Yearly Archives: 2004

27 – Thinking like an economist 7: Economics and money

People tend to think that economics is primarily about money. I guess it is an understandable mistake, but actually economics is primarily about making decisions that require trade-offs because resources are in limited supply. These decisions may or may not be centred around money.

Money commonly features in economists’ ideas about these decisions because it provides a common unit of measurement, which is helpful when evaluating the trade-offs, and because money itself is usually one of the resources in short supply.

Having a common unit is so useful that economists have developed a range of tools for attempting to convert non-monetary values onto monetary values. But they are not doing this because they are obsessed with money. The fundamental motivation is to help with decision making.

Even without going to that point, economic models are routinely used to look at trade-offs between monetary and non-monetary outcomes. Decision makers find this very useful, even without the benefits of a common unit of measure.

If you look at a microeconomics text, you’ll see that the theory of consumer choice starts by talking about the quantities of consumer goods, the “utility” (something like happiness) that people get from consuming them, and the relationships between goods. No mention of money up to this point. This theory applies just as much to non-market goods (e.g., some environmental values) as it does to market goods (e.g., food).

Money does come into it when we get to the point of asking, how much can people afford, and how much will they consume as prices change.

Sometimes people confuse economists with accountants. Economists pay a lot more attention to non-monetary issues. There are some other key differences too (from the perspective of an economist who knows little about accounting).

Economists and accountants use different measures of “cost”. Accountants focus on financial transactions, whereas economists use a much broader concept: the opportunity cost. You don’t have to spend one dollar to suffer an opportunity cost. It is the benefit that you forego by choosing one course of action over another. If a farmer plants trees over an area, he or she bears the direct cost of seed, fertilizer, machinery, etc., but also the opportunity cost of not being able to use the land for other purposes (e.g., wheat production).

Economists focus on changes at the margin, whereas accountants tend to look at totals and averages. We focus on marginal changes because they are central to good decision making.

Economists and accountants use completely different frameworks and models. As one example from many, economists often use optimisation models, but I have not heard of an accountant doing so.

And finally, economists are generally better looking.

David Pannell, The University of Western Australia

Further reading

Handsome, V.V. (2003). Physical attractiveness of money-related disciplines: a meta-analysis, American Journal of Disciplinary Beauty 56, 145-156.

Pannell, D.J. (2001). Economic Dimensions of Landcare, State Landcare Conference 2001, 11-14 September 2001, Mandurah Western Australia, pp. 131-144. full paper (74K)

Weersink, A., Jeffrey, S. and Pannell, D.J. (2002). Farm-Level Modelling For Bigger Issues. Review of Agricultural Economics 24(1): 123-140. (Awarded outstanding RAE journal article for 2002).

26 – Dryland salinity in Australia

Dryland salinity is a major problem affecting Australian agriculture. Here is an overview of the main issues, some changes in our understanding of it, and some insights into how policy can best address it. 

In 1910 my grandfather moved with his parents from rural England to rural Western Australia. They purchased an area of uncleared land near the town of Wickepin. Imagine the culture shock. Grandpa was only 11 years old when he arrived, but he had vivid memories of those early days when he talked to me about them eighty years later. He spent much of his teenage years chopping down trees with an axe to clear land for wheat production. This made him as strong as an ox, and he ended up being a champion rower, including being a member of the WA crew that won the Kings Cup in 1927.

Three years before that, Walter Ernest Wood became the first person to publish a correct explanation of the cause of the increasing salinity in streams in rural Western Australia. Basically it was due to rising groundwater tables on land that had been cleared for agriculture by people like my Grandpa.

When I see the saline land around Wickepin these days, I can’t help but be moved by the irony of the situation, because the incredibly hard physical work that my grandfather did in his youth kicked off a process of salinisation that my own research has been trying to help manage.

W.E. Wood’s general explanation for salinity has stood the test of time, but in many respects, the science of salinity has come a long way. Science is always in a state of change and growth, with new ideas and new knowledge constantly coming forward. But occasionally there is a dramatic burst of new knowledge in a field that means we have to rethink an important issue. Sometimes it means we have to reorganise and redesign government policies for that issue, and that is exactly the point we have reached with salinity in non-irrigated areas.

I’d like to explain the recent changes in our knowledge, and why they have such big implications.

