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Agronomy Journal 93:517-523 (2001)
© 2001 American Society of Agronomy

PRODUCTION PAPERS

Agroeconomic Analyses of Drip Irrigation for Sugarbeet Production

Florence Cassel Sharmasarkara, Shankar Sharmasarkara, Larry J. Heldc, Stephen D. Millera, George F. Vanceb and Renduo Zhangb

a Dep. of Plant Sci., College of Agric., Univ. of Wyoming, Laramie, WY 82071-3354
b Dep. of Renewable Resources, College of Agric., Univ. of Wyoming, Laramie, WY 82071-3354
c Dep. of Agric. and Applied Econ., College of Agric., Univ. of Wyoming, Laramie, WY 82071-3354

Corresponding author (ssharmas{at}csufresno.edu). Current address for corresponding author: Water Manage. Res. Lab., USDA-ARS, 2021 S. Peach Ave., Fresno, CA 93727-5951

Received for publication January 28, 1999.

   ABSTRACT
TOP
 NOTES
 ABSTRACT
INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
 REFERENCES
 
Sugarbeet (Beta vulgaris L.) is a major cash crop in Wyoming where overuse of water and agrochemicals is a concern in furrow-irrigated areas. Drip irrigation, an alternative technology, is not well developed for row crops within the state. Therefore, our objective was to evaluate the economic feasibility of implementing drip irrigation practice for sugarbeet production. Capital budgeting analyses, including net present value (NPV) and rate of return (ROR), were used for 10 to 40 ha. Sensitivity analyses were conducted with drip system size and life span, interest rate, water price, and weed control cost. Sugarbeet and sugar yields were higher under drip irrigation than furrow irrigation at P = 0.05. The drip system investment cost decreased with increasing size. Total variable costs for drip irrigation were lower than those for furrow irrigation. Sugarbeet returns were $2080 and $2310 ha-1 for furrow and drip irrigation practices, respectively. Higher returns and shorter payback time were observed for large conversion areas. The sensitivity was more pronounced with small-scale farming. Increasing interest rates caused delays in positive return and profit and contributed to larger differences in payback time between drip system sizes. For all conversion sizes, ROR increased with system lifetime. Higher profitability was observed for areas with increased water prices and weed control costs. The overall findings indicated that sugarbeet production under drip irrigation would be most profitable for a 40-ha area with payback periods ranging from 7 to 10 yr.

Abbreviations: AAEA, American Agricultural Economics Association • Fcrt, critical variance ratio • Fobs, observed variance ratio • IC, investment cost associated with purchase of drip irrigation equipment • IRR, internal rate of return • mIRR, modified internal rate of return • NPV, net present value • OC, operating costs • PB, payback year • ROR, rate of return • TREC, Torrington Research and Extension Center


   INTRODUCTION
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
 REFERENCES
 
SUGARBEET IS A MAJOR CASH CROP in the Rocky Mountain region, contributing an average annual income of $50 million to Wyoming's economy [Wyoming Agricultural Statistics Service (WASS), 1998, p. 98]. Average sugarbeet area per producer is about 80 ha in Wyoming (USDA, 1999). In 1997, a total of 24300 ha of irrigated land produced 1.07 Tg of sugarbeet in the state (WASS, 1998, p. 98). However, overuse of water and agrochemicals is a concern in Wyoming. More than half of all input costs were spent on agrochemical use. Nitrate levels above the critical USEPA limit of 10 mg L-1NO3–N in water were detected in many furrow-irrigated growing areas of sugarbeet (Baker and Assoc. Consulting Eng., 1989; Wyoming Hydrogram, 1995, p. 8).

