EVALUATING  THE  ECONOMIC  FEASIBILITY  OF  ENVIRONMENTALLY  BENEFICIAL   AGRICULTURAL  TECHNOLOGIES  WITH  AN  APPLICATION  TO  PERENNIAL  GRAINS     By     Anne  Weir                               A  THESIS     Submitted  to     Michigan  State  University     in  partial  fulfillment  of  the  requirements    for  the  degree  of     MASTER  OF  SCIENCE     Agricultural,  Food  and  Resource  Economics     2012                                 ABSTRACT     EVALUATING  THE  ECONOMIC  FEASIBILITY  OF  ENVIRONMENTALLY  BENEFICIAL   AGRICULTURAL  TECHNOLOGIES  WITH  AN  APPLICATION  TO  PERENNIAL  GRAINS         By     Anne  Weir     Many  farmers  are  willing  to  adopt  new  technologies  only  if  they  are  at  least  as   profitable  as  the  ones  they  replace.  For  such  farmers,  an  environmentally  beneficial   technology  must  offer  comparable  profitability  to  that  of  the  established  conventional   technology.  This  framework  was  applied  to  perennial  wheat  and  intermediate  wheatgrass,   two  environmentally  beneficial  crops  currently  under  development.  None  of  the  perennial   grain  lines  from  wheat  trials  in  Australia  had  profits  that  were  greater  than  or  equal  to   those  of  annual  wheat,  the  comparative  conventional  technology.  To  be  adopted,  the  lines   would  thus  require  a  change  in  price,  yield,  costs,  subsidies  or  perenniality.       Improvements  in  grain  yield  and  quality  (which  influences  price)  would  be  the  most   economically  feasible  objectives  for  a  plant-­‐breeding  program  aiming  to  make  perennial   grains  as  profitable  as  annual  wheat.  Without  subsidies,  the  perennial  grain  lines’   comparative  breakeven  grain  yields  and  prices  would  have  to  increase  by  30  to  14,500   percent  for  the  perennial  grain  lines  to  break  even  with  annual  wheat.  However,  soil   conservation  benefits  could  justify  subsidies  of  Australian  $23  per  hectare  per  year.  With   these  subsidies,  the  comparative  breakeven  grain  prices  and  yield  gains  of  the  perennial   grain  lines  would  be  somewhat  smaller.  So  with  or  without  subsidies,  significant  genetic   improvements  in  grain  quality  and  yield  will  be  required  before  perennial  grains  are  likely   to  become  as  profitable  as  annual  wheat.           ACKNOWLEDGEMENTS       I  would  like  to  thank  my  major  professor,  Dr.  Scott  Swinton,  for  his  continuous   advice  and  support,  and  for  encouraging  me  to  do  my  very  best  work.  I  would  also  like  to   thank  Dr.  Sieg  Snapp  and  Dr.  Frank  Lupi,  my  other  committee  members,  for  the  abundance   of  knowledge  that  they  brought  to  my  thesis,  and  for  their  guidance.       I  am  also  extremely  grateful  to  the  USDA  Organic  Agriculture  Research  and   Extension  Initiative  (OREI)  for  providing  grant  funding  that  allowed  me  to  do  the  research   included  in  this  thesis.  If  the  OREI  did  not  fund  the  ‘practical  perennials:  partnering  with   farmers  to  develop  a  new  type  of  wheat  crop’  project,  I  would  not  have  been  able  to  write   this  paper.  Throughout  this  project,  I  have  gained  extensive  knowledge  about   environmentally  beneficial  agricultural  technologies  and  the  benefits  that  they  produce,   thanks  to  the  OREI  funding.     I  would  also  like  to  thank  members  from  the  Department  of  Primary  Industries  of   the  New  South  Wales  Government.  Richard  Hayes  and  Matt  Newell  provided  the  Australian   perennial  wheat  and  intermediate  wheatgrass  data  that  is  used  in  this  thesis.  They  also   answered  my  copious  questions  about  perennial  wheat  and  intermediate  wheatgrass,  the   Australian  wheat  trial  data,  and  even  the  weather  patterns  of  Australia.  None  of  the   perennial  wheat  or  intermediate  wheatgrass  economic  analyses  included  in  this  thesis   could  have  been  conducted  without  the  help  of  these  researchers.     Finally,  I  would  like  to  acknowledge  the  generous  support  of  my  family,  friends  and   classmates.  They  provided  encouragement  and  advice  throughout  my  time  as  a  graduate   student  at  MSU,  and  were  a  necessary  condition  for  my  success.     iii         TABLE  OF  CONTENTS       List  of  Tables  …………………………………………………………………………………………………………………v     List  of  Figures  ……………………………………………………………………………………………………………..viii     List  of  Abbreviations  …………………………………………………………………………………………………......ix     Chapters   I.  Introduction  ………………………………………………………………………………………………………………..1     II.  Motivation  of  Thesis  …………………………………………………………………………………………………...4   2.1  The  Green  Revolution  ……………………………………………………………………………………………….5   2.2  Development  of  Environmentally  Beneficial  Agriculture  …………………………………………….7   2.3  Conclusion  ……………………………………………………………………………………………………………..12     III.  Conceptual  Model  ……………………………………………………………………………………………………13   3.1  Development  of  the  Conceptual  Model  ……………..……………………………………………………...14   3.2  The  Net  Return  Threshold  ………………………………………………………………………………………16   3.3  Conclusion  ……..………………………………………………………………………………………………………21     IV.  Breakeven  Analysis  of  Perennial  Wheat  and  Intermediate  Wheatgrass  ……………………...22   4.1  Literature  Review  …………………………………………………………………………………………………..23   4.2  Budget  Analyses  ……………………………………………………………………………………………………..29   4.3  Conclusion  ……………………………………………………………………………………………………………..49       Chapter  Four  Appendix  ……………………………………………………………………………………………….51     V.  Environmental  Valuation  of  Soil  Conservation  to  form  Subsidies  ………………………………..68   5.1  Benefit  Transfer  Study  ……………………………………………………………………………………………68   5.2  Budget  Analyses  With  Subsidies  ……………………………………………………………………………...83   5.3  The  Role  of  Perenniality  in  the  Viability  of  Perennial  Wheat  ……………………………………..91   5.4  Conclusion  ……………………………………………………………………………………………………………100     Chapter  Five  Appendix  ………………………………………………………………………………………………102     VI.  Thesis  Conclusion  ………………………………………………………………………………………………….112     Bibliography  ………………………………………………………………………………………………………………116                 iv         LIST  OF  TABLES       Chapter  Four     Table  4.2.1  PW  and  IWG  Cash  Input  Costs  from  Both  Cowra  Trials  …………………………………31     Table  4.2.2  PW  and  IWG  Cash  Input  Costs  from  the  Woodstock  Trial  ……………………………...32     Table  4.2.3  Annual  Wheat  Cash  Input  Costs  from  Cowra  2008  Trial  ……………………………….32     Table  4.2.4  PW  and  IWG  Costs  of  Custom  Operations  from  Both  Cowra  Trials  ………………...33     Table  4.2.5  PW  and  IWG  Costs  of  Custom  Operations  from  Woodstock  Trial  …………………..33     Table  4.2.6  Annual  Wheat  Costs  of  Custom  Operations  from  Cowra  2008  ……………………….34     Table  A.4.1  Cowra  2008  and  2009  Trials,  PW  and  IWG  Costs  …………………………………………52     Table  A.4.2  Cowra  2008  Trial,  Annual  Wheat  Costs  ………………………………………………………..53     Table  A.4.3  Woodstock  Trial  Costs  ………………………………………………………………………………..54     Table  A.4.4  Revenues  of  the  Cowra  2008  Trial  ………………………………….…………………………...55     Table  A.4.5  Revenues  of  the  Cowra  2009  Trial  ………………………………………………………………56     Table  A.4.6  Revenues  of  the  Woodstock  Trial  ………………………………………………………………..57     Table  A.4.7  Gross  Margins  from  the  Cowra  2008  Trial  ………………...…………………………………57     Table  A.4.8  Gross  Margins  from  the  Cowra  2009  Trial  …………………………………………………...58     Table  A.4.9  Gross  Margins  from  the  Woodstock  Trial  …………………………………………………….59     Table  A.4.10  Net  Present  Values  from  the  Cowra  2008  Trial  …………………………………………..59     Table  A.4.11  Net  Present  Values  from  the  Cowra  2009  Trial  …………………………………………..60     Table  A.4.12  Net  Present  Values  from  the  Woodstock  Trial  ……………………………………………61     Table  A.4.13  Annualized  Net  Returns  from  the  Cowra  2008  Trial  …………………………………..61     Table  A.4.14  Annualized  Net  Returns  from  the  Cowra  2009  Trial  …………………………………..62     Table  A.4.15  Annualized  Net  Returns  from  the  Woodstock  Trial  …………………………………….63   v           Table  A.4.16  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Cowra  2008  Trial  ...63     Table  A.4.17  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Cowra  2009  Trial  ...64     Table  A.4.18  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Woodstock  Trial  ….65     Table  A.4.19  Comparative  Breakeven  Subsidy  Payments  for  the  Cowra  2008  Trial  …………65     Table  A.4.20  Comparative  Breakeven  Subsidy  Payments  for  the  Cowra  2009  Trial  …………66     Table  A.4.21  Comparative  Breakeven  Subsidy  Payments  for  the  Woodstock  Trial  …………..67     Chapter  Five     Table  5.1.1  R,  K,  LS  and  C  Values  for  Annual  Wheat  …………………………………….…………………74     Table  5.1.2  R,  K,  LS  and  C  Values  for  Perennial  Wheat  ………………………………….………………..74     Table  5.1.3  Calculated  Soil  Erosion  Amounts  in  New  South  Wales  at  the  Field  Edge  ……..…78     Table  5.1.4  Calculated  Soil  Erosion  Amounts  in  New  South  Wales  at  the  Field  Edge  ….…….78     Table  5.1.5  Predicted  Grain  Yields  Saved  Under  PW  by  Averting  Erosion  Produced  Under   AW  ……………………………………………………………………………………………..…….…………..……………..78     Table  5.1.6  Predicted  Values  of  Avoided  Yield  Loss  from  Erosion  Due  to  Replacing  AW  by   PW  …………………………………………………..………………………….……………………………………………….79     Table  5.1.7  Avoided  Dredging  Amounts  of  Replacing  AW  by  PW  …………………..………………..79     Table  5.1.8  Reduced  Dredging  Costs  Due  to  Replacing  AW  by  PW  ………………….……………….80     Table  5.1.9  Sensitivity  Analysis:  Doubled  Soil  Erosion  Amounts  ………..……………………………82     Table  5.1.10  Sensitivity  Analysis:  Avoided  Yield  Loss  Values  with  Doubled  Soil  Erosion   Amounts  Due  to  Replacing  AW  by  PW  ………………………………………………………………….……….82     Table  5.1.11  Sensitivity  Analysis:  Reduced  Dredging  Costs  if  All  Eroded  Sediment  Reaches   Waterways  …………………………………………………………………………………………………………………..83     Table  5.3.1  Survival,  Yield  and  Net  Returns  of  Cowra  2008  Trial  ………………………..............….93     Table  5.3.2  Survival,  Yield  and  Net  Returns  of  Cowra  2009  Trial  …………………………………….96     vi         Table  5.3.3  Effect  of  Perenniality  on  Annualized  Net  Returns:  Regression  Coefficients  from   the  Cowra  2008  and  2009  Trials  ………………………………………………………………………….……….99     Table  A.5.1  Net  Present  Values  with  Subsidies  from  the  Cowra  2008  Trial  ……………………103     Table  A.5.2  Net  Present  Values  with  Subsidies  from  the  Cowra  2009  Trial  ……………………104     Table  A.5.3  Net  Present  Values  with  Subsidies  from  the  Woodstock  Trial  ………………..…...105     Table  A.5.4  Annualized  Net  Returns  with  Subsidies  from  the  Cowra  2008  Trial  ………...….105     Table  A.5.5  Annualized  Net  Returns  with  Subsidies  from  the  Cowra  2009  Trial  ………...….106     Table  A.5.6  Annualized  Net  Returns  with  Subsidies  from  the  Woodstock  Trial  …………......107     Table  A.5.7  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Cowra  2008  Trial  …..107     Table  A.5.8  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Cowra  2009  Trial  …..108     Table  A.5.9  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Woodstock  Trial  ..…..109     Table  A.5.10  Comparative  Breakeven  Prices  with  Subsidies  for  Cowra  2008  Trial  ………...109     Table  A.5.11  Comparative  Breakeven  Prices  with  Subsidies  for  Cowra  2009  Trial  ………...110     Table  A.5.12  Comparative  Breakeven  Prices  with  Subsidies  for  Woodstock  Trial  ………….111                                           vii         LIST  OF  FIGURES       Chapter  Three     Figure  3.2.1  Net  Return  Threshold  ………………………………………………………………………………..17     Figure  3.2.2  NR  Threshold,  Yield  Increase  ……………………………………………………………………..18     Figure  3.2.3  NR  Threshold,  Price  Increase  ……………………………………………………………………..19     Figure  3.2.4  NR  Threshold,  Cost  Decrease  or  Subsidy  Increase  ……………………………………….20     Chapter  Four     Figure  4.2.1  Annualized  Net  Returns  of  AW,  PW  and  IWG  Lines  ……………………………………..43     Chapter  Five     Figure  5.3.1  Years  of  Survival  vs.  Net  Returns  of  Cowra  2008  Trial  …………………………………94     Figure  5.3.2  Years  of  Survival  vs.  Net  Returns  of  Cowra  2009  Trial  …………………………………97                               viii         LIST  OF  ABBREVATIONS       ANR  –  Annualized  Net  Return     AVCP  –  Annual  Variable  Costs  of  Production     C  Factor  –  Crop  management  factor  as  part  of  the  USLE     CIMMYT  –  International  Maize  and  Wheat  Improvement  Center     EB  –  Environmentally  Beneficial     Ha  –  Hectare       HYV  –  High  Yielding  Variety     IRRI  –  International  Rice  Research  Institute     IWG  –  Intermediate  Wheatgrass     K  Factor  –  Erodibility  factor  as  part  of  the  USLE     KBS  –  Kellogg  Biological  Station     Kg  –  Kilogram     LDC  –  Less-­‐Developed  Country     LS  Factor  –  Slope-­‐length  gradient  factor  as  part  of  the  USLE     MSU  –  Michigan  State  University     NPV  –  Net  Present  Value     NSW  –  New  South  Wales,  Australia     OREI  –  Organic  Agriculture  Research  and  Extension  Initiative     PW  –  Perennial  Wheat     R  Factor  –  Rainfall  and  runoff  factor  as  part  of  the  USLE     TLI  –  The  Land  Institute     USLE  –  Universal  Soil  Loss  equation   ix         I.  INTRODUCTION     Since  the  mid  1900’s,  what  the  public  has  demanded  from  agriculture  has  greatly   changed.  In  the  post-­‐World  War  II  era  now  know  as  the  Green  Revolution,  the  public   demanded  agricultural  technologies  that  produced  high  crop  yields  to  help  feed  a  growing   global  population.  However,  by  the  late  1900’s,  the  public  began  to  notice  the  negative   environmental  impacts  of  the  high-­‐input  Green  Revolution  technologies,  and  started  to   demand  agricultural  technologies  that  would  do  less  damage  to  the  environment.  Since  the   public  demand  for  environmentally  beneficial  agricultural  technologies  is  still  growing   today,  the  economic  feasibility  of  the  technologies  must  be  evaluated  and  compared  to   conventional,  high-­‐input  technologies.       In  order  for  a  profit-­‐maximizing  grower  to  switch  from  a  conventional  technology  to   an  environmentally  beneficial  (EB)  technology,  the  EB  technology  must  have  profits  that   are  equal  to  or  greater  than  the  net  returns  of  the  conventional  technology.  In  this   framework,  off-­‐site  environmental  benefits  are  considered  to  be  external  to  the  grower’s   decision-­‐making  process  unless  they  directly  impact  profit.  In  order  for  this  framework  to   be  correctly  applied,  a  number  of  assumptions  must  be  made.  The  most  important   assumption  is  that  profit  is  the  only  characteristic  that  increases  a  grower’s  level  of  utility.   In  reality,  growers  may  care  about  a  number  of  different  things  beside  profit,  so  other   characteristics  such  as  the  production  of  environmental  benefits  would  provide  them  with   utility.  However,  within  the  conceptual  model  given  in  this  thesis,  it  is  assumed  that  profit   is  the  only  characteristic  that  generates  grower  utility.     The  framework  is  applied  to  perennial  wheat  and  intermediate  wheatgrass,  two   environmentally  beneficial  crops  that  are  currently  under  development.  The  profits  of  the   1         perennial  wheat  and  intermediate  wheatgrass  lines  are  compared  to  the  net  returns  of   annual  wheat,  the  comparative  conventional  technology.  The  comparative  breakeven   prices,  yields,  costs  and  subsidies  that  would  allow  the  perennial  wheat  and  intermediate   wheatgrass  lines  to  become  as  profitable  as  annual  wheat  are  also  found.  So,  to  increase  the   profitability  of  the  perennial  wheat  and  intermediate  wheatgrass  lines,  wheat  breeders  and   geneticists  could  improve  the  grain  quality  to  increase  the  grain  price,  increase  the  grain   quantity  produced  at  each  harvest  or  allocate  subsidy  payments  to  growers  of  perennial   grains.  A  decrease  in  the  annual  variable  costs  of  production  or  an  increase  in  the   perenniality  of  the  lines  empirically  would  not  be  feasible  to  increase  the  profitability  of  the   perennial  grain  lines.        A  benefit  transfer  study  is  then  conducted  to  place  monetary  values  on  soil  erosion   reduction,  one  of  the  environmental  benefits  that  is  expected  to  be  produced  by  perennial   wheat  and  intermediate  wheatgrass.  It  is  expected  that  both  perennial  grain  crops  produce   less  soil  erosion  than  annual  wheat  largely  because  the  perennial  grains  have  much  larger   root  systems  and  hold  soil  in  place  better  than  annual  wheat.  The  case  study  provided  in   this  thesis  takes  place  in  the  wheat-­‐growing  region  of  New  South  Wales,  Australia.  Soil   erosion  reduction  was  chosen  as  the  environmental  benefit  to  be  valued  monetarily   through  benefit  transfer  because  soil  erosion  is  an  issue  in  New  South  Wales.  The  monetary   values  for  the  off-­‐site  benefits  of  reduced  erosion  are  also  used  as  potential  subsidy  values   that  could  be  paid  to  growers  of  perennial  wheat  and  intermediate  wheatgrass  to   compensate  them  for  the  production  of  external  environmental  benefits.       These  subsidies  are  then  added  to  the  perennial  wheat  and  intermediate  wheatgrass   budgets.  The  inclusion  of  the  subsidy  values  in  the  profitability  calculations  internalizes  the   2         environmental  benefits  that  are  external  to  the  grower’s  decision-­‐making  process.  New   comparative  breakeven  prices,  yields  and  costs  that  include  the  subsidies  are  calculated,   and  show  what  changes  must  be  made  for  the  perennial  wheat  and  intermediate   wheatgrass  lines  to  become  as  profitable  as  annual  wheat.  The  thesis  ends  with  a   discussion  of  how  important  perenniality  is  to  the  profitability  of  perennial  wheat  and   intermediate  wheatgrass,  and  a  conclusion  that  explains  which  of  the  five  characteristics,   price,  costs,  yield,  subsidies  or  perenniality,  would  most  feasibly  increase  the  profitability   of  the  perennial  grain  lines  so  that  they  could  become  as  profitable  as  annual  wheat.                                       3         II.  MOTIVATION  OF  THESIS     The  public’s  demand  for  agriculture  has  greatly  changed  since  the  mid  1900’s.  In  the   post-­‐World  War  II  era,  the  public  demanded  high-­‐yielding  agricultural  technologies  that   could  help  alleviate  worldwide  hunger  issues.  This  demand  brought  about  the  Green   Revolution,  where  high-­‐yielding  varieties  (HYV’s)  of  maize,  wheat  and  rice  were  developed   and  implemented  in  developed  and  less-­‐developed  countries  (LDC’s).  Along  with  HYV’s,   input  packages  made  of  fertilizer,  pesticides  and  mechanization  were  also  developed  to   increase  the  yields  of  the  new  plant  varieties.  Shortly  after  the  implementation  of  the  HYV’s   and  input  packages,  the  public  began  to  notice  the  negative  environmental  impacts  that   were  generated  by  the  productivity-­‐oriented  technologies.       Once  the  public  became  aware  of  these  negative  environmental  impacts,  what  they   demanded  from  agriculture  began  to  change.  The  first  Earth  Day  was  held  in  the  U.S.  in   1970  in  response  to  the  public’s  anger  over  environmental  pollution.  Afterward,   ‘alternative’  agricultural  technologies  that  were  less  environmentally  damaging  than   intensive,  conventional  agriculture  started  to  be  developed  (Beus  and  Dunlap  1990).  The   alternative  agriculture  movement  gained  strength  in  the  1980’s,  and  the  demand  for   environmentally  beneficial  (EB)  agricultural  technologies  has  been  growing  ever  since.   Many  members  of  the  U.S.  public  now  demand  agricultural  technologies  that  produce  crops   organically,  use  lower  levels  of  inputs  or  mechanization  or  provide  environmental  benefits.   Conventional  and  EB  agricultural  technologies  both  generate  very  different  private  and   public  benefits  and  costs.  Although  alleviating  hunger  is  still  a  key  issue,  utilizing   agricultural  technologies  that  produce  relatively  high  yields  while  also  generating  lower   amounts  of  environmental  damage  is  important  to  the  U.S.  public.     4         2.1  The  Green  Revolution       History  of  Productivity-­Oriented  Technologies     Productivity-­‐oriented  agricultural  technology  breakthroughs  largely  began  in  the   U.S.  in  the  post  World  War  II  era  prior  to  the  Green  Revolution.  Following  World  War  II,   agricultural  mechanization  and  chemical  inputs  (fertilizers  and  pesticides)  became   increasingly  available  to  farmers  in  the  U.S.  and  abroad  (Dimitri  et  al.  2005).  Many  farmers   began  to  adopt  these  productivity-­‐oriented  technologies  in  response  to  the  increased   availability  of  the  technologies  and  their  decreased  costs.  Shortly  after  the  increased   availability  of  mechanization  and  chemical  inputs  came  the  development  of  high-­‐yielding   wheat,  rice,  and  maize  varieties  along  with  the  increased  use  of  irrigation,  which  is  now   known  as  the  ‘Green  Revolution’  (Evenson  and  Gollin  2003).       High-­‐yielding  maize  and  wheat  varieties  were  first  bred  in  the  1940’s  at  the   International  Maize  and  Wheat  Improvement  Center  (CIMMYT)  in  Mexico.  Production  of   these  crops  boomed  in  Mexico  and  many  other  countries  after  the  advent  of  the  first  crop   varieties,  and  continued  to  increase  for  decades  after  (Sonnenfeld  1992).  Shortly  after  the   creation  of  the  HYV’s  at  the  CIMMYT,  researchers  at  the  International  Rice  Research   Institute  (IRRI)  in  the  Philippines  began  to  breed  high-­‐yielding  rice  varieties  in  response  to   a  decrease  in  available  agricultural  land  and  an  increase  in  population  in  the  Philippines.   The  rice  varieties  created  by  the  IRRI  were  quickly  adopted  in  numerous  other  LDC’s  in   Asia  and  elsewhere  (Hayami,  David,  Flores,  and  Kikuchi  1976).       After  the  release  of  HYV’s  from  the  CIMMYT  and  IRRI,  the  yields  of  wheat,  maize  and   rice  grew  worldwide.  Between  1960  and  1990,  the  grain  yields  of  high-­‐yielding  wheat   varieties  alone  increased  between  two  and  three  times  of  what  the  yields  were  before  1960   5         (Khush  1999).  The  original  HYV’s  were  often  adapted  to  fit  local  environments,  and  by  the   early  1970’s  original  HYV’s  or  locally  adapted  ones  were  cultivated  across  the  globe   (Dalrymple  1979).  The  HYV’s  were  adopted  in  developed  countries  as  well  as  in  less   developed  countries.    In  the  United  States,  the  grain  yields  of  maize  and  wheat  greatly   increased  due  to  the  implementation  of  HYV’s  and  HYV  packages.  In  LDC’s,  by  1979  more   than  a  third  of  the  wheat  and  rice  plants  were  IRRI,  CIMMYT,  or  locally-­‐adapted  HYV’s   (Dalrymple  1979).       HYV  Attributes     To  attain  such  high  yields,  certain  genetic  traits  were  bred  into  the  HYV’s  during  the   Green  Revolution.  These  genetic  traits  consisted  of  two  main  groups:  dwarfing  genes  that   caused  the  HYV’s  to  be  much  shorter  than  traditional  varieties,  and  genes  that  made  the   HYV’s  resistant  to  specific  diseases  and  pathogens.  The  semi-­‐dwarf  genes  caused  plants  to   be  resistant  to  lodging,  to  have  shorter  and  stronger  stems  and  to  increase  grain  yield  while   decreasing  straw  biomass  (Hedden  2003).  Semi-­‐dwarf  varieties  were  created  for  both   wheat  and  rice  during  the  Green  Revolution,  and  generated  much  higher  grain  yields  than   non-­‐dwarf  varieties.       Genes  that  caused  crops  to  be  resistant  to  pathogens  and  diseases  were  also  bred   into  the  high-­‐yielding  varieties  of  the  Green  Revolution,  and  helped  to  increase  the  grain   yields  produced  by  the  HYV’s.  With  the  start  of  the  Green  Revolution  came  large  waves  of   monoculture;  in  many  areas  of  the  world,  only  one  variety  of  a  crop  was  grown  over  large   plots  of  land.  Monoculture  often  led  to  an  increased  incidence  of  pests  and  diseases,  so   breeders  developed  HYV’s  that  were  resistant  to  some  diseases  and  pathogens  in  order  to   counteract  this  and  to  fend  off  any  potential  crop  disease  epidemics  (Matson  et  al.  1997).     6         Over  the  course  of  the  Green  Revolution,  “breeders  had  been  successful  at  improving   resistances  to  abiotic  stresses,  pathogens  and  diseases,  and  at  deploying  these  defenses  in   space  and  time  so  as  to  maintain  yield  stability  despite  low  crop  diversity  in  continuous   cereal  systems”  (Tilman  et  al.  2002).  Consequently,  HYV’s  produced  increased  grain  yields   because  of  genetic  sources  of  resistance  to  diseases  and  pests,  and  because  of  semi-­‐dwarf   genes  that  decreased  lodging  and  redistributed  biomass  from  stems  to  grain.       HYV  Crop  Packages     High-­‐input  crop  packages  were  developed  before  and  during  the  Green  Revolution   to  increase  the  yields  of  wheat,  maize  and  rice.  The  main  focus  of  the  Green  Revolution  was   to  increase  the  yield  of  staple  food  crops  without  having  to  greatly  expand  the  area  of   cultivated  land.  This  goal  was  not  accomplished  through  the  creation  of  HYV’s  alone;  crop   ‘packages’  that  consisted  of  HYV’s,  fertilizers,  pesticides,  mechanization  and  access  to  water   resources  through  irrigation  led  to  the  high  yields  experienced  during  the  Green  Revolution   (Matson  et  al.  1997  and  Pinstrup-­‐Andersen  and  Hazell  1985).  