The economic value of improved growth rate

Extract from Kuek, C. (1994) Issues concerning the production and use of inocula of ectomycorrhizal fungi. In: "Management of Mycorrhizas in Agriculture, Horticulture and Forestry", A. D. Robson, L. K. Abbott and N. Malajczuk (eds.), Kluwer Academic Publishers, Dordrecht; pp. 221-230.

Since inoculation as a management option will increase operational costs, the advisability of adopting ectomycorrhizal technology will be a measure of cost (inoculation) against benefit (increased productivity). The rationale for incurring the cost of inoculation is that the gain in improved biomass productivity will be greater than the cost of inoculation. The ratio of cost to benefit which will be acceptable, will depend on the overall economics of the plantation operation and the degree of certainty of growth improvement. The potential economic benefit is in the future because the monetary gains in improved biomass productivity are realized at the end of the rotation period of the plantation stand. The economic value of such a deferred return can be estimated using net present value analysis to correct for the time value of money. Representative costs (Australian dollars) for woodchip plantations in south-western Australia (Table 1) were used in an analysis completed in 1989 for Biosynthetica Pty. Ltd. (formerly Interbac Australasia Pty. Ltd.) by the Australian Agricultural

Consulting and Management Company Pty. Ltd., both of Perth, Western Australia. The analysis was based on the planting of Eucalyptus globulus on 40 hectare, leased, ex-pasture sites. A discount rate of 5% was used to equate all future revenue to present day values. Estimation was made of the monetary effect of the increase in mean annual increment (MAI) of the biomass of plantation trees in the order of 10, 20 and 30% over a base MAI of 22 m³ ha^-1 year^­1. At the base MAI rate, it was assumed that the stands would be harvestable in ten years. In the analysis, the increase in MAI was translated to a shortening of rotation period and the effect on revenue was calculated on that basis. If the growth improvements are attributable to inoculated ectomycorrhizal fungi, then the analysis would in effect be one of the economic value of inoculation. It can also be used to compare the relative merits of the growth stimulating capabilities of specific ectomycorrhizal fungi.

Increased NPV. Three selected scenarios from the analysis representing single (Fig. 1), coppice (Fig. 2) and multiple rotation (Fig. 3) operations are presented. As expected, all scenarios showed an increase in revenue resulting from increment in MAI. The type of plantation operation affects the size of the potential return with single rotations poorest and multiple rotations the best. Coppiced rotations would best reflect the average scenario in plantation operations in Western Australia. With such rotations, an increase in MAI of 30% and a stumpage price of $20 m^-3, would result in an extra $952 ha^-1 (net present value) return from the plantation at harvest. Therefore, in Western Australia, should ectomycorrhizal fungi be capable of improving MAI by 30% then significant gains in revenue can be realized. In terms of the commercialization of inoculation technology, the significance of such analyses goes beyond quantitative data to persuade usage of ectomycorrhizal fungi, to a revelation of the price which inocula may command by applying a cost to benefit ratio to the gain in revenue. For example, at an increased return of $952 ha^-1, a reasonable cost to benefit ratio of 1:5 indicates an inoculum cost of $190.40 ha^­1. At a tree density of 1000 ha^-1, this is a cost of 19 cents per seedling. The 1:5 ratio also means that with ectomycorrhiza boosting growth by 30%, the plantation can afford to spend 95.2 cents more per seedling for inoculation and be no worse off. Herein lies the potential for inoculum producers to argue the cost of inoculum. Experience with fermentation methods for the production of biomass indicate that the cost to produce a single inoculum dose would be well inside 19 cents. Thus, such analyses can also provide an economic rationale for the investment of research and development funds in inoculation technology for now these may be tallied against potential returns from sales of inocula as estimated from prices which may be commanded. The analyses can also be used by ectomycorrhizal scientists to gauge the potential value of different fungi or to set minimum targets in growth increment in their search for efficacious fungi. Using the same example above, if for various reasons, the price of inoculum had to be a minimum of 19 cents per dose and the end-user requires a cost to benefit ratio of greater than 1:5, then the growth increment which would have to be delivered has to be greater than 30%.

Relevance of field data. Clearly for such economic analyses to be of any practical significance, firstly, they must be reliable. Given the influence of the environment on the ecology of the mycorrhizal association, the data must either be available for the specific environmental regimes or be of a fundamental nature, capable of intra- and extrapolation. In general, business sense dictates that the higher the risk and cost of an option, the greater is the return on investment which is expected. If field evidence is poor, then the potential economic gain must be high. This means that the price which may be commanded by inocula will be correspondingly low. This has a negative effect on encouraging the development of inoculation technology. Secondly, the data must be defined specifically by fungus (pure cultures used in trials), host tree, and environment for it is only this way that the results can be duplicated. The value of such data as argument for the use of ectomycorrhizal technology is diminished when the combination cannot be duplicated or knowingly not duplicated. The routine duplication of results obtained in field tests under operational plantation conditions will require that the specific fungi used be available as inoculum before the economic advantage of the ectomycorrhizal fungi can be exploited.