Improved agronomic use efficiencies and yields and lower contamination with drip irrigation have been reported for production of vegetables, fruits, cotton (Gossypium hirsutum L.), and sugarbeet (Mambelli et al., 1992; Urbano et al., 1992; Roth et al., 1995). Environmental advantages of this low-volume irrigation technology were also discussed by Gregory (1990) and Bihery and Lachmar (1994). In a study on lettuce (Lactuca sativa L.) production and NO3–N contamination, Thompson and Doerge (1996) observed increased NO3–N uptake, yield, and returns with drip irrigation. Wilson et al. (1984)(p. 29) found that converting from furrow to drip irrigation for cotton production resulted in reduced water use, increased yields, and comparable costs of operation. Based on a NPV analysis of cucumber (Cucumis sativus L.) production, Moynihan and Haman (1992) reported improved yield, water use, and earnings under drip irrigation.

The above-mentioned studies were conducted in Europe and in some arid regions of the USA such as Arizona and California. A study in Wyoming showed that the use of drip irrigation, in lieu of furrow practices, was effective for reducing water and fertilizer use while sustaining sugarbeet productivity (Cassel Sharmasarkar et al., 2001). However, drip irrigation technology has not been well established in the Rocky Mountain area, particularly for row crops such as sugarbeet. Furthermore, there is a paucity of data on the economic feasibility of drip-irrigated sugarbeet production in this region. Therefore, the objectives of this study were to determine the costs and returns associated with converting a furrow system to surface drip irrigation and to evaluate the economic feasibility and profitability of this conversion for sugarbeet production in Wyoming. The analysis was performed on various field sizes to determine if economics of scale were important.


   MATERIALS AND METHODS
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
 REFERENCES
 
Theoretical Development
The profitability of investing in a drip irrigation system was evaluated using capital budgeting procedures, including NPV, internal ROR (IRR), and modified internal ROR (mIRR) analyses. The following calculation of NPV, a measure of total net returns, was based on Barry et al. (1995):

(1)
where IC is investment cost associated with purchase of drip irrigation equipment; P1, P2, ..., Pn are annual net cash flows; i is interest or discount rate; n is system life span; and Vn is salvage value at the end of year n. The P values were computed from the difference between returns (R) and operating costs (OC) as follows:

(2)
where {Delta}R = Rdrip - Rfurrow and {Delta}OC = OCdrip - OCfurrow. The {Delta}OC values in our case study were negative due to higher costs of furrow irrigation practices. The interest rate indicated the penalty or cost associated with waiting to receive future funds.

The IRR and mIRR were determined to evaluate returns of the drip system in relation to other agricultural and nonagricultural investments. The IRR was calculated as the discount yielding a zero NPV (Barry et al., 1995). The validity of the IRR approach depends on a producer's ability to reinvest annual net cash flow at a rate equal to the value of IRR itself. This method is effective if the IRR values remain within an accessible range of market rates from investment alternatives. Large values may lead to overestimation of financial performance. So, mIRR was calculated to maintain a conservative limit for a producer's reinvestment rate of annual net cash flow (Barry et al., 1995; Brigham, 1995; Held et al., 1997). The mIRR technique considered annual net cash flow to be reinvested at a rate equal to the cost of capital (discount rate applied for NPV), unlike the IRR method, which used the IRR percentage. Following Barry et al. (1995), mIRR was computed as:

(3)
where PVco and FVci correspond to the present value of cash outflows and the future value of cash inflows, respectively. These two parameters were calculated as follows:

(4)

(5)
where CI1, CI2, ..., CIn are annual cash inflows; and CO1, CO2, ..., COn are annual cash outflows.