These  crop  packages  made   up  what  is  now  known  as  ‘intensive’  agriculture.  Throughout  this  paper,  when  the  term   ‘conventional’  is  used,  it  refers  to  the  intensive  agricultural  technologies  that  were   developed  before  and  during  the  Green  Revolution.  The  HYV  packages  implemented   through  conventional  agriculture  greatly  increased  the  yields  of  many  crops  worldwide,   and  helped  to  feed  the  growing  populations  of  LDC’s.     2.2  Development  of  Environmentally  Beneficial  Agriculture     Technologies  that  were  developed  and  implemented  during  the  Green  Revolution   had  a  number  of  damaging  impacts  on  the  environment.  The  negative  impacts  generated   demands  for  agricultural  technologies  that  would  do  less  environmental  damage  or  that   7         would  produce  environmental  benefits.  Although  the  public  still  demands  crop  varieties   that  have  high  grain  yields,  the  environmental  impacts  of  agricultural  technologies  are  of   great  concern  to  many  people  in  the  U.S.  and  abroad  today.       Concerns  over  the  environmental  impacts  of  conventional  agriculture  came  about   almost  as  soon  as  the  Green  Revolution  technologies  were  developed.  Fear  over  pesticide   use  and  compromised  water  quality  became  widespread  at  the  start  of  the  second  half  of   the  1900’s  (Lutts  1985).  However,  the  main  demand  for  less  damaging  and   environmentally  beneficial  agricultural  technologies  really  began  in  the  1980’s  with  the   development  of  the  idea  of  ‘alternative  agriculture’  (Beus  and  Dunlap  1990).    The  demand   for  less  environmentally  damaging  agricultural  technologies  continued  to  grow  after  the   1980’s  when  the  concept  of  alternative  agriculture  morphed  into  conservation  and   sustainable  agriculture.  The  demand  for  environmentally  beneficial  and  less   environmentally  damaging  agricultural  technologies  continues  to  grow  today  as  growers   implement  technologies  like  conservation  tillage  and  organic  growth  systems,  and  as   numerous  research  institutions  develop  agricultural  technologies  that  provide  benefits  to   the  environment.       Environmental  Impacts  of  Conventional  Agriculture       The  HYV  packages  developed  during  the  Green  Revolution  included  numerous   inputs  such  as  fertilizers,  pesticides,  irrigation  and  machinery.  Along  with  increasing  crop   yields,  these  crop  packages  generated  a  large  number  of  negative  environmental  impacts.   Algal  blooms  from  the  leaching  of  different  types  of  fertilizer,  soil  erosion,  decreased  soil   quality  and  fertility,  water  scarcity,  decreased  water  quality  (due  to  pesticides,  fertilizer   and  soil  erosion)  and  increased  resistance  of  pests  to  pesticides  were  all  attributed  to   8         intensive  agriculture  (Pimentel  and  Pimentel  1990).  Loss  of  biodiversity  and  decreases  in   ecosystem  health  due  to  pesticide  use  were  two  other  environmental  impacts  of  the   productivity-­‐oriented  technologies  (Tilman  et  al.  2002).  These  impacts  exemplified  how   conventional  agricultural  practices  reduced  the  quality  and  health  of  the  environment,   specifically  after  the  advent  of  the  Green  Revolution  (Matson  et  al.  1997).    After  the   development  of  Green  Revolution  technologies,  the  U.S.  public  believed  (and  still  believes   today)  that  the  negative  impacts  of  conventional  agriculture  compromise  environmental   and  human  health.  This  generated  demand  for  EB  agricultural  technologies  that  continues   to  grow  today.       History  of  Environmentally  Beneficial  Agriculture     At  first,  the  sustainability  and  stability  of  the  growths  in  crop  yield  were  not   considered,  and  neither  were  the  potential  environmental  impacts  of  the  Green  Revolution   technologies  (Conway  and  Barbier  1990).  However,  as  the  environmental  impacts  of  the   HYV  packages  became  better  known,  the  public’s  agricultural  demands  began  to  change  in   the  U.S.  and  abroad.  The  public  began  to  notice  the  environmental  impacts  of  intensive   agriculture  in  the  1960’s,  initially  due  to  the  popularity  of  Rachel  Carson’s  Silent  Spring,   which  described  the  impact  of  pesticides  on  environmental  health  (Lutts  1985).  In   discussing  the  impact  of  Silent  Spring,  Ralph  Lutts  claims  that  “never  before  had  so  diverse   a  body  of  people,  from  bird  watchers,  to  wildlife  managers  and  public  health  professionals,   to  suburban  homeowners  been  joined  together  to  deal  with  a  common  national  and   international  environment  threat”  (1985).  Silent  Spring  led  to  increased  fear  over  pesticide   use  and  water  quality,  which  brought  about  the  very  first  Earth  Day  celebration,  which  was   held  in  1970  (Freeman  2002).  Even  though  the  public  began  to  notice  the  environmental   9         impacts  caused  by  conventional  agriculture  in  the  1960’s  and  70’s  in  the  developed  world,   food  shortages  in  LDC’s  led  to  the  continued  focus  on  the  production  of  staple  food  crops.  It   was  not  until  the  1980’s,  when  the  rates  of  crop  production  growth  began  to  slow  down,   that  the  U.S.  public  began  to  seriously  consider  the  environmental  impacts  of  Green   Revolution  technologies,  and  started  to  demand  agricultural  technologies  that  produced   environmental  benefits  (Tilman  1998).       In  the  early  1980’s,  ‘alternative’  agricultural  technologies  began  to  be  developed  in   the  United  States.  These  alternative  technologies  focused  on  using  lower  amounts  of  inputs   in  the  growth  of  staple  food  crops,  and  on  the  interaction  between  ecology  and  agriculture   (Beus  and  Dunlap  1990).  Some  of  the  first  alternative  agricultural  practices  were   conservation  tillage,  integrated  pest  management  and  drip  irrigation  (Tilman  et  al.  2002).   In  the  1980’s,  these  practices  were  mainly  cultivated  in  response  to  the  public’s   unhappiness  with  the  environmental  impacts  of  HYV  packages,  the  slowdown  in  the   growth  rate  of  crop  production  and  the  disappearance  of  small  farmers  that  could  not   afford  Green  Revolution  technologies  (Beus  and  Dunlap  1990).  The  idea  of  alternative   agriculture  spread,  and  began  to  represent  all  agricultural  practices  that  generated  less   environmental  damage.       The  term  ‘sustainable  agriculture’  was  first  published  in  1980  in  Wes  Jackson’s  New   Roots  for  Agriculture,  and  was  used  throughout  the  world  by  1987  (Gold  2009,  and   Edwards  et  al.  1990).  At  the  same  time,  conservation  practices  such  as  conservation  tillage   became  increasingly  popular,  and  by  the  early  1990’s  agricultural  conservation  practices   became  widespread  among  growers.  According  to  Bob  Holmes  in  1993,  “very  few  of  them   (farmers)  plow  anymore.  Conservation  tillage  and  cutting  back  on  chemical  use  have   10         become  bragging  points  in  coffee  shops.”  The  implementation  of  conservation  practices  has   continued  to  increase  since  the  early  1990’s.  Today  in  Michigan,  almost  all  of  the  state’s   wheat  growers  employ  conservation  tillage,  even  those  that  consider  themselves  to  be   conventional  growers.  EB  technologies  have  thus  infiltrated  numerous  agricultural  systems   in  the  U.S.  and  abroad.         Environmentally  Beneficial  Technologies     Today  there  are  a  large  number  of  agricultural  technologies  that  provide  less   environmental  damage  or  generate  environmental  benefits.  Some  of  these  technologies  are   crop  rotation,  intercropping,  drip  or  pivot  irrigation,  reduced  tillage,  cover  crops  and   balanced  fertilizer  use  (Tilman  et  al.  2002).  Organic  agriculture  is  another  practice  that  has   gained  increasing  popularity  in  the  last  decade,  and  provides  a  much  lower  environmental   impact  than  conventional  agriculture.  Organic  agricultural  practices  are  now  used  across   the  globe  in  many  developed  and  developing  countries,  and  are  thus  some  of  the  most   widely  used  environmentally  beneficial  technologies  (Weidmann  et  al.  2009).       The  case  study  provided  in  this  paper  showcases  an  environmentally  beneficial   agricultural  technology  that  is  currently  under  development.  The  case  study  describes   perennial  wheat  and  intermediate  wheatgrass,  two  crops  that  are  expected  to  provide  a   number  of  environmental  benefits  such  as  reduced  nitrate  leaching,  greenhouse  gas   sequestration  and  decreased  soil  erosion  due  to  the  crops’  complex  root  systems  and   perennial  nature  (Glover  et  al.  2010).  Many  environmentally  beneficial  agricultural   technologies  like  perennial  wheat  and  intermediate  wheatgrass  are  being  developed  today   because  of  the  increased  demand  for  EB  agricultural  technologies  that  came  about  from  the   negative  environmental  impacts  caused  by  Green  Revolution  technologies.     11         2.3  Conclusion     The  public’s  expectations  of  agriculture  have  greatly  changed  since  the  mid  1900’s   in  the  U.S.  and  abroad.  In  the  mid  1900’s,  productivity-­‐enhancing  technologies  were   generated  in  response  to  the  demand  for  higher  crop  yields  to  help  alleviate  global  hunger   issues.  However,  once  the  public  began  to  notice  the  negative  environmental  impacts  that   the  Green  Revolution  technologies  generated,  their  demands  began  to  change.  With  the   advent  of  alternative,  conservation  and  sustainable  agriculture  in  the  1980’s,  the  public   began  to  demand  agricultural  technologies  that  generated  lower  levels  of  environmental   damage.  Today,  the  public  still  demands  relatively  high-­‐yielding  technologies,  but  they  also   want  agricultural  technologies  that  produce  environmental  benefits  instead  of   environmental  damages.  Because  of  this,  a  number  of  environmentally  beneficial  and  less   environmentally  damaging  agricultural  technologies  currently  exist  or  are  under   development.                         12         III.  CONCEPTUAL  MODEL     Since  the  agricultural  demands  of  the  U.S.  public  have  largely  changed  from  being   productivity  oriented  in  the  mid  1900’s  to  environmentally  oriented  today,  the  economic   feasibility  of  environmentally  beneficial  agricultural  technologies  should  be  assessed.  The   conceptual  model  developed  in  this  section  evaluates  how  the  profitability  of  EB   technologies  compares  to  that  of  conventional  technologies.  An  increase  in  farm  profit   (regardless  of  the  type  of  agricultural  technology  that  is  implemented)  increases  the  budget   available  for  consumption,  and  utility  increases  in  consumption.  Consequently,  it  can  be   assumed  that  profit  indirectly  generates  grower  utility.  Indeed,  for  many  growers,  utility  is   a  lexicographic  function  of  profit,  with  environmental  benefits  desirable  only  if  they  involve   no  sacrifice  of  profit  (Knowler  and  Bradshaw  2007).       In  order  to  implement  the  conceptual  model,  it  is  assumed  that  grower  utility  is  a   lexicographic  function  of  profit  and  environmental  benefits,  where  profit  is  maximized  first.   In  reality,  growers  care  about  a  number  of  different  characteristics  such  as  the  production   of  environmental  benefits.  In  the  real  world  these  other  characteristics  may  increase  a   grower’s  utility,  but  in  this  conceptual  model  it  is  assumed  that  profit  is  the  most  important   characteristic  to  grower  utility  maximization.  So,  through  the  conceptual  model   environmental  benefits  are  external  to  a  grower’s  decision-­‐making  process  unless  they   directly  impact  profit.  Consequently,  particularly  for  understanding  the  potential  for   farmer  adoption  of  a  new  EB  agricultural  technology,  profitability  is  a  precondition  for   adoption  and  utility  maximization.  The  conceptual  model  thus  shows  how  a  grower  can   maximize  profit  when  switching  from  a  conventional  technology  to  an  environmentally   13         beneficial  agricultural  technology,  assuming  that  off-­‐site  environmental  benefits  are   externalities.     3.1  Development  of  the  Conceptual  Model     Within  the  conceptual  model,  an  EB  technology  is  at  least  as  profitable  as  a   conventional  technology  if  the  profits  of  the  EB  technology  are  equal  to  the  net  returns  of   the  conventional  technology.  The  profit  of  the  EB  technology  is  based  on  crop  yield,  crop   price,  unit  costs  and  any  subsidies  paid  to  the  grower  for  producing  environmental   benefits.  Providing  subsidies  for  off-­‐farm  environmental  benefits  is  a  way  to  internalize  the   externalities.  With  a  subsidy,  the  off-­‐site  environmental  benefits  would  become  internal  to   the  grower’s  decision-­‐making  process  because  the  environmental  benefits’  subsidies  would   increase  the  grower’s  profits.  However,  without  subsidies,  the  environmental  benefits   would  remain  external  to  the  grower’s  decisions.  So,  if  the  profit  of  the  EB  technology  is   smaller  than  the  net  returns  of  the  conventional  technology,  the  EB  crop  price  or  yield  must   increase,  the  unit  costs  must  decrease  or  a  subsidy  payment  must  be  added  in  order  for  the   grower  to  adopt  the  EB  technology.       A  few  assumptions  are  necessary  for  the  application  of  the  conceptual  model.  The   first  and  most  important  assumption  is  that  the  grower’s  objective  is  to  maximize  profit   when  switching  from  a  conventional  technology  to  an  EB  technology.  It  is  assumed  that   profit,  through  consumption,  is  the  only  characteristic  that  increases  utility,  even  though   many  other  characteristics  may  actually  maximize  grower  utility  in  the  real  world.  Second,   the  profit  of  the  EB  technology  must  only  be  compared  to  that  of  the  conventional   technology  and  not  to  the  profit  of  any  other  farm  practice.  A  suitable  conventional   technology  for  comparison  to  an  EB  technology  can  be  chosen  by  determining  which   14         conventional  technology  is  the  most  similar  to  the  EB  technology.  Accordingly,  the   conceptual  model  describes  a  two-­‐way  comparison  of  the  EB  technology  and  the   conventional  technology  only.  Third,  the  crop  yields  of  the  EB  technology  and  the   conventional  technology  must  come  from  two  separate  production  functions.  Fourth,  prices   pN  and  p0  do  not  have  to  be  equal,  but  they  do  have  to  be  constant.  If  these  prices  were  to   change,  the  conceptual  model  would  become  considerably  more  complex  to  account  for  the   changes.  Finally,  the  grower  cannot  receive  a  subsidy  when  implementing  the  conventional   agricultural  technology,  only  when  implementing  the  EB  technology.  Given  these   assumptions,  the  conceptual  model  is:     Max  πN   s.t.  πN  =  (pN  ⋅  yN)  –  cN  +  σN                πN  ≥  NR0                NR0  =  (p0  ⋅  y0)  –  c0       Where:   πN=  profit  of  the  environmentally  beneficial  technology   pN=  price  of  the  EB  crop   yN=  yield  of  the  EB  crop   cN=  unit  cost  of  the  EB  crop   σN=  per-­‐unit  subsidy  paid  to  the  grower  of  the  EB  crop   NR0=  net  return  of  the  conventional  crop   p0=  price  of  the  conventional  crop   y0=  yield  of  the  conventional  crop   c0=  unit  cost  of  the  conventional  crop       The  focus  of  the  empirical  analysis  is  thus  to  find  the  level  of  price,  yield,  cost  or   subsidy  payment  of  the  environmentally  beneficial  crop  that  would  make  its  profit  at  least   equal  to  the  net  returns  of  the  conventional  crop.  If  πN  was  not  greater  than  or  equal  to   15         NR0,  the  EB  technology  would  not  be  adopted  as  is,  and  the  price,  yield  or  subsidy   payments  of  the  EB  crop  would  need  to  increase,  or  the  costs  of  the  EB  crop  would  need  to   decrease  for  adoption.  If  this  were  to  occur,  the  EB  technology  would  become  as  profitable   as  the  conventional  crop.  A  discussion  of  how  these  changes  would  impact  the  profitability   of  an  environmentally  beneficial  technology  is  given  below.     3.2  The  Net  Return  Threshold     In  order  for  the  environmentally  beneficial  technology  to  be  at  least  as  profitable  as   the  conventional  technology,  the  profit  of  the  EB  crop  must  be  equal  to  the  net  returns  of   the  conventional  crop.  This  idea  can  be  illustrated  graphically  as  a  net  return  threshold.   Given  the  yield  of  the  EB  crop,  the  net  return  threshold  is  the  EB  crop’s  level  of  profit  (πN)   that  is  equal  to  the  net  returns  of  the  conventional  crop  (NR0).  In  equation  form,  the  net   return  threshold  is:     (pN  .  yN)  –  cN  +  σN  ≥  NR0               (1)   In  equation  1,  pN,  yN,  cN  and  σN  are  the  price,  yield,  unit  cost  and  subsidy  payments  of  the   EB  crop,  and  NR0  is  the  net  return  of  the  conventional  crop.  The  net  return  threshold  thus   determines  what  price,  yield,  cost  or  subsidy  changes  must  occur  for  the  profit  of  the  EB   crop  to  be  equal  to  or  greater  than  the  net  return  of  the  conventional  crop.  So,  the  net   return  threshold  is  the  level  of  profit  that  the  EB  crop  must  produce  for  the  EB  crop  to  be  at   least  as  profitable  as  the  conventional  crop.  A  graphical  representation  of  the  net  return   threshold  is  provided  below  in  figure  3.2.1.     16         In  the  net  return  threshold  graph,  the  dotted  line  represents  the  net  return   threshold.  The  net  return  threshold  is  downward  sloping  because  as  the  yield  of  the  EB   crop  grows,  it  becomes  more  likely  that  the  EB  crop  will  have  profits  that  equal  the  net   return  of  the  conventional  crop.  Within  the  graph,  the  four  shape  points  are  four  different   varieties  of  the  same  environmentally  beneficial  crop.  The  graph  does  not  include  data   from  a  specific  crop;  the  name  ‘EB  crop’  is  used  to  represent  any  type  of  crop  that  would   come  from  an  environmentally  beneficial  technology.  Although  the  conceptual  model  is   applied  to  a  specific  EB  crop  later  on  in  this  thesis,  the  graphs  below  do  not  represent  the   net  returns  or  yields  of  that  crop.  Each  shape  point  in  the  graph  provides  the  profit  of  an  EB   crop  variety,  given  a  specific  yield.  Since  three  of  the  shape  points  are  below  the  net  return   threshold,  a  change  in  crop  price,  yield,  cost  or  subsidy  payment  would  be  necessary  for   any  of  the  three  varieties  to  reach  the  net  return  threshold.  If  these  changes  were  to  occur,   more  varieties  of  the  EB  crop  would  become  as  profitable  as  the  conventional  crop  because   the  profit  of  the  EB  crop  varieties  would  equal  the  net  return  threshold.     Figure  3.2.1  Net  Return  Threshold     17           When  a  component  of  the  conceptual  model  changes  (such  as  an  increase  in  crop   yield),  part  of  the  graph  shifts  or  pivots  to  reflect  those  changes.  If  an  EB  crop  variety  were   to  be  below  the  net  return  threshold,  an  increase  in  price,  yield  or  subsidy,  or  a  decrease  in   cost,  could  cause  the  profit  of  the  EB  technology  to  equal  the  net  return  of  the  conventional   technology,  thereby  allowing  the  EB  crop  to  become  as  profitable  as  the  conventional  crop.   An  increase  in  the  yield  of  an  individual  crop  variety  would  shift  one  of  the  shape  points   right,  along  the  x-­‐axis,  because  the  x-­‐axis  contains  the  EB  crop  yields.  Since  the  profit  would   also  grow  with  an  increase  in  yield,  the  shape  point  would  move  upwards  along  the  y-­‐axis   in  addition  to  moving  rightward.  The  graphical  changes  caused  by  an  increase  in  the  crop   yield  of  the  four  varieties  are  shown  in  figure  3.2.2  below.  The  graph  shows  that  an   increase  in  the  yield  of  the  four  EB  crop  varieties  would  cause  the  shape  points  to  shift  right   and  move  upwards.  A  decrease  in  crop  yield  would  have  the  opposite  effect,  and  would  not   allow  the  EB  crop  to  become  as  profitable  as  the  conventional  crop.     Figure  3.2.2  NR  Threshold,  Yield  Increase     18           Changes  in  the  other  components  of  the  conceptual  model  also  generate  graphical   movements.  An  increase  in  the  price  of  the  crop  would  rotate  the  net  return  threshold   curve  downward  toward  the  origin.  The  pivoting  of  the  threshold  curve  would  thus   decrease  the  crop  yield  that  would  be  necessary  for  the  EB  crop  to  reach  the  net  return   threshold.  The  graphical  interpretation  of  an  increase  in  price  is  given  in  figure  3.2.3  below.   In  this  graph,  an  additional  EB  crop  variety  becomes  as  profitable  as  the  conventional  crop   because  of  the  increase  in  crop  price  and  the  subsequent  pivot  of  the  net  return  threshold   curve.     Figure  3.2.3  NR  Threshold,  Price  Increase     A  decrease  in  the  costs  of  production  or  an  increase  in  subsidy  payments  would  shift   the  net  return  threshold  curve  downwards,  closer  to  the  origin.    Both  changes  would  have   the  same  graphical  movement.  The  parallel  downward  shift  would  decrease  the  price  and   yield  that  would  be  necessary  for  the  crop  varieties  to  meet  the  net  return  threshold.  The   graphical  impact  of  a  decrease  in  cost  or  an  increase  in  subsidy  payments  is  provided  in   19         figure  3.2.4  below.  Again,  another  EB  crop  variety  would  become  as  profitable  as  the   conventional  crop  due  to  the  shift  in  the  net  return  threshold  curve.     Figure  3.2.4  NR  Threshold,  Cost  Decrease  or  Subsidy  Increase     Within  the  conceptual  model  and  the  net  return  threshold,  the  addition  of  a  subsidy     payment  is  a  way  to  internalize  the  external  environmental  benefits  provided  by  an  EB   crop.  Since  utility  is  a  lexicographic  function  of  profit,  a  grower  would  not  be  willing  to  give   up  profit  to  gain  external  environmental  benefits.  The  only  way  to  internalize  the   environmental  benefits  produced  by  EB  crops  would  be  to  have  the  environmental  benefits   directly  impact  profit.  Providing  a  grower  with  a  subsidy  payment  for  the  production  of   external  environmental  benefits  would  thus  internalize  the  externalities,  since  the  subsidy   payment  would  directly  influence  the  grower’s  profit.  Throughout  the  empirical  application   of  the  conceptual  model  given  in  the  next  chapter,  it  is  important  to  remember  that  if  the   EB  crop’s  environmental  benefits  do  not  directly  impact  profit  in  some  way,  they  are   external  to  the  conceptual  model  and  the  grower’s  decision-­‐making  process.       20         3.3  Conclusion     The  conceptual  model  described  here  explains  that  the  profit  of  an  EB  technology   must  be  greater  than  or  equal  to  the  net  returns  of  the  conventional  technology  in  order  for   the  EB  technology  to  be  adopted,  given  a  number  of  assumptions.  Since  it  is  assumed  that   utility  is  a  lexicographic  function  of  profit,  a  grower  would  not  adopt  an  EB  technology  if  it   produced  a  lower  level  of  profit  than  the  conventional  technology.  The  environmental   benefits  provided  by  an  EB  technology  are  thus  external  to  the  grower’s  decision-­‐making   process  and  the  conceptual  model  unless  they  directly  impact  profit.  It  is  assumed  that  a   grower  would  not  take  environmental  benefits  into  account  when  switching  agricultural   technologies  unless  the  environmental  benefits  become  internalized,  such  as  through  the   inclusion  of  subsidy  payments.                               21           IV.  BREAKEVEN  ANALYSIS  OF  PERENNIAL  WHEAT  AND  INTERMEDIATE   WHEATGRASS       Perennial  wheat  and  intermediate  wheatgrass  are  two  new  perennial  grain  crops   that  are  expected  to  offer  environmental  benefits,  and  are  being  studied  in  the  U.S.  and   abroad.  The  main  environmental  benefits  that  perennial  grains  are  expected  to  offer  are   greenhouse  gas  sequestration,  reduced  soil  erosion  and  decreased  nitrate  leaching  (Glover   et  al.  2010).  This  study  applies  the  conceptual  model  developed  above  to  the  growth  of   perennial  wheat  and  intermediate  wheatgrass.  In  this  case,  annual  wheat  is  considered  to   be  the  conventional  agricultural  technology  while  the  perennial  grains  are  the   environmentally  beneficial  agricultural  technologies.  The  profits  of  the  technologies  are   evaluated  and  the  changes  in  price,  yield,  subsidy  payments  and  costs  that  would  allow  the   perennial  grains  to  become  as  profitable  as  annual  wheat  are  found.       Before  now,  only  two  studies  had  been  developed  that  discuss  the  economic   feasibility  of  the  growth  of  perennial  wheat  and  intermediate  wheatgrass.  In  1989  Dave   Watt  described  theoretical  breakeven  prices  and  grain  yields  of  intermediate  wheatgrass,   and  in  2008  Lindsay  Bell  et  al.  evaluated  the  potential  economic  viability  of  perennial   wheat  in  Australia.  