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This update published 2nd August 2007
First published 24th January 2005

Cost Benefit Analyses

Introduction

DSE and its relationship to profits

Benefits arising from pasture improvement

Cost of drain construction

Impact on net profit of remediation costs

Impact on net profit of farmer-constructed drains

Impact on net profit of pasture renovation without drainage

Benefit to net profit of draining non-saline soils

Summary of dryland salinity management options

Drainage

Revegetation

Impact of increased cropping opportunities

State government cost benefit analyses

Levy inequities

Introduction

The Upper South East is renowned for its productive grazing properties and industries, which are expected to be affected most by the drainage network. While the following analysis focuses on the cattle industry, it includes comment on other industries.

DSE and its relationship to profits

Grazing farm management and productivity in Australia is usually referenced to dry sheep equivalent (dse) units. For cattle and sheep, dse is a measure of factors such as weight, stage and rate of growth, and, for cows and ewes, stage of pregnancy or lactation. Average figures are (Burge, 2000):

bull - 15 dse

cow with calf - 17 dse

growing calf weaner - 9 dse

ram - 2 dse

ewe with single lamb - 2.5 dse

growing lamb weaner - 1.5 dse

Feed intake is largely a function of dse. So, a grazing property should be able to run about 7 times more ewes with single lambs (each pair 2.5 dse), than cows with calves (each pair 17 dse). Properties in the north of the Upper South East with unimproved pastures (see table below) generally average stocking rates of about 3.5 dse/ha. A 1,000ha property would thus be rated 3,500 dse and should be able to run about 206 cows with calves (ie 3,500/17), or about 1,400 ewes with lambs (3,500/2.5). Average stocking rates are usually lower than the optimum, because of eg deaths, failed pregnancies, the need to run on heifers and young ewes as replacement breeders, and of course the requirement to purchase a few expensive bulls or rams! The ratio of bulls to cows is usually in the range 1: 30 - 50.

Stocking rates have to be managed throughout the year about the average, as the availability of feed increases and declines, as new calves or lambs are born, and as cattle and sheep are bought and sold. In some cases, sales might be forced as a result of drought or fire, or a need to raise capital to fund an unexpected expense. Market prices also vary throughout the year as the relationship between demand and supply changes. Frequently, market demand does not coincide with the ability of an enterprise to sell stock, so maximum potential returns are rarely achieved.

The profitability of a grazing enterprise is also related to stocking rates - currently, gross profits for cattle trading average about $30/dse/year, and for a sheep and wool enterprise about $40/dse/year. A 3,500 dse cattle grazing property should therefore generate an annual gross profit of about $105,000, which reduces to a net profit of $52,500, when expenses are removed, eg for fertiliser, sprays, veterinary bills, stock feed, stock water (from River Murray or bores), repairs, salaries, contractors, fuel, transport, commissions, insurance, rates, and levies. Operating costs of about 50% of gross farm profit are considered to be a good benchmark to aim for (Heinjus, 2004). Other farm costs, such as depreciation, debt reduction, tax, and machinery repayments, need to be taken off what remains.

What is left after taking farm costs from the net profit becomes the grazier and family's taxable income. Many grazier's incomes fall short of these figures, because of high debts and hence borrowing costs, reinvestment in pasture improvement and revegetation, investment in new and used machinery, and vagaries of the weather and market prices.

