Economic Analysis of Ameliorating Sub-soil Constraints using Sub-soil Manure in a Cropping System

In the high-rainfall zone of south-eastern Australia, yields of broadacre crops are constrained by physical and chemical characteristics of the sub-soil. Scientific research is being conducted into ameliorating these physical and chemical sub-soil constraints by using organic amendments that have high levels of nitrogen. This paper is about the results of economic research into the net benefits and risk of ameliorating sub-soil constraints by applying sub-soil amendments such as chicken manure to cropland in the high rainfall zone. The key economic question for a grower is whether the extra benefits of ameliorating sub-soil constraints and increasing the yields of crops are greater than the extra costs of doing so, considering risk. The aim of this research was to determine the effects of yield and price risks over a run of years on the profitability of making such soil amendment investments. Investment costs and annual activity gross margins for a crop rotation were used to estimate the economic performance (NPV, IRR and BCR). Risk analysis was used to assess the effect of price and yield variability on the mean and variance of outcomes. It was found that an investment in sub-soil amelioration which lasted for five years was more profitable than conventional cropping, at an average annual required rate of return of 6 per cent p.a. real, before tax. The size of the expected extra yield benefits above the yields of conventional cropping, and the longevity of the effects of the amendment and yield benefits, are the most important factors for a crop farmer to consider when assessing the option of investing in sub-soil amelioration to grow better crops in the high rainfall zone.