Neither  of  these  studies  compared  expected  profits  of  perennial  grain   lines  to  the  potential  annual  net  returns  of  annual  wheat.  The  results  of  this  study  are   significant  because  they  are  the  first  of  their  kind.  Through  the  application  of  the   conceptual  model,  the  potential  profits  of  the  perennial  grain  lines  given  the  actual  grain   yields  are  compared  to  the  net  returns  that  would  be  generated  by  the  growth  and  harvest   of  an  annual  wheat  line.  Besides  evaluating  the  profitability  of  perennial  wheat  and   intermediate  wheatgrass,  this  chapter  also  provides  a  literature  review  that  describes  the   background  information  and  history  of  the  development  of  both  crops.     22         4.1  Literature  Review     The  purpose  of  this  literature  review  is  to  describe  the  attributes  of  perennial  wheat   and  intermediate  wheatgrass  and  the  history  of  both  crops’  development.  Perennial  grains   here  attracted  interest  because  they  both  produce  wheat  grain  and  environmental  benefits   while  only  requiring  low  levels  of  inputs.  These  factors  have  motivated  the  development  of   perennial  grains  since  they  were  first  grown  in  the  1920’s.  Even  though  both  crops  have   been  in  development  for  almost  a  century,  not  a  lot  of  funding  was  given  to  perennial  grain   experiments  in  the  past.  So,  perennial  grains  are  still  at  an  experimental  stage  today  and   not  yet  commercially  viable.  However,  since  a  number  of  institutions  are  researching  them   in  different  countries,  commercially  viable  perennial  wheat  and  intermediate  wheatgrass   lines  could  become  available  in  the  future.       Background  Information     Perennial  wheat  was  created  by  crossing  a  wheat,  Triticum  aestivum,  with  a   perennial  grass,  Agropyron  elongatum  (Scheinost  et  al.  2001).  Wheat  plants  are  annual,   meaning  that  they  must  be  replanted  after  harvest  every  year,  while  some  grasses  are   perennial,  meaning  that  they  grow  for  numerous  years  without  needing  to  be  replanted   (Lammer  et  al.  2004).  The  cross  between  a  wheat  and  a  grass  created  a  wheat  crop  with  a   perennial  habit,  called  perennial  wheat.  Intermediate  wheatgrass  is  similar  to  perennial   wheat,  but  it  was  not  formed  by  crossing  a  wheat  with  a  grass.  Intermediate  wheatgrass,  or   Thinopyrum  intermedium,  is  a  perennial  grass  that  may  produce  larger  amounts  of  seeds   than  other  grasses  (Barkworth  and  Dewey  2005).  Consequently,  intermediate  wheatgrass   has  more  grass  characteristics  than  wheat,  while  perennial  wheat  has  more  wheat   23         characteristics  than  grass.  Theoretically,  both  perennial  grain  crops  can  live  from  3  to  5   years  before  they  need  to  be  replanted  (Lammer  et  al.  2004).       One  of  the  main  reasons  for  the  development  of  perennial  grains  is  that  their  growth   does  not  require  much  tillage  (Moffat  1996).  The  growth  of  annual  wheat  requires  that   seeds  be  planted  every  year.  Because  of  this  continual  replanting,  annual  wheat  requires   much  more  tillage  than  perennial  grains,  which  only  require  tillage  every  3  to  5  years  when   seeds  are  planted,  depending  on  how  long  the  wheat  lines  survive.  Since  monetary  and   environmental  costs  are  associated  with  tillage,  perennial  wheat  and  intermediate   wheatgrass  can  be  much  less  costly  than  that  of  annual  wheat  for  the  environment  and  for   growers.     It  is  also  expected  that  perennial  grains  can  provide  several  ecosystem  services  and   environmental  benefits.  It  is  expected  that  one  of  perennial  wheat’s  main  environmental   benefits  is  soil  erosion  control.  Since  farmland  that  grows  perennial  grains  only  needs  to  be   tilled  once  every  few  years  during  seed  planting,  perennial  wheat  and  intermediate   wheatgrass  should  cause  less  soil  erosion  than  annual  wheat  (Moffat  1996).  Erosion  may   also  be  decreased  because  perennial  grains  have  large  root  systems  that  hold  soil  in  place   (Glover  et  al.  2010).  These  roots  can  additionally  lead  to  efficient  retention  of  water  and   nutrients.  Because  perennial  wheat  and  intermediate  wheatgrass  are  able  to  retain  water   and  nutrients  much  better  than  annual  wheat,  the  amount  of  nitrates  leached  from   farmland  that  grows  perennial  grains  is  expected  to  be  greatly  reduced  (Glover  et  al.  2010).   Less  soil  erosion  and  nitrate  leaching  lead  to  higher  water  quality  in  surrounding   watersheds.  It  is  also  expected  that  perennial  grains  retain  soil  carbon  better  than  annual   wheat  because  of  their  large  root  systems.  So,  carbon  sequestration  and  global  climate   24         change  mitigation  are  other  environmental  benefits  that  could  be  associated  with  the   growth  of  perennial  wheat  and  intermediate  wheatgrass  (Glover  et  al.  2010).       Even  though  perennial  grains  are  expected  to  offer  environmental  benefits,  both   crops  would  still  be  grown  largely  to  provide  grain  (Glover  et  al.  2010).  Perennial  wheat   and  intermediate  wheatgrass  can  also  grow  in  areas  with  damaged  or  less-­‐fertile  soil.  The   very  first  researchers  to  develop  perennial  wheat  aimed  to  create  a  crop  that  could  yield   grain  on  less-­‐fertile  land  that  could  not  be  used  to  grow  annual  wheat  (Armstrong  1945).   Perennial  grains  also  offer  a  byproduct  in  the  form  of  forage.  Both  crops  could  be  grazed  by   livestock  in  the  late  summer  after  the  grain  is  harvested  or  in  the  early  spring  before  the   grain  has  developed,  while  still  producing  a  grain  yield  (Bell  et  al.  2008).  However,   empirical  research  measuring  the  impact  of  grazing  on  the  perenniality  of  perennial  grain   lines  has  just  begun1.  So,  the  ability  to  be  grown  on  less  fertile  land,  the  production  of   wheat  grain  and  forage,  the  generation  of  environmental  benefits  and  decreased  input   requirements  are  the  main  motives  for  the  development  of  perennial  grains.     History  of  Perennial  Grain  Development     Perennial  grains  have  been  in  development  for  almost  a  century,  but  not  much   funding  was  allocated  to  the  studies  that  occurred  in  the  1900’s.  Their  cultivation  started  in   Russia  in  the  1920’s.  N.V.  Tzitzin  was  a  Russian  researcher  who  crossed  a  species  of   Triticum  with  a  species  of  Agropyron  to  form  the  first-­‐ever  perennial  wheat  lines   (Armstrong  1945).  The  goal  behind  the  Russian  study  was  to  increase  wheat  production  in   northern  Russia,  where  the  soil  could  not  be  used  to  grow  annual  wheat  (Armstrong  1945).                                                                                                                   1  S.  Tinsley  in  the  Crop  and  Soil  Science  Department  at  Michigan  State  University  is   currently  performing  trials  that  measure  the  impact  of  cutting  on  perenniality  and  biomass   yield  at  the  Kellogg  Biological  Station.     25         These  studies  continued  in  Russia  for  many  years  but  eventually  stopped  in  the  1950’s   because  project  expectations  were  never  reached  (Wagoner  1990).  A  few  years  after  the   first  Russian  studies  began,  interest  in  perennial  wheat  and  intermediate  wheatgrass  came   to  the  United  States.    Between  1923  and  1935  W.J.  Sando,  working  for  the  United  States   Department  of  Agriculture,  bred  many  lines  of  perennial  wheat  and  advanced  the   development  of  intermediate  wheatgrass  (Vinall  and  Hein  1937).  Sando’s  lines  were  then   used  in  many  different  studies  during  the  1900’s.         In  1935,  J.M.  Armstrong  began  the  development  of  perennial  wheat  and   intermediate  wheatgrass  in  Canada.  Working  for  the  Canadian  Department  of  Agriculture,   Armstrong  bred  his  own  lines  of  perennial  wheat  with  the  goal  of  alleviating  soil  erosion  in   Canadian  farm  areas  that  were  prone  to  drought  (Armstrong  1945).  Armstrong’s  research   with  utilizing  perennial  wheat  to  decrease  soil  erosion  was  the  first  incidence  where   perennial  wheat  was  cultivated  to  provide  an  environmental  benefit.  After  Armstrong’s   research,  environmental  benefits  and  ecosystem  services  became  some  of  the  main   motivators  behind  other  institutions’  perennial  grain  development.       In  1938,  Suneson  and  Pope  at  the  University  of  California  at  Davis  began  to  breed   perennial  grains  specifically  for  the  perennial  trait.  Perhaps  because  of  this,  the  seven  years   of  experiments  that  Suneson  and  Pope  performed  together  created  lines  with  good   regrowth  but  very  little  grain  yield  (Suneson  and  Pope  1946).  Regrowth  and  yield  seem  to   be  tradeoffs;  the  more  that  researchers  focused  on  perenniality,  the  lower  the  grain  yields   seemed  to  be,  and  vice  versa.  By  1946,  both  researchers  believed  that  much  more  work   needed  to  be  done  to  increase  grain  yields  before  perennial  wheat  could  be  commercially   viable,  so  Suneson  continued  to  study  perennial  grains  over  the  next  25  years  and  made   26         considerable  advances  in  the  perenniality  of  the  lines  (Suneson  and  Pope  1946  and   Suneson  et  al.  1963).  J.  Schulz-­‐Schaeffer  at  Montana  State  University  began  growing   perennial  wheat  in  1970,  and  actually  used  some  of  the  lines  that  Sando  originally  bred   (Schulz-­‐Schaeffer  1970).  Along  with  S.  E.  Haller  in  the  1980’s,  Schulz-­‐Schaeffer  continued  to   grow  perennial  wheat  specifically  with  the  goal  of  decreasing  soil  erosion  and  reducing   agricultural  production  costs  (Schulz-­‐Schaeffer  and  Haller  1987).  More  research   institutions  began  developing  perennial  grains  after  the  1980’s,  as  described  below.       Recent  and  Current  Research     P.  Wagoner  at  the  Rodale  Research  Center  began  developing  perennial  wheat  in   1987  from  seeds  donated  by  Schulz-­‐Schaeffer  and  Haller.  Even  though  regrowth  for  these   trials  was  very  low,  the  experiments  continued  for  many  years  (Wagoner  1990).  In  1991,   scientists  at  Washington  State  University  started  to  research  and  cultivate  perennial  wheat   lines  on  a  small  scale.  Even  though  WSU  started  by  growing  small  amounts  of  perennial   wheat  in  greenhouses,  they  moved  up  to  field  trials  in  1998  and  quickly  grew  to  being  the   largest  research  program  on  perennial  wheat  in  the  United  States,  having  bred  over  two   thousand  lines  by  2001  (Scheinost  et  al.  2001).  WSU’s  development  has  mainly  focused  on   establishing  the  perennial  traits  and  enhancing  the  environmental  benefits  provided  by   perennial  wheat,  specifically  soil  erosion  abatement  and  carbon  sequestration  (Scheinost  et   al.  2001).     Since  2000,  researchers  at  the  Land  Institute  (TLI)  in  Kansas  have  also  been   cultivating  perennial  grain  lines.  Although  TLI  mainly  focuses  on  developing  different  lines   of  intermediate  wheatgrass,  they  do  have  some  trials  that  include  perennial  wheat.  From   2000  to  2006,  the  first  six  years  of  TLI’s  perennial  grain  experiments,  no  perennial  wheat   27         lines  showed  signs  of  regrowth  after  harvest  (Cox  et  al.  2006).  However,  TLI  continues  to   develop  perennial  grains  in  the  hope  of  finding  the  perennial  trait,  and  has  now  become  the   largest  developer  of  perennial  wheat  and  intermediate  wheatgrass  in  the  United  States.       Michigan  State  University  acquired  a  grant  to  cultivate  perennial  grains  in  2009.   Since  then,  perennial  wheat  and  intermediate  wheatgrass  lines  have  been  grown  in  Mason,   Michigan,  and  at  the  Kellogg  Biological  Station  (KBS)  near  Battle  Creek,  Michigan.   Researchers  at  KBS  are  cultivating  perennial  grain  plants  from  seeds  provided  by  WSU’s   2009  and  2005  lines.  At  MSU,  research  is  being  conducted  to  study  the  possible   environmental  benefits  that  perennial  grains  may  provide,  whether  or  not  they  could  be   dual-­‐use  forage  and  grain  crops  and  how  profitable  perennial  grains  are  compared  to   annual  wheat.       While  studies  are  being  conducted  in  Michigan  and  various  other  states  in  the  U.S.,   other  countries  are  also  carrying  out  perennial  grain  experiments.  From  2007  to  2010,   perennial  wheat  and  intermediate  wheatgrass  trials  were  conducted  at  the  E.  H.  Graham   Centre  for  Agricultural  Innovation  in  New  South  Wales,  Australia.  The  perennial  wheat   yield  and  management  data  that  is  included  in  this  case  study  comes  from  Richard  Hayes  at   this  center  (2012).  A  number  of  the  perennial  grain  lines  grown  by  researchers  at  the  E.  H.   Graham  Centre  were  able  to  grow  for  more  than  a  year,  meaning  that  some  of  the  lines   were  actually  perennial  (Hayes  et  al.  2012).  Additionally,  researchers  in  China  at  the   Yunnan  Academy  of  Agricultural  Sciences  have  also  recently  begun  to  develop  new  lines  of   perennial  grains  (Andrews  2010).  So,  there  are  many  different  research  institutions  in   countries  across  the  globe  that  have  researched  or  are  currently  researching  perennial   wheat  and  intermediate  wheatgrass.  Even  though  perennial  grains  have  been  researched   28         for  almost  a  century,  much  more  funding  was  put  into  the  development  of  high-­‐yielding   wheat  varieties  during  the  Green  Revolution  than  into  the  development  of  perennial  wheat   and  intermediate  wheatgrass  in  the  years  since  the  1920’s.     4.2  Budget  Analyses       The  profitability  of  an  agricultural  technology  impacts  whether  or  not  the   technology  will  be  adopted.  If  the  profit  of  an  EB  technology  is  lower  than  the  net  return  of   a  conventional  technology,  the  EB  technology  will  not  be  adopted.  Because  of  this,  the   profitability  of  perennial  wheat  and  intermediate  wheatgrass  needs  to  be  evaluated.  This   section  looks  at  a  number  of  different  measures  that  describe  the  profits  of  the  perennial   wheat  and  intermediate  wheatgrass  lines  from  three  Australian  wheat  trials,  and  applies   the  conceptual  model  to  the  data  from  those  trials.  The  gross  margins,  which  consist  of  the   revenues  of  each  line  minus  the  annual  variable  costs  of  production  (AVCP),  explain  if  the   revenues  were  greater  than  the  AVCP  for  each  line,  and  the  net  present  values  describe  the   profits  of  each  wheat  line  over  a  number  of  years,  given  a  specific  discount  rate.       The  annualized  net  returns,  which  were  the  average  annual  returns  provided  by   each  wheat  line  over  the  lifetime  of  the  line,  were  also  found  for  each  line  of  annual  wheat,   perennial  wheat  and  intermediate  wheatgrass  given  a  specific  discount  rate.  The  profits  of   the  perennial  wheat  and  intermediate  wheatgrass  lines  were  then  compared  to  the  annual   net  return  of  the  annual  wheat  line  to  evaluate  if  perennial  wheat  and  intermediate   wheatgrass  were  as  profitable  as  annual  wheat.  The  comparative  breakeven  budgets  then   calculated  the  yield  gains,  prices,  costs  and  subsidy  payments  that  would  be  necessary  for   the  perennial  wheat  and  intermediate  wheatgrass  lines  to  become  as  profitable  as  annual   wheat.       29           Budget  Components     The  yield  and  management  data  that  were  included  in  the  budget  analyses  came   from  Richard  Hayes  et  al.  2012  in  New  South  Wales,  Australia.  The  budget  analyses  used   this  data  to  evaluate  the  profitability  of  the  perennial  wheat  and  intermediate  wheatgrass   lines  from  three  wheat  trials.  Two  of  the  trials  took  place  in  Cowra  while  the  other  trial  was   in  Woodstock,  both  of  which  are  in  New  South  Wales.  The  first  trial  began  in  early  2008  in   Cowra,  and  lasted  for  four  years.  The  second  trial  was  also  conducted  in  Cowra,  but  was  not   started  until  early  2009,  and  lasted  for  three  years.  The  final  trial  began  in  early  2009  in   Woodstock,  and  only  lasted  for  two  years.  Each  trial  also  had  an  investment  year  where  the   soil  was  prepared  for  planting,  which  was  considered  to  be  ‘year  zero’.       The  first  trial  (Cowra  2008)  measured  the  grain  yields  of  nine  lines  of  perennial   wheat,  two  of  intermediate  wheatgrass  and  one  of  annual  wheat.  The  second  trial  (Cowra   2009)  included  28  perennial  wheat  lines  and  one  intermediate  wheatgrass  line,  while  the   third  trial  (Woodstock)  contained  13  perennial  wheat  lines  and  one  intermediate   wheatgrass  line.  The  three  trials  included  some  of  the  same  perennial  wheat  and   intermediate  wheatgrass  lines.  Because  of  this,  there  were  a  total  of  43  different  perennial   wheat  lines,  two  different  intermediate  wheatgrass  lines  and  one  annual  wheat  line  in  the   three  trials,  not  including  the  repeated  lines  that  were  planted  in  more  than  one  trial.     Costs  of  the  Wheat  Trials     Specific  inputs  were  used  in  the  cultivation  of  the  wheat  lines  in  each  of  the  three   trials.  Each  input  had  a  corresponding  cost,  and  aggregating  the  costs  of  all  of  the  inputs   formed  the  annual  variable  costs  of  producing  the  wheat  lines.  Because  commercial  seed   prices  were  unavailable  for  these  experimental  breeding  lines,  seed  cost  was  omitted  from   30         the  budgets.  All  of  the  trials  utilized  a  number  of  pesticides  and  fertilizers.  The  pesticides   used  in  the  two  Cowra  trials  were:  glyphosate,  flutriafol,  a  mix  of  MCPA  and  diflufenican,   epoxiconazole  and  paraquat.  The  Woodstock  trial  used  all  of  the  same  pesticides  except   paraquat;  a  mix  of  pinoxaden  and  cloquintocet-­‐mexyl  was  used  instead  of  paraquat.  All  of   the  pesticides  applied  to  the  wheat  lines  in  the  trials  were  herbicides  or  fungicides.  All   three  trials  used  diammonium  phosphate  and  urea  fertilizers  (Hayes  et  al.  2012).  The  costs   of  these  pesticides  and  fertilizers  were  found  by  multiplying  the  input  price  by  the  total   quantity  of  each  input  that  was  used.  The  costs  were  then  added  each  year  within  each   perennial  wheat  trial  to  form  the  cash  input  costs.  The  prices  of  theses  inputs  came  from   Haskins  et  al.,  2010,  while  the  quantities  of  the  inputs  came  from  Hayes  et  al.,  2012.  The   cash  input  costs  for  the  wheat  lines  in  the  two  Cowra  trials  and  the  Woodstock  trial  are   given  in  2010  Australian  dollars  per  hectare  in  the  tables  below.   Table  4.2.1  PW  and  IWG  Cash  Input  Costs  from  Both  Cowra  Trials  (AUS  $)   Cash  Inputs   Quantity   Unit   Price  ($/unit)   Yr  0   Yr  1   Yr  2/3/4   Glyphosate   1   l/ha   4.5      4.5   0   0   Flutriafol   0.4   ml/ha   22.22      8.8   0   0   MCPA+Diflu.   250   g/ha      0.02   0      4.63              4.63   Epoxiconazole   1   g/ha    46.10   0   46.10          46.10   Paraquat   250   g/ha              0.008   0   2.1              2.10   DAP  #1   100   kg/ha        0.82      82.00       0   0   DAP  #2   20   kg/ha        0.82   0   16.40          16.40   Urea  #1   26   kg/ha    0.7      18.20   0   0   Urea  #2   30   kg/ha    0.7   0   21.00          21.00   Cash  Inputs  Total         113.60   90.23          90.23   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010.   Average  currency  exchange  rate  in  2010:  1  U.S.  dollar  to  1.15  Australian  dollars.                   31         Table  4.2.2  PW  and  IWG  Cash  Input  Costs  from  the  Woodstock  Trial  (AUS  $)   Cash  Inputs   Quantity   Unit   Price   Yr  0   Yr  1   Yr  2   Glyphosate   1   l/ha   4.5          4.5   0   0   Flutriafol   0.4   ml/ha   22.22          8.8   0   0   MCPA+Diflu.   250   g/ha            0.019   0              4.63            4.63   Epoxiconazole   1   g/ha   46.10   0          46.10        46.10   Pinox.+CM   250   ml/ha        0.15   0          37.50        37.50   DAP  #1   100   kg/ha        0.82          82.00   0   0   DAP  #2   20   kg/ha        0.82   0          16.40        16.40   Urea  #1   26   kg/ha    0.7      18.20   0   0   Urea  #2   30   kg/ha    0.7   0          21.00        21.00   Cash  Inputs  Total            113.58      125.63        79.53   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010.       Table  4.2.3  Annual  Wheat  Cash  Input  Costs  from  Cowra  2008  Trial  (AUS  $)   Cash  Inputs   Quantity   Unit   Price   Yr  0   Yr  1   ($/unit)   Glyphosate   1   l/ha   4.5        4.5      4.5   Flutriafol   0.4   ml/ha   22.22        8.8      8.8   MCPA+Diflu.   250   g/ha        0.02   0          4.63   Epoxiconazole   1   g/ha   46.10   0      46.10   Paraquat   250   g/ha            0.008   0      2.1   DAP  #1   100   kg/ha      0.82          82.00      82.00   DAP  #2   20   kg/ha      0.82   0      16.40   Urea  #1   26   kg/ha   0.7          18.20      18.20   Urea  #2   30   kg/ha   0.7   0      21.00   Cash  Inputs  Total            113.58   203.80   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010.         After  calculating  the  cash  input  costs,  the  costs  of  custom  production  operations   were  found.  These  costs  included  all  of  the  custom  operations  that  were  necessary  to   prepare  the  soil  and  plant,  grow  and  harvest  the  perennial  wheat,  annual  wheat  and   intermediate  wheatgrass  lines.  The  cost  of  utilizing  a  pesticide  boomsprayer,  fertilizer   spreader  and  scarifier  were  some  of  the  custom  operational  costs  that  were  included   (Hayes  et  al.  2012).  All  of  the  costs  of  custom  production  operations  are  included  in  the   tables  below.  The  custom  rates  (prices)  were  multiplied  by  the  quantity  of  the  operations   that  were  used.  The  custom  rate  price  information  came  from  NSW  Government,  2011,   32         while  the  quantities  came  from  Hayes  et  al.,  2012.  These  costs  were  added  on  an  annual   basis  in  each  individual  wheat  trial  to  form  the  total  annual  costs  of  custom  production   operations.     Table  4.2.4  PW  and  IWG  Costs  of  Custom  Operations  from  Both  Cowra  Trials  (AUS  $)   Custom  Costs   Quantity   Unit   Price  ($/unit)   Yr  0   Yr  1   Yr  2/3/4   Scarifier   1   ha   12.68    12.68   0   0   Boomsprayer  #1   1   ha   12.00    12.00   0   0   Boomsprayer  #2   1   ha   12.00    12.00   0   0   Fertilizer  spreader  #1   1   ha        3.51          3.51   0   0   Fertilizer  spreader  #2   1   ha        3.51          3.51   0   0   Hand  sowing   1   ha   40.00   0          40.00   0   Boomsprayer  #3   1   ha   12.00   0          12.00        12.00   Boomsprayer  #4   1   ha   12.00   0          12.00        12.00   Contract  harvest   1   ha   40.59   0          40.59        40.59   Boomsprayer  #5   1   ha   12.00   0          12.00        12.00   Fertilizer  spreader  #3   1   ha        3.51   0                3.51              3.51   Fertilizer  spreader  #4   1   ha        3.51   0                3.51              3.51   Custom  Costs  Total          43.7      123.60            83.61   Sources:  input  quantities  from  Hayes  et  al.,  2012,  prices  from  NSW  Government,  2011.     Table  4.2.5  PW  and  IWG  Costs  of  Custom  Operations  from  Woodstock  Trial  (AUS  $)   Custom  Costs   Quantity   Unit   Price   Yr  0   Yr  1   Yr  2   Scarifier   1   ha   12.68      12.68   0   0   Boomsprayer  #1   1   ha   12.00      12.00   0   0   Boomsprayer  #2   1   ha   12.00      12.00   0   0   Fertilizer  spreader  #1   1   ha      3.51            3.51   0   0   Fertilizer  spreader  #2   1   ha      3.51            3.51   0   0   Hand  sowing   1   ha   40.00   0        40.00   0   Boomsprayer  #3   1   ha   12.00   0        12.00        12.00   Boomsprayer  #4   1   ha   12.00   0        12.00        12.00   Boomsprayer  #5   1   ha   12.00   0        12.00        12.00   Contract  harvest   1   ha   40.59   0        40.59        40.59   Fertilizer  spreader  #3   1   ha      3.51   0              3.51            3.51   Fertilizer  spreader  #4   1   ha      3.51   0              3.51            3.51   Custom  Costs  Total         43.7    123.61        83.61   Sources:  input  quantities  from  Hayes  et  al.,  2012,  prices  from  NSW  Government,  2011.             33         Table  4.2.6  Annual  Wheat  Costs  of  Custom  Operations  from  Cowra  2008  (AUS  $)   Custom  Costs   Quantity   Unit   Price   Yr  0   Yr  1   Scarifier   1   ha   12.68      12.68      12.68   Boomsprayer  #1   1   ha   12.00      12.00      12.00   Boomsprayer  #2   1   ha   12.00      12.00      12.00   Fertilizer  spreader  #1   1   ha        3.51            3.51            3.51   Fertilizer  spreader  #2   1   ha        3.51            3.51            3.51   Hand  sowing   1   ha   40.00   0      40.00   Boomsprayer  #3   1   ha   12.00   0      12.00   Boomsprayer  #4   1   ha   12.00   0      12.00   Contract  harvest   1   ha   40.59   0      40.59   Boomsprayer  #5   1   ha   12.00   0      12.00   Fertilizer  spreader  #3   1   ha        3.51   0            3.51   Fertilizer  spreader  #4   1   ha        3.51   0            3.51   Custom  Costs  Total            43.7   167.31   Sources:  input  quantities  from  Hayes  et  al.,  2012,  prices  from  NSW  Government,  2011.       