1. Cost Benefit Analysis – Pacific Example 2 Cost-Benefit Analysis Workshop 23-25 April 2012 Jonathan Bower, Resource Economist, Land Resources Division, Secretariat of the Pacific Community

2. Example 2: Soil health preservation in Taveuni Fictional example but inspired by a set of ACIAR field trials on soil health preservation among taro farmers in Taveuni This is an ex-post CBA, using fictional data that would have been collected AFTER field trials Trials of 4 different techniques, over a 5 year time period

3. Problem Statement Taro yields in Taveuni (major taro producer) are on the way down due to degrading soil health – Natural predators of crop pests/nematodes cannot work in degraded soil – Nutrient levels become depleted. Over time this could eliminate profits for taro farmers and increase poverty Also hurts production of an important Fiji export crop

4. Objective To preserve taro yield and hence profit at a level that is sustainable, by using techniques that preserve soil health

5. The “projects” Treatment A – e.g. Lime/Macuna/Soil Test Fertilizer/lime recommendations Treatment B - Macuna /Fert-NPK(13:13:21) + Biobrew Treatment C - Lime/Macuna/Fish manure + Rock P Control – no treatment or farmer’s usual tratment

6. WHAT MIGHT THE BENEFITS OF PRESERVING SOIL HEALTH BE?

7. “With and without” Analysis Benefits with each treatment: – Increased taro yield and therefore revenue

8. Is this the case?

9. Benefit of soil health preservation = B - A

10. WHAT MIGHT THE COSTS OF PRESERVING SOIL HEALTH BE?

11. “With and without” Analysis Costs with each treatment: – Labour – Substances applied to the soil e.g. macuna seed or fertiliser – Any special tools needed for application over and above the ‘control’ In the short run, revenue could decrease if fallow periods are used, but in the long run it will be sustained

12. WHAT DATA DO WE NEED TO MEASURE THOSE COSTS AND BENEFITS?

13. BENEFITData requiredSource of data COSTData requiredSource of data DATA GENERATION

14. BENEFITData requiredSource of data Increase in revenue, sustained over time Market price of taro, marketable taro yield from both control and all treatment scenarios Field trial data collection, farmer survey or domestic market survey COSTData requiredSource of data LabourLabour time over and above ‘control’ scenario Field trial data collection InputsPrice and quantity of inputs over and above ‘control’ scenario Field trial data collection, receipts from input purchase DATA GENERATION

15. What discount rate will you use? What time period is the relevant one? What assumptions do we need to make? Calculating Costs and Benefits

16. What discount rate will you use? – 7% What time period is the relevant one? – All time periods in which data are measured. In our example this is 5 years. What assumptions do we need to make? – All differences between control and treatment can be attributed to the treatment (and not other factors) – requires a sound field trial design Calculating Costs and Benefits

17. Data - taro yields per hectare Y0Y1Y2Y3Y4 Taro yields (kg) Control40003000250021001900 Treatment A40003000250021001900 Treatment B3500 Treatment C3500

18. USING THE DATA, CALCULATE THE UNDISCOUNTED COSTS AND BENEFITS OF EACH SOIL HEALTH PRESERVATION TREATMENT

19. CALCULATE THE DISCOUNTED NET PRESENT VALUE OF EACH SOIL HEALTH PRESERVATION TREATMENT

20. SENSITIVITY ANALYSIS

21. Uncertainty and Sensitivity Analysis Over what? – Prices of key inputs – Not much else: a field trial leaves little room for uncertainty If we were to extrapolate the benefits of the best treatment to a certain % of Taveuni’s taro industry, there may be uncertainty over – Number of farmers who take up the technique – Extension and training costs – How well the farmers apply the technique – Suitability of soil to the technique compared to the soils used in the field trial

22. Uncertainty and Sensitivity Analysis Do a sensitivity analysis of a doubling of all costs – Perhaps due to price increases – In real life we would be more precise – e.g. what if the price of mucuna seed doubles

23. Conclusion Treatment B is the most cost-effective treatment from the perspective of the farmers Treatment B is still beneficial even when costs double

24. TANGIO TUMAS/TENKYU TRU/THANK YOU/VINAKA VAKALEVU/SULANG/KO RABWA/TUBWA KOR/MALO 'AUPITO/FA'AFETAI TELE LAVA/MERCI BEAUCOUP/KIA MANUIA/KIAORA KOE/KOMOL TATA/FAKAUE LAHI/SI YU'US MA'ÅSE‘/TEKE RAOI/KALANGAN/FAKAFETAI Thank you Jonathan Bower Resource Economist, Land Resources Division Secretariat of the Pacific Community jonathanb@spc.int +679 337 0733 – ext 35425 lrdeconomics.wordpress.com Also available from ‘information and networks’ tab at www.spc.int/lrd