In our analysis, annual changes in OC, stemming from conversion to drip irrigation, were expressed as cost savings or benefits. Thus, the CI terms in Eq. [4] included OC savings and benefits from added sugarbeet revenues. The CO terms were equal to zero, and IC was the only negative cash outflow in Eq. [5], which led to:

(6)

In this study, CI1 = CI2 = ... = CIn; and CI = P; hence, Eq. [4] was simplified to:

(7)

Combining and rearranging Eq. [3], [6], and [7] resulted in the following expression:

(8)

Field Experiment
The economic analyses were conducted based on reports of a 2-yr field study (Cassel Sharmasarkar, 1998) that compared sugarbeet production under furrow and surface drip irrigation at the Torrington Research and Extension Center (TREC) in southeastern Wyoming. Following the conventional practices at TREC and local farms, furrow irrigation was applied when the soil moisture reached 65% depletion level of field capacity. Irrigation decisions were made after consultation with the county extension agent at Torrington. Drip irrigation was applied through polyvinyl chloride (PVC) pipe laterals that were placed along each row and equipped with emitters at 0.55-m spacing. Drip irrigation scheduling, set at 20% depletion level of field capacity, was based on earlier reports of increased crop yields under high application frequency with small amounts of water (Urbano et al., 1992; Roth et al., 1995). To replenish the root zone up to field capacity, drip irrigation was applied when the cumulative soil water requirement equaled the water depletion level between irrigation events (also known as design depth). Soil water requirements were computed as the difference between daily crop water use and precipitation. The average of 2-yr precipitation data was representative of the typical rainfall pattern for the sugarbeet growing seasons (Apr.–Oct.) in the study area. Design depth was determined from soil water holding capacity, crop rooting depth, water depletion factor, and percentage of wetted soil surface, according to Food and Agriculture Organization (FAO) guidelines (Vermeiren and Jobling, 1984). An average of 168 kg N ha-1, derived from rates of 112 and 224 kg N ha-1 as urea ammonium nitrate fertilizer, was applied to the drip- and furrow-irrigated fields based on annual soil tests and recommendations from TREC. Weeds were controlled by hand-picking as well as by a pre-emergence application of ethofumesate [(±)2-ethoxy-2,3-dihydro-3,3-dimethyl-5-benzofuranyl methanesulfonate] at 2.13 kg ha-1 and three postemergence applications of desmedipham {ethyl [3-[[(phenylamino)carbonyl]oxy]phenyl]carbamate} at 0.37 kg ha-1. Intensive care was taken with plots as part of our research protocol. Descriptive statistics, analysis of variance, and types of error were assessed (SAS, 1996). The H0 was that the yield variances were equal under furrow and drip irrigation.

Application of Economics to Field Scenario
Using capital budgeting analyses, four furrow-irrigated areas (10, 20, 30, and 40 ha) were compared for partial conversion to drip irrigation practices. The IC was estimated from professional publications and from price lists of current manufacturers. The values for OC and returns were computed based on the field study (Cassel Sharmasarkar, 1998), and crop enterprise budgets were inflated to 1998 values (Hewlett, 1992, p. 40; Kaufman, 1997, p. 5; USDA, 1998a). Irrigation, fertilization, and weed control costs were the primary components of OC affected by the system conversion. The irrigation costs included charges for labor, water, electricity, maintenance, and repairs. Labor was assessed at $6 h-1 for drip system installation by two people working together and for irrigation scheduling and application by one individual. The water was pumped from a well for both the furrow and drip systems. An adjacent ditch, maintained by the Torrington Irrigation District, was also available. Water cost was derived as the product of average hectare-meters of water applied during the two growing seasons and the water price ($178 ha-m-1) charged by the Torrington Irrigation District. The pumping cost was calculated from the unit electricity charge and the pumping energy (kW) required to operate the motor. The electricity charges were billed by the power company at the rate of $0.091 kW-1 for the first 3000 kW and $0.045 kW-1 for each kilowatt thereafter. The pumping energy was computed as (Gilley and Supalla, 1983; Vermeiren and Jobling, 1984, p. 203; Kumar et al., 1992):

(9)
where (respective numbers corresponding to drip and furrow irrigation are listed in parentheses)

The annual maintenance and repair costs were calculated as 2.5% of IC based on common practices (Thompson et al., 1980; Pitts and Clark, 1991; Ritter and Scarborough, 1992). Fertilization and weed control costs included charges for material, labor, vehicle, and other implements needed during the growing season. Sugarbeet returns were calculated from average yield data and the statewide price ($0.041 kg-1) received by producers (WASS, 1998, p. 98).