Once  the  annual  costs  of  custom  production  operations  were  found,  they  were   added  to  the  cash  input  costs  to  generate  the  annual  variable  costs  of  production  (AVCP)   for  each  trial.  The  cost  of  the  seeds,  farmland  and  post-­‐harvest  costs  such  as  trucking  and   marketing  were  not  included  in  the  AVCP,  so  AVCP  refers  to  all  of  the  costs  besides  these.  In   each  trial  there  was  a  ‘year  zero’  in  addition  to  the  years  during  which  the  wheat  lines   grew.  Year  zero’s  costs  consisted  of  soil  preparation  only,  and  no  yield  was  produced  in   year  zero  since  the  wheat  was  not  planted  until  year  one.  So,  the  AVCP  of  each  wheat  trial   were  found  for  year  zero,  and  years  one  through  four  for  the  Cowra  2008  trial,  years  one   through  three  for  the  Cowra  2009  trial  and  years  one  and  two  for  the  Woodstock  trial.  The   AVCP  for  each  trial  were  generated  in  2010  Australian  dollars  per  hectare,  and  are   provided  in  the  appendix  at  the  end  of  this  chapter.  Table  A.4.1  contains  the  AVCP  of  the   two  Cowra  perennial  wheat  and  intermediate  wheatgrass  trials,  table  A.4.2  includes  the   AVCP  of  the  growth  of  the  annual  wheat  line  in  the  Cowra  2008  trial  and  table  A.4.3   includes  the  AVCP  of  the  Woodstock  trial.     34         Revenues  of  the  Wheat  Trials     After  finding  the  AVCP  for  each  of  the  three  trials,  the  total  revenues  of  the  annual   wheat,  perennial  wheat  and  intermediate  wheatgrass  lines  were  found.  Hayes  et  al.   provided  perennial  wheat  and  intermediate  wheatgrass  grain  yield  data  in  grams  per  row   for  the  Cowra  trials  and  grams  per  plot  for  the  Woodstock  trials  (2012).  The  rows  in  the   Cowra  trials  were  fairly  small;  they  were  one  meter  by  27  centimeters  in  the  2008  trial  and   one  and  a  half  meters  by  52  centimeters  in  the  2009  trial.  The  Woodstock  plots  were  larger   at  seven  and  a  half  meters  long  by  two  meters  wide.  The  yields  from  each  wheat  line  were   aggregated  to  the  hectare  level  since  the  costs  were  generated  on  a  hectare  level.  The  grain   yield  of  each  wheat  line  was  first  found  in  kilograms  of  grain  per  hectare,  and  was  then   converted  to  tons  of  grain  per  hectare.  Once  the  grain  yields  for  each  of  the  wheat  lines   were  found,  the  price  of  the  grain  could  also  be  found.  Together,  these  two  components   formed  the  total  revenues  for  each  wheat  line.       The  price  of  the  perennial  wheat  and  intermediate  wheatgrass  grain  was  assumed   to  be  equivalent  to  the  2010  price  of  Australian  feed  wheat  grain  (R.  Hayes,  personal   communication  by  e-­‐mail,  10/25/2011).  Historic  prices  for  Australian  feed  wheat  grain   over  the  last  30  years  were  found  and  adjusted  for  inflation  by  the  Australian  consumer   price  index  (Australian  Bureau  of  Statistics  2011,  a).  A  linear  trend  regression  was   estimated  to  find  the  relationship  between  the  year  and  the  adjusted  price  of  the  feed   wheat  grain.  (A  quadratic  regression  was  also  estimated,  but  an  F  test  showed  that  the   linear  regression  was  equally  informative.)  So,  the  linear  regression  was  used  to  predict  the   2010  adjusted  feed  wheat  grain  price  in  Australian  dollars  per  ton,  which  served  as  the   baseline  grain  price  for  the  perennial  wheat  and  intermediate  wheatgrass  lines  in  the  three   35         trials.  The  2010  adjusted  price  of  the  perennial  wheat  and  intermediate  wheatgrass  grain   was  297  Australian  dollars  per  ton.       The  same  procedure  was  used  to  estimate  the  adjusted  2010  Australian  price  of   food  wheat  grain,  which  was  used  as  the  price  for  the  annual  wheat  grain.  Thirty  years  of   historic  Australian  food  wheat  grain  prices  were  found  and  adjusted  by  the  consumer  price   index,  and  a  linear  regression  was  used  to  find  the  adjusted  2010  price  of  annual  wheat   grain  in  Australian  dollars  per  ton  (ABS  2011a).  Given  this  process,  the  estimated  2010   adjusted  price  of  annual  wheat  grain  was  372  Australian  dollars  per  ton.       The  price  of  the  perennial  wheat  and  intermediate  wheatgrass  as  feed  grain  was   considerably  lower  than  the  annual  wheat  price  because  feed  grains  traditionally  have   lower  prices  than  food  grains.  To  find  the  per  hectare  revenues  of  the  perennial  wheat  and   intermediate  wheatgrass  lines,  the  annual  grain  yield  for  each  line  in  tons  per  hectare  was   multiplied  by  $297.  To  find  the  annual  per  hectare  revenue  of  the  annual  wheat  line,  the   grain  yield  in  tons  per  hectare  was  multiplied  by  $372.  So,  annual  revenues  were  found  for   each  wheat  line  in  the  three  wheat  trials.  Tables  A.4.4,  A.4.5  and  A.4.6  in  the  appendix  at  the   end  of  the  chapter  include  the  revenues  from  each  different  wheat  line  in  each  of  the  three   trails.  Table  A.4.4  shows  the  revenues  of  the  Cowra  2008  trial,  table  A.4.5  includes  the   revenues  of  the  Cowra  2009  trial  and  table  A.4.6  contains  the  revenues  of  the  Woodstock   trial.       Profitability  Measures     Gross  Margins     In  order  to  find  the  annual  gross  margins  of  each  wheat  line,  the  annual  variable   costs  of  production  were  subtracted  from  the  annual  revenues  of  each  line.  Gross  margins   36         over  variable  production  costs  were  generated  for  years  one  through  four  for  the  Cowra   2008  trial,  years  one  through  three  for  the  Cowra  2009  trial  and  years  one  and  two  for  the   Woodstock  trial.  Since  no  grain  was  produced  in  the  investment  year,  year  zero  had   negative  gross  margins  for  each  wheat  line  in  all  of  the  trials.  The  gross  margins  were   calculated  in  2010  Australian  dollars  per  hectare,  since  the  revenues  and  costs  were  found   on  a  hectare  basis.  Since  the  AVCP  did  not  include  the  costs  of  seed,  farmland  or  any  post-­‐ harvest  costs,  the  gross  margins  also  did  not  take  those  costs  into  account.     The  results  of  the  analysis  showed  that  the  year  one  gross  margin  of  the  annual   wheat  line  was  positive  while  many  of  the  gross  margins  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  were  negative.  When  the  gross  margins  were  negative,  the   cost  of  growing  the  wheat  lines  was  greater  than  the  revenues  produced  by  the  lines.  Many   of  the  intermediate  wheatgrass  and  perennial  wheat  lines  had  positive  gross  margins  in   year  one,  before  the  wheat  lines  showed  their  perennial  traits.  In  the  Cowra  2008  trial,  five   perennial  wheat  lines  had  positive  gross  margins  in  year  one.  In  the  Cowra  2009  trial,  six   perennial  wheat  lines  had  positive  gross  margins  in  year  one,  while  only  one  line  had  a   positive  gross  margin  in  year  one  in  the  Woodstock  trial.  The  number  of  lines  that  had   positive  gross  margins  in  the  years  after  year  one  decreased  in  the  Cowra  2008  trial  and  in   the  Woodstock  trial.  In  the  Cowra  2008  trial,  there  were  only  two  lines  that  had  positive   gross  margins  in  year  two,  and  in  the  Woodstock  trial,  none  of  the  lines  had  positive  gross   margins  in  year  two.  However,  in  the  Cowra  2009  trial,  12  perennial  wheat  lines  had  a   positive  gross  margin  in  year  two.  But  after  year  two  in  both  of  the  Cowra  trials,  hardly  any   lines  had  positive  gross  margins.     37           Overall,  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  positive   gross  margins  every  year  of  their  lifetime.  Even  the  few  promising  perennial  wheat  lines  in   the  Cowra  2009  trial  that  had  positive  gross  margins  in  years  one  and  two  went  on  to  have   negative  gross  margins  in  year  three.  These  results  highlighted  the  fact  that  for  most  of  the   perennial  wheat  and  intermediate  wheatgrass  lines,  the  annual  revenues  were  smaller  than   the  annual  variable  costs  of  production.  The  annual  gross  margins  for  each  wheat  line  in  all   three  of  the  trials  are  given  in  tables  A.4.7,  A.4.8  and  A.4.9  in  the  appendix  below.     Net  Present  Values     Net  present  values  at  two  different  discount  rates  were  found  for  each  wheat  line  in   the  three  Australian  wheat  trials.  These  net  present  values  showed  whether  or  not  the   revenues  of  the  wheat  lines  outweighed  the  AVCP  over  the  lifetime  of  each  line.  The  NPV’s   were  found  through  aggregating  and  discounting  the  gross  margins  and  year  zero   investment  costs  over  the  lifetime  of  each  of  the  wheat  lines.  The  equation  used  to  calculate   the  net  present  values  was:   NPV  =  Σ  Rt/(1  +  i)t             (2)   In  equation  2,  Rt  is  assumed  to  be  the  net  cash  flow,  i  is  the  discount  rate  and  t  is  the  year  of   the  cash  flow.  The  NPV’s  were  thus  found  by  discounting  two,  three  or  four  years  of  cash   flows  (depending  on  the  length  of  the  trial),  and  then  summing  the  discounted  cash  flows   and  year  zero’s  investment  costs.  The  two  discount  rates  that  were  used  to  find  the  NPV’s   were  eight  percent  and  12%.  These  values  were,  respectively,  the  average  and  the   maximum  interest  rates  on  three-­‐year  fixed  term  small  business  loans  in  Australia  over  the   past  20  years  (Reserve  Bank  of  Australia  2011).  Using  these  two  discount  rates,  two  net   38         present  values  were  found  for  each  annual  wheat,  perennial  wheat  and  intermediate   wheatgrass  line  to  show  if  the  lines  were  profitable  over  time.       The  perenniality  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  greatly   impacted  the  net  present  values  of  the  wheat  lines.  Theoretically,  if  the  lines  were  to  die   early  and  thus  not  be  very  perennial,  their  net  present  values  would  be  lower.  Also,   perenniality  is  fundamental  to  the  average  grain  yield  produced  by  each  wheat  line;  well-­‐ established  perennial  wheat  and  intermediate  wheatgrass  lines  should  produce  larger   grain  yields  if  they  live  for  more  years.  Since  perenniality  could  greatly  impact  the  average   yields  and  net  present  values  of  the  perennial  wheat  and  intermediate  wheatgrass  lines,   perenniality  could  largely  influence  the  profitability  of  the  wheat  lines.  The  impact  of   perenniality  on  the  profitability  of  the  perennial  wheat  and  intermediate  wheatgrass  lines   from  the  three  Australian  wheat  trials  is  discussed  in  section  5.3.         In  the  wheat  trials,  most  of  the  perennial  wheat  and  intermediate  wheatgrass  lines   had  net  present  values  that  were  below  zero.  In  addition  to  the  annual  wheat  line,  only  four   perennial  wheat  lines  and  one  intermediate  wheatgrass  line  had  positive  net  present   values.  Additionally,  the  NPV  from  the  annual  wheat  line  was  greater  than  the  NPV’s  from   any  of  the  perennial  wheat  or  intermediate  wheatgrass  lines.  So  given  a  four-­‐year  time   period,  the  annual  wheat  line  had  the  highest  net  present  value  out  of  all  of  the  wheat  lines   in  the  Australian  trials,  and  was  thus  more  profitable  than  any  of  the  perennial  wheat  or   intermediate  wheatgrass  lines.       Even  though  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  a  net   present  value  as  high  as  that  of  annual  wheat,  five  perennial  wheat  and  intermediate   wheatgrass  lines  still  had  positive  NPV’s.  The  annual  wheat  line  came  from  the  Cowra  2008   39         trial  and  had  an  NPV  of  $884  at  an  eight  percent  discount  rate  and  $846  at  a  12%  discount   rate  over  four  years.  Dundas,  the  intermediate  wheatgrass  line  with  a  positive  NPV,  also   came  from  the  Cowra  2008  trial  and  had  a  net  present  value  of  $132  with  an  eight  percent   discount  rate  and  $61  with  a  12%  rate.  However,  Dundas  was  also  grown  in  the  Cowra   2009  trial  and  in  the  Woodstock  trial,  and  did  not  have  a  positive  NPV  in  either  of  those   trials.       The  four  perennial  wheat  lines  that  had  positive  net  present  values  all  came  from   the  Cowra  2009  trial.  The  perennial  wheat  line  with  the  highest  NPV  was  C64a,  which  had   an  NPV  of  $534  at  the  eight  percent  discount  rate  and  $515  at  the  12%  rate.  The  other   three  lines  had  smaller  NPV’s,  but  they  were  still  positive.  C39b  had  an  NPV  of  $127  at  eight   percent  and  $123  at  12%,  C47b  had  an  NPV  of  $33  at  eight  percent  and  $27  at  12%,  and   O42  had  an  NPV  of  $34  at  eight  percent  and  $38  at  12%.  O42  was  also  grown  in  the  Cowra   2008  trial  and  in  the  Woodstock  trial,  but  had  a  negative  NPV  in  both  of  those  trials.  The   NPV’s  at  eight  percent  and  12%  for  every  wheat  line  in  each  trial  are  given  in  tables  A.4.10,   A.4.11  and  A.4.12  in  the  appendix  at  the  end  of  the  chapter.  Although  Dundas,  C64a,  C39b,   C47b  and  O42  showed  promise,  the  annual  wheat  line  had  a  higher  NPV  than  any  of  the   perennial  wheat  or  intermediate  wheatgrass  lines  in  all  of  the  trials.       Application  of  the  Conceptual  Model     The  conceptual  model  established  earlier  in  this  paper  was  applied  to  the  data   provided  by  the  three  Australian  wheat  trials.  Annualized  net  returns  (not  including  the   cost  of  land,  seed  or  post-­‐harvest  costs)  were  found  for  the  one  line  of  annual  wheat  and  for   each  line  of  perennial  wheat  and  intermediate  wheatgrass.  The  net  returns  of  the  perennial   wheat  and  intermediate  wheatgrass  lines  were  then  compared  to  the  net  return  from  the   40         annual  wheat  line  to  assess  the  profitability  of  the  perennial  wheat  and  intermediate   wheatgrass  lines.  Comparative  breakeven  prices,  yields,  subsidy  payments  and  costs  that   would  allow  the  perennial  wheat  and  intermediate  wheatgrass  lines  to  become  as   profitable  as  the  annual  wheat  line  were  also  found.     Annualized  Net  Returns     The  annualized  net  returns  of  each  wheat  line  were  found  by  annualizing  the  net   present  values  of  the  lines  over  a  three-­‐year  lifespan  using  an  eight  percent  discount  rate.   The  equation  used  to  calculate  the  annualized  net  returns  is  the  same  equation  that  is  used   to  find  annual  annuity  payments:   ANR  =  NPV/[(1-­‐(1/(1+i)t))/i]         (3)   In  equation  3,  NPV  is  the  net  present  value  of  the  wheat  line,  i  is  the  discount  rate  and  t  is   the  number  of  years  that  the  NPV  is  annualized  over  (Cedar  Spring  Software  Inc.,  2002).  In   order  to  compare  the  net  returns  of  each  wheat  line  between  the  three  trials,  the  net   returns  had  to  be  generated  using  the  same  number  of  base  years.  So,  the  annualized  net   returns  for  every  wheat  line  were  found  using  a  three-­‐year  base  lifespan,  even  the  one  line   from  the  Cowra  2008  trial  that  lasted  for  four  years  and  all  of  the  lines  from  the  Woodstock   trial  that  lasted  for  two  years.  Since  the  Woodstock  trial  only  lasted  for  two  years,  the  NPV   that  was  used  to  form  the  annualized  net  returns  for  that  trial  consisted  of  the  grain  yields   from  two  years  only.  By  annualizing  the  net  present  value  of  each  wheat  line  over  three   years  given  an  eight  percent  discount  rate,  the  annualized  net  returns  for  the  annual  wheat,   perennial  wheat  and  intermediate  wheatgrass  lines  were  found.       None  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  annualized  net   returns  that  were  greater  than  or  equal  to  the  net  return  of  the  annual  wheat  line.  Given  the   41         three-­‐year  base  and  the  eight  percent  discount  rate,  the  annualized  net  return  of  the  annual   wheat  line  was  $343  per  hectare.  The  annualized  net  returns  of  all  five  perennial  wheat  and   intermediate  wheatgrass  lines  with  positive  NPV’s  were  significantly  smaller  than  that.   Dundas  had  an  annualized  net  return  of  $51  per  hectare,  C39b  had  a  net  return  of  $49,   C47b  and  O42  both  had  net  returns  of  $13  and  C64a  had  a  net  return  of  $207.  The  net   return  of  C64a  was  closest  to  that  of  the  annual  wheat  line,  but  the  net  returns  were  still   different  by  almost  $150  per  hectare.     Since  the  net  returns  of  the  five  most  promising  perennial  wheat  and  intermediate   wheatgrass  lines  were  smaller  than  the  net  return  of  the  annual  wheat  line,  and  because   the  net  return  of  every  other  perennial  wheat  and  intermediate  wheatgrass  line  was   negative,  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  were  as  profitable   as  the  annual  wheat  line.  The  net  returns  of  each  wheat  line  are  given  in  tables  A.4.13,   A.4.14  and  A.4.15  in  the  appendix.  Some  of  the  negative  net  returns  were  close  to  zero,  such   as  negative  ten  dollars  for  Dundas  in  the  Cowra  2009  trial.  However,  other  negative  net   returns  were  very  far  from  zero,  like  (-­‐$294)  for  C58a  in  the  Cowra  2008  trial.  A  graph  of   the  net  returns  of  all  of  the  annual  wheat,  perennial  wheat  and  intermediate  wheatgrass   lines  is  given  below.  In  order  for  any  of  the  perennial  wheat  or  intermediate  wheatgrass   lines  to  become  as  profitable  as  annual  wheat,  changes  must  be  made  to  their  prices,  yields,   costs  or  subsidy  payments.  These  changes  are  explored  in  the  rest  of  this  section.                   42         Figure  4.2.1  Annualized  Net  Returns  of  AW,  PW  and  IWG  Lines     *For  interpretation  of  the  references  to  color  in  this  and  all  other  figures,  the  reader  is   referred  to  the  electronic  version  of  this  thesis.     Comparative  Breakeven  Prices  and  Yields       An  increase  in  the  price  or  yield  of  the  perennial  wheat  or  intermediate  wheatgrass   lines  would  allow  the  profits  of  the  wheat  lines  to  equal  the  net  return  of  the  annual  wheat   line.  At  the  original  price  of  $297  per  ton  and  the  original  grain  yields,  none  of  the  perennial   wheat  or  intermediate  wheatgrass  lines  had  an  annualized  net  return  of  $343,  which  was   the  annualized  net  return  of  the  annual  wheat  line  given  an  eight  percent  discount  rate.  So,   the  comparative  breakeven  prices  that  would  allow  the  profits  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  to  be  equal  to  the  net  return  of  annual  wheat  would  be   greater  than  $297,  and  all  of  the  comparative  breakeven  yields  would  be  greater  than  the   original  grain  yields.       The  comparative  breakeven  prices  and  yields  of  each  line  of  perennial  wheat  and   intermediate  wheatgrass  were  the  prices  and  yields  that  allowed  the  profit  of  the  wheat   lines  to  be  equal  to  the  net  return  of  the  annual  wheat  line.  The  comparative  breakeven   prices  are  represented  by  pCB  in  the  following  equation:   43         pCB  =  (NR0  +  cN)/yN         (4)   It  is  assumed  that  in  equation  4,  NR0  is  the  net  return  of  the  annual  wheat  line,  which  is  an   annuity  value  for  one  year  of  survival.  Also,  cN  is  the  average  annual  variable  costs  of   production  of  the  perennial  wheat  and  intermediate  wheat  grass  lines,  and  yN  is  the   average  annual  grain  yield  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  over   the  perennial  period.  Consequently,  the  comparative  breakeven  prices  of  the  perennial   wheat  and  intermediate  wheatgrass  lines  were  equal  to  the  annual  net  returns  of  the   annual  wheat  line  plus  the  annual  variable  costs  of  production  of  the  perennial  wheat  and   intermediate  wheatgrass  lines,  divided  by  the  average  annual  grain  yield  of  the  perennial   wheat  and  intermediate  wheatgrass  lines.       The  equation  and  assumptions  used  to  find  the  comparative  breakeven  yields  for   the  perennial  wheat  and  intermediate  wheatgrass  lines  were  similar.  The  average  annual   comparative  breakeven  grain  yields  are  given  as  yCB  in  the  equation  below:   yCB  =  (NR0  +  cN)/pN         (5)   In  equation  5,  NR0  is  assumed  to  be  the  annual  net  return  of  the  annual  wheat  line,  cN  is  the   average  annual  variable  costs  of  production  of  the  perennial  wheat  and  intermediate   wheatgrass  lines  and  pN  is  the  price  of  the  perennial  wheat  and  intermediate  wheatgrass   grain  ($297/ton,  as  described  above).  So,  the  average  annual  comparative  breakeven  grain   yields  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  were  found  by  adding  the   average  perennial  wheat  and  intermediate  wheatgrass  AVCP  to  the  annual  net  return  of  the   44         annual  wheat  line  and  dividing  by  the  price  of  the  perennial  wheat  and  intermediate   wheatgrass  grain.       The  four  perennial  wheat  lines  and  one  intermediate  wheatgrass  line  that  had   positive  net  returns  had  comparative  breakeven  prices  and  yields  that  were  quite  a  bit   greater  than  their  original  prices  and  yields.  The  prices  that  would  make  the  profits  of  the   perennial  wheat  and  intermediate  wheatgrass  lines  equal  the  net  return  of  the  annual   wheat  line  were:  $544  per  ton  for  Dundas,  $589  for  C39b,  $670  for  C47b  and  O42  and  $385   for  C64a.  All  of  these  prices  were  significantly  higher  than  $297,  the  original  price  of  the   perennial  wheat  and  intermediate  wheatgrass  grain.  The  comparative  breakeven  prices  of   the  other  perennial  wheat  and  intermediate  wheatgrass  lines  were  all  greater  than  $670.     Improvements  in  the  quality  of  the  perennial  wheat  or  intermediate  wheatgrass   grain  through  breeding  or  genetics  could  generate  an  increase  in  the  price  of  the  grain.   However,  perennial  wheat  and  intermediate  wheatgrass  grain  would  most  likely  not   receive  a  price  much  higher  than  the  price  of  annual  wheat,  which  was  $372  in  this  study.   Line  C64a  had  the  closest  comparative  breakeven  price  to  that  of  annual  wheat,  making  it   the  most  promising  line.  The  comparative  breakeven  prices  of  the  other  perennial  wheat   and  intermediate  wheatgrass  lines  were  all  much  larger  than  the  price  of  annual  wheat,  and   would  thus  be  less  feasible  to  attain  through  changes  in  grain  quality.         An  increase  in  grain  yield  through  wheat  breeding  or  genetics  is  another  option  for   increasing  the  profitability  of  the  perennial  wheat  and  intermediate  wheatgrass  lines.  The   yield  gains  of  each  of  the  five  perennial  wheat  and  intermediate  wheatgrass  lines  would   need  to  be:  83%  for  Dundas,  98%  for  C39b,  126%  for  C47b  and  O42  and  30%  for  C64a.   These  results  show  that  line  C64a  would  again  be  the  most  promising  line  because  it  would   45         require  the  smallest  increase  in  grain  yield.  All  of  the  other  perennial  wheat  and   intermediate  wheatgrass  lines  that  had  negative  annualized  net  returns  would  require   yield  gains  greater  than  126%  to  breakeven  with  annual  wheat.  So,  increases  in  the  grain   price  or  yield  of  all  of  the  lines  of  perennial  wheat  and  intermediate  wheatgrass  could  make   their  profits  equal  the  net  return  of  annual  wheat.  The  comparative  breakeven  prices  and   yield  gains  of  all  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  from  the  three   Australian  wheat  trials  are  given  in  tables  A.4.16,  A.4.17  and  A.4.18  in  the  appendix  below.     Comparative  Breakeven  Subsidy  Payments     Since  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  profits  that   were  as  high  as  the  net  return  of  annual  wheat,  subsidies  could  theoretically  be  paid  to   growers  of  perennial  wheat  or  intermediate  wheatgrass  to  make  the  profit  of  the  wheat   lines  equal  the  net  return  of  annual  wheat.  As  noted  above,  perennial  wheat  and   intermediate  wheatgrass  provide  a  number  of  environmental  benefits  including  carbon   sequestration,  reduced  soil  erosion  and  decreased  nitrate  leaching.  Subsidies  could  be  paid   to  growers  of  perennial  wheat  and  intermediate  wheatgrass  to  compensate  them  for  the   production  of  these  off-­‐farm  environmental  benefits.  These  external  environmental   benefits  would  be  internalized  through  the  payment  of  subsidies  to  growers.  The  annual   comparative  breakeven  subsidy  payment  is  represented  by  σCB  in  the  equation  below:   σCB  =  NR0  +  cN  -­‐  (pN  .  yN)         (6)   In  equation  6,  NR0  is  the  annual  net  return  of  annual  wheat,  cN  is  the  average  AVCP  of  the   perennial  wheat  and  intermediate  wheatgrass  lines,  pN  is  the  original  price  of  the  perennial   wheat  and  intermediate  wheatgrass  grain  ($297/ton)  and  yN  is  the  average  annual  grain   46         yield  of  the  perennial  wheat  and  intermediate  wheatgrass  lines.  Since  there  was  a  wide   range  of  net  returns  from  all  of  the  perennial  wheat  and  intermediate  wheatgrass  lines,   there  was  also  a  wide  range  of  annual  comparative  breakeven  subsidy  payments.  