Farm Level Economic Analysis of a Wetland-Reservoir Subirrigation System in Northwestern Ohio

Abstract

Three wetland-reservoir-subirrigation systems (WRSIS) have been designed and constructed in northwestern Ohio. These systems have the potential to improve downstream water quality by reducing discharge to streams, to provide wildlife habitat, to increase wetland acres and vegetation, and to provide a reliable supply of subirrigation water for sustained crop production. This study attempts to quantify all costs and benefits of a WRSIS investment in order to provide farmers with useful information for evaluating application of the technology. Net present value (NPV) analysis was used to compare operation and investment costs with benefits of improved crop production, improved water quality, increased residual land value, decreased tax liability, and wetland mitigation payments. For the studied case, the total NPV is $11 225. Capital and operating costs have a NPV of -$71 293. Sensitivity analyses show that changes in the total amount of invested capital most affect this value. The NPV of yield improvements and increased land value is $39 712. Further analyses show that yield improvement value is most sensitive to variations in the amount of yield response and crop mix (commodity value). Reductions in tax liabilities improve WRSIS NPV by $9333. Analyzing tax parameters shows that increases in variables such as loan terms, proportion of debt financing, and marginal tax rate reduce tax liability due to larger amounts of deductible interest. Likewise, increasing the proportion of equity financing increases tax liability due to less deductible interest and higher equity opportunity costs. Finally, wetland mitigation payments add $30 000 and water quality improvements add $3473 to the WRSIS NPV.