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UWA Agriculture, Economics and Nature – Module 4, Segment 2

For resource
conservation projects, benefits and costs tend to
occur at different times. Now of course there are various
types of resource conservation projects, but to
illustrate this point we’re going to look at the
example of planting a belt trees for various types
of conservation benefits on the farm, as you
can see from the table, but also involving
various types of costs. So starting with the benefits. Benefits obviously
vary over time because initially when the trees
are planted they’re very small. They provide little benefit. They are too small
to reduce erosion, they’re too small to lower water
tables for salinity prevention. They’re too small to provide
shelter for livestock. So there’s not a
lot benefit there. But as they grow, each of those
benefits potentially grows. And so we reach higher
and higher level of benefits over time. And eventually at
some point, depending on the nature of the project,
if it’s a commercial tree you might harvest at
the end of the project and sell the products and
generate an additional benefit at the end of the project. So this diagram
illustrates that. Initially the blue bars
represent the level of benefit being
generated and there ar are blue bars for 20
years of the project. Initially the benefits are zero. They grow slowly over
time, tend to level off at a moderate level,
and then at the end there’s a spike where in this
case the trees are harvested and the products are sold. Now each product will have
a different characteristic pattern of benefits over
time, but the general point we’re trying to make here
is that the benefits tend to be–in resource
conservation projects– the benefits tend to be larger
towards later in the project rather than early. OK. Let’s look at costs
now, and costs also tend to vary over time. In particular, most projects
involve a significant upfront cost. So with our tree
belt example, farmers are needing to purchase
the inputs to establish the planting of trees. They need to put the
time into doing that. So there’s quite large costs at
the beginning of the project, but then there may also be
smaller costs later on as well. Some projects require
ongoing maintenance. So for example,
if we’re planning to sell the trees
later on, we may need to invest in pruning to
keep the trees in good shape and to maximize the sale
price of the wood that occurs later on. And so that would
occur every few years through the life of the project. And then again if
they’re commercial trees there may be costs
involved in harvesting them at the end of the period. So let’s look at the graph. We’ve got a big cost of the
beginning, smaller costs every so often for maintaining
the project, and then a moderate cost at the end. In this case, juju
harvesting the wood. But it might also be in
other types of projects disestablishing a project,
for example, dismantling it. If we put the costs and
the benefits together, it really highlights
of the costs tend to be bigger at the
beginning and the benefits bigger at the end. And showing a graph with the
difference between the benefits and the costs it really makes
that point very strongly. There’s a large negative
profit, negative net benefit at the beginning of the project. And then smaller
benefits at the beginning growing to larger
benefits towards the end. So some of these
benefits have been reduced because the costs in
those years have been deducted. And so you can see the
benefits are a little bit up and down over time, and
the large benefit at the end has been reduced somewhat
because we’ve subtracted off the cost of the
harvesting process. But in general this
really highlights the point we’re making
that costs are larger at the beginning, benefits
are larger towards the end. And this is
something we’re going to need to deal
with in calculating the economics of these projects. And we’re going to need
to do more than just add up the benefits
and add up the costs. We’re going to need to allow
for these timing differences. So in summary, the
costs and benefits of a resource conservation
project tend to vary over time. In particular, costs tend
to be higher early on and the net benefit is negative. Benefits tend to
be higher later on and the net benefit
may become positive if the benefits
are large enough. And this is a very
typical pattern for resource conservation
projects of various types when they occur on farms.

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