The   annual  per  hectare  subsidy  payments  that  would  allow  the  net  returns  of  each  line  of   perennial  wheat  and  intermediate  wheatgrass  to  equal  the  annual  net  return  of  the  annual   wheat  line  are  given  in  tables  A.4.19,  A.4.20  and  A.4.21  in  the  appendix  at  the  end  of  the   chapter.       The  five  lines  of  perennial  wheat  and  intermediate  wheatgrass  that  had  positive   NPV’s  also  required  the  lowest  subsidy  payments  in  order  to  become  as  profitable  as   annual  wheat.  Out  of  the  three  trials,  perennial  wheat  line  C64a  would  require  the  smallest   subsidy  payment  of  $136  per  hectare  in  order  to  become  as  profitable  as  the  annual  wheat   line.  The  other  four  lines  would  need  larger  subsidy  payments  for  their  profits  to  equal  the   net  return  of  annual  wheat.  Dundas  would  need  an  annual  subsidy  of  $292  per  hectare,   C39b  would  need  a  subsidy  of  $294,  and  C47b  and  O42  would  both  need  a  subsidy  of  $330.   If  a  grower  were  to  receive  these  subsidy  payments  each  year,  the  profit  of  each  wheat  line   would  equal  the  net  return  of  annual  wheat,  and  the  five  lines  would  be  as  profitable  as  the   annual  wheat  line.  Since  every  other  line  of  perennial  wheat  and  intermediate  wheatgrass   had  negative  net  returns,  they  would  require  even  larger  subsidy  payments  to  become  as   profitable  as  annual  wheat.     The  comparative  breakeven  subsidy  payments  that  would  be  required  to  make  the   perennial  wheat  and  intermediate  wheatgrass  lines  profitable  were  very  large,  as  shown   above.  These  subsidy  values  might  not  be  realistic  depending  on  whether  or  not  the  value   of  the  perennial  grains’  external  benefits  needed  to  justify  the  subsidies  would  be  as  high  as   47         the  comparative  breakeven  subsidies.  So  although  the  comparative  breakeven  subsidies   could  make  the  perennial  wheat  and  intermediate  wheatgrass  lines  as  profitable  as  annual   wheat,  the  subsidy  amounts  may  be  too  large  to  be  economically  feasible,  assuming  that  the   subsidy  payments  would  not  be  accompanied  by  any  genetic  improvements  that  would   increase  the  prices  or  yields  of  the  grain.     Comparative  Breakeven  Costs     While  a  comparative  breakeven  subsidy  would  be  a  payment  that  could  be  made  to   a  grower  that  would  allow  perennial  wheat  to  become  as  profitable  as  annual  wheat,  a   comparative  breakeven  cost  would  be  the  annual  average  cost  that  the  grower  would  have   to  pay  that  would  still  allow  perennial  wheat  or  intermediate  wheatgrass  to  become  as   profitable  as  annual  wheat.  The  comparative  breakeven  annual  variable  costs  of  production   were  represented  by  cCB  in  the  following  equation:   cCB  =  (pN  .  yN)  -­‐  NR0           (7)   It  is  assumed  that  pN  is  the  original  price  of  the  perennial  wheat  and  intermediate   wheatgrass  grain  ($297/ton),  yN  is  the  average  annual  grain  yield  of  the  perennial  wheat   and  intermediate  wheatgrass  lines  and  NR0  is  the  annual  net  return  of  the  annual  wheat   line.  Therefore,  the  comparative  breakeven  AVCP  were  found  through  subtracting  annual   wheat’s  net  return  from  the  annual  total  revenues  of  the  perennial  wheat  and  intermediate   wheatgrass  lines.       The  results  showed  that  the  annual  variable  costs  of  production  of  almost  every   perennial  wheat  and  intermediate  wheatgrass  line  would  have  to  be  negative  for  the  profits   of  the  lines  to  equal  annual  wheat’s  net  return.  Only  line  C64a  could  have  a  positive  AVCP   48         and  still  break  even  with  annual  wheat,  although  the  AVCP  would  have  to  be  $51  per   hectare,  which  is  too  small  to  be  economically  feasible.  A  negative  cost  is  similar  to  a   subsidy  payment,  but  they  are  not  the  same.  A  comparative  breakeven  subsidy  would  be  a   payment  to  the  grower  that  would  allow  the  grower  to  breakeven,  while  a  negative  cost   would  call  for  the  AVCP  to  decrease  to  zero  and  would  then  require  an  additional  payment   to  the  grower  for  the  grower  to  break  even.  So,  no  positive  level  of  comparative  breakeven   AVCP  would  equalize  the  net  returns  of  almost  all  of  the  lines  from  the  three  Australian   wheat  trials.  Since  a  decrease  in  the  annual  costs  of  the  perennial  wheat  and  intermediate   wheatgrass  lines  alone  would  not  allow  the  wheat  lines  to  become  as  profitable  as  annual   wheat,  the  negative  comparative  breakeven  annual  variable  costs  of  production  are   economically  infeasible  and  are  not  provided  here.     4.3  Conclusion     This  chapter  provided  a  literature  review  detailing  the  background  of  perennial   wheat  and  intermediate  wheatgrass,  and  a  number  of  measures  that  estimated  the   profitability  of  the  perennial  wheat,  intermediate  wheatgrass  and  annual  wheat  lines.  The   comparative  breakeven  analyses  were  viable  because  they  showed  how  the  components  of   the  perennial  wheat  and  intermediate  wheatgrass  lines  could  be  changed  so  that  their   profits  would  become  equal  to  the  net  return  of  the  annual  wheat  line.  However,  these   comparative  breakeven  analyses  also  contained  some  limitations.  Specifically,  the  analyses   did  not  include  realistic  subsidy  values  that  were  based  on  the  external  environmental   benefits  provided  by  perennial  wheat  and  intermediate  wheatgrass.  In  the  next  chapter,  a   benefit  transfer  study  is  performed  to  place  values  on  intermediate  wheatgrass  and   perennial  wheat’s  reduction  in  soil  erosion,  which  generates  accurate  subsidy  estimates   49         that  reflect  monetary  values  of  the  benefits  of  soil  erosion  reduction.  These  subsidy  values   are  then  added  to  the  gross  margins  of  the  perennial  wheat  and  intermediate  wheatgrass   lines  in  order  to  find  comparative  breakeven  prices,  yields  and  costs  that  internalize  the   external  environmental  benefits.                                           50                             APPENDIX                                 51         CHAPTER  FOUR  APPENDIX     Table  A.4.1  Cowra  2008  and  2009  Trials,  PW  and  IWG  Costs  (AUS  $)   Cash  Inputs   Quantity   Unit   Yr  0   Yr  1   Yr  2/3/4   Price2   Glyphosate   1   l/ha   4.5      4.5   0   0   Flutriafol   0.4   ml/ha   22.22        8.8   0   0   MCPA+Diflu.   250   g/ha        0.02   0            4.63            4.63   Epoxiconazole   1   g/ha   46.10   0        46.10        46.10   Paraquat   250   g/ha            0.008   0              2.10              2.10   DAP  #1   100   kg/ha      0.82    82.0   0   0   DAP  #2   20   kg/ha      0.82   0        16.40          16.40   Urea  #1   26   kg/ha   0.7        18.20   0   0   Urea  #2   30   kg/ha   0.7   0          21.00          21.00   Cash  Inputs  Total         113.60          90.23            90.23   Custom  Costs               Scarifier   1   ha   12.68        12.68   0   0   Boomsprayer  #1   1   ha   12.00        12.00   0   0   Boomsprayer  #2   1   ha   12.00        12.00   0   0   Fertilizer  spreader  #1   1   ha      3.51              3.51   0   0   Fertilizer  spreader  #2   1   ha      3.51              3.51   0   0   Hand  sowing   1   ha   40.00   0          40.00   0   Boomsprayer  #3   1   ha   12.00   0          12.00          12.00   Boomsprayer  #4   1   ha   12.00   0          12.00          12.00   Contract  harvest   1   ha   40.59   0          40.59          40.59   Boomsprayer  #5   1   ha   12.00   0          12.00          12.00   Fertilizer  spreader  #3   1   ha        3.51   0                3.51                3.51   Fertilizer  spreader  #4   1   ha        3.51   0                3.51                3.51   Custom  Costs  Total                43.70      123.60            83.61   Annual  Variable            157.30      213.80        173.80   Costs  of  Production   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010  and   NSW  Government,  2011.                                                                                                                                     2  All  prices  are  given  in  2010  Australian  dollars.  The  average  2010  currency  exchange  rate   was  1  U.S.  dollar  to  1.15  Australian  dollars.     52         Table  A.4.2  Cowra  2008  Trial,  Annual  Wheat  Costs  (AUS  $)   Cash  Inputs   Quantity   Unit   Price  ($/unit)   Yr  0   Yr  1   Glyphosate   1   l/ha   4.5        4.5        4.5   Flutriafol   0.4   ml/ha   22.22        8.8        8.8   MCPA+Diflu.   250   g/ha            0.019   0            4.63   Epoxiconazole   1   g/ha   46.10   0        46.10   Paraquat   250   g/ha            0.008   0              2.10   DAP  #1   100   kg/ha        0.82          82.00          82.00   DAP  #2   20   kg/ha        0.82   0          16.40   Urea  #1   26   kg/ha    0.7          18.20          18.20   Urea  #2   30   kg/ha    0.7   0          21.00   Cash  Inputs  Total          113.60      203.80   Custom  Costs             Scarifier   1   ha   12.68        12.68          12.68   Boomsprayer  #1   1   ha   12.00        12.00          12.00   Boomsprayer  #2   1   ha   12.00        12.00          12.00   Fertilizer  spreader  #1   1   ha        3.51            3.51                3.51   Fertilizer  spreader  #2   1   ha        3.51            3.51                3.51   Hand  sowing   1   ha   40.00   0          40.00   Boomsprayer  #3   1   ha   12.00   0          12.00   Boomsprayer  #4   1   ha   12.00   0          12.00   Contract  harvest   1   ha   40.59   0          40.59   Boomsprayer  #5   1   ha   12.00   0          12.00   Fertilizer  spreader  #3   1   ha        3.51   0              3.51   Fertilizer  spreader  #4   1   ha        3.51   0            3.51   Custom  Costs  Total                43.70   167.31   Annual  Variable            157.30   371.12   Costs  of  Production   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010  and   NSW  Government,  2011.                                 53         Table  A.4.3  Woodstock  Trial  Costs  (AUS  $)   Quantity   Unit   Price   Yr  0   Yr  1   1   l/ha   4.5        4.5   0   0.4   ml/ha   22.22        8.8   0   250   g/ha      0.02   0              4.63   1   g/ha   46.10   0          46.20   250   ml/ha        0.15   0        37.50   100   kg/ha        0.82        82.00   0   20   kg/ha        0.82   0          16.40   26   kg/ha    0.7        18.20   0   30   kg/ha    0.7   0        21.00          113.58   125.63             1   ha   12.68        12.68   0   1   ha   12.00        12.00   0   1   ha   12.00        12.00   0   1   ha      3.51              3.51   0   1   ha      3.51              3.51   0   1   ha   40.00   0        40.00   1   ha   12.00   0        12.00   1   ha   12.00   0        12.00   1   ha   12.00   0        12.00   1   ha   40.59   0        40.59   1   ha      3.51   0              3.51   1   ha      3.51   0                    3.51                        43.70   123.61          157.29   249.24   Cash  Inputs   Yr  2   Glyphosate   0   Flutriafol   0   MCPA+Diflu.              4.63   Epoxiconazole          46.10   Pinox.+CM        37.50   DAP  #1   0   DAP  #2        16.40   Urea  #1   0   Urea  #2          21.00   Cash  Inputs  Total          79.53   Custom  Costs     Scarifier   0   Boomsprayer  #1   0   Boomsprayer  #2   0   Fertilizer  spreader  #1   0   Fertilizer  spreader  #2   0   Hand  sowing   0   Boomsprayer  #3          12.00   Boomsprayer  #4          12.00   Boomsprayer  #5          12.00   Contract  harvest          40.59   Fertilizer  spreader  #3              3.51   Fertilizer  spreader  #4            3.51   Custom  Costs  Total        83.61   Annual  Variable   163.14   Costs  of  Production   Sources:  input  quantities  from  Hayes  et  al.,  2012,  input  prices  from  Haskins  et  al.,  2010  and   NSW  Government,  2011.                                 54         Table  A.4.4  Revenues  of  the  Cowra  2008  Trial  (AUS  $/Hectare)   PW,  AW,  or  IWG   Line  ID   Yr  1   Yr  2   Yr  3   Yr4   AW   Wedgetail   1495   0   0   0   PW   O42   534   184   0   0   PW   Ot-­‐38   169   71   0   0   PW   C35a   419   145   0   0   PW   C36a   466   262   64   0   PW   C36b   376   51   0   0   PW   C51b   404   54   3   0   PW   C57b   62   108   40   11   PW   C58a   7   5   0   0   PW   C86a   207   2   0   0   IWG   Th.  Intermedium   2   20   329   0   IWG   Dundas   0   36   0   1185   Sources:  grain  yields  from  Hayes  et  al.,  2012,  prices  from  Australian  Bureau  of  Statistics,   2011,  a.                                                               55         Table  A.4.5  Revenues  of  the  Cowra  2009  Trial   PW  or  IWG   Line  ID   Yr  1   Yr  2   Yr  3   PW   C27a&b   193   0.11   PW   C231a   122   208   PW   C31b   75   68   PW   C33a   159   0.57   PW   C33b   113   129   PW   C34b   60   50   PW   C36a   183   209   PW   C36b   234   217   PW   C39b   567   286   PW   C40a   10   159   PW   C42b   139   56   PW   C44b   54   215   PW   C46a   362   197   PW   C47b   293   472   PW   C49b   31   114   PW   C51a   101   1   PW   C57b   15   27   PW   C58b   87   2   PW   C64a   994   298   PW   C79a   196   265   PW   C80a   91   70   PW   C80b   127   182   PW   C81b   130   79   PW   C88a   5   9   PW   C91b   101   14   PW   Ot-­‐38   193   363   PW   O42   610   129   PW   TAF46   29   250   IWG   Dundas   36   0   Sources:  grain  yields  from  Hayes  et  al.,  2012,  grain  prices  from  Australian  Bureau  of   Statistics,  2011,  a.                           56   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   14   0.94   3   8   0   0   13   0   0   733         Table  A.4.6  Revenues  of  the  Woodstock  Trial   PW  or  IWG   Line  ID   Yr  1   Yr  2   PW   C35a   109   95   PW   C36a   29   35   PW   C36b   43   20   PW   C44a   327   4   PW   C51b   66   25   PW   C64a   136   2   PW   C68a   133   6   PW   C68b   118   3   PW   C69b   103   5   PW   C71b   122   68   PW   C86b   55   5   PW   O42   86   44   PW   Ot-­‐38   42   63   PW   Zhong1   178   2   IWG   Dundas   7   152   Sources:  grain  yields  from  Hayes  et  al.,  2012,  grain  prices  from  Australian  Bureau  of   Statistics,  2011,  a.       Table  A.4.7  Gross  Margins  from  the  Cowra  2008  Trial  (AUS  $/Ha)   PW,  AW,  or  IWG   Line  ID   Yr  1   Yr  2   Yr  3   Yr  4   AW   Wedgetail   1124   0   0   0   PW   O42   320   11   -­‐174   -­‐174   PW   Ot-­‐38   -­‐45   -­‐103   -­‐174   -­‐174   PW   C35a   205   -­‐28   -­‐174   -­‐174   PW   C36a   252   88   -­‐110   -­‐174   PW   C36b   162   -­‐123   -­‐174   -­‐174   PW   C51b   191   -­‐120   -­‐171   -­‐174   PW   C57b   -­‐151   -­‐66   -­‐133   -­‐163   PW   C58a   -­‐207   -­‐169   -­‐174   -­‐174   PW   C86a   -­‐7   -­‐137   -­‐174   -­‐174   IWG   Th.  Intermedium   -­‐212   -­‐154   155   -­‐174   IWG   Dundas   -­‐214   -­‐137   -­‐174   1011                       57         PW  or  IWG   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   IWG       Table  A.4.8  Gross  Margins  from  the  Cowra  2009  Trial   Line  ID   Yr  1   Yr  2   Yr  3   C27a&b   -­‐21   -­‐174   C31a   -­‐92   34   C31b   -­‐139   -­‐106   C33a   -­‐55   -­‐173   C33b   -­‐101   -­‐45   C34b   -­‐154   -­‐124   C36a   -­‐31   35   C36b   20   43   C39b   353   112   C40a   -­‐204   -­‐15   C42b   -­‐75   -­‐118   C44b   -­‐160   41   C46a   149   23   C47b   79   299   C49b   -­‐183   -­‐60   C51a   -­‐113   -­‐172   C57b   -­‐199   -­‐147   C58b   -­‐127   -­‐172   C64a   780   124   C79a   -­‐18   91   C80a   -­‐122   -­‐104   C80b   -­‐87   8   C81b   -­‐84   -­‐95   C88a   -­‐209   -­‐165   C91b   -­‐113   -­‐160   Ot-­‐38   -­‐21   189   O42   396   -­‐45   TAF46   -­‐205   76   Dundas   -­‐178   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐174   -­‐160   -­‐173   -­‐171   -­‐166   -­‐174   -­‐174   -­‐161   -­‐174   -­‐174   559                         58         Table  A.4.9  Gross  Margins  from  the  Woodstock  Trial   Line  ID   Yr  1   Yr  2   C35a   -­‐140   C36a   -­‐220   C36b   -­‐206   C44a   78   C51b   -­‐184   C64a   -­‐114   C68a   -­‐116   C68b   -­‐131   C69b   -­‐146   C71b   -­‐127   C86b   -­‐195   O42   -­‐163   Ot-­‐38   -­‐207   Zhong1   -­‐71   Dundas   -­‐243   PW  or  IWG   PW   -­‐68   PW   -­‐129   PW   -­‐144   PW   -­‐159   PW   -­‐139   PW   -­‐161   PW   -­‐157   PW   -­‐160   PW   -­‐159   PW   -­‐95   PW   -­‐158   PW   -­‐119   PW   -­‐100   PW   -­‐161   IWG   -­‐12     Table  A.4.10  Net  Present  Values  from  the  Cowra  2008  Trial  (AUS  $/Ha)   PW,  AW,  or  IWG   Line  ID   NPV  at  8%  Discount   NPV  at  12%  Discount   AW   Wedgetail   884   846   PW   O42   -­‐117   -­‐97   PW   Ot-­‐38   -­‐553   -­‐514   PW   C35a   -­‐257   -­‐231   PW   C36a   -­‐63   -­‐51   PW   C36b   -­‐378   -­‐345   PW   C51b   -­‐347   -­‐315   PW   C57b   -­‐579   -­‐543   PW   C58a   -­‐759   -­‐710   PW   C86a   -­‐576   -­‐534   IWG   Th.  Intermedium   -­‐490   -­‐469   IWG   Dundas   132   61                           59         PW  or  IWG   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   IWG       Table  A.4.11  Net  Present  Values  from  the  Cowra  2009  Trial     Line  ID   NPV  at  8%  Discount   NPV  at  12%  Discount   C27a&b   -­‐464   -­‐438   C31a   -­‐351   -­‐336   C31b   -­‐515   -­‐489   C33a   -­‐495   -­‐468   C33b   -­‐427   -­‐407   C34b   -­‐544   -­‐517   C36a   -­‐293   -­‐280   C36b   -­‐240   -­‐229   C39b   127   123   C40a   -­‐497   -­‐475   C42b   -­‐466   -­‐442   C44b   -­‐408   -­‐391   C46a   -­‐138   -­‐130   C47b   33   27   C49b   -­‐516   -­‐492   C51a   -­‐548   -­‐520   C57b   -­‐606   -­‐576   C58b   -­‐561   -­‐532   C64a   534   515   C79a   -­‐223   -­‐215   C80a   -­‐497   -­‐473   C80b   -­‐367   -­‐350   C81b   -­‐448   -­‐426   C88a   -­‐630   -­‐599   C91b   -­‐537   -­‐510   Ot-­‐38   -­‐143   -­‐140   O42   34   38   TAF46   -­‐420   -­‐404   Dundas   -­‐27   -­‐56                         60         Table  A.4.12  Net  Present  Values  from  the  Woodstock  Trial   Line  ID   NPV  at  12%  Discount   NPV  at  8%  Discount   C35a   -­‐346   -­‐337   C36a   -­‐471   -­‐456   C36b   -­‐472   -­‐456   C44a   -­‐222   -­‐215   C51b   -­‐446   -­‐432   C64a   -­‐401   -­‐387   C68a   -­‐399   -­‐386   C68b   -­‐415   -­‐402   C69b   -­‐428   -­‐414   C71b   -­‐357   -­‐347   C86b   -­‐473   -­‐457   O42   -­‐410   -­‐398   Ot-­‐38   -­‐435   -­‐422   Zhong1   -­‐361   -­‐349   Dundas   -­‐392   -­‐383   PW  or  IWG   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   IWG     Table  A.4.13  Annualized  Net  Returns  from  the  Cowra  2008  Trial  (AUS  $/Ha)   PW,  AW,  or  IWG   Line  ID   Net  Return     AW   Wedgetail   PW   O42   PW   Ot-­‐38   PW   C35a   PW   C36a   PW   C36b   PW   C51b   PW   C57b   PW   C58a   PW   C86a   IWG   Th.  Interm.   IWG   Dundas                           61   343   -­‐46   -­‐215   -­‐100   -­‐25   -­‐147   -­‐135   -­‐225   -­‐294   -­‐224   -­‐190   51         PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   IWG       Table  A.4.14  Annualized  Net  Returns  from  the  Cowra  2009  Trial   Net  Return   PW  or  IWG   Line  ID   C27a&b   C31a   C31b   C33a   C33b   C34b   C36a   C36b   C39b   C40a   C42b   C44b   C46a   C47b   C49b   C51a   C57b   C58b   C64a   C79a   C80a   C80b   C81b   C88a   C91b   Ot-­‐38   O42   TAF46   Dundas   -­‐180   -­‐136   -­‐200   -­‐192   -­‐166   -­‐211   -­‐114   -­‐93   49   -­‐193   -­‐181   -­‐158   -­‐54   13   -­‐200   -­‐213   -­‐235   -­‐218   207   -­‐87   -­‐193   -­‐142   -­‐174   -­‐244   -­‐209   -­‐55   13   -­‐163   -­‐10                         62         Table  A.4.15  Annualized  Net  Returns  from  the  Woodstock  Trial   PW  or  IWG   Line  ID   Net  Return   C35a   C36a   C36b   C44a   C51b   C64a   C68a   C68b   C69b   C71b   C86b   O42   Ot-­‐38   Zhong1   Dundas   PW   -­‐134   PW   -­‐183   PW   -­‐183   PW   -­‐86   PW   -­‐173   PW   -­‐156   PW   -­‐155   PW   -­‐161   PW   -­‐166   PW   -­‐138   PW   -­‐184   PW   -­‐159   PW   -­‐169   PW   -­‐140   IWG   -­‐152     Table  A.4.16  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Cowra  2008  Trial   PW,  AW,  or  IWG   Line  ID   Price  (AUS  $/ton)   Yield  Gain  (%)   PW   O42   752   153   PW   Ot-­‐38   2261   662   PW   C35a   957   222   PW   C36a   694   134   PW   C36b   1252   322   PW   C51b   1160   291   PW   C57b   2570   766   PW   C58a   43374   14514   PW   C86a   2529   752   IWG   Th.  Interm.   1751   490   IWG   Dundas   544   83                             63         Table  A.4.17  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Cowra  2009  Trial   Price  ($/ton)   Yield  Gain  (%)   PW  or  IWG   Line  ID   2533   753   PW   C27a&b   1555   424   PW   C31a   3548   1095   PW   C31b   3072   935   PW   C33a   2107   610   PW   C33b   4607   1452   PW   C34b   1298   337   PW   C36a   1125   279   PW   C36b   589   98   PW   C39b   3112   948   PW   C40a   2567   765   PW   C42b   1933   551   PW   C44b   898   203   PW   C46a   670   126   PW   C47b   3587   1109   PW   C49b   4803   1518   PW   C51a   12358   4064   PW   C57b   5541   1767   PW   C58b   385   30   PW   C64a   1080   264   PW   C79a   3117   950   PW   C80a   1642   453   PW   C80b   2333   686   PW   C81b   36276   12122   PW   C88a   4319   1355   PW   C91b   907   205   PW   Ot-­‐38   670   126   PW   O42   2041   588   PW   TAF46   736   148   IWG   Dundas                             64         Table  A.4.18  Comparative  Breakeven  Prices  and  Yield  Gains  from  the  Woodstock  Trial   PW  or  IWG   Line  ID   Price  ($/ton)   Yield  Gain  (%)   PW   C35a   2300   675   PW   C36a   7411   2397   PW   C36b   7425   2402   PW   C44a   1369   361   PW   C51b   5120   1625   PW   C64a   3296   1011   PW   C68a   3249   995   PW   C68b   3726   1155   PW   C69b   4199   1315   PW   C71b   2447   724   PW   C86b   7614   2465   PW   O42   3554   1097   PW   Ot-­‐38   4497   1415   PW   Zhong1   2511   746   IWG   Dundas   3082   938     Table  A.4.19  Comparative  Breakeven  Subsidy  Payments  for  the  Cowra  2008  Trial   PW,  AW,  or  IWG   Line  ID   Subsidy  ($/ha)   PW   O42   388   PW   Ot-­‐38   557   PW   C35a   443   PW   C36a   367   PW   C36b   490   PW   C51b   478   PW   C57b   568   PW   C58a   637   PW   C86a   566   IWG   Th.  Interm.   533   IWG   Dundas   292                             65         Table  A.4.20  Comparative  Breakeven  Subsidy  Payments  for  the  Cowra  2009  Trial   Subsidy  ($/ha)   PW  or  IWG   Line  ID   523   PW   C27a&b   479   PW   C31a   543   PW   C31b   535   PW   C33a   509   PW   C33b   554   PW   C34b   457   PW   C36a   436   PW   C36b   294   PW   C39b   536   PW   C40a   524   PW   C42b   501   PW   C44b   396   PW   C46a   330   PW   C47b   543   PW   C49b   555   PW   C51a   578   PW   C57b   560   PW   C58b   136   PW   C64a   429   PW   C79a   536   PW   C80a   485   PW   C80b   517   PW   C81b   587   PW   C88a   551   PW   C91b   398   PW   Ot-­‐38   330   PW   O42   506   PW   TAF46   353   IWG   Dundas                             66         PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   PW   IWG       Table  A.4.21  Comparative  Breakeven  Subsidy  Payments  for  the  Woodstock  Trial   PW  or  IWG   Line  ID   Subsidy  ($/ha)   C35a   C36a   C36b   C44a   C51b   C64a   C68a   C68b   C69b   C71b   C86b   O42   Ot-­‐38   Zhong1   Dundas   477   526   526   429   516   498   498   504   509   481   526   502   512   483   495                             67         V.  ENVIRONMENTAL  VALUATION  OF  SOIL  CONSERVATION  TO  FORM  SUBSIDIES       The  comparative  breakeven  analyses  given  in  the  last  chapter  did  not  link  subsidy   payments  to  valuation  of  the  off-­‐site  environmental  benefits  generated  by  the  perennial   grains.  In  this  chapter,  a  benefit  transfer  study  places  monetary  values  on  reduced  soil   erosion,  one  of  intermediate  wheatgrass  and  perennial  wheat’s  most  important   environmental  benefits.  The  off-­‐site  environmental  benefits  that  are  external  to  a  grower’s   decision-­‐making  process  are  then  internalized  by  adding  the  environmental  benefits’   subsidy  values  to  the  annual  gross  margins  of  the  Australian  perennial  wheat  and   intermediate  wheatgrass  lines.  New  comparative  breakeven  prices,  yields  and  costs  are   found  that  take  into  account  the  subsidy  payments  that  represent  the  off-­‐site   environmental  values.  The  chapter  concludes  with  a  discussion  of  how  perenniality   impacts  the  profitability  of  the  perennial  grain  lines  from  the  three  Australian  wheat  trials.     5.1  Benefit  Transfer  Study     Perennial  wheat  and  intermediate  wheatgrass  may  provide  a  few  main   environmental  benefits  including  carbon  sequestration,  reduced  soil  erosion  and  decreased   nitrate  leaching.  The  purpose  of  this  section  is  to  provide  values  for  soil  conservation,  one   of  these  environmental  benefits.  Reduced  soil  erosion  was  chosen  to  be  valued  in  this  study   because  soil  erosion  is  a  problem  in  the  wheat-­‐growing  region  of  New  South  Wales,  the   location  that  this  case  study  focuses  on,  the  availability  of  environmental  benefit  data  and   the  expected  size  of  the  environmental  value  of  reduced  soil  erosion.  This  benefit  transfer   study  estimates  monetary  values  for  on-­‐site  and  off-­‐site  environmental  benefits  of  the   perennial  grains’  reduction  in  soil  erosion.  The  on-­‐site  benefits  of  erosion  reduction  are   valued  as  avoided  grain  yield  loss  attributable  to  soil  erosion  reduction.  The  on-­‐site  values   68         are  given  to  advise  growers  on  the  private  impacts  of  the  reduction  in  erosion  provided  by   the  perennial  grains.  The  off-­‐site  benefits  are  valued  as  avoided  reservoir  dredging  costs,   and  could  be  the  basis  for  potential  subsidies  that  could  be  paid  to  growers  for  producing   off-­‐site  environmental  benefits.  