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Unit 1 - What's in it for me?
Unit 2 - Saltland Basics
Unit 3 - Can I trust the technology?
Unit 4 - Plant and animal performance
Unit 5 - Sheep, cattle and conservation
Unit 6 - Do the $$$'s stack up?
Unit 7 - The saltland toolbox
Site Assessment
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Solution 3: Saltbush
Solution 4: Saltbush & Understorey
Solution 5: Tall Wheatgrass
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UNIT 6

Do the $$$’s stack up?

 

6.2  Likely costs & returns

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There is a large range in the costs and returns from investment in saltland pastures.
In the SGSL program, 21 case studies from WA were analysed in detail – establishment costs per hectare ranged from a low of $77/ha to a high of $324. Infrastructure costs were not included in these figures because the sites were ‘trials’ and therefore had high infrastructure (fencing and water) costs. Payback time – the time beyond which net profit is made – for these investments ranged from 2 to more than 20 years.

In NSW, whole farm gross margin, partial budgeting and discounted cashflow analyses were used to compare alternative grazing systems across two properties that had ameliorated saline land. Total capital costs of establishing sown saltland pasture were calculated as $664/ha for Farm A and $349/ha for Farm B. The large difference in capital expenses reflects Farm A’s higher saltland pasture costs and the significant investment in extra livestock

Such a range makes it very difficult to generalise – other than to say that the establishment of saltland pastures is at least of the same order as the cost of establishing pasture on non-saline land.

In South Australia, PIRSA developed a ‘profitability calculator’ for the SGSL Producer Network program. This calculator considers a range of factors that influence profitability, such as costs associated with establishing pasture systems (drainage, fencing, pasture establishment); maintenance (fertiliser, weed and pest management); water points (troughs, pipes, tanks and pumps); and capital invested in additional livestock. The economic measures of performance for this model are net present value (NPV), internal rate of return (IRR), and the break even point. The profitability calculator is available as an Excel spreadsheet and is supported by a simple ‘Pasture response to fertiliser’ calculator.

Several farm case studies serve to illustrate some of the costs and possible returns from establishing saltland pastures. The approaches used vary between the different states, but in each case the results are instructive. Case studies are presented for:

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Case study - Boorowa, NSW

A moderate sized farm in the Boorowa catchment of central NSW with salinity a common feature of the catchment was analysed. Almost 10% of the farm is salt affected. The soils are from shale/slate parent material, relatively low fertility and not suited to cropping due to susceptibility to sheet and gully erosion.

An analytical method used a partial discounted cash flow budget to assess the net present value of cash flows from the investment. The analysis presented here does not account for the unique benefit the producer may get from the out-of-season value of the feed, nor does it factor in any environmental benefits associated with improving the site and reduction in further land degradation or stream pollution.

Site and Establishment Process:

Farm and Site Information

  • Farm size – 520ha; 40ha salt affected; this site 16 ha, 6ha salt affected; 750mm rainfall 

Establishment Process (total $434/ha)

  • Site lightly scarified, harrowed 
  • Sown in May 2004 Lime/Gypsum Jan-May 
  • Gypsum applied to scald @ 1t/ha, paddock limed @ 2.5t/ha 
  • Turkey litter @ $22.17/m3 
  • Seed mix 21kg/ha, 4 kg tall wheatgrass 3 kg Riverina sub clover 3 kg Quantum Fescue 1 kg Palestine strawberry clover 2 kg puccinellia 1 kg Prop white clover 2 kg Landmaster phalaris 
  • Direct drilled with 100kg/ha Starter 16
  • Contracted sowing at $50/ha
  • Not sprayed protecting existing native pastures and to retain groundcover (wiregrass, Danthonia, Microleana)

Maintenance

  • Fertiliser 100kg/ha DAP

Motivation

  • Farmer felt that rehabilitation was possible
  • To improve aesthetic value by eliminating the bare dirt/scald
  • Mix of production and environmental benefits envisaged


On a cumulative basis, cash flows were positive by year 8 – ie time to break even after accounting for tax on returns and interest payments on the overdraft.