Sensitivity Analyses
Sensitivity analyses were conducted to determine the effect of increased interest rates (5–11%, no to high risk) on NPV at the end of the drip system's lifetime of 15 yr (Vermeiren and Jobling, 1984, p. 203; Nakayama and Bucks, 1986) and on payback years. Sensitivity analyses were also conducted for IRR and mIRR, considering spans ranging from 5 to 15 yr. First, NPV was calculated with interest rates of 5% to consider the time value of money only. In accordance with recommendations from the American Agricultural Economics Association (AAEA) Task Force (1998), a 5% rate was selected as one that was slightly higher than normal riskless real rates (2–4%) because conversion to a drip irrigation system represented a longer-term investment. Then, risk premiums (1–6%) were added to the 5% value to account for uncertainty associated with the investment of a new irrigation system and an investor's personal aversion to risk (Barry et al., 1995). This resulted in risk-adjusted interest rates of 6% (low) to 11% (high), which were slightly higher than the range of 5 to 9% indicated by the AAEA Task Force (1998). Generally, interest rates consist of three components: time value, risk, and inflation (Casler et al., 1984; Barry et al., 1995). However, in our analysis, interest rate was considered to be inflation free because predicting this component was less important for cost estimation. Thus, present values were discounted with an inflation-free or real interest rate, and subsequently, annual net cash flow and all related data were expressed in real or constant 1998 dollars. To understand scenarios other than that described in our research procedure, the sensitivity of NPV to water prices ($75–200 ha-m-1) were also assessed along with reduction in weed control costs (5–50%). The salvage value at the end of the drip system lifetime was assumed to be zero.


   RESULTS AND DISCUSSION
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
SUMMARY
 RECOMMENDATION
 REFERENCES
 
Results of statistical analysis with crop production data are summarized in Table 1. The mean values of sugarbeet yield and sugar content were higher with drip irrigation than with furrow practices, which corresponded to the results of another study reported by Cassel Sharmasarkar et al. (2001). The average sugarbeet yield obtained with furrow irrigation (50.5 Mg ha-1) was comparable to the 10-yr average (49 Mg ha-1) in Wyoming (WASS, 1998, p. 98). In contrast, the yield under drip practice was 56 Mg ha-1. Comparing furrow and drip systems using ANOVA at {alpha} = 0.05 indicated that the observed variance ratio (Fobs) values for both sugarbeet and sugar yields were greater than the critical variance ratio (Fcrt) values. Additionally, the observed P values were <0.05, indicating a significant difference between the mean yields obtained under furrow and drip irrigation. Thus, the H0 of no statistical difference in yield variances between the two irrigation practices was rejected. This was also true for irrigation x year interactions. The most significant difference was observed between sugarbeet yields under the drip 1996–furrow 1997 treatment. Values of sum of square and mean square were identical at df = 1. To assess Type I and II errors, the ANOVA was performed at {alpha} levels varying from 0.1 to 0.01. Gradually decreasing the {alpha} value from 0.1 reduced the risk of Type I error, i.e., falsely rejecting a true H0. For example, at {alpha} = 0.1 and 0.05 there were, respectively, 10 and 5 chances in 100 that we could have wrongfully rejected a true H0. For sugarbeet yield, Fobs > Fcrt was found with {alpha} > 0.0225, whereas for sugar content, it was at {alpha} > 0.0147. The Fobs and Fcrt were equal at these exact {alpha} levels. These findings suggested that the H0 for sugarbeet and sugar yields under comparative furrow and drip practices could be rejected when {alpha} exceeded 0.0225 and 0.0147, respectively. However, by reducing the chance of a Type I error, we could have actually increased the risk of a Type II error, i.e., accepting a false H0. A Type II error would be more likely to occur at low {alpha} levels such as 0.01. This could be avoided by increasing the {alpha} values. Hence, we tested a wide range of {alpha} (0.1–0.01) and selected an intermediate value of 0.05 to balance the probability of committing both Type I and II errors while comparing the yields under the two irrigation practices.


