We address the effects of erosion on the environmental services provided by the soil and explore possibilities for integrating soil erosion impacts in cost-benefit analyses of agri-environmental policies. As a case study, we considered the continued soil erosion caused by the traditional cereal farming system which is financially supported by the Zonal Program of Castro Verde. This case study illustrated the conflict between the preservation of biodiversity habitat requirements and the maintenance of soil productivity. We conclude that soil erosion is currently a major threat to the long-term sustainability of the Cereal Steppe of Castro Verde and largely reduced the cost-efficiency of public expenditure in local biodiversity conservation. Although replacement cost has proven to be a suitable method to determine the cost of soil productivity loss from erosion, we argue that there is a need to frame the erosion cost estimate obtained within more integrative approaches of assessing erosion costs. (c) 2007 Elsevier B.V. All rights reserved.