
forestry plans are also
available through the
database.

Data quality does not

allow the more
detailed analysis
The database is
available for the
public at a very
limited way. The
access is available
only through
browsers, therefore it
is inappropriate for
deeper analyses.

Time series data at

macroeconomic level
for the forestry sector

Data are available

only macroeconomic
level, therefore cannot
be used for spatial
analyses.

By more detailed
data and referring to
the spatial
information the
analyses would be
improved
significantly.

Consumer price index

Data on exploitation
and utilization

Mineral
assets

Stock data

Mineral
assets

Price data

Other

Detailed data, related to

sustainable agriculture

Other

production data

Agricultural
land

Agricultural
land

Agricultural
land

Agricultural
land

Orszgos Erdllomny
Adattr (Hungarian Forestry
Database)
(erdoterkep.mgszh.gov.hu/)
9

10

11

12

13

14

15
16
17

Forest

STADAT Statisztikai
Adattblk Database of the
Hungarian Central Statistical
Office
(www.ksh.hu)

Platinum Today
(http://www.platinum.
matthey.com/publications/
market-data-tables/)
U.S. Bureau of Labor
Statistics
(ftp://ftp.bls.gov/pub/special.
requests/cpi/cpiai.txt)
U.S. Geological Survey
(http://minerals.usgs.gov/ds/
2005/140/#data)
U.S. Geological Survey
(http://minerals.usgs.gov/
minerals/pubs/commodity/)
U.S. Geological Survey
(http://minerals.usgs.gov/
minerals/pubs/metal_prices/)
EUROSTAT
(www.ec.europa.eu/eurostat)
Data of the dairy herd of
Jzsefmajor Experimental
and Demonstration Farm

Forest

Mineral
assets

Mineral
assets
Mineral
assets

Supply and demand

data

Missing data, data

quality
x

x
It is suggested to
allow unlimited
access to the
information for
public researches. It
is also suggested to
connect the forestry
data to the MePar
system.

x
x

Note:
1

If the database was used in more research panels, please indicate the different panels in different
rows.
2
If more databases were used in the given research panel, please indicate the different databases in
different rows.

324

Appendix 7.

REGIONS IN THE EVALUATION OF AIR POLLUTION BASED ON

MEASUREMENT DATA NETWORK
Introduction
The domestic air quality in 2012 evaluation of the year 6/2011. (1.14.) According to
the methods provided for by Regulation No. VM, 4/2011 (1.14), VM health limits laid
down by regulation. The evaluation is based on the three main component of the manual
measuring network (sulphur dioxide, nitrogen dioxide, dust). In the year 2012 according to
the manual measuring network investigation of air pollution measured in 80 different
regions, in which sampling of nitrogen dioxide in 74 regions, sulphur dioxide in 6 and dust
sampling in 11 regions. The central area of the Valley of the Danube 6 measuring point in
Central Danube Valley Environmental, nature conservation and water management
Inspectorate (KTVF) do not have measuring series, these are marked with an asterisk. In
the area of the North-transdanubian KTVF measuring point in 2012 not cooperated, so this
area is not included in the evaluation. One notable exception is the West-Transdanubian
KTVF, which area 6/2011. (14.) VM. periodic sampling, in accordance with annexes. I
collected datas, analyze and valuated air pollution index in different regions of Hungary
based on the regulation NO. VM, 4/2011 (1.14) which will help later for air asset
valuation.

1. Air Quality Index

The annual average values of the test on the basis of the settlements, the air-pollution
index, which is the result of a summary of the assessment referred to in table 1. Although
the air quality limit values for dust index have not changed the categories of assessment.
The cumulative air quality index in the municipalities of the highest index in
pollutants was established on the basis of given data. Based on the aggregate table 1. of the
number of cross-border provision of the various categories of classified municipalities was
established in the following way:
Table 1: Summary of the air pollution index, based on Stockholm Convention
Pollutant

23
4
5

38
0
6

Satisfactory
(3)
3
0
0

24

43

Excellent (1) Good (2)

NO2
SO2
Dust
Cumulative
index

Contaminated
Highly Polluted (5)
(4)
3 (1)
0
0
0
0
0
4

The brackets provide access to data is not acceptable 75% data-availability criteria
Source: HMN Data

Overall the test is 32% "excellent" air quality will remain an issue, 58% of the
"good", 4% of "satisfactory", 5% "contaminated" categories. In 2012, not a single
municipality has received a "highly polluted" category.