Chart

Summary - the establishment of saltland pasture on this site was found to be profitable with the assumptions used. The project was cashflow positive in year 4 and was able to pay back the establishment costs by year 8. However, sensitivity analysis suggests the high costs associated with pasture establishment make profitability dependent upon good pasture and grazing management (7 DSE/ha required) to ensure high levels of pasture production and utilisation, pasture persistence (10 years required) and better than long term average prices for products. Lower cost establishment methods would give a much more favourable financial outcome. 

Read the full report

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Case Study – Murdong Hills, WA

A 49 ha saline site at Murdong Hills, about 20km east of Katanning was analysed. The Katanning and surrounding Great Southern area has medium rainfall/duplex soils - salinity is widespread in the lower lying parts of the landscape and along drainage lines. The site has a shallow watertable with wet and saline patches making it impossible to crop – the site had not been cropped for 25 years. Some surface drainage work (to assist the flow of water from the site and into the adjacent creekline) had previously been installed.

The Site and Establishment Process: 

Farm and Site Information

  • A 49 ha salt affected site; 430mm average annual rainfall

Establishment Process (total cost $306/ha)

  • Lime and gypsum strips (5t/ha) plus potash at 80kg/ha
  • Spraytop Sept 2003, knockdown August 2004
  • Sown (perennial grass and saltbush mix) August 2004 with follow up insect control

Maintenance

  • Super at 100kg/ha in Feb 2005
  • Super at 100kg/ha in March 2006

Motivation

  • Farmer felt that rehabilitation was possible
  • To bring a significant area back into profitable production and to provide somewhere to put the sheep during cropping – the farm has a high crop % relative to the district
  • The site could be rehabilitated without the need for additional fencing or water supply


The site was estimated to give 1450 sheep grazing days per ha per year (ie. 33 sheep/ha for a total of 44 days in autumn). There were no infrastructure costs so the economics of the site can be summarised as shown in the table below.

 

 Value of a sheep grazing day

 

10 cents

20 cents

Time taken to recover development costs

4 years

3 years

10 year return per dollar invested

$2.55

$5.10


Because future grazing production from the site cannot be estimated with certainty and because assumptions had to be made, it is useful to calculate what returns are needed over a 10-year period to break even on the development costs. This analysis showed that 570 grazing days are needed per hectare to break even if a sheep grazing day is worth 10c, or 285 grazing days at 20c. These values are 40 and 20% of that achieved in 2006 so there is significant potential for the productivity to decline without the farmer having any chance of losing money. An alternative way to view the analysis is that a productivity of 1450 grazing days per ha could support a ‘development cost’ of $710 or $1450/ha if grazing days are worth 10c or 20c respectively.

Summary - Tall wheatgrass established at very high density on this site, with saltbush being the only other species of the seeded mix which retained a presence. Together these 2 perennials should provide excellent water use and possible drawdown of the watertable. The site does not have a significant legume content, but this may develop in response to the improved soil conditions.

In cases like this, where the primary motivation is for increased pasture production, revegetating saltland can be compared to purchasing adjoining pasture land. In effect this site is ‘purchasing’ grazing land for around $306 per ha. Valuer Generals Office records show that average land values in the Broomehill area are around $1800/ha. Mildly saline land might be valued at 25% of this, or $450/ha compared to the $306 for the saltland pasture. Almost universally, farmers get additional ‘benefit’ from the satisfaction associated with rehabilitating land on their own farms.

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Case study – Keith, SA

This farm business operates over two properties about 15 km apart in the upper south-east of SA. The home farm (1500 ha) has only a minor salinity problem, whereas on the other property (2200 ha) salt is a major issue. The latter retains about 480 ha of heritage scrub and about 310 ha of swamp, shelter and wasteland, while 400 ha of the 1400 ha grazing country is highly salt-affected and has been sown down with puccinellia.