Firstly, some background. Australia is naturally a very salty place. Some of the salts have been released from weathering rocks, but most have been carried inland from the oceans on the wind. We think of rainwater as being fresh, but in fact it contains somewhere between 20 and 200 kg of salts per ha per year, and where conditions are right, salts have accumulated is soils over many thousands of years, sometimes to amazingly high levels. In some regions 15,000 tonnes of salt per ha in the underground soil is not unusual. When we cleared the perennial native vegetation, we replaced it with annual plants that don’t use up all the rain that falls, and it’s this excess rainfall that is carrying the salts that were there already to places we don’t want them, and causing all the problems.

One of the changes in our knowledge of salinity is that we now recognise a wider diversity of impacts, not just impacts on agricultural production. The National Land and Water Resources Audit in 2000 quantified risks to water resources, biodiversity and infrastructure.

For many years people believed that the simple and obvious solution to the salinity problem was to undo what we’ve done by replanting trees and converting annual pastures into perennial pasture species that use more water. We now have a more sophisticated understanding. Perennial plants are still an important part of the solution, but not everywhere, and getting it to happen will require a different approach than we’ve been using, as I’ll explain.

Another key change in salinity knowledge has been that the area of perennial vegetation that you need to plant to prevent salinity is much greater than was previously guessed. For example, computer modelling was conducted by CSIRO to test out revegetation strategies for part of the Eyre Peninsula of South Australia.

They found that to prevent salinisation of about 6% of the land in that catchment over the next 20 years, trees and perennial pastures would need to be established on over 50% of the total area of the catchment. Think about that from the point of view of a farm business. The farmer can choose to bear a moderate cost from loss of land to salinity, or cop a vastly greater cost from conversion of huge areas of productive crop land to much less profitable land uses. Taking such drastic action to prevent salinity may be good for their souls, but it would put the viability of their whole businesses under threat.

When such huge changes in management are suggested, their economics become particularly important. There has recently been a review of the economics of trees and perennial pastures in cropping areas across Australia. The authors concluded that increasing areas of perennial pastures seems economically viable in many cropping areas, but only up to a point. Unfortunately that point is not nearly enough to get fully on top of the salt problem.

Now jump to the current national salinity program, the National Action Plan for Salinity and Water Quality. This aims to prevent salinity, mainly by providing information and grants to farmers. Based on the research I’ve already described, the level of funding that would be needed to secure uptake on the scale needed would be vastly greater than the existing $1.4 billion program. Not that I am arguing for more funding. The $1.4 billion is enough to achieve a lot, but we can spend it a lot more cleverly if we make some key changes to the program.

One crucial change is to be more patient about achieving outcomes. We should not rush into using all the money to fund on-ground works, but should allocate a significant part of it to research and development to bring on new types of trees, shrubs and perennial pastures, and to better inform priorities for future on-ground works..

The new plants need to be profitable enough to be competitive with current farming options in the medium to long term. That seems to be the only way we can conceivably get uptake of these land-uses on a scale that will actually get control of salinity. We need to tackle it by exploiting the commercial drivers of farm business managers, rather than by expecting them to bear unrealistic costs, sweetened a little by small grants.

Another finding of recent modelling research has been that the time lags between revegetation and the delivery of off-site benefits is long – often decades and sometimes centuries. This is particularly relevant to protecting rivers in large areas of the Murray Darling Basin, which have large-scale groundwater systems. Longer time lags make it harder to justify current spending, as the cost of interest on up-front expenses has to be considered. Anyone with a housing loan knows how dramatically interest can accumulate over the long term, and the same logic applies to up-front costs of salinity works.

The recent research findings have a really obvious consequence for the way that governments spend money to encourage farmers to change their farm management: If the approach is to hand out grants, it is not sensible to spread the funds thinly like vegemite across lots of small projects in many areas. That would connect with the largest number of farmers, but it would achieve little or nothing against salinity because, controlling it in a particular location requires a lot of perennial vegetation, not little bits. This means that we can only use grants to prevent salinity effectively and economically in quite small areas, and only then if we concentrate the funds. Obviously, they should be carefully selected, high priority cases, such as key infrastructure or environmental assets.

In other agricultural areas, the best solution is often to put funding into R&D to provide farmers with better options for salinity management, rather than giving them grants that are too small to really make a difference.

