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1. Shrub canopies in semi-arid environments often produce positive effects on soil fertility, and on the richness and biomass of understorey plant communities. However, both positive and negative effects of shrub encroachment on plant and soil attributes have been reported at the landscape level. The contrasting results between patch- and landscape-level effects in shrublands could be caused by differences in the degree of shrub encroachment or grazing pressure, both of which are likely to reduce the ability of individual shrubs to ameliorate their understorey environment.

2. We examined how grazing and shrub encroachment (measured as landscape-level shrub cover) influence patch-level effects of shrubs on plant density, biomass and similarity in species composition between shrub understories and open areas, and on soil stability, nutrient cycling, and infiltration in two semi-arid Australian woodlands.

3. Individual shrubs had consistently positive effects on all plant and soil variables (average increase of 23% for all variables). These positive patch-level effects persisted with increasing shrub cover up to our maximum of 50% cover. Heavy grazing negatively affected most of the variables studied (average decline of 11%). It also altered, for some variables, how individual shrubs affected their subcanopy environment with increasing shrub cover. Thus, for species density, biomass and soil infiltration, the positive effect of individual shrubs with increasing shrub cover diminished under heavy grazing.

4. Synthesis: Our study refines predictions of the effects of woody encroachment on ecosystem structure and functioning by showing that heavy grazing, rather than differences in shrub cover, explains the contrasting effects on ecosystem structure and function between individual shrubs and those in dense aggregations. We also discuss how species-specific traits of the encroaching species, such as their height or its ability to fix N, might influence the relationship between their patch-level effects and their cover within the landscape.