Cost-Benefit Analysis of Pipes
and Risers Irrigation System
in Northern Victoria, Australia
Asia Climate Change Adaptation Project
First Training in Economics of Adaptation
Bangkok, Thailand
March 11-14, 2013
Olive Montecillo
Victoria, Australia
Structure of Presentation
 Introduction
 Methodology
 Data
analysis
 Results
 Other information
Introduction
 Part
of Water for Growth project to
encourage adoption of efficient water
use technologies.
 Objectives of the P&R project
– To improve water delivery in permeable
soils and increase water availability for
agriculture
 reduce
evaporation losses
 reduce channel leakage =>reduce
watertable recharge and salinity
Introduction
 Project
was available only in the
Loddon-Campaspe Irrigation Area
from 2001 to 2004.
Objective of CBA
 To
quantify the costs and benefits of
P&R system to determine level of
financial grants/rebate to farmers to
encourage adoption of the
technology.
Methodology
 Discounted
cash flow analysis
 Partial budget
 Two scenarios:
– “Without” project (WOP):
Flood (gravity) irrigation from open channel system
– “With” project (WP):
Flood (gravity) irrigation using P&R system
Methodology
 Discount
rate:
– 4% for the economic analysis
– 8% for the financial analysis
 Analysis
period: 20 years
 Gross margin to value extra cow (Net
milk income less variable cost)
 Net milk income is gross revenue
less milk levy
from this
to this
Photos from the staff of Sustainable Irrigation
Services, Department of Primary Industries, Victoria
Open farm channel system (WOP)
Photo from the staff of Sustainable Irrigation Services,
Department of Primary Industries, Victoria
Pipes and risers system (WP)
Photos from the staff of Sustainable Irrigation
Services, Department of Primary Industries, Victoria
Main irrigation channel
Photo from the staff of Sustainable
Irrigation Services, Department of
Primary Industries, Victoria
Project area: Loddon Campaspe
Irrigation Region (LCIR)
Map of Victoria showing the LCIR
Maps copied from Loddon Campaspe Irrigation
Region Land and Water Management Plan (2010
draft)
Project area
 LCIR
is about 180 to 350km northnorth east of Melbourne, the capital
city of Victoria
 Total area is 714,000ha
– 500,000 ha irrigated (mainly dairy and
horticulture)
– 140,000ha (beef, sheep, crops)
– 74,000ha public land (native forest,
grasslands, wetlands)
Project area
 Salinity
and waterlogging are major
problems
 Salinity in some areas can be as high
as half the salinity level of sea water
 Groundwater is less than 2m from
the surface in many parts of the
region
Case study data
 Dairy
farm
 Area to be developed: 48.5ha
 Length of on-farm open
channel:1,745m; width: 5m
 Land use: perennial pasture
 Water use: 10ML/ha/yr
Case study farm
 P&R
system part of major farm
development:
– improving farm layout fro quicker
irrigation
– construction of a recycle dam to catch
irrigation run-off.
Assumptions
 Evaporation
losses: 10%
 Channel leakage: 5%
 Labour requirement:
– Irrigation: 58hr/yr
– Channel maintenance: 6hr/yr
 Channel
maintenance
– Cost of chemicals and earthworks
Assumptions: WP
Benefits
 Labour savings: 50%
 Channel maintenance savings: 100%
 Water savings: 100% (equiv to 15% of water use WOP)
 Extra income from area of land reclaimed:
0.72ha
– Can carry/feed 2 extra cows

No increase in pasture production
Assumptions: WP
Capital costs
 Cost of the system, pump and
earthworks
 Purchase of 2 cows
 Pasture establishment (for the
reclaimed area)
Assumptions: WP

Operating costs:
– Variable cost: feed, shed and herd cost of 2
extra cows
– Annual pasture maintenance cost: fertiliser
(reclaimed area)
– Annual operating and maintenance cost of P&R
system: pumping cost
No extra fixed/overhead costs
 No extra labour cost to manage 2 extra
cows and 0.72ha of farm land
 Residual value of the system in Yr 20
calculated using straight line depreciation

…Assumptions (WP)
 Water
to irrigate reclaimed area
(~6.2ML from water saving)
 Value of remaining water saved:
price of water: $70/ML (temporary
water entitlement)
 Milk production from extra cows:
50% of full production in Yr1; 100%
Yr2-20. Each cow produces 235kg of
butterfat/yr
Public benefit
 Difficult
to quantify salinity and
waterlogging benefits
Result of CBA
 Economic
analysis (4% discount rate)
– NPV: $1,900
– BCR: 1:1
 Financial
analysis (8% discount rate)
– NPV: -$38,200
– BCR: 0.7:1
Result
Project not financially viable
 To break-even after 20 yrs, rebate to
farmers should be 35% of total cost.
 Although the public benefits were not
quantified, rebate of 25% of total cost* of
the P&R system was made available
between 2001 and 2004.
 In 2010-12, the water saved from the
technology became part of environmental
flows

* subject to a maximum length and cost per m.
Adoption of the technology
2001-2004
Number of systems installed:
Length of pipeline installed:
Area irrigated:
Total cost of all systems installed:
Total rebate/grants to farmers:
Notes:
•Loddon-Campaspe Irrigation Area only
•Costs not adjusted
42
37,300m
1,340ha
$2.27M
$428,000
Ex-post evaluation
 Would
have been done in 2008-9
 Difficult to establish “with” project
scenario because of the drought from
2001 towards the end of 2010
Take home message - CBA
 Identify
clearly the parameters of
“with” and “without” the project
scenarios
 Identify and quantify extra costs and
extra benefits associated with both
scenarios
 Be conservative in making
assumptions or/and do a sensitivity
analysis
Other information: Northern
Victoria
 Anecdotal
evidence: a number of
systems were installed without
government financial assistance
(2004-2010)
 Some farmers planted trees on
reclaimed area
Other information: Northern
Victoria
 Technology
is being adopted:
~12,000ha irrigated; government
funding thru on-farm irrigation
efficiency project (OFIEP), 20102012)
 Current application for government
funding (2012):
– 88 systems
 Estimated area to be irrigated: 4,455ha
 Estimated water saving: 8,165ML
 Estimated cost: $16.8M
Other information: OFIEP
 To
return water to the environment
by encouraging irrigators to adopt
water saving technologies
 Government pays for all or part of
the capital cost
 In exchange farmer returns half of
the water saving to the government
Other information: OFIEP
Example:





Cost of technology: $100,000
Water saving: 40ML
Value of water saving (set by the government):
$2,200/ML
Total value of water saving: $88,000
Farmer pays $12,000 of capital cost and
surrenders 20ML of irrigation water entitlement
to the government for environmental flows.
Acknowledgement
 Sigmund
Fritschy for assisting in the
analysis
 Archards Irrigation P/L for providing
the case study farm
Thank you.