Another realisation that has come out of recent research is that the nature of the salinity problem is remarkably different in different parts of Australia. It is different in the types of assets affected – land, biodiversity, water or infrastructure – in the way that groundwaters respond to management, and in the socio-economic context.

In some situations, putting perennial pastures and trees onto farms is not the solution at all. For example, in some of the country towns that are suffering from rising saline watertables the problem is not actually coming from surrounding farm land, but from excess water within the towns themselves. Water collects on roads, footpaths, roofs and bare ground, and if it is not collected and directed away in drains, groundwaters can rise rapidly. If the problem is urgent, pumping the water out is the most effective strategy, although it is expensive and can only be justified in some cases. If trees have a role to play in protecting these towns, it is usually by planting them within the town boundaries, not on the surrounding farms.

The heavy-engineering approach of using mechanical pumps is at least part of the best response in some other cases as well. It is appropriate for some environmental assets – there is some serious pumping happening to protect Toolibin Lake in WA – it is used for some stretches of river – the Murray Darling Basin Commission is spending tens of millions on pumping and evaporation basins – and even for some farms – many WA farmers are experimenting with large-scale deep open drains to try to reclaim salt-affected land. Where it works, engineering is quick acting, but the expense means that the economics have to be carefully weighed up.

In the case of deep open drains, there are some serious challenges for the WA government. On the one hand, there is inadequate scientific information about their performance and their downstream impacts. On the other hand, the approach has some passionate and well-organised supporters who are calling for the construction of very expensive channels to collect and carry the drainage waters away from farming regions. It has become a politically charged issue, and the government has been unwilling or unable to resolve it.

One positive message about salinity to emerge recently is that, if geological conditions are in your favour, locally targeted engineering works can be effective, locally. They won’t necessarily be swamped by groundwaters from neighbouring land.

Even on agricultural land, we are now able to identify plenty of cases where the impacts of revegetation are mostly localised. This is important because it avoids the need for multiple farmers to coordinate their salinity control efforts in order to be successful. The supposed need for farmers to cooperate and collaborate in salinity control has been emphasised in the past in policy approaches like Landcare and Integrated Catchment Management, but we now know that technically it is simply not true in many cases.

Another research finding that has been much discussed lately is that, among the huge diversity of circumstances we need to address, there are some cases where planting trees or perennial pastures will actually make maters worse. This applies to some higher rainfall areas where fresh water running off into a river helps to dilute salty water coming from groundwaters. Planting trees or perennial pastures in this situation will reduce the groundwater problem in the long run, but at the cost of reducing fresh surface flows in the short run.

The loss of surface water is a double whammy, because it means we miss out on the desirable dilution we were getting, and also that there is less water in the river for downstream users or the environment. This highlights just how clever and careful we need to be in dealing with the diversity of impacts and circumstances for salinity management.

A pill that some people find particularly hard to swallow is that some salinity will not be prevented – it is physically not preventable, or not practically preventable without spending vastly more than it’s worth. There are millions of hectares of agricultural land that are already salt-affected, or destined to become so. We should not be over-dramatising this outcome, as there are options for productive use of much of this land, and plenty of scope to develop even better options. There is a rapid growth in the area of salt-tolerant plants used for grazing, and efforts are underway to develop new salt-tolerant crops and trees. In some places deep open drains are working well to reclaim saline land. The basic point is that salinity is not a death sentence to agriculture. For most farmers, it is far from being the most serious of their concerns.

Back then to government policy. There is a huge amount of public and private money at stake here, so we need to update our national and state salinity policies to catch up with the science, or much of that money, and lots of energy and effort will be wasted. It will not be that hard to improve things, but it will require a much more patient and analytical approach than we’ve seen so far.

To finish, then, here is an eight-point plan to bring salinity policy up to date and compatible with the new science.