Examples of Stocking Rates (dse/ha) for Unimproved and Improved Pastures in the Upper South East (from PIRSA
Land Category Unimproved (Do Nothing) Improved (Pasture Renovation and/or Drainage)
South North South North
1: Not affected and unlikely to be affected by salinity, ie slopes and ridges (256,050ha).
 * author's estimate		 3.5 Lucerne under pressure
2.5* Annual grasses & weeds		 3.0 Lucerne under pressure
2.0* Annual grasses & weeds		 5.5 Lucerne 5.0 Lucerne
2: Not currently affected by salinity, but at risk, ie non-saline flats (175,050ha). 8.0 Non-salt mix under pressure
5.0 Annual grasses		 7.5 Non-salt mix under pressure
4.5 Annual grasses		 10.5 Non-salt mix
7.5 Salt tolerant		 10.0 Non-salt mix
7.5 Salt tolerant
3: Showing low levels of salinity. Lucerne and some clovers will not grow (109,540ha). 3.5 Degraded 3.5 Degraded 6.5 Salt tolerant grasses 6.5 Salt tolerant grasses
4: Showing medium levels of salinity. Land is not arable and vegetation dominated by salt barley grass (75,350ha). 2.5 Degraded 2.5 Degraded 6.0 Salt tolerant grasses 6.0 Salt tolerant grasses
5: Showing severe levels of salinity. Salt barley grass is sparse and land is dominated by samphire and bare scalds (65,950ha). 1.5 Degraded 1.5 Degraded 5.5 Salt tolerant grasses 5.5 Salt tolerant grasses

The areas of the Upper South East identified in each land category were measured in 1992 (Cann et al, 1992). Cat 1 and 2 land is suitable for conventional perennial pastures, and despite the descriptions, land identified as Cat 3 and 4 does support lucerne. In fact, at least 80% of the author's land identified as Cat 4 grows lucerne, and at least 80% of land identified as Cat5 supported the productive puccinellia and tall wheat grass pastures (until drainage killed them).

Empirically (trials conducted in SA and Victoria), potential stocking rates, assuming no other limiting factors, have been found to be closely related to rainfall, according to:

(annual rainfall (mm) - 250)/25 = potential rate (dse/ha)

Thus, in the Upper South East, where annual rainfall is 470 - 580mm (average for north and south respectively), potential stocking rates are 9 - 13 dse/ha. Factors such as soil and pasture type, inherent fertility, fertiliser history, and salinity, reduce actual stocking rates to below potential rates.

Lewis (reported in MLA, 2005) indicated that potential stocking rates for a property increased by 0.7 - 1.1 dse/ha for every 25mm rainfall in excess of 250mm. Saul of the Department of Primary Industries in Victoria (reported by Lewis in MLA, 2005) also identified relationships between growing season and stocking rates. For a 5-month growing season, Saul identified a potential stocking rate of 9 - 11 dse/ha, for a 6-month growing season 12 - 15 dse/ha, and for a 7-month growing season 15 - 17 dse/ha.

For a 1,000 ha grazing enterprise on a mix of unimproved and improved pastures, stocking rates actually range from about 3.5 to about 5.5 dse/ha, and net profits are up to about $82,500/year. Willalooka in the Upper South East has good soils and climate, and achieves stocking rates of the order of 7.5 dse/ha (DWLBC, 2001). Operating costs for enterprises run on improved pastures are higher, because of greater fertiliser and pesticide needs, and because they almost always are the subject of an ongoing pasture renovation program.

In the event that a grazier decides to improve pastures, increased costs and the need to set aside paddocks for improvement (and thus become unavailable for grazing for up to a year), reduce stock carrying capacities and hence net profits in the short-term. Improvements to net profits, arising from an increase in stock carrying capacities, would not occur for at least 4 - 5 years after a pasture renovation program began.

Benefits arising from pasture improvement

The table above indicates that improvements in stocking rates arising from pasture renovation and/or drainage are potentially of the order of 4dse/ha for Cat 5 saline land, and 2dse/ha for Cat 1 non-saline land. With drainage, land originally classified as Cat 5 could be reclassified Cat 2 as salts are leached out of the soil profile. In the best case, stocking rates could be increased by up to about 9 dse/ha (annual net profit increase of $135/ha). Cat 5 land already with improved salt tolerant pastures has potential to be improved to Cat 2 land with drainage, with an increase in stocking rate of about 5 dse/ha ($75/ha).

