One of the oldest processes in urban development is the conversion of peripheral land from farming to residential use. The standard argument is highest and best use: housing gives a bigger pay-off than farming. It’s the same basic logic underlying why natural bushland is cleared for agricultural use.

On Monday I looked at the idea of “food kilometres” but today I want to look at whether productive agricultural land should be converted to urban use.

Straight up, the evidence suggests urban development doesn’t pose much threat at all. The productivity of agriculture in Australia has increased 2.8% p.a. over the last 20 years, double the rate at which the wider market economy has grown.

Moreover, the Australian Natural Resources Atlas shows that the area of land used nationally for urban development amounts to just 0.5% of the area of land used for agriculture. Another estimate by the Australian Collaborative Land Use Mapping Program puts the ratio of urban land to agricultural land at 2.8%.

A more detailed study by Peter Houston published in 2005 found that agricultural land on Melbourne’s urban periphery comprised a little less than 6% of the total land base used for agriculture in Victoria. Melbourne seems to be an exception – the average figure for peri-urban areas across all mainland States is a mere 1%.

Houston used a larger geography than the Melbourne Statistical Division. If we therefore look at just the Green Wedges (the non-urban area around Melbourne and hence the only areas directly under threat from Melbourne’s sprawl), the area used for agriculture comprises just 1.7% of all agricultural land in Victoria.

The planned extension to the Urban Growth Boundary, which the Planning Minister says will see Melbourne’s growth out to 2050, will convert 430 sq km of the Green Wedge to urban use. Even if all that extension were at the expense of productive farms, it would amount to 0.3% of all agricultural land in Victoria, 5.6% of that in Houston’s expansive definition of the peri-urban area and 19% of that in the Green Wedges.

But it would be a mistake to assume that all fringe urban growth is at the expense of productive agriculture. While it might be expected that the Green Wedges would be largely comprised of farms, they’re not. Only around a third of the total area of the Western and South East Green Wedges is used for agriculture. In the Mornington Peninsula, Northern, and Sunbury Green Wedges it is less than 10%. In the Yarra Valley it’s 12%.

There is a multiplicity of other uses in the Green Wedges, including airports, sewage works, prisons, sporting facilities and quarries. However the major non-agricultural uses are extensive areas of protected natural bushland, particularly in the East, and semi-rural uses like so-called hobby, lifestyle and part-time farms. Speculators are thought by some to be an important factor in keeping farming land out of agricultural production in the Western Green Wedge (debatable, but that’s another story).

With productive farms occupying only a minority of Green Wedge land it seems more likely most of the impact of the extension of the Urban Growth Boundary will be on non-agricultural uses like hobby, lifestyle and unproductive “farms”.

Another argument is that the agricultural land in the Green Wedges should be protected from urban development because it punches above its weight – it accounts for around 12% of the value of agricultural production in the State. The implication seems to be that there’s no substitute for the natural attributes of the Melbourne region, as if the founding fathers fortuitously chose the only good location for agriculture in Victoria.

Two points need to be made here. First, Houston found that the higher productivity of peri-urban areas is true for all mainland capitals, not just Melbourne. There could be a number of factors explaining this but I think Houston’s finding suggests it’s primarily because of nearness to the city – proximity may actually increase agricultural productivity by providing better access to skills, capital, technology and markets (including tourists) e.g. Yarra Valley wineries. If my take on this is right, it means the zone of higher productivity will expand as the city expands.

Second, notwithstanding their higher productivity, the average value of agricultural operations across Melbourne’s Green Wedges is only $3,101/ha p.a., varying from less than $1,000 per ha in the Western and Sunbury wedges to a high of $7,507 in the Yarra wedge. Hence where there actually is a direct conflict between agricultural and urban uses, the latter will win hands down. Whether that value is calculated as the rents the land could earn or the earnings of the urban workers living there, a hectare subdivided for 15 dwellings will earn considerably more than a hectare used for farming.

Having said that, I nevertheless think there is a case for protecting some farming land but it’s not a strictly economic argument. Melburnians value access to bucolic landscapes. I think there’s also a thread in our culture that values rural heritage and distinctly “country” activities for their own sake.

In many cases there will be alternative paths for urban development that avoid the sorts of farming areas that the citizens of Melbourne value. There probably aren’t many such areas in the North and West (although the Werribee Irrigation District is clearly one) – which may be just as well because these regions will have to carry most of Melbourne’s peripheral growth out to 2050 – but there are some in the East and South East. And if they are to be protected as viable agricultural operations then attention has to be given to enabling them to operate efficiently in proximity to built up areas.