  1. Use different policy approaches for different types of salinity impact (water, infrastructure, biodiversity, land), rather than the current one-size-fits-all approach.
  2. Put more effort into developing options for making productive use of saline land and water.
  3. For those impacts that can be managed with highly targeted localised revegetation or engineering, concentrate the funding onto a few, top-priority areas. Base these choices much more on science and economics, and take a more systematic and analytical approach to selecting them.
  4. Be more realistic about what can be achieved through provision of information. In most cases overcoming information shortages won’t solve the main problem, which is lack of good salinity management options.
  5. Don’t expect too much of grants to encourage land use change. For impacts that require really broad-scale planting of perennials, forget about spending money to directly encourage that planting. The amount of money available won’t touch the sides.
  6. Sort out the science needed to make sensible decisions about deep open drains in Western Australia, and then deal with it decisively.
  7. Direct more funds into creation of profitable new perennial plant options, including R&D and perhaps infrastructure. In the long run, this approach will be much more effective over much greater areas. It will also have spin off benefits for other environmental problems, and for rural communities.
  8. Most importantly, don’t primarily set priorities at the regional scale, as we are currently doing. In many cases priorities and actions should be handled at the state or national scale.

The case for these changes is compelling. It is time now to start making them.

David Pannell, The University of Western Australia

Further reading

Ridley, A., and Pannell, D.J. (2005). The role of plants and plant-based R&D in managing dryland salinity in Australia, Australian Journal of Experimental Agriculture, 45: 1341-1355. Full journal paper (127K pdf)

Pannell, D.J. (2001). Dryland Salinity: Economic, Scientific, Social and Policy Dimensions, Australian Journal of Agricultural and Resource Economics 45(4): 517-546. Final journal version (212K pdf file) also available via the Journal homepage:

25 – Targeting agricultural extension to high-impact areas

My colleague Rick Llewellyn has been doing some fascinating work measuring farmers’ knowledge and perceptions, with some radical implications for the technology transfer side of agricultural extension. The implications are that it is actually possible for extension to focus on specific areas of information that are most likely to make a real difference. This would be a major departure from historic practice in extension, where extension agents commonly apply a broad-spectrum approach to extension in a subject area. If Rick’s approach were to be widely applied, it could dramatically increase the impact and cost-effectiveness of extension.

Rick’s study was focussed on farmer adoption of Integrated Weed Management (IWM) practices, but the logic is applicable to extension on any subject area. His approach involved several stages.

  1. Identify the variables or factors that are relevant to management of the issue in question;
  2. Find out which of the variables have the biggest impact on management decisions;
  3. Identify and measure farmers’ current knowledge and perceptions about the area and all the relevant variables;
  4. Identify areas where farmers’ current knowledge and perceptions are inconsistent with each other or with scientific evidence;
  5. Select those variable from step 4 that are also important in the management decision (from step 2);
  6. Focus the extension messages or activities on those variables.

The sequence is common sense when you see it laid out like this, but I don’t think it has ever been done before anywhere, or at least if it has, it has not been published.

When Rick applied this approach, some of the results were unexpected and very illuminating. Part of the motivation for the study had been concerns that crop producers are not sufficiently adopting IWM practices that could delay the onset of herbicide resistance. Some commentators suspected that the farmers lack accurate information about the efficacy of IWM options.

The study reached a very different conclusion. Rick found that most of the WA crop producers had a fairly comprehensive knowledge of herbicide resistance and the available weed management options, and that most of what they know on the subject is reasonably consistent with latest scientific findings and field experience. This was true not only for farmers who have experience with resistance and IWM, but also for non-users of the IWM practices, growers with no herbicide resistance, and growers from a region with relatively low levels of herbicide resistance.

There were some exceptions, a prominent one being that many farmers are relatively optimistic about the likelihood of new herbicide types being developed soon and becoming available to replace those lost to resistance. Scientists and the herbicide companies consider that farmers’ degree of optimism about this is unwarranted. Rick found that this perception was significant in explaining adoption of IWM, so it points to an opportunity for extension to make a difference. Many farmers also believed that herbicide resistant weed populations would return to being susceptible after a few years – something not supported by research or field experience for the herbicides in question.

Rick concluded that adoption of some of the IWM practices would be most strongly affected by perceptions about their performance for outcomes other than weed control. He noted that “The study results point to the need for farming systems approaches to develop and extend the broader attributes of IWM practices that may add to their overall profitability.” For example, the level of weed control provided by seed catching was very well understood but its integration into harvesting and livestock system needs development.

The study of IWM was based on surveys of samples of farmers. The trickiest part of the process is probably step 2. Rick did this with detailed statistical analysis of sequential surveys recording farmer’s management intentions before and after extension workshops (including farmers who didn’t attend the workshops). Applying this approach would be heavy going for most people. Alternative quick and dirty approaches to this step might include discussions with focus groups of farmers, or applying detailed economic models.