Quantifying whole-farm benefits from establishing puccinellia is challenging, however economic analysis can demonstrate the profitability of establishing saltland pastures in their own right.

The following table uses some typical costs fed into the profitability calculator (see 2a) to generate the benefits expected from pasture establishment. The jump in productivity from scalded saline flats to productive puccinellia pasture following development assumes a rise in potential stocking rates from 0.2-0.5 DSE/ha to 5-8 DSE/ha. Greater profits are expected if greater numbers of stock are grazed on the extra feed produced, rather than increasing production from existing animals. The estimated pasture life (12 years) is considered conservative by the landholder who has some puccinellia pastures over 20 years old.

Pasture establishment

Cultivation - $20/ha

Seed puccinellia (10kg/ha x $5/kg) $50/ha

Fertiliser – 50kg/ha 19:10:0:13 (NPKS) x $500/t $25/ha

Weed & pest control – Spray-top in spring prior to sowing plus knockdown at break of season; & RLEM control $10/ha

Infrastructure – Fencing & water (estimate only) $100/ha

Pasture maintenance

Fertiliser – 50kg/ha 19:10:0:13 (NPKS) x $500/t $25/ha

Water costs – Estimate only $5/ha

Other factors

Previous grazing potential of the land – 0.5 DSE/ha

Grazing potential after development – 5-8 DSE/ha

Capital invested to purchase additional livestock (once off) - $45/DSE

Estimated life of the pasture – 12 yr

Profitability of the livestock (annual gross margin) - $25-35/DSE


Profitability of puccinellia establishment based on a 12 year pasture life, under different stocking rates and livestock gross margins. Values are: *NPV (10%) – the total future profit (per hectare) in today’s dollars over the life of the pasture; and **minimum pasture life to break even.

Total stock run
following pasture
development 

 Profitability of livestock (annual gross margin)

(DSE/ha) 

$25/DSE

$30/DSE  

$35/DSE

5

*$137 / **6 yr

$262 / 4 yr

$386 / 3 yr 

6

$252 / 4 yr

$405 / 3 yr

$558 / 3 yr

7

$368 / 3 yr

$549 / 3 yr 

$730 / 2 yr


For example, assuming a gross margin of $25/DSE and a stocking rate of 5 DSE/ha is maintained over the 12 year life of the pasture, the total future profit arising from pasture development in today’s dollars (assuming a discounting rate of 10%) would be around $137/ha. To start returning a profit the pasture needs to last at least 6 years. 

Read the full report

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Case study – Lachlan, NSW

A small saline patch on a small but highly productive farm in the Lachlan catchment of central NSW was reviewed. The soils are volcanic in origin, fairly fertile and suitable from cropping and/or highly productive grazing. The enterprise utilising the saltland pastures was a 21 micron, self-replacing Merino operation.
As with the Boorowa case study, an analytical method used a partial discounted cash flow budget to assess the net present value of cash flows from the investment.

The Site and Establishment Process:

Farm and Site Information 

  • Farm size: 480 ha; salty site ~4ha; 700mm rainfall 
  • Soil type suitable to cropping, productive grazing

Establishment Process ($148/ha, plus $200/ha for fencing) 

  • April 2004 - chisel plough
  • April 2004 - spray Treflan
  • May 2004 - sow salt tolerant lucerne, Palestine strawberry clover & sub-clover

Maintenance 

  • Fertiliser 100kg/ha single super assumed in analysis

Motivation

  • To improve the use of available moisture on a wet site
  • To improve the use of available moisture on a wet site
  • Repair ground cover and lower water tables
  • Improve value of salt affected land


On a cumulative basis cash flows are positive in year 7. This is the time taken for the project to break even after accounting for tax on returns and interest payments on the overdraft.