The maximum benefit arising from drainage is thus an increase in annual net profit of $135/ha (unimproved Cat 5 to improved Cat 2). The annual net profit increase arising just from improving pasture (without drainage) is $60/ha (unimproved Cat 5 to improved Cat 5). This suggests that drainage should generate a bonus of $75/ha. Pasture renovation costs have been ignored, because they apply approximately equally to each case.

Drainage-related costs fall into three principal categories, namely drain construction, soil remediation and pasture renovation, and ongoing drain maintenance.

Cost of drain construction.

Upper South East drain construction costs are approximately $70,000/km (ie $45 million/655 km). When completed, about 62% of this cost will have been subsidised by Federal and State taxpayers, through Natural Heritage Trust and National Action Plan for Salinity and Water Quality grants, resulting in a cost to the Upper South East community of $26,000/drain-km. While all Upper South East landholders contribute to the construction of the drains, less than half are expected to derive any direct benefit. On average, each benefiting landholder is estimated to have about 4km of drain per 1,000 ha of property, at a total initial cost (by way of levy) to them of $42,500/1,000 ha.

Benefit to net profit of drainage of saline soils.

The drain has a maximum effective footprint of ± 500m, on duplex soils, and considerably less on clay loams. The footprint is the distance at which groundwater is lowered by at least 0.5m. Anything less will not impact significantly on top-soil salinity. Assuming that the Upper South East comprises equal areas of duplex or better drained soils and clay loams, the average footprint reduces to an average ±250m, ie about 50 ha/drain-km. About two-thirds of each property has land that has potential to be affected by salinity and will benefit from drainage, so the average landholder will benefit by about 135ha for a $42,510 levy, or a construction cost of $280,000.

Each km of drain occupies about 5ha of land, representing on average about 20ha (5ha/km x 4km) land lost from production on each property, of which about 13.3ha (20ha x 2/3) exists in the area that will benefit from drainage. So agricultural land actually benefiting from drainage becomes 122ha (135 - 13). Thus, 122ha of land will benefit from the $42,500 levy (at an equivalent investment cost of about $350/ha). The figure becomes $2,300/ha if the actual construction cost is used. Land lost from production would result in a loss in annual net income of about $1,200. The cost of renovating pastures on the drained soils will be in the range $100/ha - $200/ha. This ignores ongoing drain maintenance costs, which have been estimated by the Program to be in the region of $500/drain-km/year!

Gypsum incorporation and slotting is estimated to cost about $1,000/ha/10-years. This is required to remediate sodicity effects in duplex soils and clay loams, and will cost $100/ha/year. Assuming the landholder pays no interest, no drain maintenance costs, and a heavily subsidised drain levy, the maximum possible increase in annual net profit for drained land will be $35/ha ($135 - $100), or $4,270 (122 x 35) over the whole property. Land lost from production will reduce this figure to about $3,070 ($4,270 - $1,200), for a total cost of $61,000 (122 x $500/ha, which is the initial construction cost at $350/ha plus pasture renovation at $150/ha). This is a return on investment of less than 5%, and represents the best possible case! When realistic costs are added, the grazier's return from drainage becomes increasingly negative.

A sheep and wool enterprise will fair a little better, returning about 15% annually on the initial investment, but only for a best possible case, with no interest to pay, and no other costs!

Impact on net profit of remediation costs.

The "cost/price squeeze" has been affecting grazing industries, resulting in the level of fertiliser use declining, in turn leading to a decrease in soil fertility in the Upper South East. This has been identified as a major issue in the Upper South East (page 167, SENRCC, 2003). If fertiliser use has been in decline, it is likely that gypsum treatment will also be ignored. An increase in net profits might thus exist from drainage in the short-term, but subsequently decline as soil structure deteriorates from sodicity in the longer-term.