Erosion  reduction  is  the  only  environmental  benefit   studied  in  this  section.  Future  work  thus  needs  to  be  done  to  estimate  monetary  values  of   the  other  main  environmental  benefits  that  perennial  wheat  and  intermediate  wheatgrass   provide.         On  and  Off  Site  Impacts  of  Soil  Erosion   Physical  Impacts-­  On  Site     The  main  physical  impact  of  soil  erosion  on-­‐site  is  a  decrease  in  the  amount  of  fertile   soil  that  is  available  for  the  growth  of  crops.  When  farms  experience  soil  erosion,  they  lose   soil  that  is  a  necessity  for  the  growth  of  all  crops  (Tegtmeier  and  Duffy  2004).  Topsoil  is  the   most  valuable  soil  to  crop  growth,  and  is  usually  the  first  type  of  soil  to  erode.    Soil  erosion   also  greatly  reduces  the  productivity  of  farmland;  farms  with  extensive  soil  erosion  may   only  be  able  to  grow  crops  that  require  low  soil  fertility,  or  they  may  not  be  able  to  grow   anything  at  all  (Larney  et  al.  1995).  Yields  of  crops  grown  in  poor  soils  can  decline,  thereby   reducing  farmland  productivity.  So  in  order  to  have  productive  land  with  high-­‐yielding   crops,  soil  erosion  cannot  cause  a  large  decrease  in  farmland  soil  fertility  or  quality.       Physical  Impacts-­  Off  Site     One  of  the  main  off-­‐site  impacts  of  soil  erosion  is  the  silting  up  of  waterways,  which   leads  to  a  number  of  other  off-­‐site  issues  such  as  dredging,  impaired  navigation,  decreased   recreation  opportunities,  decreased  reservoir  availability  and  ecosystem  disruption.   Hansen  et  al.  claim  that  “sediment  has  been  known  to  clog  road  and  irrigation  ditches,  to  fill   69         navigation  channels  and  to  adversely  affect  various  types  of  water-­‐based  recreation”   (2002).  So,  soil  erosion  causes  sediment  to  build  up  in  a  number  of  different  waterways   near  to  or  miles  away  from  the  farm  in  which  it  came.  Using  boats  to  navigate  waterways   that  contain  excessive  amounts  of  sediment  can  be  very  difficult  and  require  specific   machinery  (Hansen  et  al.  2002).  Many  waterways  and  dam  reservoirs  must  be  dredged  in   order  to  remove  the  sediment  that  has  built  up  from  farmland  erosion  upstream  over  the   years  (Tegtmeier  and  Duffy  2004).       Soil  erosion  also  makes  water  treatment  processes  more  difficult;  more  intense  or   new  treatment  processes  need  to  be  implemented  to  clean  water  that  contains  extensive   amounts  of  sediment  (Holmes  1988).  Additionally,  a  reduction  in  recreation  opportunities   and  lake  or  reservoir  capacities  can  occur  with  the  increased  siltation  of  waterways   (Ralston  and  Park  1989).  Ecosystems  may  also  become  disrupted  from  too  much  sediment   in  watersheds.  Sediment  can  greatly  hurt  aquatic  life,  and  impact  other  ecosystem   processes  and  services  that  are  essential  to  the  maintenance  of  a  healthy  environment   (Cangelosi  et  al.  2001).     Economic  Impacts-­  On  Site     The  on-­‐site  impacts  of  soil  erosion  reduce  crop  yield,  which  negatively  impacts  a   farmer’s  revenue.  Erosion  may  also  cause  the  value  of  the  farmland  to  decrease.  Farms  with   lower  quality,  eroded  soil  would  not  sell  for  prices  that  were  as  high  as  those  of  farms  with   high-­‐quality,  fertile,  non-­‐eroded  soil  (Palmquist  and  Danielson  1989).  A  lower  level  of   profitability  (through  yield  loss)  and  a  lower  farmland  price  are  the  two  most  important   on-­‐site  economic  impacts  of  soil  erosion  because  they  both  reduce  the  economic  wellbeing   of  farmers.     70         Economic  Impacts-­  Off  Site     The  off-­‐site  physical  impacts  of  soil  erosion  result  in  increased  public  costs  and   reduced  public  values.  Hansen  et  al.  explain  that  in  the  U.S.  alone,  sediment  in  waterways   causes  over  $1.2  billion  in  damages  to  navigation  annually  (2002).  Also,  increased  sediment   leads  to  waterway  dredging  projects,  each  of  which  cost  millions  of  dollars  to  plan  and   execute  (Hansen  et  al.  2002).  Additionally,  water  treatment  costs  greatly  increase  when   water  treatment  plants  have  to  clean  water  that  is  full  of  sediment.  More  complex   treatments  need  to  be  conducted  to  get  the  water  to  a  safe  level,  which  generates  greater   costs  (Holmes  1988).  Reduction  in  lake  or  reservoir  capacity  also  leads  to  increasing  costs   because  cities  need  to  find  new  areas  to  store  the  water  that  can  no  longer  fit  in  their   reservoirs.  The  reduction  in  recreation  opportunities  due  to  the  closure  of  recreation  areas   decreases  visitors’  recreation  values,  thereby  generating  a  loss  in  public  benefits.  Fishing   also  becomes  more  costly  in  cloudy  waterways,  and  the  value  of  fish  may  decline  as  the   health  of  the  aquatic  life  dwindles  (Ralston  and  Park  1989).  So,  off-­‐site  impacts  of  soil   erosion  lead  to  decreased  public  values  and  increased  public  costs,  and  consequently   reduce  the  economic  wellbeing  of  society.       Methods     Two  different  methods  were  used  to  transfer  estimates  of  the  monetary  value  of   reduced  soil  erosion  from  perennial  wheat.  First,  values  were  found  for  grain  yield  losses   that  would  be  avoided  if  a  grower  were  to  switch  from  annual  wheat  to  perennial  wheat.   Since  erosion  reduces  soil  fertility,  over  time  annual  wheat  could  produce  a  lower  grain   yield  than  perennial  wheat  because  annual  wheat  generates  more  erosion.  Annual  wheat   generates  more  erosion  because  it  has  smaller  root  systems  and  requires  more  tillage  than   71         perennial  wheat  and  intermediate  wheatgrass.  Second,  reduced  reservoir  dredging  costs   were  adapted  from  prior  studies  to  value  one  of  perennial  wheat’s  off-­‐site  impacts  of   erosion  reduction.  Since  soil  erosion  can  lead  to  the  sedimentation  of  reservoirs  that   require  dredging,  dredging  can  be  reduced  if  soil  erosion  is  reduced.  Therefore,  the  growth   of  perennial  grains  could  reduce  dredging  costs.  The  perennial  grains’  reduced  dredging   costs  are  then  used  as  potential  subsidy  payments  since  a  reduction  in  reservoir  dredging   would  be  an  off-­‐site  environmental  benefit.     Erosion  Amounts     Erosion  amounts  were  computed  for  annual  wheat  and  perennial  wheat  at  three   different  levels  of  soil  erodibility:  low,  medium  and  high.  The  universal  soil  loss  equation   (USLE)  was  used  to  come  up  with  measures  of  erosion  for  perennial  wheat  and  annual   wheat  at  the  three  levels  of  erodibility  (Stone  and  Hilborn  2000).  The  USLE  is  built  upon   four  variables:  R  for  rainfall  and  runoff,  K  for  erodibility,  LS  for  the  slope-­‐length  gradient  of   the  piece  of  land  and  C  for  crop  management.  The  USLE  multiplies  each  component   together:  R*K*LS*C,  to  find  the  total  amount  of  erosion  in  tons  per  hectare  that  was   produced  by  each  type  of  crop  (Stone  and  Hilborn  2000).  The  three  levels  of  soil  erodibility   (high,  medium  and  low)  were  determined  by  the  R,  K  and  LS  components  of  the  USLE.       The  R  and  K  factor  estimates  came  directly  from  Mahmoudzadeh  et  al.,  2002.   Mahmoudzadeh’s  R  and  K  factors  were  provided  for  wheat-­‐growing  farmland  in  New  South   Wales,  Australia.  The  LS  and  C  factors  came  from  a  Canadian  study  of  the  universal  soil  loss   equation  by  Stone  and  Hilborn,  2000.  Since  perennial  wheat  is  an  experimental  crop,  a  C   value  for  perennial  wheat  was  created  by  averaging  the  C  values  of  annual  wheat  and   72         pasture  (since  perennial  wheat  is  a  wheat-­‐grass  hybrid).  So,  Stone  and  Hilborn’s  wheat  and   pasture  C  values  were  averaged  to  form  perennial  wheat’s  C  value  (2000).     The  LS  component  impacted  the  level  of  erodibility  through  the  steepness  of  the   plot’s  slope.  The  plot  with  the  lowest  level  of  slope  steepness  had  the  lowest  level  of  soil   erodibility  (Mahmoudzadeh  et  al.  2002).  The  lowest  level  of  erodibility  also  had  the  lowest   K  value.  The  K  value  at  the  low  level  of  erodibility  used  in  this  study  was  0.13,  which  was   pretty  close  to  0.15,  the  K  value  for  the  same  type  of  soil  in  a  Canadian  study   (Mahmoudzadeh  et  al.  2002  and  Stone  and  Hilborn  2000).  So,  the  erosion  amounts  at  each   level  of  erodibility  were  determined  by  multiplying  together  the  components  of  the  USLE.       Once  the  erosion  amounts  were  found  for  annual  wheat  and  perennial  wheat  at   high,  medium  and  low  erodibility,  each  amount  of  erosion  was  divided  by  two  because   Mahmoudzadeh  et  al.  claim  that  the  USLE  over-­‐estimates  erosion  amounts  between  one   point  seven  and  two  point  two  times  (2002).  Mahmoudzadeh  et  al.  explain  why  the  erosion   estimates  found  through  the  USLE  must  be  reduced:  “the  predicted  soil  loss  rates  (are)   higher  than  the  measured  sediment  yields  because  no  allowance  has  been  made  for   sediment  storage  following  initial  erosion”  (p.  78,  2002). So,  since  the  USLE  is  used  to   estimate  the  amounts  of  erosion  generated  by  perennial  wheat  and  annual  wheat,  the   estimates  must  be  reduced  in  order  to  represent  the  actual  amounts  of  soil  erosion  that   would  be  measured.  A  sensitivity  analysis  that  evaluates  how  the  erosion  amounts  would   be  different  if  two  did  not  divide  the  USLE  estimates  is  given  at  then  end  of  this  section.  The   R,  K,  LS  and  C  factors  used  to  find  perennial  wheat  and  annual  wheat’s  erosion  amounts  are   given  in  tables  5.1.1  and  5.1.2  below.       73         Erodibility   High   Medium   Low   Erodibility   High   Medium   Low   Table  5.1.1  R,  K,  LS  and  C  Values  for  Annual  Wheat   R   K   LS   181.5   0.08   0.86   173   0.065   0.54   173   0.065   0.38     Table  5.1.2  R,  K,  LS  and  C  Values  for  Perennial  Wheat   R   K   LS   181.5   0.08   0.86   173   0.065   0.54   173   0.065   0.38   C   0.175   0.175   0.175   C   0.047   0.047   0.047     Avoided  Yield  Loss  Values     Since  annual  wheat  would  generate  more  erosion  than  perennial  wheat,  the  grain   yield  of  the  perennial  wheat  crop  would  be  greater  than  the  yield  of  the  annual  wheat  crop   in  the  long  run.  Estimates  for  the  yield  losses  avoided  through  the  growth  of  perennial   wheat  or  intermediate  wheatgrass  were  calculated  through  a  number  of  steps.  The   estimates  could  be  used  to  advise  growers  on  the  private  impacts  of  perennial  wheat’s   environmental  benefits.  However,  the  avoided  yield  loss  values  would  not  be  included  in   any  subsidy  estimates  because  the  avoided  yield  losses  are  on-­‐site  environmental  benefits   and  the  subsidies  only  include  values  of  off-­‐site  benefits.       To  form  the  avoided  yield  loss  values,  the  erosion  estimates  in  tons  per  hectare   predicted  through  the  USLE  were  first  multiplied  by  the  density  of  clay  loam  soil  to  convert   the  erosion  estimates  to  volumetric  form  (cubic  meters  per  hectare).  Much  of  the  soil  in  the   wheat-­‐growing  region  of  NSW  consists  of  clay  loam,  which  has  a  density  of  1.26  grams  per   cubic  centimeter  (Rivenshield  and  Bassuk  2007).  So,  the  mass  of  predicted  erosion  in  tons   per  hectare  was  multiplied  by  1.26  to  find  the  amounts  of  erosion  in  cubic  meters  per   hectare.     74           Larney  et  al.  performed  a  study  in  Alberta,  Canada,  where  grain  yields  were  found   after  different  amounts  of  soil  were  removed  from  farm  plots  (1995).  The  grain  yields  in   kilograms  per  hectare  were  found  after  the  authors  removed  0,  6,  12,  18  and  24  cubic   meters  of  soil.  A  non-­‐linear  least  squares  regression  of  soil  removal  on  grain  yield  with  data   from  Larney  et  al.  was  estimated  for  a  hyperbolic  model.  The  hyperbolic  model  with  the   specific  functional  form  given  below  was  chosen  because  it  allowed  the  grain  yield  of  the   wheat  crops  to  decrease  as  soil  removal  increased,  without  the  grain  yield  ever  becoming   zero.  Once  the  parameters  were  estimated  through  the  non-­‐linear  least  squares  regression   and  placed  into  the  model,  the  fitted  hyperbolic  model  became:       Yield  (kg/ha)  =  1277.7*[1-­‐(14.57*Erosion)/(100*1+(14.57*Erosion/100))].   (8)   The  parameters  1277.7  and  14.57  were  both  estimated  through  the  non-­‐linear  least   squares  regression  of  grain  yield  on  soil  removal,  using  data  from  Larney  et  al.  1995.         The  USLE-­‐based  differences  in  the  amounts  of  erosion  generated  by  annual  wheat   and  perennial  wheat  at  high,  medium  and  low  soil  erodibility  were  then  included  in  the   hyperbolic  model  as  the  erosion  variable.  The  predicted  grain  yield  differences  produced  at   each  level  of  erosion  were  found.  These  yield  differences  were  the  yield  losses  avoided   through  growing  one  hectare  of  perennial  wheat  instead  of  annual  wheat.  The  avoided   yield  loss  amounts  were  then  multiplied  by  the  adjusted  2010  Australian  feed  wheat  grain   price,  which  was  around  11  cents  per  kilogram,  as  described  in  the  budget  analyses  given   in  the  previous  chapter.  As  described  above,  the  2010  Australian  feed  wheat  grain  price   was  found  by  adjusting  historical  feed  wheat  grain  prices  by  the  Australian  consumer  price   index  (ABS  2011).  Multiplying  the  avoided  yield  loss  amounts  by  the  2010  feed  wheat   75         inflation-­‐adjusted  trend  price  generated  the  total  values  of  perennial  wheat’s  avoided  yield   losses  at  high,  medium  and  low  erodibility.     Reduced  Dredging  Costs     One  of  the  main  off-­‐site  impacts  of  soil  erosion  is  the  buildup  of  sediment  in   waterways.  In  New  South  Wales,  Australia,  sediment  from  farmland  erosion  accumulates  in   reservoirs  and  reduces  the  efficiency  of  hydroelectric  dams.  Dredging  is  often  necessary  to   remove  the  amassed  sediment  from  the  dam  reservoirs.  Since  perennial  wheat  produces   less  soil  erosion  than  annual  wheat,  one  of  the  most  important  off-­‐site  benefits  of  perennial   wheat  is  a  reduction  in  the  amount  of  soil  that  ends  up  in  dam  reservoirs,  thereby  reducing   the  amount  of  dredging  that  needs  to  be  performed  in  NSW.  Although  there  are  many  off-­‐ site  impacts  of  a  reduction  in  soil  erosion,  the  reduction  in  reservoir  dredging  costs  was   chosen  to  be  valued  here  because  it  could  greatly  impact  New  South  Wales,  which  is  the   study  site  of  this  case  study.  Some  of  the  other  off-­‐site  benefits  of  soil  conservation,  such  as   decreased  water  treatment  costs  or  increased  fishing  values,  would  not  have  as  much  of  an   impact  on  NSW  as  a  reduction  in  reservoir  dredging  costs.       Once  the  erosion  amount  differences  in  cubic  meters  per  hectare  for  perennial   wheat  and  annual  were  estimated  using  the  USLE  methods  described  above,  they  were   adjusted  to  form  the  amount  of  eroded  soil  that  ends  up  being  dredged  from  reservoirs.   David  Pimentel  claims  that  worldwide,  only  two  thirds  of  all  soil  that  is  eroded  from   cropland  ends  up  in  waterways  (2006).  So  to  find  the  amounts  of  erosion  that  would  enter   waterways,  the  differences  in  perennial  wheat  and  annual  wheat  soil  erosion  amounts  at   high,  medium  and  low  erodibility  were  multiplied  by  two  thirds.  These  erosion  estimates   76         thus  represent  the  total  soil  erosion  amounts  that  would  not  be  dredged  from  a  reservoir   due  to  perennial  wheat’s  reduction  in  erosion.         After  finding  the  avoided  dredging  amounts,  the  dredging  costs  were  estimated  for   Australia  in  1991  and  were  adjusted  to  the  2010  price  level  using  the  Australian  consumer   price  index  (ABS  2011,  a).  Reservoir  dredging  costs  were  estimated  to  be  four  dollars  per   cubic  meter  of  sediment  in  Australia  in  1991  (Bruun  and  Willekes  1992).  Using  the  average   1991  and  2010  consumer  price  indexes,  the  2010  dredging  cost  was  found  to  be  seven   dollars  per  cubic  meter  of  sediment  (ABS  2011,  a).  The  erosion  amounts  that  would  not  be   dredged  due  to  perennial  wheat’s  reduction  in  erosion  were  thus  multiplied  by  seven   dollars  per  cubic  meter  to  find  the  total  values  of  the  reduced  dredging  costs  at  high,   medium  and  low  erodibility.  The  values  of  reduced  dredging  costs  then  formed  potential   high,  medium  and  low  subsidy  amounts  that  could  be  paid  to  growers  of  perennial  grains   for  producing  off-­‐site  environmental  benefits.       Results   Erosion  Amounts     The  process  described  in  the  methods  section  above  was  used  to  find  the  amounts  of   erosion  that  one  hectare  of  annual  wheat  and  perennial  wheat  produced  at  low,  medium   and  high  levels  of  soil  erodibility.  Table  5.1.3  below  provides  the  soil  erosion  amounts  in   tons  per  hectare  produced  by  each  type  of  crop,  given  each  level  of  erodibility.  Table  5.1.4   shows  the  erosion  amounts  in  cubic  meters  per  hectare  at  each  level  of  erodibility.  All  of   the  erosion  amounts  directly  impact  the  monetary  values  of  perennial  wheat’s  reduction  in   erosion.  The  results  reflect  the  assumption  that  the  growth  of  perennial  wheat  erodes  less   soil  than  annual  wheat  on  a  per  hectare  per  year  basis.     77         Table  5.1.3  Calculated  Soil  Erosion  Amounts  in  New  South  Wales  at  the  Field  Edge   (Tons/Ha/Yr)3   Level  of  Erodibility   Annual  Wheat   Perennial  Wheat   High     14.3   3.8   Medium   8.4   2.2   Low   5.5   1.5     Table  5.1.4  Calculated  Soil  Erosion  Amounts  in  New  South  Wales  at  the  Field  Edge  (Cubic   Meters/Ha/Yr)   Level  of  Erodibility   Annual  Wheat   Perennial  Wheat   Difference   High   18.0   4.7   13.3   Medium   10.6   2.8   7.8   Low   6.9   1.8   5.1     Avoided  Yield  Loss  Values  (On-­Site)     The  values  of  the  avoided  grain  yield  losses  were  the  on-­‐site  benefits  of  perennial   wheat’s  reduction  in  soil  erosion.  Given  the  erosion  amount  differences,  the  grain  yields   increased  as  the  soil  erodibility  decreased.  So,  the  lowest  level  of  erodibility  had  the  highest   grain  yield  given  the  erosion  amount  differences  between  annual  wheat  and  perennial   wheat.  The  grain  yields  in  kilograms  per  hectare  per  year  from  the  differences  in  erosion   amounts  between  annual  wheat  and  perennial  wheat  are  given  in  table  5.1.5  below  at  each   level  of  soil  erodibility.   Table  5.1.5  Predicted  Grain  Yields  Saved  Under  PW  by  Averting  Erosion  Produced  Under   AW  (Kg/Ha/Yr)   Level  of  Erodibility   Grain  Yield  from  Averting  AW  Erosion   High   435   Medium   597   Low   734       The  grain  yields  were  then  multiplied  by  11  cents  per  kilogram,  the  2010  Australian   price  of  feed  wheat  grain,  to  find  the  avoided  yield  loss  values  generated  by  perennial                                                                                                                   3  Two  thirds  of  these  soil  erosion  amounts  is  expected  to  enter  waterways  that  need   dredging  (Pimentel  2006).     78         wheat’s  reduction  in  soil  erosion.  At  low  erodibility,  the  avoided  yield  loss  value  was  $78   per  hectare.  At  the  medium  level  of  erodibility,  the  avoided  yield  loss  value  was  $63,  and   the  value  was  $46  at  the  highest  level  of  erodibility.  The  avoided  yield  loss  values  for   perennial  wheat’s  reduction  in  erosion  are  given  in  table  5.1.6  below.     Table  5.1.6  Predicted  Values  of  Avoided  Yield  Loss  from  Erosion  Due  to  Replacing  AW  by   PW  (2010  AUD/Ha/Yr)   Level  of  Erosion   Values   High   $46   Medium   $63   Low   $78     Reduced  Dredging  Costs  (Off-­Site)     The  amounts  of  eroded  soil  that  would  not  be  dredged  from  reservoirs  due  to   perennial  wheat’s  reduction  in  soil  erosion  are  given  below  in  table  5.1.7.  These  amounts   were  found  by  multiplying  the  original  erosion  estimates  in  cubic  meters  per  hectare  by   two  thirds  (per  Pimentel  2006).  The  amounts  of  sediment  that  would  avoid  being  dredging   decreased  as  the  level  of  soil  erodibility  decreased.     Table  5.1.7  Avoided  Dredging  Amounts  of  Replacing  AW  by  PW  (Cubic  Meters/Ha/Yr)   Level  of  Erodibility   Sediment  Amounts  Not  Dredged     High   8.9   Medium   5.2   Low   3.4       The  avoided  dredging  amounts  of  sediment  were  multiplied  by  seven  dollars  per   cubic  meter  to  find  the  avoided  dredging  costs.  These  avoided  costs  provided  by  perennial   wheat’s  reduction  in  soil  erosion  are  given  in  table  5.1.8  below  at  high,  medium  and  low   soil  erodibility.  The  highest  level  of  erodibility  also  provided  the  highest  amount  of  avoided   dredging  costs.  So,  the  growth  of  one  hectare  of  perennial  wheat  instead  of  annual  wheat   could  decrease  the  cost  of  dredging  reservoirs  in  NSW,  Australia.     79         Table  5.1.8  Reduced  Dredging  Costs  Due  to  Replacing  AW  by  PW  (2010  AUD/Ha/Yr)   Level  of  Erosion   Values   High   $59   Medium   $35   Low   $23           Only  the  values  of  the  external  (off-­‐site)  environmental  benefit  could  be  paid  to  a   grower  of  a  perennial  grain  through  a  subsidy  since  the  public  would  not  be  willing  to  pay   growers  to  provide  themselves  with  on-­‐site  environmental  benefits  produced  by  an  EB   technology.  Therefore,  only  the  values  of  the  reduced  dredging  costs  are  included  below  in   potential  subsidy  amounts  paid  to  growers  of  perennial  grains.  The  impact  of  these  subsidy   amounts  on  the  profitability  of  perennial  wheat  and  intermediate  wheatgrass  lines  is   addressed  in  section  5.2.       Even  though  the  values  of  the  avoided  grain  yield  losses  were  not  included  in  the   subsidy  amounts,  they  could  still  be  used  to  advise  growers  on  the  private  monetary   impacts  of  the  environmental  benefits  provided  by  perennial  grains.  Since  perennial   wheat’s  reduction  in  soil  erosion  would  decrease  grain  yield  losses  and  thus  provide   private  monetary  values  that  could  directly  impact  profitability,  the  environmental  benefit   would  impact  the  grower’s  adoption  decision.  So  even  though  the  avoided  yield  loss  values   would  not  be  included  in  the  subsidy  estimates  because  the  public  would  not  be  willing  to   pay  for  private  benefits  that  only  aid  growers,  the  avoided  yield  loss  values  would  still  help   a  grower  decide  whether  or  not  to  adopt  perennial  wheat  and  intermediate  wheatgrass.       Sensitivity  Analyses     Two  main  assumptions  were  made  in  this  benefit  transfer  study  that  largely   impacted  the  monetary  values  of  perennial  wheat’s  reduction  in  soil  erosion.  Both  of  the   assumptions  influenced  the  reduced  reservoir  dredging  costs,  meaning  that  they  also   80         affected  the  potential  subsidy  values.  The  two  assumptions  were  that  the  erosion  estimates   found  through  the  universal  soil  loss  equation  were  divided  by  two,  and  that  the  sediment   delivery  estimates  in  the  reduced  dredging  section  were  multiplied  by  two  thirds.  Together   these  two  changes  increased  the  reservoir  dredging  costs  that  would  be  avoided  through   the  growth  of  perennial  wheat.  So,  this  section  provides  two  sensitivity  analyses  that   describe  what  the  erosion  amounts  would  be  if  the  USLE  estimates  were  not  divided  by   two,  and  what  the  sediment  delivery  estimates  would  be  if  they  were  not  multiplied  by  two   thirds.  These  analyses  were  performed  because  not  all  soil  erosion  studies  agree  that  the   USLE  amounts  should  be  divided  by  two  or  that  the  sediment  delivery  estimates  should  be   multiplied  by  two  thirds.     USLE  Erosion  Amount  Sensitivity  Analysis     If  the  erosion  amounts  that  were  generated  through  the  universal  soil  loss  equation   were  not  divided  by  two,  following  Mahmoudzadeh  et  al.  2002,  all  of  the  erosion  estimates   would  be  two  times  as  large.  Table  5.1.9  provides  the  erosion  amounts  in  tons  per  hectare   at  high,  medium  and  low  soil  erodibility  for  perennial  wheat  and  annual  wheat,  assuming   that  the  USLE  estimates  were  not  divided  by  two.  Since  the  erosion  amounts  were  used  to   generate  the  avoided  yield  loss  values  and  the  reduced  reservoir  dredging  costs,  those   estimates  would  change  if  two  did  not  divide  the  USLE  erosion  amounts.  The  reduced   reservoir  dredging  costs  would  double,  but  the  avoided  yield  loss  values  would  not.  