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  		Table 1. Statistical analysis of sugarbeet and sugar yields (Mg ha-1) obtained from the field study

 
The costs associated with the four drip system sizes are presented in Table 2. The drip systems included: PVC pipelines and emitters for water delivery; screen mesh and sand filters to prevent clogging; valves, water meters, pressure gauges, and regulators for controlling water distribution; and miscellaneous elements such as fittings, elbows, backflow preventors, and clamps to connect different pipes and install the system. Pumping unit, water source, and underground pipelines were already in place for the furrow practice and used for the drip system without incurring additional costs. With increasing system size, the total IC increased and per-hectare purchase costs decreased because the number of components did not augment linearly with additional area use. A similar relationship was observed by Bosch et al. (1992). Higher labor costs were observed with drip irrigation because of greater labor needs for system installation, operation, and maintenance during the growing season. The average water requirements totaled 1.118 and 0.445 ha-m ha-1 for furrow and drip irrigation, respectively. This was consistent with the average furrow water application (1.158 ha-m ha-1) in Wyoming (USDA, 1999). The reduction in water quantity with drip practice, in response to higher irrigation efficiency, contributed to a decrease in water costs of $120 ha-1 for sugarbeet production. Moynihan and Haman (1992) reported similar findings for callaloo [Colocasia esculenta (L.) Schott] and cucumber.


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  		Table 2. Initial capital investment, operating costs (OC), and returns for sugarbeet production.{dagger}

 
As a result of less water use, the power requirements and electricity costs were lower for drip irrigation (Table 2). However, drip system maintenance and repair costs increased due to greater IC. Similar differences in OC between furrow and drip irrigation were also noted by Pitts and Clark (1991). Costs for labor, electricity, maintenance, and repairs decreased with increasing drip size. However, water costs were constant for all drip systems because their size did not influence the per-hectare costs. Costs for fertilization, including contributions from residual soil N, and weed control were higher with furrow irrigation compared with the drip systems. In another study on sugarbeet, the fertilizer use efficiency for the furrow system was reported (Cassel Sharmasarkar et al., 2001) to be about half of that with drip practice. This conformed with the lower fertilization costs in our calculations with drip systems. The weed control costs were lower with the drip systems because of diminshed weed growth at reduced water quantity and less soil wetting. Lower weed growth under drip irrigation was also observed by Moynihan and Haman (1992). The pattern in fertilization and weed control costs among the four drip system sizes was due to a decrease in per-hectare labor and vehicle costs with increasing conversion area. Thus, the total variable costs were lower for drip irrigation than for furrow practice and also decreased with increasing conversion area. The per-hectare variable costs were constant with furrow irrigation becuase these costs were based on the average sugarbeet area per producer.

The changes in annual irrigation, fertilizer, and weed control costs are presented in Table 3 along with crop receipts between furrow and the four drip systems. Compared with furrow irrigation, drip practices decreased annual irrigation costs between $14 (10 ha) and $67 ha-1 (40 ha) because of diminished water and electricity use. The other annual OC for fertilization and weed control were also reduced between $136 and $148 ha-1 as a result of irrigation system conversion. The increased gross return with drip practice was a result of higher yields. In Europe, Mambelli et al. (1992) and Urbano et al. (1992) also reported that conversion to drip irrigation resulted in higher sugarbeet yields. Because sugarbeet yield was independent of the conversion area, the drip-irrigated gross returns were constant for all system sizes, resulting in a constant increment in returns ($230 ha-1). The annual net cash flows, expressed as the sum of annual changes in total variable costs and crop returns, ranged from $380 ha-1 (10 ha) to $445 ha-1 (40 ha).