Many graziers (over 60%) have already improved their Cat 5 saline flats, so their annual net profit increase arising from drainage (Cat 5 (5.5 dse/ha) improved to Cat 2 improved with salt-tolerant pastures (7.5 dse/ha)) will amount to about $30/ha. From this must be taken the cost of gypsum treatment, leading to a net loss of $70/ha. If the grazier was unfortunate enough to have improved his Cat 5 land with puccinellia prior to drainage, it will die as the soil dries, so he will need to resow with drought- and salt-tolerant species, at $100/ha to $150/ha. And so the costs arising from draining saline land continue to climb, and net profits increasingly move more negative.

Impact on net profit of farmer-constructed drains.

If the landholder decides to increase the reach of the main drain by constructing a network of smaller drains, the annual cost of construction and maintenance will be at least $100/ha (derived from Cotching, 2005), which is in excess of any maximum achievable increase in net return. Add to this the cost of soil remediation, at $100/ha/year ......... and again, there is a further reduction in net profit.

Impact on net profit of pasture renovation without drainage.

Compare the above examples with just renovating unimproved Cat 5 saline pastures with improved pastures (eg puccinellia, fescue, tall wheat grass) at an initial cost of $150/ha, annual net profits would increase by about $60/ha. At least 60% of salt-affected land in the Upper South East had been sown to salt-tolerant pastures in 2002 (DWLBC, 2002). Renovation of pasture on Cat 1 land (eg resow with lucerne at $250/ha (Rolls Royce renovation) to replace annual grasses), will increase annual net profits by about $45/ha. For the cost of the levy (1,000ha X ($13.44 Phase 1 + $29.07 Phase 2) = $42,510), the landholder could have renovated 200ha of higher ground and saline flats, and increased annual farm net profits by around $11,000. If the landholder operated a sheep and wool enterprise, annual net profits would have increased by nearly $15,000. Recharge would have been reduced, saline land turned into a source of income, no land would be lost to a drain, and no significant ongoing costs exist for the landholder, or environmental costs for the local community.

Now, if the total of all Commonwealth, State and landholder levies ($45million) had been offered to landholders as a 50% grant to control recharge (ie $100/ha) by revegetation, 450,000ha of the Upper South East (about 65%) could have been improved, generating an annual increase in net profits for the region of about $24million (or $35,000/1000ha farm), at a cost to each landholder of the levy and half of the renovation cost! Such a program would probably have taken 5 - 10 years to implement.

The proposal would probably have been impractical to implement, and require balancing of investments between revegetation of non-saline and saline land, and some surface drains to relieve local waterlogging. Importantly, all landholders within the Upper South East would have had access to the potential benefits, not just those lucky (or unlucky) enough to be on the route of the current drains.

Benefit to net profit of draining non-saline soils.

A number of properties to the east and south of the Upper South East are not yet experiencing dryland salinity (although groundwater might be saline). Some also experience significant winter waterlogging. These properties have potential to increase productivity by 5dse/ha to 10dse/ha with drainage, with no requirement to remediate sodicity. There is thus potential to increase annual net profits by close to $150/ha on this drained land, with no major costs apart from initial pasture renovation. Coincidentally, some of these properties are in zones B and C (they pay lower levies), are serviced by the drain, and are also charged the lowest levies in the project area!

Summary of dryland salinity management options.

Drainage.

$45 million will construct 655 km of Upper South East drains, providing groundwater relief for a little under 23,000 ha (<4% of the Upper South East) of discharge areas, with at best no change to annual net farm profits, and at a cost of $17million to landholders (in the forma of a levy). If remediation is not performed, initial higher net profits will reduce over time as soil structure degrades. Many significant initial and ongoing economic and environmental costs have not been considered. Some graziers in the region will have been charged a levy that exceeds their annual net farm income!

This analysis contradicts Rural Solutions South Australia conclusion that 88% of drain benefits will be directly received by landholders, implying that a significant benefit will arise. The assumption that landholders would receive significant benefits from drainage is believed to have been the reason why landholders' are required to contribute 38% towards the drain network's construction costs.

Revegetation.