Chart

Summary - the establishment of saltland pasture on this site was found to be profitable with the assumptions used. The actual pasture establishment cost per hectare was very low, but because the site was small, the fencing costs per hectare were high – despite this, the project was cashflow positive in year 3 and was able to pay back the establishment costs by year 7. Sensitivity analysis suggests the low costs associated with pasture establishment reduce the likelihood that the project will make a loss over the range of scenarios tested. Product prices more than 20% below assumptions, and a stocking rate below 8 DSE/ha over the life of the investment would result in financial loss. 

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Case Study – Katanning, WA

A 40 ha saline site at Badgebup, East Katanning was considered. The Katanning and surrounding Great Southern area is the medium rainfall/duplex soil heartland of waterlogging and salinity, as distinct from the broader valley floors of the wheatbelt. Salinity is widespread in the lower lying parts of the landscape and along drainage lines. The site is made up of 4 individual paddocks in a broad flat valley on the edge of a major drainage system (the Coblonine). The barley grass areas just above the samphire were patched out with direct seeded saltbush rows in 2003 and established well. Attempts to establish a perennial under-storey between the saltbush lines was not very successful and annual under-storey species were sown in 2006.

The Site and Establishment Process: 

Farm and Site Information 

  • A 40 ha salt affected site; 325mm average annual rainfall

Establishment Process (total cost $627/ha - $321/ha without infrastructure included)

  • Glyphosate (+ dimethoate) knockdown spray in August 2003
  • Scarify and topdress with 80 kg/ha MultiMAP in August 2003
  • Saltbush plus pasture mix sown by a contractor in Sept 2003
  • Fencing and water supply installed.

Maintenance 

  • Gypsum @ 2.5 t/ha applied Feb 2004
  • Insect control by mister in April 2006
  • Topdressed with annual pasture seed + insect control in April 2006

Motivation

  • To use the land to help finish sheep and get them into condition as shippers
  • To bring a significant area back into profitable production
  • To integrate into existing farming practices. Intend to use these areas mainly for deferred grazing purposes coming out of autumn into winter, and opportunistically, depending on feed supplies, coming out of spring into summer.


The revegetation costs for saline land are very site specific. For this site, the costs for the fencing and water were high because of the demonstration nature of the site with many corners and short fence lengths. Without these infrastructure costs, the establishment cost was $321/ha – this value is used for the economic calculations below.

This site yielded 470 sheep grazing days per ha in 2004, and 300 grazing days per ha (autumn only) in 2005 – although sheep continued to be supplemented while on the site. In 2006, one paddock supported 750 sheep grazing days/ha and another paddock supported over 1100 sheep grazing days/ha with minimal supplementation and with no change to bodyweights or condition scores. It appears that 1000 sheep grazing days per ha per year without supplementation is a realistic level of production and this is used for the calculations below.

 

Value of a sheep grazing day

 

10 cents   

20 cents

Time taken to recover development costs 

6 years 

3 years

10 year return per dollar invested

$1.57

 $3.15


Because future grazing production from the site cannot be estimated with certainty and because assumptions had to be made, it is useful to calculate what returns are needed over a 10-year period to break even on the development costs. This analysis showed that 635 grazing days are needed per hectare to break even if a sheep grazing day is worth 10c, or 320 grazing days if valued at 20c per grazing day. These values are 64 and 32% of the 1000 grazing days that was used in the calculations above, so there is significant potential for the productivity to decline without the farmer losing money. An alternative way to view the analysis is that a productivity of 1000 grazing days per ha could support a ‘development cost’ of $525 or $1078/ha if grazing days are valued at 10c or 20c respectively.

Summary - In cases where the primary motivation is for increased pasture production, revegetating saltland can be compared as an investment to purchasing adjoining pasture land. In effect this site is ‘purchasing’ grazing land for around $321 per ha. Valuer Generals Office records show that average land values in the East Katanning area are around $1600/ha. Mildly saline land might be valued at 25% of this, or $400/ha compared to the $321 for the saltland pasture. Almost universally, farmers get additional ‘benefit’ from the satisfaction associated with rehabilitating land on their own farms.

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