Table   5.1.10  provides  the  avoided  yield  loss  values  at  high,  medium  and  low  erodibility  given   erosion  amounts  that  were  not  divided  by  two.         81         Table  5.1.9  Sensitivity  Analysis:  Doubled  Soil  Erosion  Amounts  (Tons/Ha/Yr)   Level  of  Erodibility   Annual  Wheat   Perennial  Wheat   Difference   High   28.6   7.6   21.0   Medium   16.8   4.5   12.3   Low   11.0   2.9   8.1     Table  5.1.10  Sensitivity  Analysis:  Avoided  Yield  Loss  Values  with  Doubled  Soil  Erosion   Amounts  Due  to  Replacing  AW  by  PW  (2010  AUD/Ha/Yr)   Level  of  Erosion   Values   High   $28   Medium   $42   Low   $54     Sediment  Delivery  Sensitivity  Analysis     If  the  estimates  of  eroded  soil  that  enter  a  waterway  were  not  multiplied  by  two   thirds  following  Pimentel  (2006),  the  sediment  delivery  estimates  would  also  be  larger.   Increasing  the  sediment  delivery  estimates  would  in  turn  increase  the  reservoir  dredging   costs  that  would  be  avoided  due  to  the  growth  of  perennial  wheat.  Since  the  reduced   reservoir  dredging  costs  would  be  used  as  proxies  for  subsidies  paid  to  growers  for  the   production  of  off-­‐site  environmental  benefits,  not  multiplying  the  sediment  delivery   amounts  by  two  thirds  would  also  increase  the  potential  subsidy  amounts.  The  sediment   delivery  amounts  in  cubic  meters  per  hectare  at  high,  medium  and  low  soil  erodibility  not   multiplied  by  two  thirds  are  the  same  as  those  given  above  in  table  5.1.4.  They  would   simply  be  the  soil  erosion  amounts  provided  by  the  universal  soil  loss  equation  given  in   cubic  meters  per  hectare.  If  the  sediment  delivery  amounts  were  not  divided  by  two  thirds,   the  avoided  reservoir  dredging  costs  would  also  increase.  Table  5.1.11  shows  the  reservoir   dredging  costs  that  would  be  avoided  through  the  growth  of  perennial  wheat  at  high,   medium  and  low  erodibility,  assuming  that  the  sediment  delivery  estimates  were  not   82         multiplied  by  two  thirds.  These  estimates  do  not  include  the  doubled  erosion  amounts   described  above.     Table  5.1.11  Sensitivity  Analysis:  Reduced  Dredging  Costs  if  All  Eroded  Sediment  Reaches   Waterways  (2010  AUD/Ha/Yr)   Level  of  Erosion   Values   High   $89   Medium   $52   Low   $34       Future  Work       Since  this  study  only  valued  the  benefits  of  reduced  soil  erosion  generated  by  the   growth  of  perennial  grains,  all  of  the  perennial  grains’  environmental  benefits  should  be   valued  in  the  future.  Studies  can  be  conducted  to  place  values  on  both  the  carbon   sequestration  and  reduced  nitrate  leaching  benefits  that  could  be  provided  by  the  growth   of  perennial  wheat  or  intermediate  wheatgrass.  When  both  of  these  benefits  are  valued   monetarily,  a  more  complete  estimation  of  all  of  the  values  of  the  perennial  grains’   environmental  benefits  would  be  found.     5.2  Budget  Analyses  With  Subsidies     Changing  the  price,  yield,  subsidies  or  costs  of  the  perennial  wheat  and  intermediate   wheatgrass  lines  alone  may  not  make  the  lines  breakeven  with  annual  wheat.   Consequently,  a  combined  strategy  that  would  change  more  than  one  of  these  components   could  be  used.  This  section  evaluates  the  comparative  breakeven  prices,  yields  and  costs  of   the  perennial  grain  lines  that  include  three  levels  of  subsidy  payments.  Since  perennial   grains  generate  external  public  benefits,  subsidies  could  be  paid  to  perennial  grain  growers   to  compensate  the  growers  for  providing  the  off-­‐site  benefits.  The  reduced  dredging  costs   at  high,  medium  and  low  erodibility,  $59,  $35  and  $23  Australian  dollars  per  hectare  from   83         table  5.1.8,  were  used  as  the  subsidy  amounts  paid  to  growers  of  perennial  grains.  The   subsidy  values  were  added  to  the  annual  gross  margins  of  every  perennial  grain  line  from   the  three  Australian  wheat  trials  to  find  the  net  present  values,  annualized  net  returns  and   comparative  breakeven  prices,  yields  and  costs  of  each  perennial  grain  line  including  the   annual  subsidy  payments.  This  section  thus  evaluates  combined  strategies  that  would   allow  the  perennial  grain  lines  to  breakeven  with  annual  wheat.       Budget  Components     In  forming  the  budget  analyses  that  included  the  subsidy  payments,  the  costs  and   revenues  from  the  original  budget  analyses  did  not  change.  The  only  components  of  the   budgets  that  changed  were  the  gross  margins.  Specifically,  $59,  $35  and  $23  subsidies   representing  high,  medium  and  low  erodibility  were  added  to  the  annual  gross  margins  in   each  of  the  three  wheat  trials.  So,  the  annual  gross  margins  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  increased  respectively  by  each  subsidy  amount.       Net  Present  Values     Equation  2  was  used  to  generate  the  net  present  values  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  that  included  the  subsidies.  Along  with  the  five  perennial   wheat  and  intermediate  wheatgrass  lines  that  had  positive  NPV’s  without  subsidies,  five   other  perennial  grain  lines  had  positive  NPV’s  with  the  addition  of  the  high  subsidy.   Perennial  grain  lines  O42  and  C36a  in  the  Cowra  2008  trial  and  C46a,  Dundas  and  O38  in   the  Cowra  2009  trial  all  gained  positive  NPV’s  given  the  high  subsidy  level  of  $59  per   hectare  per  year.  At  the  medium  and  small  subsidies,  only  two  perennial  grain  lines  gained   positive  NPV’s.  Line  C36a  from  the  Cowra  2008  trial  and  Dundas  from  the  Cowra  2009  trial   both  had  positive  NPV’s  given  the  $35  and  $23  subsidies.  However,  even  at  the  high  subsidy   84         level,  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  an  NPV  that  was  as   high  as  the  NPV  of  the  annual  wheat  line.     Including  the  five  perennial  grain  lines  that  had  positive  NPV’s  without  the   subsidies,  at  the  high  subsidy  level  ten  perennial  wheat  and  intermediate  wheatgrass  lines   had  positive  NPV’s.  At  the  medium  and  low  subsidy  levels,  seven  perennial  grain  lines  had   positive  NPV’s.  All  of  the  other  perennial  grain  lines  had  negative  net  present  values  given   the  three  subsidy  payments.  Altogether,  none  of  the  NPV’s  were  as  high  as  the  net  present   value  of  the  annual  wheat  line,  meaning  that  even  with  the  high,  medium  and  low  annual   subsidies,  none  of  the  perennial  grain  lines  were  as  profitable  as  annual  wheat.  The  NPV’s   for  each  wheat  line  given  the  high,  medium  and  low  subsidies  are  provided  in  tables  A.5.1,   A.5.2  and  A.5.3  in  the  appendix  at  the  end  of  this  chapter.       Comparative  Breakeven  Analysis  With  Soil  Conservation  Subsidies     The  conceptual  model  described  in  chapter  three  was  applied  to  the  budget  analyses   that  included  the  three  different  subsidy  payments.  The  annualized  net  returns  including   the  subsidies  were  found  for  all  of  the  perennial  wheat  and  intermediate  wheatgrass  lines,   and  were  then  compared  to  the  net  return  of  the  annual  wheat  line  that  did  not  include  the   subsidies.  The  comparative  breakeven  prices,  yields  and  costs  that  would  be  necessary  for   the  profits  of  the  wheat  lines  to  be  equal  to  the  net  return  of  the  annual  wheat  line  given  the   subsidies  were  also  found.     Annualized  Net  Returns     The  annualized  net  returns  that  included  the  subsidies  were  generated  through   Equation  3.  The  perennial  grain  lines  that  gained  positive  net  present  values  through  the   subsidies  also  gained  positive  annualized  net  returns.  So,  ten  perennial  grain  lines  had   85         positive  net  returns  at  the  high  subsidy  while  seven  lines  had  positive  net  returns  at  the   medium  and  low  subsidies.  Like  the  net  present  values,  none  of  the  annualized  net  returns   of  the  perennial  grain  lines  were  as  large  as  the  net  return  of  the  annual  wheat  line.  So,   changes  in  price,  yield  or  costs  would  still  need  to  occur  for  the  perennial  grain  lines  to   become  as  profitable  as  annual  wheat.  The  annualized  net  returns  of  every  line  of  perennial   wheat  and  intermediate  wheatgrass  including  the  subsidies  are  given  in  tables  A.5.4,  A.5.5   and  A.5.6  in  the  appendix.   Comparative  Breakeven  Yields     Since  none  of  the  perennial  wheat  or  intermediate  wheatgrass  lines  had  annualized   net  returns  that  were  as  large  as  the  net  return  of  annual  wheat  given  the  subsidies,   increases  in  grain  yield  could  increase  the  profits  of  the  varieties  so  that  they  would  be   equal  to  the  net  return  of  annual  wheat.  The  equation  used  to  calculate  the  average  annual   comparative  breakeven  yields  including  the  subsidies  was:   yCBS  =  (NR0  +  cN  -­‐  σN)/pN           (9)   In  equation  9,  yCBS  is  assumed  to  be  the  average  annual  comparative  breakeven  grain  yield   of  perennial  wheat  or  intermediate  wheatgrass,  NR0  is  the  annual  net  return  of  annual   wheat,  and  cN,  σN  and  pN  are  the  average  annual  variable  costs  of  production,  the  annual   subsidy  payments  and  the  original  price  of  the  perennial  wheat  and  intermediate   wheatgrass  lines  ($297/ton),  respectively.  This  equation  determined  the  average  annual   comparative  breakeven  grain  yields  of  every  perennial  wheat  and  intermediate  wheatgrass   line  in  the  three  Australian  wheat  trials.     86           The  ten  perennial  wheat  and  intermediate  wheatgrass  lines  with  the  positive  net   returns  given  the  large  subsidy  and  the  seven  lines  with  the  positive  net  returns  given  the   medium  and  small  subsidies  would  require  the  lowest  comparative  breakeven  yields.  The   rest  of  the  perennial  wheat  and  intermediate  wheatgrass  lines,  which  all  had  negative  net   returns,  would  require  much  larger  gains  in  grain  yield  for  their  profits  to  equal  the  net   return  of  annual  wheat.  As  the  subsidy  payments  increased,  the  comparative  breakeven   yields  of  each  wheat  line  decreased.       Given  the  medium  subsidy  level,  the  following  yield  gains  would  allow  the  seven   perennial  wheat  and  intermediate  wheatgrass  lines  with  positive  net  returns  to  become  as   profitable  as  annual  wheat:  118%  for  C36a  and  70%  growth  for  Dundas  in  Cowra  2008,   87%  for  C39b,  112%  for  C47b  and  O42,  133%  for  Dundas  and  22%  for  C64a  in  Cowra   2009.  All  of  the  other  perennial  grain  lines,  which  had  negative  net  returns,  would  require   larger  increases  in  yield  to  become  as  profitable  as  annual  wheat  given  the  medium  subsidy   level.    The  comparative  breakeven  yield  gain  percentages  for  every  wheat  line  at  each  level   of  subsidy  payment  are  given  in  tables  A.5.7,  A.5.8  and  A.5.9  in  the  appendix  at  the  end  of   the  chapter.  These  yield  gains  are  the  minimum  thresholds  that  perennial  wheat  and   intermediate  wheatgrass  breeders  or  geneticists  could  focus  on  when  improving  the  yields   of  the  wheat  lines.  Improving  the  perenniality  of  the  perennial  wheat  and  intermediate   wheatgrass  lines,  which  is  the  number  of  years  that  each  line  survives,  would  also  help  to   increase  the  total  grain  yields  and  would  be  important  to  justify  subsidies  for  soil   conservation  that  depends  on  perenniality.         87         Comparative  Breakeven  Prices     A  wide  range  of  grain  prices  would  be  needed  in  order  for  the  perennial  wheat  and   intermediate  wheatgrass  lines  to  become  as  profitable  as  annual  wheat,  given  the  $59,  $35   and  $23  subsidy  payments.  The  comparative  breakeven  grain  prices  in  Australian  dollars   per  ton  were  generated  through  this  equation:   pCBS  =  (NR0  +  cN  -­‐  σN)/yN           (10)   In  this  equation,  the  comparative  breakeven  grain  prices  of  the  perennial  grain  lines  with   subsidies  were  assumed  to  be  pCBS.  NR0  was  the  annual  net  return  of  annual  wheat,  and  cN,   σN  and  yN  were  the  average  AVCP,  annual  subsidy  payments  and  average  annual  grain   yields  of  the  perennial  wheat  and  intermediate  wheatgrass  lines.  Equation  10  thus   calculated  the  comparative  breakeven  grain  prices  in  dollars  per  ton  by  adding  the  AVCP   and  subtracting  the  annual  subsidies  from  annual  wheat’s  net  return,  and  then  dividing  by   the  average  annual  grain  yield  of  the  perennial  grain  lines.       Given  the  medium  subsidy  payment,  the  prices  that  would  allow  the  seven  perennial   grain  lines  with  positive  net  returns  to  breakeven  with  annual  wheat  were:  $646  per  ton   for  C36a  and  $506  for  Dundas  in  Cowra  2008,  $554  for  C39b,  $630  for  C47b  and  O42,  $692   for  Dundas  and  $362  for  C64a  in  Cowra  2009.  The  comparative  breakeven  price  with  a  soil   conservation  subsidy  of  line  C64a  was  actually  lower  than  the  price  of  annual  wheat  grain,   which  was  $372  per  ton.  Given  the  medium  subsidy  payment,  achieving  some  of  the   comparative  breakeven  prices  through  grain  quality  improvements  could  actually  be   possible.  So,  it  would  be  more  feasible  for  the  perennial  grain  lines  to  reach  the   comparative  breakeven  price  thresholds  with  the  subsidies  than  without  them.  The   88         comparative  breakeven  prices  of  the  perennial  grain  lines  that  had  negative  net  returns   were  significantly  higher  than  those  of  the  lines  that  had  positive  net  returns.  The   comparative  breakeven  prices  of  all  of  the  perennial  wheat  and  intermediate  wheatgrass   lines  are  given  in  tables  A.5.10,  A.5.11  and  A.5.12  in  the  appendix.       The  perennial  wheat  and  intermediate  wheatgrass  grain  was  originally  priced  as   feed  wheat  grain.  If  the  quality  of  the  grain  could  be  increased  through  plant  breeding  or   genetics,  the  price  of  the  grain  could  also  increase.  However,  it  is  not  likely  that  the   perennial  grain  price  would  ever  increase  much  above  the  price  of  annual  (food)  wheat   grain,  unless  the  perennial  grain  was  considered  to  be  a  specialty  or  ‘niche’  crop.  It  is   assumed  that  since  the  price  of  annual  wheat  was  20%  higher  than  the  price  of  feed  wheat,   only  the  comparative  breakeven  prices  that  were  less  than  20%  higher  than  the  original   feed  wheat  grain  price  would  be  feasible.  Only  line  C64a,  which  actually  had  a  lower   comparative  breakeven  price  given  the  medium  subsidy  than  the  price  of  the  annual  wheat   grain,  shows  potential  to  break  even  with  a  subsidy,  based  on  improved  grain  quality   without  yield  gains  or  improved  perenniality.       Comparative  Breakeven  Costs     Most  of  the  comparative  breakeven  annual  variable  costs  of  production  of  the   perennial  wheat  and  intermediate  wheatgrass  lines  were  negative  given  the  three   subsidies.  The  equation  that  was  used  to  find  the  average  comparative  breakeven  annual   variable  costs  of  production  with  subsidies  was:   cCBS  =  (pN  .  yN)  –  NR0  +  σN       89       (11)         In  equation  11,  cCBS  was  assumed  to  be  the  average  comparative  breakeven  AVCP  of  the   perennial  wheat  and  intermediate  wheatgrass  lines,  NR0  stood  for  the  annual  net  return  of   annual  wheat,  and  pN,  yN  and  σN  were  the  grain  price  in  dollars  per  ton,  average  annual   grain  yield  and  annual  subsidy  payments  of  the  perennial  wheat  and  intermediate   wheatgrass  lines,  respectively.       Given  the  high  subsidy  payment,  Dundas  in  the  Cowra  2008  trial  and  C64a  in  the   Cowra  2009  trial  had  positive  comparative  breakeven  costs.  However,  the  costs  were  still   too  small  to  be  economically  feasible.  At  the  medium  and  low  subsidy  levels,  only  line  C64a   had  positive  comparative  breakeven  costs,  and  they  were  again  very  small.  The   comparative  breakeven  annual  variable  costs  of  production  of  every  other  perennial  grain   line  were  negative  at  all  of  the  subsidy  levels.  Negative  costs  are  unrealistic  as  explained  in   chapter  four,  so  the  comparative  breakeven  costs  that  would  be  necessary  for  the  perennial   grain  lines  to  breakeven  with  annual  wheat  would  not  be  feasible  or  attainable,  and  are   thus  not  provided  here.       Wheat  breeders  should  focus  on  improving  other  areas  of  the  perennial  wheat  and   intermediate  wheatgrass  crops  and  not  focus  primarily  on  reducing  production  costs,  since   the  perennial  grain  shortfalls  are  too  large  to  be  made  up  by  reduced  costs  alone.  The   analysis  of  the  comparative  breakeven  budgets  with  subsidies  given  throughout  this   section  has  shown  that  improving  the  grain  yield  of  the  perennial  grain  lines  would   probably  be  the  most  practical  way  for  the  wheat  lines  to  become  as  profitable  as  the   annual  wheat  line.  Improving  the  grain  quality  of  line  C64a  in  order  to  increase  the  grain   price  would  also  be  feasible,  since  the  comparative  breakeven  price  of  line  C64a  was  less   90         than  the  price  of  annual  wheat  grain.  The  next  section  discusses  how  perenniality  impacts   the  profitability  of  the  perennial  grain  lines  from  the  three  Australian  wheat  trials.     5.3  The  Role  of  Perenniality  in  the  Viability  of  Perennial  Wheat     How  long  a  perennial  grain  crop  lives  determines  the  line’s  level  of  perenniality.   Perennial  wheat  and  intermediate  wheatgrass  crops  may  be  able  to  live  for  five  years   before  needing  to  be  replanted,  so  lines  that  live  for  three,  four  or  five  years  have  a  greater   level  of  perenniality  than  those  that  live  for  one  or  two  years.  The  level  of  perenniality   impacts  the  profitability  of  the  perennial  wheat  and  intermediate  wheatgrass  lines.   Theoretically,  the  longer  a  wheat  line  lives,  the  larger  its  grain  yield  should  be  since  more   years  of  survival  provide  more  opportunities  for  the  lines  to  produce  grain.  The  analysis   below  evaluates  how  perenniality  impacts  the  grain  yield  and  profit  of  the  perennial  grain   lines  from  the  three  Australian  wheat  trials.  The  analysis  determines  that  what  should   happen  theoretically  does  not  actually  happen  empirically.       Impact  of  Perenniality  on  Yield  and  Profit     The  perennial  nature  of  the  perennial  wheat  and  intermediate  wheatgrass  lines   should  impact  the  total  grain  yield  and  profits  produced  by  each  line.  Theoretically,  the   more  years  that  a  perennial  wheat  line  survives,  the  larger  the  line’s  grain  yield  and  net   returns  should  be.  However,  this  positive  relationship  was  not  found  within  the  Australian   wheat  data.  The  highest-­‐yielding  perennial  wheat  and  intermediate  wheatgrass  lines  did   not  survive  as  long  as  the  long-­‐living  lines  that  produced  lower  yields.  In  fact,  all  of  the   perennial  wheat  and  intermediate  wheatgrass  lines  that  had  positive  annualized  net   returns  only  lived  for  two  years.  In  the  three  Australian  wheat  trials,  the  high-­‐yielding  lines   died  early  while  the  longer-­‐living  lines  had  lower  net  returns.       91         Cowra  2008  Trial  Results     Although  the  Cowra  2008  trial  lasted  for  four  years,  most  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  in  the  trial  only  survived  for  two  years.  All  11  lines  lived  for   two  years,  three  lines  lived  for  three  years  and  only  one  line  lived  for  all  four  years  of  the   trial.  Since  a  strongly  perennial  intermediate  wheatgrass  or  perennial  wheat  line  would  live   from  three  to  five  years,  not  very  many  of  the  lines  from  the  Cowra  2008  trial  lived  up  to   their  perennial  potential.       The  grain  yield  and  net  returns  of  the  lines  in  the  Cowra  2008  trial  did  not  increase   as  the  years  of  survival  increased.  Dundas,  the  line  that  had  the  highest  grain  yield  and  net   return  in  the  Cowra  2008  trial,  only  survived  for  two  years.  The  three  lines  that  survived   for  three  years  had  yields  that  were  much  lower  than  the  grain  yield  of  Dundas,  and  their   net  returns  were  all  negative.  Also,  the  one  perennial  wheat  line  that  lived  for  four  years,   line  C57b,  had  one  of  the  lowest  grain  yields  and  annualized  net  returns  out  of  every  line  in   the  trial.  So,  the  higher-­‐yielding  lines  only  lived  for  two  years  and  were  not  very  perennial,   while  the  lines  that  lived  for  three  or  four  years  and  were  thus  more  perennial  produced   smaller  amounts  of  grain.  This  clearly  shows  that  higher  levels  of  perenniality  did  not  lead   to  larger  grain  yields  and  profits,  which  was  opposite  of  what  was  expected.  The  years  of   survival,  total  grain  yield  and  annualized  net  returns  of  each  perennial  wheat  and   intermediate  wheatgrass  line  from  the  Cowra  2008  trial  are  given  in  table  5.3.1  below.                   92         Table  5.3.1  Survival,  Yield  and  Annualized  Net  Returns  of  Cowra  2008  Trial   PW  or  IWG   Line  ID   Years  Survived   Total  Yield   Net  Return   (kg/ha)   (AU$/ha/yr)   PW   O42   2   242   -­‐46   PW   Ot-­‐38   2   808   -­‐215   PW   C35a   2   1903   -­‐100   PW   C36a   3   2668   -­‐25   PW   C36b   2   1439   -­‐147   PW   C51b   3   1554   -­‐135   PW   C57b   4   749   -­‐225   PW   C58a   2   43   -­‐294   PW   C86a   2   707   -­‐224   IWG   Th.  Interm.   3   1183   -­‐190   IWG   Dundas   2   4116   51       The  graph  below  also  shows  that  the  wheat  line  with  the  highest  annualized  net   return  only  lived  for  two  years.  The  line  with  the  second  highest  net  return  did  live  for   three  years,  so  increased  perenniality  could  generate  increased  grain  yield.  However,  that   line  still  had  a  negative  annualized  net  return,  and  the  lines  with  the  third  and  fourth   highest  net  returns  only  lived  for  two  years.  So,  the  graph  helps  to  show  how  more  years  of   survival  did  not  lead  to  higher  grain  yields  and  larger  net  returns  for  the  Cowra  2008  trial.                                         93         Figure  5.3.1  Years  of  Survival  vs.  Annualized  Net  Returns  of  Cowra  2008  Trial   Cowra  2009  Trial  Results         The  Cowra  2009  trial  lasted  for  three  years,  but  most  of  the  perennial  grain  lines   only  survived  for  two  years.  Every  wheat  line  within  the  trial  lived  for  two  years,  but  only   five  varieties  out  of  29  survived  for  three  years.  So,  only  17%  of  the  perennial  wheat  and   intermediate  wheatgrass  lines  in  the  Cowra  2009  trial  survived  for  the  entire  duration  of   the  trial.  The  Cowra  2009  trial  only  lasted  for  three  years  because  none  of  the  perennial   grain  lines  in  the  trial  lived  for  more  years  than  that.       The  same  pattern  with  grain  yield  and  annualized  net  returns  that  was  seen  in  the   Cowra  2008  trial  was  also  seen  in  the  Cowra  2009  trial.  The  four  lines  of  perennial  wheat   that  had  positive  net  returns  and  the  highest  grain  yields  only  lived  for  two  years.  Of  the   perennial  wheat  lines  that  survived  for  three  years,  none  had  a  positive  net  return.  So  in  the   Cowra  2009  trial,  perenniality  did  not  lead  to  higher  grain  yields  or  net  returns.  Instead,   94         the  high-­‐yielding  wheat  lines  were  closer  to  annual  wheat  because  they  produced  a  lot  of   grain  early  on,  and  then  died  off.  The  yields,  net  returns  and  years  of  survival  for  each   perennial  wheat  and  intermediate  wheatgrass  line  in  the  Cowra  2009  trial  are  given  in   table  5.3.2  below.     A  graph  of  the  results  from  the  Cowra  2009  trial  like  the  one  above  for  the  Cowra   2008  trial  is  also  given  below.  Figure  5.3.2  shows  that  in  the  second  Cowra  trial,  the   perennial  wheat  and  intermediate  wheatgrass  lines  with  the  highest  yields  and  net  returns   again  survived  for  only  two  years.  The  four  perennial  wheat  lines  that  had  the  highest  net   returns  all  lived  for  only  two  years,  as  shown  by  the  four  highest  points  above  the  two-­‐year   mark  in  the  graph.  The  graph  shows  that  every  perennial  wheat  and  intermediate   wheatgrass  line  that  lived  for  three  years  had  a  negative  net  return.                                                   95         Table  5.3.2  Survival,  Yield  and  Annualized  Net  Returns  of  Cowra  2009  Trial   PW  or  IWG   Line  ID   Years  Survived   Total  Yield   Net  Return   (kg/ha)   (AU$/ha/yr)   2   651   -­‐$180   PW   C27a&b   2   1112   -­‐$136   PW   C31a   2   481   -­‐$200   PW   C31b   2   537   -­‐$192   PW   C33a   2   814   -­‐$166   PW   C33b   2   370   -­‐$211   PW   C34b   2   1322   -­‐$114   PW   C36a   2   1519   -­‐$93   PW   C36b   2   2871   $49   PW   C39b   2   569   -­‐$193   PW   C40a   2   656   -­‐$181   PW   C42b   2   906   -­‐$158   PW   C44b   2   1884   -­‐$54   PW   C46a   2   2577   $13   PW   C47b   2   488   -­‐$200   PW   C49b   2   343   -­‐$213   PW   C51a   2   140   -­‐$235   PW   C57b   2   298   -­‐$218   PW   C58b   2   4353   $207   PW   C64a   3   1598   -­‐$87   PW   C79a   3   547   -­‐$193   PW   C80a   3   1051   -­‐$142   PW   C80b   3   730   -­‐$174   PW   C81b   2   48   -­‐$244   PW   C88a   2   385   -­‐$209   PW   C91b   3   1914   -­‐$55   PW   Ot-­‐38   2   2492   $13   PW   O42   2   870   -­‐$163   PW   TAF46   2   2592   -­‐$10   IWG   Dundas                             96         Figure  5.3.2  Years  of  Survival  vs.  