$45 million could have been used to improve pastures on 225,000 ha of Upper South East recharge areas (ie dunes), and generate an increase in annual gross profits for the region of at least $12 million. If provided as a 50% grant to graziers, with a requirement for landholders to maintain these pastures for a period of at least 10 years, the money could have doubled the area improved to 450,000 ha (nearly 70% of the Upper South East).

According to State Government literature (Upper South East Dryland Salinity and Flood Management Program, 2003), lucerne provided “an effective means of reducing groundwater recharge” when it was sown over about 50% of the Upper South East. Revegetation of 70% of recharge areas, with lucerne on higher ground and salt-tolerant species on saline flats, would thus have provided an even more effective means of reducing groundwater recharge, controlling dryland salinity and at the same time increasing agricultural productivity! Long-term costs would have been modest, and more affordable to the grazier.

Only $100,000 of the program's $73.3million budget (0.14%) has been allocated to revegetation of saline and non-saline soils (DWLBC, 2003), although a Commonwealth target of 70,000ha revegetation has been set as a condition of funding (DWLBC, 2002).

The Commonwealth target for revegetation originated from a need to reduce drainage flows into the Coorong. The current drainage scheme will generate of the order of 63,000ML/year of water for disposal, but the Commonwealth approval for discharge to the Coorong is 40,000ML/year. Furthermore, modelling indicated that a discharge of about 20,000ML/year should minimise the risk of freshening the hyper-saline waters of the Coorong. 20,000ML/year should be lost in the wetting and drying cycles of various wetlands, so a further 23,000ML needed to be lost from the system (DWLBC, 2002).

CSIRO modelling determined that revegetation of 70,000ha (20,000ha Northern Catchment and 50,000ha Central Catchment) with deep-rooted perennials should intercept and transpire sufficient rainfall to reduce discharge to the Coorong to the target of 20,000ML. By extrapolation, if 70,000ha revegetation reduced discharge by 23,000ML/year to 20,000ML, revegetation of 140,000ha could have reduced discharge to zero, ie a drainage outlet to the Coorong would not have been required! The area is well below that which could have been been revegetated if all drain project money had instead been redirected to recharge management!

Furthermore, replacement of 140,000ha of annual pastures on dunes and other high ground with deep-rooted perennials would have intercepted and transpired at least 70,000ML/year of excess groundwater recharge (140,000ha x 50mm (groundwater recharge under annual pastures, page 156, SENRCC, 2003), at a cost of about $35million to establish, or $17.5milion if offered as a 50% grant. The volume intercepted is greater than the total of all Northern and Central Catchment drainage flows, predicted to be 63,000ML/year.

Wheeler (2002) reinforced this view when reporting that some landholders (predominantly in Zones B to D) felt "that the drainage scheme has been unnecessary, and more effort should have gone into native revegetation and perennial pastures".

Because terminal wetlands' health is inextricably linked to the area of the Upper South East under perennial vegetation, it is likely that the State Government will need to revise down revegetation targets to account for reduced drain flows arising from predicted lower than average long-term rainfall. That is, after the drainage works has been completed, terminal wetlands' health and not agricultural productivity will probably dominate future revegetation priorities in the region.

It is unclear why the State Government persisted with drainage construction, when CSIRO modelling appears to show that revegetation with perennial pastures could have removed excess groundwater recharge more efficiently and cost-effectively than the planned drainage network, and significantly reduced or removed the dual threats of dryland salinity and waterlogging.

Impact of increased cropping opportunities

Drainage has potential to increase opportunities for cropping in the region. According to Anon (2004), annual gross margins/ha (equivalent to annual net profit/ha for a grazing enterprise) range from about $163/ha for peas to $392/ha for lentils, for a 375mm rainfall paddock on Yorke Peninsula and in the Lower North.

Presumably returns for the Upper South East on the better cropping land in the east will be higher. Many eastern properties are not yet saline, so will also not need to conduct sodic soil remediation. Grazing properties not set up for cropping would require internal fencing and gateways to be modified, possibly claying (at $200 - $300/ha), and investments in new plant, in order to capitalise on any new cropping opportunities, again diminishing any potential benefit that drains will bring.