The key point from Rick’s work is well summarised by this conclusion: “Focussing extension information on aspects of a farming system that are already well understood and accurately perceived by farmers is unlikely to be beneficial, but is at risk of occurring without the sort of survey work presented here.” Given the shrinking budgets for agricultural extension in Australia, the importance of doing it in a well-considered and well-targeted way is greater than ever.

David Pannell, The University of Western Australia

Further reading

Llewellyn, R.S., Pannell, D.J., Lindner, R.K. and Powles, S.B. (2005). Targeting key perceptions when planning and evaluating extension. Australian Journal of Experimental Agriculture 45 (forthcoming). full paper (52K)

Llewellyn RS, Lindner RK, Pannell DJ, Powles SB (2002) Resistance and the herbicide resource: perceptions of Western Australian grain growers. Crop Protection 21, 1067-1075.

Llewellyn RS, Lindner RK, Pannell DJ, Powles SB (2004) Grain grower perceptions and use of integrated weed management. Australian Journal of Experimental Agriculture (forthcoming).

Pannell, D.J. (2004). Capacity building? The role of communication and education in NRM, Pannell Discussions No. 23, 25 October 2004,

24 – Thinking like an economist 6: The value of information

There is something unsettling about paying for information. It’s so intangible, but it can sometimes be valuable. How valuable? The answer has to be case-specific, different for each decision maker and for each type of information. It has to be forward looking, since at the time we decide to pay for information we can only anticipate its usefulness to us.

Economics focuses on decisions (see PD#18) and so economists are interested in the value of information that is used to make decisions. In this piece I will outline how one can validly put a value on information when you don’t yet know its content.

To make it tangible, we will consider the example of a farmer who is interested in a potential new land management option (applying lime) that can reduce a form of soil degradation (soil acidity). The farmer can obtain, at some cost, information about the current level of soil acidity. This information is a form of “environmental indicator”. The link between the information and the decision is that if the soil is highly acidic, it is more likely to be worthwhile applying lime. The question is, what is the value of the information obtained by measuring the environmental indicator?

In essence, the value depends on the answers to three questions.

  1. What would the farmer do without the additional information?
  2. What might the farmer do differently with the additional information?
  3. What difference does this make to payoffs?

That sounds simple enough, but putting it into practice can be complex. We will work through it step by step – please concentrate for a minute.

In general, the farmer can have a fair guess at the current level of soil acidity, based on current knowledge and preconceptions. These preconceptions might be based on past experience, long-term forecasts, information from other paddocks, something they once heard a neighbour say, or they may be based on a previous observation within the same paddock. It would be possible for the farmer to go ahead and make a best-bet decision based solely on his or her preconceptions without extra information (e.g. the best-bet decision without observing the indicator might be to apply lime). This provides the answer to question 1.

Alternatively, the farmer could measure soil acidity before making the decision. With this extra information, an improved decision may be possible. If it turns out that acidity is lower than expected, there may be no need to apply lime. To value the information, we need to identify in advance every possible level of the indicator that might be observed, and estimate their probabilities of being observed. Then, for each of those indicator levels we ask, if the farmer did observe that level, what difference would it make to his or her decision? This provides the answer to question 2.

This process involves the farmer providing subjective probabilities that acidity, once measured, will take different values within the potential range. In my experience, most farmers have an excellent intuitive feel for probabilities, and they can handle a complex question like this. We asked them to do almost exactly this in one research project, and they were remarkably good at it.

Some potential observations of soil acidity would probably change the prior best-bet decision, while others would not. Whether it changes the decision depends on factors like:

  • whether the observation is significantly different from the farmer’s preconceptions,
  • how accurately the observation can be made,
  • how applicable the observation is to the whole area for which a decision is needed,
  • whether the prior best-bet decision is finely balanced or clear cut, and
  • how well cause and effect are understood (e.g. do we know how acidity affects yields?).

Finally, to answer question 3, we take the set of answers to question 2 and estimate the difference in payoffs between the prior best-bet and the revised, better-informed decisions. We weight them by the anticipated probabilities of each indicator level, and add them up to get an overall expected value for the information. Whether it seems worthwhile to observe the indicator depends on whether these expected benefits from improving the decision outweigh the costs of the extra information.

