Under the trend of trade liberalization and biodiversity preservation, Taiwan's agriculture is losing her comparative advantages in the market and driven to preserve biodiversity in farm practices. This paper thus focused on the study of relationship between agricultural production and biodiversity preservation. A dynamic model was employed to analyze the equilibrium of habitat conservation and land exploitation. The social optimal revealed that the marginal social value of farmland should equal to the land price in the competitive market plus the marginal benefit of biodiversity on farmland. Thus, the loss of farmland conversion to non-farm uses includes the marginal loss of habitat, marginal conversion cost and marginal user cost. The institutional arrangement is then necessary in order to improve present situation toward sustainable development. Biodiversity is one kind of public goods. Farmers seem not interested in preserving biodiversity when they are maximizing their profit. The result is that the price of farmland is lowed, and the habitats will be over-exploited. In the future, the establishment of property right for public goods could be essential to improve the relationship between agricultural production and biodiversity preservation.