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  		Table 3. Annual changes in operating costs (OC) and returns ($ ha-1) when converting from furrow to drip irrigation.{dagger}

 
A sensitivity analysis with interest rate (i) generated an increasing NPV and a decreasing payback year (PB) with expanding conversion area at all interest rates (Table 4). The highest NPV was obtained for the 40-ha system ($2119 ha-1), which corresponded to a minimum payback time of 7 yr. This was due to lower per-hectare initial ICs as well as reduced total variable costs compared with smaller systems. Similar results between small- and large-scale systems were found by Bosch et al. (1992). Decrease in NPV with increasing interest rates indicated that the investment became less profitable due to added risk premiums. Positive NPVs were obtained for all interest rates with the 30- and 40-ha drip systems. However, the 10- and 20-ha systems incurred negative NPVs with interest rates >8% and equal to 11%, respectively. Thus, compared with the larger systems, smaller systems were more sensitive to higher interest rates, making the profitability more uncertain. For the 30- and 40-ha systems at all interest rates, the PB was lower than the 15-yr life span of the drip system. For the 10- and 20-ha systems, PB exceeded 15 yr at interest rates >8% and equal to 11%, respectively. Increasing interest rates from 5 to 8% contributed to a 3-yr increase in PB for the 10-ha system, whereas it only induced a 1-yr augmentation for the 40-ha system. However, because large conversion areas (40 ha) may be riskier than small ones (10 ha), higher risk premiums may be more appropriate for the former sizes to offset their higher NPVs.


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  		Table 4. Sensitivity analyses of net present value (NPV) ($ ha-1) assuming 15-yr life for the drip system and years to payback (PB) associated with converting sugarbeet fields of various areas from furrow to drip irrigation given alternative interest rates

 
Variation in NPV with planning period (0–15 yr) using a 5% interest rate is shown in Fig. 1. The NPV increased with increasing planning period and drip system size, indicating that additional area and system lifetime were important for generating higher margins of profit. The trend was consistent for other interest rates. Positive returns were incurred when planning periods for the drip system exceeded 11, 9, 7, and 6 yr for 10-, 20-, 30-, and 40-ha areas, respectively. It was noteworthy that a size increase from 10 to 30 ha contributed to a 4-yr decrease in minimum planning period, whereas an increase from 20 to 40 ha resulted in a 3-yr decrease. Increasing the size from 30 to 40 ha only contributed to a 1-yr reduction. Thus, the minimum planning period necessary to secure a profitable investment was not proportional to the system size. Small-scale systems were more sensitive to variation in planning periods compared with the larger systems.



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  		Fig. 1. Per-hectare net present value (NPV) over the life span of the drip irrigation system considering 5% interest rate

 
Sensitivity of NPV to variation in water prices and weed control costs are presented in Table 5. An increasing trend in NPV with higher water prices indicated that conversion to drip irrigation would be beneficial for costly water districts. A water price of $75 ha-m-1 was too low to guarantee a positive investment for the 10-ha area and resulted in a negative NPV. The NPVs were positive for all other land sizes and water costs. Under water price variation, the NPV increased with increasing conversion area. Reduction in weed control costs led to a decrease in NPV for all areas, which was least when charges were decreased by 50%. As area under weed control increased, NPV also increased. For all four system sizes, the NPV remained positive even at a 50% reduced cost for weed control, thus indicating the profitability of drip irrigation.