Although the value of information is obviously case-specific, some general insights are possible, including the following.

  1. If information does not have the potential to change a management choice, it has no value, economic, social or environmental, other than perhaps its intrinsic interest value.
  2. The change in management, if it occurs, is the result of a reduction in uncertainty about the payoffs from different decision options. The reduction in uncertainty allows the decision maker to refine his or her best-bet strategy.
  3. In many cases, the value of continuing to monitor an indicator would fall over time as uncertainty is reduced. In some cases, the value of observing a sustainability indicator may be dramatically reduced after a small number of observations, potentially just one.
  4. The gross value of monitoring an indicator (the value before deducting the cost of monitoring) can never be negative. At worst, its value would be zero if there was no realistic probability of any resulting change in management.
  5. A necessary (but not sufficient) condition for the value of monitoring an indicator to be high is for the payoffs to be sensitive to management choices. In many circumstances in agriculture, payoffs are not sensitive to management choices.
  6. If productivity is very sensitive to management choices, the optimal choice may be so obvious that there is little value in collecting further information about it.
  7. If there is a high level of uncertainty about the relationship between the level of an indicator and the payoff (financial or environmental), the value of monitoring the indicator will be low since monitoring will not reduce uncertainty significantly.

These insights provide some basis for understanding why the level of monitoring of sustainability indicators by farmers has been less than advocates of the approach would like. In essence, theory predicts that special circumstances must prevail for monitoring to be worthwhile. In my experience of applying this framework, once you allow for the fact that people can often make reasonable decisions based on their existing knowledge, the value of extra information is not as high as people tend to assume.

David Pannell, The University of Western Australia

Postscript, 3 Nov 2004. Jim Walcott noted that farmers commonly keep close track of rainfall data (and I would add prices), and wondered whether this was consistent with the “special circumstances” I referred to. Absolutely. These variables have all the required characteristics for monitoring to be worthwhile: they directly affect an important decision problem (or more than one), they have big and direct impacts on the relative payoffs of different decision options, the decision choice without the information is not obvious or irrelevant, they are easy to measure reasonably accurately, and farmers have pretty much perfect understanding of cause and effect (e.g. the link between rainfall and final payoffs). By contrast, environmental indicators commonly lack several, and sometimes all, of these characteristics.

Further reading

Pannell, D.J. (2003). What is the Value of a Sustainability Indicator? Economic and Social Issues in Monitoring and Management for Sustainability. Australian Journal of Experimental Agriculture 43(3): 239-243. Final journal version (48K pdf file)

Pannell D.J. and Glenn N.A. (2000). A Framework for Economic Evaluation and Selection of Sustainability Indicators in Agriculture, Ecological Economics 33(1): 135-149. full paper (93 K)

23 – Capacity building? The role of communication and education in NRM

I can remember the bemusement I felt when I first heard the term “extension” used to describe communication and education. It seemed an odd usage of the word, and it still does, but I am habituated to it now. These days in Australia there is a new dominant euphemism for these activities: “capacity building”. In theory capacity building is apparently meant to be a broader term than “extension”, but in practice when you look at what gets funded it seems to amount to much the same thing.

Education and communication are commonly used tools in environmental programs around the world, including Australia. Their attractiveness to politicians in understandable: they are relatively cheap, they have a high “feel good” factor, and, compared to other policy tools, they are less likely to require tough decisions that result in winners and losers. Capacity building is absorbing a substantial share of the funding in Australia’s two largest environmental programs, the Natural Heritage Trust and the National Action Plan for Salinity and Water Quality.

Education and communication are not the only tools available to attempt to achieve desirable changes in the environment, so the question arises, in what circumstances are they among the most appropriate responses?

For capacity building to be a wise investment for the environment, there are two conditions that ideally should both be met.

  1. The capacity building should be expected to result in changed practices or actions “on the ground”.
  2. The anticipated changes or actions should be sufficient to make a real difference to environmental outcomes.

Too often, environmental programs have fallen back onto communication and education without considering whether either of these conditions is met.

Within agriculture, meeting the conditions will be more or less likely for different environmental problems in different regions. Paying attention to this will allow much better targeted usage of capacity building.

