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Reindeer grazing in the Fennoscandian area has a considerable influence on the ground vegetation, and this is likely in turn to have important consequences for the soil biota and decomposition processes. The effects of reindeer grazing on soil biota, decomposition and mineralization processes, and ecosystem properties in a lichen-dominated forest in Finnish Lapland were studied inside and outside a large long term fenced reindeer exclosure area. Decomposition rates of Vaccinium myrtillus leaves in litter bags were retarded in the grazed area relative to the ungrazed area, as well as in subplots from which lichens had been artificially removed to simulate grazing. The effect of reindeer grazing on soil respiration and microbial C was positive in the lichen and litter layers of the soil profile, but retarded in the humus layer. There was no effect of grazing on gross N mineralization and microbial biomass N in the humus and upper mineral soil layer, but net N mineralization was increased by grazing. In these layers soil respiration was reduced by grazing, indicating that reindeer effects reduce the ratio of C to N mineralized by soil microorganisms. Grazing stimulated populations of all trophic groupings of nematodes in the lichen layer and microbe feeding nematodes in the litter layer, indicating that grazing by reindeer has multitrophic effects on the decomposer food-web. Grazing decreased lichen and dwarf shrub biomasses and increased the mass of litter present in the litter layer on an areal basis, but did not significantly alter total C storage per unit area in the humus and mineral soil layers. The N concentration of lichens was increased by grazing, but the N concentrations of both living and dead Pinus sylvestris needles and Empetrum hermaphroditum leaves were not affected. There was some evidence for each of three mechanisms which could account for the grazing effects that we observed in our study. Firstly, reindeer may have changed the composition and quality of litter input by affecting plant species composition and through addition of N from urine and faeces, resulting in a lack of available C relative to N for decomposer organisms. Secondly, the organic matter in the soil may be older in the grazed area, because of reduction of recent production of lichen litter relative to the ungrazed area. The organic matter in the grazed area may have been in a different phase of decomposition from that in the exclosure. Thirdly, the soil microclimate is likely to be affected by reindeer grazing through physical removal of lichen cover on the ground, and this can have a significant influence on soil microbial processes. This is supported by the strong observed effects of experimental removal of lichens on decomposer processes. The impact of reindeer grazing on soil processes may be a result of complex interactions between different mechanisms, and this could help to explain why the below-ground effects of reindeer grazing have different consequences to those which have been observed in recent investigations on other grazing systems.