benefit cost analysis BUSINESS 

Two protected cropping structures, shade housing (with 30% shade) and the Rafter-type Retractable Roof Production System (RRPS) were compared for growing red capsicums in the Carnarvon region of Western Australia.

Authors Manju Radhakrishnan, Senior economist, DPIRD; Peter Gartrell, Senior economist, DPIRD; and Giao Nguyen, Research scientist, DPIRD

VEGETABLE farming in Carnarvon faces a few threats that affect growers’ profitability, including adverse weather events, severe insect pests and diseases outbreaks.

Coupled with rising input costs, these events are severely affecting the profitability of farming businesses. While Carnarvon is well resourced with land and water and a climate conducive for the counter-seasonal (counter to the southwest of WA) production of vegetables; these adverse factors prevent crops achieving the full potential of the growing area. More worryingly, both frequency and severity of pest and disease incidence is increasing in recent years.

While there is less control over the rising input cost, appropriate capital investment may be able to manage, or significantly reduce, the impact of weather events and pest and disease incidence, by using modern technologies including protected cropping structures. With this goal in mind, the research station installed a protected cropping facility with a retractable roof (RRPS). Under a funding proposal the Department also provided grants to eligible growers in the area to install shade houses for their fruit and vegetable production.

While both structures appear to be beneficial in increasing the yield compared to open field production, costs and benefits differ widely and a detailed analysis with larger sample size is necessary to rank one over the other, to make informed recommendations.

Methodology

The cost incurred, and benefits realised from the two structure types were compiled using data from the research station, along with face-to-face interviews with the growers and other stakeholders.

PHOTOGRAPHY Giao Nguyen

Facts and assumptions

• Based on the historical incidence of cyclone from 1970 to 2024, the probability of cyclone is assumed to be one damaging cyclone in eight years.

• The highest windspeed recorded in Carnarvon was 167 km/hour (Lantzke 2019). Rafter type RRPS can resist windspeed up to 177 km/ hour when the roof and walls are closed. Hence, RRPS is assumed to be not susceptible to cyclones experienced in Carnarvon area. Complete crop damage and some structural damage is assumed for shade house.

• The impact of flooding is not assessed here, as both structures are susceptible to flooding and DPIRD does not recommend growing capsicum in flood prone areas.

• The frequency, intensity and timing of pest and disease infestation can affect the yield in shade houses however RRPS can withstand high-level pest infestation due to full enclosure of crops (assumption based on research station experiment).

• The probability of a ‘year with no major infestation’ is assumed to be 35%, mid-season infestation 30% and early season infestation 30%.

• Crop loss is highest with an early season infestation, where the yield will reduce to one fourth of a normal year. With a mid-season infestation, yield will come down to half.

• Both structures allow the growers to extend the harvest season and give protection from sun and birds. Usually in open field production, growers can harvest the

produce only up to three months, while it is about seven months for shade housing and about nine months for retractable roof structures.

• Produce from RRPS realised the highest price followed by shade house and open field. First grade pack out rate is also higher in RRPS systems compared to shade house.

Costs, benefits and other particulars

Variable costs are adjusted to suit the incidence of cyclone and major pest and disease infestation during different times of the year (see Table 1).

The analysis is for a one hectare operation, unit cost of both structures can come down with larger areas.

Results

Scenario analysis

The comparative profitability is highly dependent on the frequency of cyclone and major pest infestations. Three additional scenarios are developed to accommodate the varying frequency of occurrence of these incidents. Even if there are no cyclones (other things remaining the same), RRPS can give an additional $2 million return than shade house.

Similarly, even if there are no major pests and disease infestation (other things remaining the same), RRPS can give an additional $1.26 m than shade house. However, if there are no cyclones and no major incidence of pests and diseases, shade house appears to give better return than RRPS.

Sensitivity on price

Price fluctuations affect the results (see Table 3).

If there is a 40% decline in price, return from both structures would be similar (based on BCR). Shade housing can give a positive return with up to 53% decline in price, and RRPS can give a positive return with up to 46% decline in price. Because of the high level of capital investment and high production, fluctuations in price impact the RRPS system more than the shade house.

Discussion and conclusion

While both structures provide a positive return on investment, RRPS appears to provide more return on investment than the shade house. If the retail price of capsicums goes down by over 40%, the shade house is a better option than RRPS. Similarly, return from RRPS becomes more profitable if there is any price increase above the current level. Additionally, when the water is limited, RRPS can reduce the water usage by 30%. However, because of higher level of investment, risk is higher in the RRPS.