Thus, while some eastern Upper South East properties and landholders might benefit from improved drainage, western properties and landholders will not. The drain effectively becomes a conduit running through western properties, paid for by western property landholders and others in the project area not on the drain. Eastern Upper South East croppers, some of whom also pay considerably lower levies, will thus become heavily subsidised beneficiaries of the drain, paid for by all other project area landholders, and State and Federal Government taxpayers!

State Government cost-benefit analyses

State Government analyses conducted by Barber (1993) and Wheeler (2002) assume growth of Upper South East salt-affected areas at a rate determined by Cann (1992). This was used to define a "do nothing" scenario, against which benefits of drainage and revegetation options could be assessed. A number of incorrect assumptions (not known then) were made in the 1993 analysis, for example:

The analysis by Barber indicated for a northern catchment example (see figure below) that with drainage and pasture improvements stocking rates would be over 80% higher than the projected "do nothing" level at the 30year point, but which was only 16% higher than stocking rates in 1993! If the area of salt-affected land in the Upper South East has in fact been reducing since 1992, the predicted best-case margin is likely to be considerably less than 16%!

In a submission to the PWC in 1999, PIRSA (p3, 1999) reported that "with a coordinated drainage scheme in place and a commitment by landholders to pasture improvement programs, stock carrying capacity will be boosted from 0.96million dry sheep equivalents (dse) to 1.10 million dse", ie an increase of a little under 15%. Remarkably, by 2002, MPs and MLCs were then informed that productivity would increase by 100% when the Upper South East Act was debated in the South Australian Parliament (eg Hill in Hansard (2002))!

projected_stocking_rates_in_upper_south_east

The pasture renovation priorities for post-drain land deduced from the 1993 analysis were, in order:

This led to the prediction that stocking rates on a "model farm" in the central catchment would rise by 56% from the opening (1992) stocking rate. Peak debt occurred after 9years, and the cash flow break even point occurred after 15years (ignoring interest payments). Greatest benefits were predicted to arise from the application of saltland agronomy on the flats! In particular, Barber's report noted that "the overall adoption, or uptake, rate of the pasture renovation program (saltland agronomy) by landholders on the agricultural flats is a critical variable in the analyses", because the flats amount to 59% of the available agricultural land in the catchments. However, when all expenses are taken into account, Barber pointed out that the pasture renovation program "barely breaks even on financing costs with little or no additional remuneration to the farm business owners"!

PIRSA (1999), in presenting the case for Stage 2 construction works for the Program, reported that an economic analysis undertaken in 1999 by the South Australian Centre for Economic Studies concluded that Barber's assumptions continued to be valid, but that his economic evaluation was conservative. PIRSA thus concluded that "there is [sic] significant agricultural benefits to be obtained by continuing the construction of the drainage network" and that "there are large social and environmental benefits to be gained by the integrated catchment management program"!

Wheeler's 2002 analysis identified a number of costs not considered by Barber, which resulted in a significant reduction in the benefit-cost ratio (1.56 in the 1993 analysis to just below one in 2002, at a discount rate of 7%). The analysis also concluded that "the total net benefits from improved agricultural productivity do not outweigh the costs of the scheme"! The analysis also noted that "there have been negative environmental consequences of the drainage scheme, and if these effects were fully known and accounted for, then the overall values [benefit-cost ratio associated with environmental benefits, estimated to be at best 1.38 for the theoretical model farm, but acknowledged to be unrealistic] would be a lot less. ........ As such, the environmental values currently included are an overestimate of the true value." The figure of 1.38 was reported by the DWLBC (2003a) to the Public Works Committee with none of the caveats.

