impact assessment report series - Grains Research & Development ...

Table 18: Allocation of Quantified Benefits to Rural Research Priorities
Rural Research Priority
Allocation
(%)
1. Productivity and Adding Value 95
3. Natural Resource Management 5
Total 100
7.7 Sensitivity Analyses
Sensitivity analyses were carried out to show the importance of assumptions about
which there is the most uncertainty. Results are reported in Tables 17. All sensitivity
analyses were performed using a 5% discount rate with benefits taken over the life
of the investment plus 30 years from the year of last investment. All other
parameters were held at their base values.
The target area for the yield increasing inoculants in particular was the most
speculative assumption. The target area assumed of one million ha is only of the
order of five percent of the Australian area of crops. Experience might show that a
much larger area was suitable. A larger target area would also be associated with a
larger benefit/ha and a more rapid rate of adoption. Therefore the HIGH benefit
scenario assumed a trebling of the benefits assumed for the BASE case. The
assumption of trebling benefits is equivalent to a doubling of the area and an
increase in benefits/ha of 50 percent. For the LOW case, benefits were assumed to
be halved and lagged five years from the BASE case level. Lower benefits/ha would
result in slower adoption.
Table 19 shows the investment criteria when the assumption regarding the levels
and timing of benefits are varied.
Criterion
Present value of
benefits (m$)
Present value of
costs (m$)
Net present
value (m$)
Benefit cost
ratio
Internal Rate of
Return (%)
Table19: Sensitivity to Changes in Levels of Benefits
(GRDC investment, 5% discount rate, 30 years)
Level of Benefits
LOW BASE HIGH
13.69 42.44 131.51
10.48 10.48 10.48
3.21 31.96 121.03
1.31 4.05 12.55
6.1 12.4 20.3
These sensitivity results show for plausible assumptions of benefits that because
there is a considerable degree of uncertainty about some of the key assumptions, a
wide range of rates of return are possible. If the benefits are trebled then the benefit
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