Committee Reports::Interim and Final Report - Appropriation Accounts 1969 - 1970::28 June, 1973::Appendix


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APPENDIX 31.

COST/BENEFIT ANALYSIS OF ARTERIAL DRAINAGE.

The Arterial Drainage Act, 1945 provides that a drainage scheme should show the aggregate annual value of the lands to be drained or improved and also the total probable increase in their annual value in consequence of the execution of the scheme. The Act does not prescribe that a scheme should be judged in the light of the increase in annual value of affected lands; or indeed any other criteria; it does provide that demands upon County Councils in respect of maintenance of a completed scheme should be in proportion to the total increases in annual value in the respective counties.

The Commissioners of Public Works in practice construed value to be the market value of lands directly affected by a scheme and had these lands surveyed to estimate their market value before and after drainage. They took 5% of the market value to be the annual value.

As it had been suggested that since the best evidence available showed that the cost of drainage schemes greatly exceeded the benefits, estimated by reference to the increase in market value of benefiting lands, there was a case for the phasing out of the service. It was decided to conduct a cost/benefit study to determine the full costs and benefits of two schemes which had been prepared for the catchment areas of the Groody and Maigue rivers, the former being entirely and the latter mainly in Co. Limerick. The former scheme is now in operation. The basis of this study was agreed by a Steering Group representative of the Department of Finance, the Department of Agriculture and Fisheries, An Foras Talúntais and the Office of Public Works.

The study is, therefore, primarily concerned with the two catchment areas mentioned but will be of significance to the future of arterial drainage generally since the results of the cost/benefit analysis of these areas will to an extent serve as an indicator for other catchment areas and the methodology devised for this purpose will facilitate further studies of the various other catchments. Furthermore, as the Groody scheme will be finished within the next year, it is hoped that arrangements can be made to monitor its effects and compare them with those projected. The feedback of information thus provided will allow the analytical techniques and range of assumptions made to be tested against the actual outcome and to be improved for use in the event of cost/benefit analysis of other schemes for the catchment areas listed in the Office of Public Works priority lists being made. The agreed basis, or modus operandi, settled by the Steering Group is a complex one. Basically the Group, having defined the primary purpose of arterial drainage as being to make a contribution to Government agricultural policy, consider that drainage schemes normally have a primary objective of increasing agricultural incomes and in addition the further objective of securing the optimum contribution from the agricultural sector to the economic and social progress of the nation.

Accordingly, two criteria were devised to evaluate for comparative purposes the schemes under review, viz. (1) the primary benefit to cost ratio which indicates the effectiveness of the schemes in achieving the primary objectives of income increases for owners of land benefiting from the scheme (called the “target group”), and (2) the total monetary benefits to costs ratio which indicates the schemes’ contribution to overall national economic and social development. To measure the primary benefits field surveys of a representative sample of 100 holdings in the Maigue Catchment are being undertaken. These are about 5% of holdings affected by the Scheme. In the case of the Groody, survey of a 25 holding sample also representing 5% of affected holdings will be undertaken. To establish ratio (2) due allowance would in addition have to be made for costs and benefits other than those of an agricultural nature including some which do not readily lend themselves to cash evaluation and suitable systems have been devised to quantify these. Since costs and benefits occur at different times allowance is made for this by discounting all costs and benefits to present value terms; allowance is also made for inflation. The effectiveness of an arterial drainage scheme in achieving its primary objective could thus be indicated by the ratio of the Present Value of the increase in the target group’s income to the costs incurred in securing this increase. The overall (or total monetary) cost/benefit ratio would of course embrace the various secondary effects both beneficial and otherwise. These are listed in the Appendix hereto.

Cost/benefit analysis is essentially a technique for comparing the costs and benefits of achieving the same or similar objectives by different means. For a cost/ benefit analysis to be meaningful it is, therefore, necessary to be able to develop and quantify alternative means of achieving the same objectives. A variety of alternative methods of achieving the objectives of the Maigue scheme were considered, including ways of securing more efficient use of land not in need of drainage, restructuring of holdings, off-farm employment, but these were found to be incapable of quantification or otherwise inappropriate. Two methods of achieving the objective are being considered in the present analysis: the costs and benefits of the Maigue scheme as exhibited are being examined and will be compared with an alternative scheme (referred to in the analysis as the Partial Scheme) which would treat only main arteries and such other channels as would obviously be beyond the capability of farmers with the aid of Land Project facilities.

The Steering Group is, accordingly, directing the study on the agreed outline:— field surveys are being carried out by County Committee of Agriculture and Land Project personnel; numerous other operations are also in train to secure necessary information and involve, inter alia, the Limerick County Council, An Foras Talúntais, Department of Agriculture and Fisheries, Department of Local Government, An Foras Forbartha, the Valuation and Cost Accounting Staff of the Office of Public Works and the Programme Budgeting Section of the Department of Finance. It is proposed that a computer model be constructed for calculating cost/ benefit ratios on the basis of agricultural input/output data (secured by questionnaires derived from the field survey) and the direct costs of arterial drainage investment. The fact finding phase of the study is now well advanced and the analytical phase will begin shortly. Meanwhile it would not be possible at this stage to anticipate the ultimate conclusions. It is hoped, all going well, that the study will be completed next Spring.