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  		Table 5. Sensitivity analyses of net present value (NPV) ($ ha-1) as influenced by water prices and weed control costs

 
Results of the sensitivity analysis for the percentage ROR (IRR and mIRR) are shown in Table 6. All rate-of-return values were reasonable enough to allow a risk premium over the riskless rate of 5%. Within 10 yr, a producer could attain a ROR >5% for all systems but 10 ha, which would need 12 yr. Across all conversion sizes, IRR and mIRR increased (at a decreasing rate) with respect to time; thus, a longer lifetime was important for generating higher rates of profit, but this importance diminished with increasing life expectancy. The average national ROR to agricultural assets, calculated from 1993–1997, was 5.42 or 3.07% when excluding real capital gains on assets (USDA, 1998b). During the period from 1990–1999, the annualized ROR averaged 13.77% for a representative group of nonagricultural equity-based mutual funds (Wiesenberger, 1999). For all drip system areas, the rate-of-return values were higher than those for the agricultural assets. This was interesting because drip investment did not have any capital gain benefits attached to it because the system had zero salvage value at the end of Year 15. Compared with the nonagricultural assets, IRR > 13.77% was observed for a 40-ha area under drip irrigation with life span exceeding 11 yr. A negative correlation between returns from agricultural vs. nonagricultural assets could effectively reduce the overall variability of returns (Hamaker and Patrick, 1996).


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  		Table 6. Sensitivity analyses for rates of return (IRR and mIRR) associated with converting sugarbeet fields of various areas from furrow to drip irrigation given alternative life spans for the drip system.{dagger}

 

   SUMMARY
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
RECOMMENDATION
 REFERENCES
 
In this study, the economic feasibility of using drip irrigation for sugarbeet production, instead of conventional furrow practice, was evaluated. Sugarbeet yield and sugar content increased under drip irrigation compared with furrow irrigation. Total variable costs diminished under the drip practices due to lower water, electricity, fertilization, and weed control costs. These charges, as well as total per-hectare ICs, decreased with increasing drip size. Sensitivity analyses showed that profitability of drip irrigation practice augmented with lower interest rate and increased levels of other variables, including system size, life span, water price, and weed control cost. The payback time decreased with increasing area, indicating that positive returns would be obtained earlier for large systems. A 40-ha drip system was the most profitable option because it resulted in the lowest per-hectare investment and OC, and it incurred the earliest positive returns.


   RECOMMENDATION
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
REFERENCES
 
Although the economic feasibility of irrigation investment is dependent on the unique physical and economic situation of producers, this study provides valuable results that can be used to determine the profitability of converting from furrow to drip irrigation practices for sugarbeet production in Wyoming. Before making any system changes, producers should carefully analyze the potential costs associated with the irrigation practices as well as crop receipts. When implementing a partial conversion to drip irrigation on a small scale, the profit potential is limited, particularly when higher risk premiums are considered. There is a greater profit potential when implementing a large-scale drip irrigation system (i.e., 40 vs. 10 ha). However, a higher risk premium and discount rate may be more justified for large-scale conversions rather than small-scale conversions, thus offsetting some of the profit advantage resulting from the size economies associated with larger area.

Even though the 40-ha drip irrigation system was selected as the best size for optimum profitability, some producers may not be financially able to invest immediately in a large area because of the high initial ICs. Thus, they should evaluate the most appropriate size with respect to their financial capacity and balance the ICs against positive returns over the subsequent years. A drip system could be profitable for those who are able to finance the conversion with their own equity capital. However, for producers in need of debt capital to finance all or most of the investment, there would be some initial hardship. Lenders typically finance loan terms that are shorter than the economic life of the improvement, and the annual cash flow benefits accruing from the drip irrigation conversion may not provide an immediate coverage for the additional principal and interest payments. This is particularly important when considering large- vs. small-scale conversions. The size of the required loan may be beyond a borrower's conventional loan limit. The lenders also may attach more risk with a new project, particularly if implemented on a larger scale. Thus, the investors need to be prepared for the higher risk premiums and interest rates attached to such a loan.


   NOTES
TOP
 NOTES
ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
 REFERENCES
 
The research was funded by grants from Wyoming Agricultural Experiment Station (USDA) and Wyoming Water Resources Center (USGS).


   REFERENCES
TOP
 NOTES
 ABSTRACT
 INTRODUCTION
 MATERIALS AND METHODS
 RESULTS AND DISCUSSION
 SUMMARY
 RECOMMENDATION
 REFERENCES
 





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