325

Compared to 2011, the "excellent" and "good" received a number of settlements on

the old category; the satisfactory, contaminated and highly polluted approved
number of municipalities has been reduced.

Excellent (1)

Good (2) Satisfactory (3) Contaminated (4) Highly Polluted (5)

2011

2012

Figure 1: Comparison of the air quality index of the year 2011. and 2012.
Source: Own construction based on HMN Data

2. Ten Year Trends

The valuation and investigation of nitrogen dioxide, sulphur dioxide and dust
concentrations in the different municipalities from 2003-2012 for the period of 10 years is
given in the following charts show the annual variations. The graphs of the annual average
value indicated by point force in the beginning of the year, as well as the limit is valid
during the year indicated.

Valuation of Air Pollution Index

The Given table 2. is a valuation, based on yearly air pollution index for different regions
in Hungary.
Table 2: Evaluation of the total available for 2012. on the basis of annual data, as
compared to the legal limit, according to the annual settlements
Municipalities
NO2

Air Pollution Index

SO2

Dust

Overall
index

Old lower Danube valley environmental, nature conservation and water area Directorate
Baja
Good (2)
Good (2)
Kalocsa
Good (2)
Good (2)
Lower Tisza regional environmental protection, nature conservation and water management Directorate
Hdmezvsrhely
Excellent (1)
Excellent (1)
Kecskemt
Good (2)
Good (2)
Kiskunflegyhza
Good (2)
Good (2)
Kistelek
Good (2)
Good (2)
Mak
Good (2)
Good (2)
Oroshza
Excellent (1)
Excellent (1)
Szeged
Good (2)
Good (2)
South transdanubian Environmental, nature conservation and water management Directorate
Balatonfldvr
Excellent (1)
Excellent (1)
Beremend
Excellent (1)
Excellent (1)
Fonyd
Excellent (1)
Excellent (1)

326

Kaposvr
Mohcs
Nagyharsny
Pcs
Sikls
Szentlrinc

Good (2)
Good (2)
Excellent (1)
Good (2)
Good (2)
Excellent (1)

Good (2)
Good (2)
Excellent (1)
Good (2)
Good (2)
Excellent (1)

North Hungarian environment protection, nature conservation and water management Directorate
Detk
Good (2)
Excellent (1)
Good (2)
Domoszl
Excellent (1)
Excellent (1)
Excellent (1)
Eger
Good (2)
Good (2)
Gyngys
Good (2)
Excellent (1)
Good (2)
Kazincbarcika
Good (2)
Good (2)
Miskolc
Good (2)
Good (2)
zd
Good (2)
Good (2)
Tiszajvros
Good (2)
Good (2)
Top-Tisza regional environmental protection, nature conservation and water management
Directorate
Kisvrda
Good (2)
Good (2)
Mtszalka
Good (2)
Good (2)
Nyregyhza
Good (2)
Good (2)
Zhony
Good (2)
Good (2)
Central-transdanubian Environmental, nature conservation and water management Directorate
Ajka
Good (2)
Good (2)
Good (2)
Balatonalmdi
Good (2)
Good (2)
Balatonfred
Good (2)
Good (2)
Balatonfzf
Excellent (1)
Excellent (1)
Berhida
Excellent (1)
Excellent (1)
Bonyhd
Excellent (1)
Excellent (1)
Dombvr
Good (2)
Good (2)
Dunafldvr
Good (2)
Good (2)

Source: Data from HMN

3. Contamination Maps of Hungary

The municipalities air quality 2012. contamination of the air quality index a year,
according to data from the Measuring Centres

NO2
NO2 index

Source: HMN Data

327

SO2
SO2 index

Source: HMN Data

DUST
Dust Index

Source: HMN Data

On the Basis of the Cumulative Index

Cumulative Index

Source: HMN Data

328

The air quality index of NO2 in Budapest Map

Source: Own construction baset on HMN data

4. Air quality index (2012)

NO2
3

Index

Review

SO2
3

Dust
2

(g/m )

(g/m )

(g/m *30nap)

Mean

Mean

Mean

Yrs

Yrs

Yrs

Excellent

0 16

0 20

04

Good

16 32

20 40

48

Satisfactory

32 40

40 50

8 10

Contaminated

40 80

50 100

10 20

Highly Polluted

80

100

20

Source: HMN Data

The development of the air quality index, 14/2001. (V. 9)-KM EM-FVM performance
limits and regulation amendments.

329