To satisfy condition 1, the action or innovation being advocated to the target audience must be “adoptable”. That is, if people knew all about it, they would choose to adopt it. There are many factors that influence how adoptable a practice is, but if the intent is for it to be taken up by commercial business operators on a large scale, the most crucial factors are the economic costs and benefits of the practice.

Evaluating condition 2 requires us to take the anticipated scale of adoption that is likely to result from capacity building (condition 1) and compare that to bio-physical evidence about the scale that is required to generate the desired environmental benefits.

For dryland salinity, in particular, evidence about the two conditions has been growing in recent years. In 2003, a crew of economists across Australia reviewed the economics of high-water-using perennial plants, the main preventative option for dryland salinity, in grain growing areas. Their results were variable, but they found many cases where planting a small to moderate area of a perennial species is economically attractive. If planted on larger areas, the existing perennial plant options can result in major economic losses. Considering condition 2, there is wide variation in the responsiveness of groundwaters to perennial vegetation, with “local” groundwater systems being the most responsive. The larger “regional” groundwater systems have low responsiveness to perennials, even if they are planted at large scale. Combining the two aspects, in most locations the scale of plantings that would be needed to fully contain salinity is substantially larger than the area that would currently be adopted as a result of capacity building (that is, the area that would currently be economically viable for farmers).

So, within salinity alone, as well as between different environmental issues, there is considerable variation in how adoptable existing environmental practices are (condition 1), and considerable variation in how responsive the environment is to those practices (condition 2). Common sense says that, to be effective, capacity building would need to be targeted to locations where the available practices are adoptable, and where the environment is responsive to the likely level of adoption.

This clearly isn’t happening. Indeed, it often appears that neither question is asked before capacity building is embraced. At least in the case of dryland salinity, much of the current money that is being spent on capacity building does not meet either of the conditions.

There is apparently some concern in policy circles that the investment in capacity building may not be paying off. Unfortunately, the mind-set of some involved seems to be that if we could just do the capacity building better, it would be more effective. Of course it may be possible to improve the processes or techniques used, but far more important is to address the fundamental question of whether any form of capacity building is the appropriate response to a particular problem in a particular location. There are plenty of readily identifiable situations where it is not.

If not capacity building, then what? There is a range of other policy responses that can be appropriate in particular circumstances, including economic policy instruments, regulation, direct funding of works, do nothing, acquisition of land, and R&D to generate improved management options (e.g. better species of plants) that would be more likely to satisfy the first condition above. The latter option, in particular, deserves much more attention than it usually receives.

All this is not to say that capacity building does not have a role, just that we need to be more systematic in determining what that role is and when it is appropriate. In some ways, the emphasis on funding for capacity building has come out of sequence. It would have been far better to invest in the generation of more adoptable practices first, and only then to encourage their adoption through communication and education. We have been putting the cart before the horse.

David Pannell, The University of Western Australia

Postscript, 29 Oct 2004. I am referring above to capacity building for land managers. There is also capacity building for policy makers and catchment management organisations (CMOs), for which the issues are somewhat different. The logic, though, is the same. For example, the capacity building would need to be expected to change the decisions of CMOs, and those changes would need to matter environmentally. Ironically, successful capacity building for CMOs might result in them relying less on capacity building for land managers.

Further reading

Kingwell, R., Hajkowicz, S., Young, J., Patton, D., Trapnell, L., Edward, A., Krause, M. and Bathgate, A., 2003. Economic Evaluation of Salinity Management Options in Cropping Regions of Australia. Grains Research and Development Corporation, Canberra.

Ridley AM and Pannell DJ (2005). SIF3: An investment framework for managing dryland salinity in Australia. SEA Working paper 1901. CRC for Plant-based Management of Dryland Salinity, University of Western Australia, Perth. Available at SIF3 project page

Pannell, D.J. (2001). Dryland Salinity: Economic, Scientific, Social and Policy Dimensions, Australian Journal of Agricultural and Resource Economics 45(4): 517-546. Final journal version (212K pdf file) also available via the Journal homepage:

Pannell,D.J. (2001). Explaining non-adoption of practices to prevent dryland salinity in Western Australia: Implications for policy. In: A. Conacher (ed.), Land Degradation, Kluwer, Dordrecht, 335-346. full paper (49K).

Pannell, D.J. (1999). Social and economic challenges in the development of complex farming systems, Agroforestry Systems 45(1-3): 393-409. full paper (65K)