While pasture renovation is critical to achieving the production benefits publicised by the State Government for the Upper South East Dryland Salinity and Flood Management Program, in a 2002 survey of 98 Upper South East landholders, up to 74% were convinced that the costs of revegetation do not outweigh the benefits (Truscott, 2002)! Other forms of revegetation (eg trees, shrubs) at the required scale are unlikely to occur with public or private investment alone, because they are not commercially viable unless some value is attributed to the natural resource and greenhouse benefits they deliver (Rural Solutions, 2002).

Levy inequities

Real estate agents value grazing enterprises according to their carrying capacity measured in dse, and whether the property has improved pastures, and other improvements. Current Upper South East valuations for the north Upper South East are around $220 (unimproved) - $280 (improved)/dse, and average about $900- $1,000/ha (Anon, 2004a). Further south, including the Lower South East, properties are valued at around $300- $350/dse, and average about 30% more per ha because of higher stocking rates (Anon, 2004b).

The majority of grazing properties in the Upper South East have a mix of improved and unimproved pastures (averaging 4 dse/ha), and are valued in the range $1 million to $1.5 million/1,000 ha. Some grazing properties boost profitability by running stud cattle and sheep operations, but there is only a limited market for these. Cropping enterprises, soils permitting, generate significantly higher profits per ha than grazing enterprises, which is reflected in their valuations. In the Upper South East, cropping land is generally valued at 3 times and more per ha than grazing land. The most expensive cropping land in South Australia is on Yorke Peninsula, selling at nearly $11,000/ha (Anon, 2004a).

Upper South East Program levy payments are based on area (zone A properties charged $42.51/ha for phase 1 and 2). Thus, the owner of a 1,000ha cattle grazing property is required to pay a levy of $42,510, which is close to annual potential net income of $60,000 (before interest, depreciation, machinery costs etc). A 1,000ha cropping enterprise has potential to generate net profits of the order of $160,000 - $390,000, depending upon crop, for which the levy represents just 10% - 25% of annual net income. In practice, enterprises that have cropping potential rarely crop all available land each year, with a large proportion of land left fallow, or used for grazing. This reduces overall net profits to the order of $80,000 - $160,000/1,000ha (levy is 27% - 53% of annual net farm income). This higher net farm income is reflected in higher property capital values.

The greatest potential beneficiaries of Upper South East drains are those zone B and zone C landholders, who respectively pay 45% and 22.5% the levy of their zone A neighbours, and who coincidentally occupy some of the best grazing and cropping (non-saline) land in the Upper South East. This is clearly inconsistent with the initial rationale for zone boundaries (Johnson, 2002). Furthermore, when levy payments are calculated as a percentage of net farm income, zone B and C landholders served by the drain pay as little as one-tenth of their zone A neighbours!

A levy system based on a property's capital value (normal practice) would have been more equitable, and would have been consistent with the State Government's compensation proposal outlined under Section 13 of the Upper South East Act.

Wheeler (2002) recommended that "when it comes time to negotiate with landholders, Government must consider other issues such as capacity to pay and in kind contributions". There was no significant review of the zone system (zone D landholders were no longer required to pay a levy during this phase), and definitely no consideration of capacity to pay. Wheeler also observed that "the extension of the scheme means that new boundaries of direct on-farm beneficiaries needs to be established" and "that parts of zone B become part of the rating category zone A". Subsequently, zone C properties also became direct on-farm beneficiaries of the drain. No new boundaries were established!

Landholder contributions to components of the Upper South East Dryland Salinity and Flood Management Program over a 30 year period is estimated to be about 46% (Wheeler, 2002). To 2002, based on estimates of landholder pasture, wetland and revegetation activities, Upper South East local community contributions amounted to about 43% of the total scheme costs.

Wheeler (2002) further makes the following points:

Furthermore, many landholders not on drains are illogically being charged a levy for contributing to the problems of "rising watertables and the spread of dryland salinity", when State Government data shows that these problems have not existed since 1993. Many others on drains will derive no benefit, because they have neither salinity nor waterlogging problems - their land is effectively hosting a conduit for up-stream drainage effluent!