Economic analysis of future MCV investment (ex-ante)

Research objective

Assess the potential economic returns of investing a further 5 years of research and development in the MCV program, Phase V.

Project duration

April 2015 – June 2015

Outcomes

Various economic evaluations of past investments in the Managing Climate Variability program (MCV) have demonstrated attractive returns to stakeholders. The MCV management committee determined that returns from future investment be assessed.

Despite the conservative assumptions made regarding future use of improved climate forecasts, the investment criteria estimated gave favourable results. The total investment of $13.5 million in present value was estimated to produce total benefits of $105.5 million in present value, providing a net present value of $92.0 million. The rate of return was also high, including a benefit–cost ratio of 7.8 to 1 (over 30 years, using a 5% discount rate) and an internal rate of return of 46%.

The analysis included the investment resources already secured from the Rural R&D for Profit Program as well as the new future investment likely from MCV partners.

The evaluation (using program logic) identified pathways to impact from the likely R&D investment in two stated priority areas:

  • current forecast usage and forecast needs of farmers
  • development of new forecasts.

The anticipated outputs from MCV’s Phase V were:

  • identifying the climate forecast information needs of producers from different primary producing industries, as well as improving how risky decisions are made by using information from climate forecasts
  • creating a range of forecasts that are beyond current weather time scales and that are more relevant to individual primary industries. Improvements are expected to include improved accuracy and reliability, improved spatial resolution, rainfall and heat and frost prediction, and more grower-friendly and usable forecasts for producers.

The evaluation assumed that improvements in understanding farmer needs and how climate forecast–related decisions assists people with extension and communicating best-practice decision-making related to climate forecast information. This was expected to lead to more use of climate-related forecast information and improved outcomes of risk-management decisions, resulting in higher average profitability for individual producers.

In addition, any improved performance and/or targeting of climate forecast information from improved POAMA models will contribute to new producers using climate forecasts in their decisions, and improvements in the decision outcomes of existing users.

Read the full report online [588 kb].

Research contact

Dr Barry White

bjwhite@iinet.net.au

Phone: 07 3371 5878

Dr Peter Chudleigh, Agtrans Research

peter@agtrans.com.au

Phone: 07 3870 9564

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