Annualized  Net  Returns  of  Cowra  2009  Trial       Woodstock  Trial  Results       Not  much  can  be  said  about  how  perenniality  influenced  the  grain  yields  and  net   returns  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  in  the  Woodstock  trial.   Unlike  the  Cowra  2008  and  2009  trials,  the  Woodstock  trial  only  lasted  for  two  years.  All  15   of  the  perennial  wheat  and  intermediate  wheatgrass  lines  that  were  included  in  the  trial   survived  the  entire  length  of  the  two-­‐year  trial.  Every  wheat  line  in  the  Woodstock  trial  had   a  negative  net  return  each  year  from  producing  very  moderate  grain  yields.  Since  the  trial   did  not  last  more  than  two  years,  the  yields  and  net  returns  of  any  lines  that  survived  more   years  could  not  be  compared.  The  information  that  came  from  Hayes  et  al.  did  not  explain  if   any  of  the  perennial  wheat  lines  lived  longer  than  two  years  in  the  Woodstock  trial  (2012).           97           Regressions  of  Years  of  Survival  on  Net  Returns     Two  regressions  of  the  perennial  wheat  and  intermediate  wheatgrass  lines’  years  of   survival  on  their  annualized  net  returns  were  performed  to  evaluate  the  impact  of   perenniality  on  profitability.    For  the  Cowra  2008  and  2009  trials,  dummy  variables  were   formed  for  every  year  that  the  intermediate  wheatgrass  and  perennial  wheat  lines   survived.  The  dummy  variable  was  a  one  if  the  wheat  line  survived  during  that  year,  and  a   zero  if  the  line  did  not  survive  that  year.  In  the  two  regressions,  the  first  and  second  years   of  survival  were  left  out  so  that  those  years  were  the  base  case.  So,  the  constant  term   reflects  the  impact  of  two  years  of  survival  on  the  annualized  net  returns,  since  every   perennial  grain  line  lived  for  two  years.  The  coefficients  of  the  other  survival  year  dummy   variables  represented  the  deviations  away  from  the  years  one  and  two  base  case.       The  equation  representing  the  two  regressions  of  years  of  survival  on  annualized   net  returns  was:   ANR  =  β0  +  β2DV3  +  β3DV4         (12)   In  equation  12,  the  annualized  net  returns  are  given  by  ANR,  and  they  are  impacted  by  the   dummy  variables  for  each  year  of  survival  and  their  parameters.  β0  is  the  constant  term   and  is  the  coefficient  for  years  one  and  two  of  survival.  DV3  and  DV4  are  the  dummy   variables  representing  survival  in  years  three  and  four,  and  β2  and  β3  are  the  coefficients  of   the  dummy  variables  for  both  of  those  years.  So  using  equation  12,  regressions  were   formed  for  years  of  survival  on  annualized  net  returns  for  the  Cowra  2008  and  2009  trials.   A  regression  was  not  performed  for  the  Woodstock  trial  since  the  trial  only  lasted  for  two   years  and  the  perennial  wheat  and  intermediate  wheatgrass  lines  were  consequently  not   98         very  perennial.  The  results  of  the  regressions  for  the  Cowra  2008  and  2009  wheat  trials  are   given  below.      Cowra  2008  and  2009  Regression  Results     Table  5.3.3  given  below  shows  the  constant  terms  and  coefficients  of  the  dummy   variable  regressions  for  both  of  the  Cowra  trials.  In  most  of  the  cases,  more  years  of   survival  actually  decreased  the  annualized  net  return  of  the  perennial  wheat  and   intermediate  wheatgrass  lines.  Year  three  of  the  Cowra  2008  trial  would  increase  the  net   return  of  the  wheat  lines,  but  taken  together  with  the  years  one  and  two  base  case,  year   three  would  still  have  a  negative  impact  on  the  net  returns  of  the  perennial  wheat  and   intermediate  wheatgrass  lines.       Table  5.3.3  Effect  of  Perenniality  on  Annualized  Net  Returns:  Regression  Coefficients  from   the  Cowra  2008  and  2009  Trials   Trial   Years  1  and  2   Year  3   Year  4   R2  Values   Cowra  2008   -­‐139   22.6   -­‐108   0.08   T-­statistics   -­‐3.33   0.30   -­‐0.85     Cowra  2009   -­‐129   -­‐1.59   -­‐-­‐   0.00   T-­statistics   -­‐5.99   -­‐0.03   -­‐-­‐         In  the  Cowra  2008  trial,  two  years  of  survival  led  to  negative  annualized  net  returns   of  (-­‐$139)  per  hectare.  Since  the  first  two  years  of  survival  were  associated  with  negative   annualized  net  returns,  the  perennial  grain  lines  would  not  be  profitable.  The  annualized   net  return  of  (-­‐$139)  for  years  one  and  two  was  statistically  significant  at  a  95%  level.  The   third  and  fourth  years  of  survival  in  the  Cowra  2008  trial  had  coefficients  that  were  not   statistically  different  from  zero  at  a  95%  level.     In  the  Cowra  2009  trial,  years  one  and  two  generated  an  annualized  net  return  that   was  (-­‐$129)  per  hectare.  The  constant  term  of  years  one  and  two  was  statistically   significant  at  the  95%  level.  So,  like  the  Cowra  2008  trial,  the  growth  of  the  perennial  grain   99         lines  would  not  be  profitable  in  the  Cowra  2009  trial.  The  coefficient  of  year  three  was  not   statistically  significant  at  95%,  meaning  that  the  coefficient  was  not  significantly  different   than  zero.  No  results  are  shown  for  year  four  because  the  Cowra  2009  trial  only  lasted  for   three  years.  Overall,  the  regression  results  signal  that  perenniality  did  not  increase  the   annualized  net  returns  in  the  perennial  grain  lines  tested  at  Cowra.       Impact  of  Perenniality  on  Environmental  Benefits     Low  levels  of  perenniality  would  not  only  impact  the  profitability  of  perennial   grains;  lower  perenniality  would  also  lead  to  decreased  production  of  environmental   benefits.  Since  perennial  wheat  and  intermediate  wheatgrass  are  believed  to  produce   environmental  benefits  like  reduced  soil  erosion,  carbon  sequestration  and  decreased   nitrate  leaching  every  year,  the  more  years  that  the  crops  survive,  the  greater  will  be  the   amounts  of  environmental  benefits  that  are  produced.  Perennial  grain  lines  that  only  live   for  one  or  two  years  would  produce  smaller  amounts  of  environmental  benefits  than  lines   that  would  live  for  three,  four  or  five  years.  Because  of  this,  perenniality  could  also  impact   the  policy  justification  for  paying  subsidies  to  growers  of  perennial  grains.  Since  perennial   wheat  and  intermediate  wheatgrass  produce  more  environmental  benefits  the  longer  they   live,  subsidies  could  be  paid  to  growers  based  on  the  number  of  years  that  the  grain  crops   grow.  So,  perenniality  impacts  the  profitability  and  environmental  benefits  of  perennial   wheat  and  intermediate  wheatgrass,  and  may  also  influence  the  subsidies  paid  to  perennial   grain  growers.     5.4  Conclusion     This  benefit  transfer  section  calculated  on  and  off-­‐site  values  of  perennial  wheat’s   reduction  in  soil  erosion,  and  the  predicted  off-­‐site  values  were  used  as  potential  subsidy   100         payment  amounts.  However,  when  using  the  off-­‐site  values  of  reduced  erosion  as  the   subsidies,  changes  in  price,  yield  or  costs  would  still  need  to  occur  to  make  the  perennial   wheat  and  intermediate  wheatgrass  lines  from  the  three  Australian  wheat  trials  as   profitable  as  annual  wheat.  Increasing  the  quality  of  the  wheat  grain  (associated  with   price)  could  be  feasible  given  the  subsidy  payments  in  one  instance.  Perennial  wheat  line   C64a  would  have  a  comparative  breakeven  grain  price  close  to  the  annual  wheat  grain   price,  which  could  be  reached  through  grain  quality  improvements.  However,  reducing  the   annual  variable  costs  of  production  would  not  be  feasible  because  almost  all  of  the   perennial  grain  lines  would  require  the  annual  costs  to  be  negative,  even  with  the  subsidy   payments.     Increasing  the  grain  yields  of  the  perennial  grain  lines  could  also  allow  the  lines  to   breakeven  with  annual  wheat.  Given  the  subsidy  payments,  the  comparative  breakeven   yield  gains  of  the  perennial  grain  lines  with  positive  annualized  net  returns  would  be   feasible  to  attain  through  plant  breeding  or  genetics.  However,  increasing  the  perenniality   of  the  lines  would  not  allow  the  perennial  grain  lines  to  breakeven  with  annual  wheat.  The   empirical  analysis  given  above  showed  that  increased  perenniality  did  not  lead  to  higher   annualized  net  returns.  So,  given  the  subsidies  of  $59,  $35  and  $23  Australian  dollars  per   hectare  per  year,  increasing  the  grain  quality  for  better  price  and  especially  the  yields  of   the  perennial  grain  lines  would  be  the  most  feasible  changes  for  the  perennial  grain  lines  to   breakeven  with  annual  wheat.  Changing  the  annual  variable  costs  of  production  of  the   perenniality  of  the  perennial  grain  lines  would  not  allow  the  lines  to  become  as  profitable   as  annual  wheat.         101                                                 APPENDIX                                                     102         CHAPTER  FIVE  APPENDIX     Table  A.5.1  Net  Present  Values  with  Subsidies  from  the  Cowra  2008  Trial  (AUS$/ha)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   O42   78   -­‐2   -­‐41   PW   Ot-­‐38   -­‐358   -­‐437   -­‐477   PW   C35a   -­‐62   -­‐141   -­‐181   PW   C36a   132   53   13   PW   C36b   -­‐183   -­‐262   -­‐302   PW   C51b   -­‐152   -­‐231   -­‐271   PW   C57b   -­‐384   -­‐463   -­‐503   PW   C58a   -­‐563   -­‐643   -­‐683   PW   C86a   -­‐381   -­‐460   -­‐500   IWG   Th.  Interm.   -­‐294   -­‐374   -­‐414   IWG   Dundas   328   248   209                                                               103         Table  A.5.2  Net  Present  Values  with  Subsidies  from  the  Cowra  2009  Trial  (AUS$/ha)   With  $59  Subsidy    With  $35  Sub   With  $23  Sub   PW  or  IWG   Line  ID   PW   C27a&b   -­‐312   -­‐373   -­‐404   PW   C31a   -­‐199   -­‐261   -­‐292   PW   C31b   -­‐363   -­‐425   -­‐455   PW   C33a   -­‐343   -­‐405   -­‐436   PW   C33b   -­‐275   -­‐337   -­‐368   PW   C34b   -­‐392   -­‐454   -­‐485   PW   C36a   -­‐141   -­‐203   -­‐234   PW   C36b   -­‐88   -­‐150   -­‐180   PW   C39b   279   217   186   PW   C40a   -­‐345   -­‐407   -­‐438   PW   C42b   -­‐314   -­‐376   -­‐407   PW   C44b   -­‐256   -­‐318   -­‐349   PW   C46a   14   -­‐48   -­‐79   PW   C47b   186   124   93   PW   C49b   -­‐364   -­‐426   -­‐457   PW   C51a   -­‐396   -­‐458   -­‐489   PW   C57b   -­‐454   -­‐516   -­‐546   PW   C58b   -­‐409   -­‐470   -­‐501   PW   C64a   686   624   593   PW   C79a   -­‐71   -­‐133   -­‐164   PW   C80a   -­‐345   -­‐407   -­‐438   PW   C80b   -­‐214   -­‐276   -­‐307   PW   C81b   -­‐296   -­‐358   -­‐389   PW   C88a   -­‐478   -­‐540   -­‐571   PW   C91b   -­‐385   -­‐446   -­‐478   PW   Ot-­‐38   9   -­‐53   -­‐84   PW   O42   186   124   93   PW   TAF46   -­‐268   -­‐330   -­‐361   IWG   Dundas   125   63   33                             104         Table  A.5.3  Net  Present  Values  with  Subsidies  from  the  Woodstock  Trial  (AUS$/ha)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   C35a   -­‐241   -­‐283   -­‐305   PW   C36a   -­‐366   -­‐409   -­‐430   PW   C36b   -­‐366   -­‐409   -­‐430   PW   C44a   -­‐117   -­‐159   -­‐181   PW   C51b   -­‐341   -­‐384   -­‐405   PW   C64a   -­‐296   -­‐338   -­‐360   PW   C68a   -­‐294   -­‐337   -­‐358   PW   C68b   -­‐310   -­‐353   -­‐374   PW   C69b   -­‐323   -­‐366   -­‐387   PW   C71b   -­‐252   -­‐294   -­‐316   PW   C86b   -­‐368   -­‐411   -­‐432   PW   O42   -­‐305   -­‐348   -­‐369   PW   Ot-­‐38   -­‐330   -­‐372   -­‐394   PW   Zhong1   -­‐256   -­‐299   -­‐320   IWG   Dundas   -­‐287   -­‐330   -­‐351     Table  A.5.4  Annualized  Net  Returns  with  Subsidies  from  the  Cowra  2008  Trial  (AUS$/ha)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   O42   30   -­‐1   -­‐16   PW   Ot-­‐38   -­‐139   -­‐170   -­‐185   PW   C35a   -­‐24   -­‐55   -­‐70   PW   C36a   51   20   5   PW   C36b   -­‐71   -­‐102   -­‐117   PW   C51b   -­‐59   -­‐90   -­‐105   PW   C57b   -­‐149   -­‐180   -­‐195   PW   C58a   -­‐219   -­‐250   -­‐265   PW   C86a   -­‐148   -­‐179   -­‐194   IWG   Th.  Interm.   -­‐114   -­‐145   -­‐161   IWG   Dundas   127   96   81                             105         Table  A.5.5  Annualized  Net  Returns  with  Subsidies  from  the  Cowra  2009  Trial  (AUS$/ha)   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW  or  IWG   Line  ID   PW   C27a&b   -­‐121   -­‐145   -­‐157   PW   C31a   -­‐77   -­‐101   -­‐113   PW   C31b   -­‐141   -­‐165   -­‐177   PW   C33a   -­‐133   -­‐157   -­‐169   PW   C33b   -­‐107   -­‐131   -­‐143   PW   C34b   -­‐152   -­‐176   -­‐188   PW   C36a   -­‐55   -­‐79   -­‐91   PW   C36b   -­‐34   -­‐58   -­‐70   PW   C39b   108   84   72   PW   C40a   -­‐134   -­‐158   -­‐170   PW   C42b   -­‐122   -­‐146   -­‐158   PW   C44b   -­‐99   -­‐123   -­‐135   PW   C46a   6   -­‐19   -­‐31   PW   C47b   72   48   36   PW   C49b   -­‐141   -­‐165   -­‐177   PW   C51a   -­‐154   -­‐178   -­‐190   PW   C57b   -­‐176   -­‐200   -­‐212   PW   C58b   -­‐159   -­‐183   -­‐195   PW   C64a   266   242   230   PW   C79a   -­‐28   -­‐52   -­‐64   PW   C80a   -­‐134   -­‐158   -­‐170   PW   C80b   -­‐83   -­‐107   -­‐119   PW   C81b   -­‐115   -­‐139   -­‐151   PW   C88a   -­‐185   -­‐209   -­‐221   PW   C91b   -­‐150   -­‐174   -­‐186   PW   Ot-­‐38   4   -­‐20   -­‐32   PW   O42   72   48   36   PW   TAF46   -­‐104   -­‐128   -­‐140   IWG   Dundas   49   25   13                             106         Table  A.5.6  Annualized  Net  Returns  with  Subsidies  from  the  Woodstock  Trial  (AUS$/ha)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   C35a   -­‐93   -­‐110   -­‐118   PW   C36a   -­‐142   -­‐159   -­‐167   PW   C36b   -­‐142   -­‐159   -­‐167   PW   C44a   -­‐45   -­‐62   -­‐70   PW   C51b   -­‐132   -­‐149   -­‐157   PW   C64a   -­‐115   -­‐131   -­‐140   PW   C68a   -­‐114   -­‐131   -­‐139   PW   C68b   -­‐120   -­‐137   -­‐145   PW   C69b   -­‐125   -­‐142   -­‐150   PW   C71b   -­‐98   -­‐114   -­‐123   PW   C86b   -­‐143   -­‐159   -­‐168   PW   O42   -­‐118   -­‐135   -­‐143   PW   Ot-­‐38   -­‐128   -­‐145   -­‐153   PW   Zhong1   -­‐99   -­‐116   -­‐124   IWG   Dundas   -­‐111   -­‐128   -­‐136     Table  A.5.7  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Cowra  2008  Trial   (growth  %/line)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   O42   123   136   142   PW   Ot-­‐38   572   608   627   PW   C35a   184   200   208   PW   C36a   106   118   123   PW   C36b   272   292   303   PW   C51b   245   264   273   PW   C57b   663   705   726   PW   C58a   12787   13489   12840   PW   C86a   651   692   713   IWG   Th.  Interm.   420   449   463   IWG   Dundas   62   70   75                           107         Table  A.5.8  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Cowra  2009  Trial   (%/line)     With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW  or  IWG   Line  ID   PW   C27a&b   668   703   720   PW   C31a   372   393   404   PW   C31b   976   1025   1049   PW   C33a   832   874   895   PW   C33b   539   568   582   PW   C34b   1298   1361   1392   PW   C36a   294   311   320   PW   C36b   241   257   264   PW   C39b   79   87   91   PW   C40a   844   886   908   PW   C42b   679   714   731   PW   C44b   486   513   526   PW   C46a   172   185   191   PW   C47b   103   112   117   PW   C49b   988   1037   1062   PW   C51a   1357   1423   1455   PW   C57b   3649   3818   3902   PW   C58b   1581   1656   1694   PW   C64a   17   22   25   PW   C79a   228   242   250   PW   C80a   845   888   909   PW   C80b   398   421   432   PW   C81b   608   640   656   PW   C88a   10903   11400   11648   PW   C91b   1210   1269   1298   PW   Ot-­‐38   175   187   194   PW   O42   103   112   117   PW   TAF46   519   547   561   IWG   Dundas   123   133   138                           108         Table  A.5.9  Comparative  Breakeven  Yield  Gains  with  Subsidies  for  Woodstock  Trial   (%/line)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   C35a   617   641   652   PW   C36a   2211   2287   2324   PW   C36b   2215   2291   2329   PW   C44a   327   341   348   PW   C51b   1497   1549   1575   PW   C64a   928   961   978   PW   C68a   913   946   963   PW   C68b   1062   1100   1119   PW   C69b   1209   1252   1274   PW   C71b   663   688   700   PW   C86b   2274   2352   2391   PW   O42   1008   1044   1063   PW   Ot-­‐38   1302   1348   1371   PW   Zhong1   683   709   721   IWG   Dundas   861   892   908     Table  A.5.10  Comparative  Breakeven  Prices  with  Subsidies  for  Cowra  2008  Trial  ($/ton)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   O42   663   700   717   PW   Ot-­‐38   1994   2102   2157   PW   C35a   844   890   913   PW   C36a   612   646   662   PW   C36b   1104   1165   1195   PW   C51b   1023   1079   1107   PW   C57b   2266   2390   2451   PW   C58a   38248   40333   41376   PW   C86a   2230   2352   2413   IWG   Th.  Interm.   1544   1628   1670   IWG   Dundas   480   506   519                           109         Table  A.5.11  Comparative  Breakeven  Prices  with  Subsidies  for  Cowra  2009  Trial  ($/ton)   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW  or  IWG   Line  ID   PW   C27a&b   2281   2383   2435   PW   C31a   1400   1463   1495   PW   C31b   3194   3338   3410   PW   C33a   2766   2891   2953   PW   C33b   1897   1982   2025   PW   C34b   4148   4335   4428   PW   C36a   1169   1221   1248   PW   C36b   1013   1058   1081   PW   C39b   530   554   566   PW   C40a   2802   2928   2991   PW   C42b   2311   2415   2467   PW   C44b   1740   1818   1858   PW   C46a   809   845   863   PW   C47b   603   631   644   PW   C49b   3230   3375   3448   PW   C51a   4324   4519   4616   PW   C57b   11127   11628   11878   PW   C58b   4989   5213   5326   PW   C64a   347   362   370   PW   C79a   973   1016   1038   PW   C80a   2806   2923   2996   PW   C80b   1478   1545   1578   PW   C81b   2101   2196   2243   PW   C88a   32661   34132   34867   PW   C91b   3888   4063   4151   PW   Ot-­‐38   816   853   871   PW   O42   603   630   644   PW   TAF46   1837   1920   1961   IWG   Dundas   662   692   707                             110         Table  A.5.12  Comparative  Breakeven  Prices  with  Subsidies  for  Woodstock  Trial  ($/ton)   PW  or  IWG   Line  ID   With  $59  Subsidy   With  $35  Sub   With  $23  Sub   PW   C35a   2128   2198   2233   PW   C36a   6858   7083   7196   PW   C36b   6871   7096   7209   PW   C44a   1267   1308   1329   PW   C51b   4739   4894   4972   PW   C64a   3050   3150   3200   PW   C68a   3007   3105   3154   PW   C68b   3448   3561   3617   PW   C69b   3886   4013   4077   PW   C71b   2264   2339   2376   PW   C86b   7046   7277   7392   PW   O42   3289   3397   3450   PW   Ot-­‐38   4162   4298   4366   PW   Zhong1   2324   2400   2438   IWG   Dundas   2852   2946   2992                               111         VI.  THESIS  CONCLUSION     Since  the  public’s  agricultural  demands  have  changed  from  high-­‐input,  high-­‐yielding   technologies  to  environmentally  beneficial  technologies  since  the  mid  1900’s,  the  economic   feasibility  of  both  types  of  technologies  must  be  evaluated.  The  economic  model  described   in  chapter  three  explained  how  to  examine  the  profits  of  an  environmentally  beneficial   technology  compared  to  the  net  returns  of  a  conventional  technology.  If  we  assume  that   producers  strictly  prefer  profitability  to  environmental  benefits,  then  an  EB  agricultural   technology  can  only  be  adopted  if  the  profit  of  the  technology  were  to  be  greater  than  or   equal  to  the  net  return  of  the  conventional  technology  that  is  already  established.     A  comparative  breakeven  profitability  analysis  was  applied  to  43  lines  of  perennial   wheat  and  two  lines  of  intermediate  wheatgrass  compared  to  one  line  of  annual  wheat   from  three  wheat  trials  in  New  South  Wales,  Australia.  None  of  the  perennial  wheat  or   intermediate  wheatgrass  lines  were  as  profitable  as  annual  wheat,  so  changes  would  need   to  be  made  to  the  price,  yield,  costs  or  subsidies  of  the  wheat  lines  to  increase  the  lines’   profitability.  Potential  subsidy  estimates  were  generated  using  benefit  transfer  methods  by   valuing  the  off-­‐site  benefits  of  reduced  soil  erosion  that  could  potentially  be  provided  by   the  perennial  grains.  The  off-­‐site  reduced  dredging  costs  were  used  as  the  subsidy   estimates  that  could  be  paid  to  growers.  However,  even  with  the  $59,  $35  and  $23   Australian  dollar  per  hectare  subsidy  payments,  none  of  the  perennial  grain  lines  were  as   profitable  as  the  annual  wheat  line.  So  even  if  subsidies  were  available  at  these  levels,   changes  would  need  to  be  made  for  the  wheat  lines  to  become  as  profitable  as  annual   wheat.     112           The  five  characteristics  of  the  perennial  wheat  and  intermediate  wheatgrass  lines   that  could  be  altered  to  increase  profitability  were:  price  (through  improving  grain   quality),  yield  (through  grain  quantity),  costs,  subsidies  and  perenniality.  Out  of  these  five   characteristics,  perennial  wheat  breeders  and  geneticists  should  focus  on  improving  grain   quantity  (yield)  and  grain  quality  (price).  These  two  characteristics  provide  the  most   feasible  options  for  increasing  the  profits  of  the  perennial  wheat  and  intermediate   wheatgrass  lines.  The  addition  of  subsidy  payments  would  also  be  a  good  option;  however,   subsidy  payments  would  need  to  be  accompanied  with  a  change  in  price  or  yield  in  order   for  perennial  wheat  and  intermediate  wheatgrass  to  become  as  profitable  as  annual  wheat.       With  or  without  the  subsidies,  perennial  wheat  line  C64a  would  have  a  comparative   breakeven  price  close  to  the  price  of  the  annual  wheat  grain.  So,  if  plant  breeders  or   geneticists  improved  the  quality  of  the  grain  of  line  C64a,  the  grain  price  could  increase  to   allow  C64a  to  become  as  profitable  as  annual  wheat.  However,  the  comparative  breakeven   prices  of  the  other  perennial  grain  lines  are  much  higher  than  those  of  line  C64a,  so  they   would  not  become  adoptable  by  profit-­‐maximizing  growers  through  grain  quality   improvements  alone.       Increasing  the  grain  yields  of  the  perennial  grain  lines  would  be  the  most  promising   route  for  the  profits  of  the  lines  to  equal  the  net  return  of  the  annual  wheat  line.  With  or   without  the  subsidy  payments,  the  yield  gains  of  the  perennial  grain  lines  with  positive   annualized  net  returns  could  be  achieved  through  genetic  improvements  or  wheat   breeding.  During  the  Green  Revolution,  specifically  between  1960  and  1990,  the  grain  yield   of  annual  wheat  crops  increased  between  two  and  three  times  what  it  was  before  the  Green   Revolution  (Khush  1999).  Since  huge  increases  in  the  grain  yield  of  annual  wheat  crops   113         occurred  during  the  Green  Revolution,  increases  in  the  grain  yields  of  perennial  wheat  and   intermediate  wheatgrass  lines  could  conceivably  be  feasible  as  well.       Subsidies  could  be  used  to  increase  the  profitability  of  the  perennial  grain  lines.   However,  implementing  subsidies  alone  would  not  allow  the  profits  of  the  perennial  grain   lines  to  equal  the  net  return  of  the  annual  wheat  line.  The  comparative  breakeven  subsidies   far  exceed  the  levels  that  would  cover  soil  conservation  benefits  from  perennial  grains.  But   a  subsidy  payment  together  with  a  price  or  yield  increase  would  be  able  to  generate   breakeven  profitability  for  the  perennial  grain  lines.     Changes  in  costs  would  not  be  economically  feasible  to  make  the  perennial  wheat   and  intermediate  wheatgrass  lines  as  profitable  as  annual  wheat.  With  or  without  the   subsidy  payments,  almost  all  of  the  perennial  wheat  and  intermediate  wheatgrass  lines  had   negative  comparative  breakeven  costs.  This  means  that  most  of  the  perennial  grain  lines   would  have  to  have  negative  annual  variable  costs  of  production  to  become  as  profitable  as   annual  wheat,  which  is  unrealistic.       Relying  on  increases  in  perenniality  to  improve  the  profitability  of  the  perennial   grain  lines  would  also  be  unrealistic.  The  empirical  analysis  that  showed  the  impact  of   years  of  survival  on  annualized  net  returns  determined  that  increased  perenniality  did  not   lead  to  increased  annualized  net  returns  for  the  perennial  grain  lines  in  the  Australian   wheat  trials.  So,  increasing  the  number  of  years  that  the  perennial  grain  lines  survive   would  not  encourage  the  lines  to  breakeven  with  annual  wheat.       In  summary,  increasing  grain  quality  (and  hence  price)  or  grain  yield  ideally  with  a   subsidy  covering  external  environmental  benefits,  and  not  decreasing  the  costs  or   increasing  the  perenniality,  would  be  the  most  feasible  options  to  enable  the  perennial   114         grain  lines  to  break  even  with  annual  wheat.  If  these  three  characteristics  could  be  altered,   perennial  wheat  and  intermediate  wheatgrass  would  have  the  potential  to  become  as   profitable  as  annual 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