Biological Control of Giant Reed (Arundo donax): Economic Aspects

Table 2. Real Returns to Saved Water Using Market and Normalized Prices, Arundo
donax Control, Lower Rio Grande Valley, 2009-2058.

Returns to Water
in Million $

Benefit-Cost Analysis

For the benefit-cost analysis, normalized prices are used to reflect the social benefits of
the saved water. Similar to the market-price analysis, the totals are summed, inflated at 2.043%,
and discounted by 6.125% to obtain the net present value. The low-value crop mix has a net
present value (normalized) of $73.4 million, and the high-value crop mix has a normalized net
present value of $137.0 million, as shown in Table 2. The costs of the program were provided by
Goolsby (2008) and are $1,000,000 for each year from 2007 to 2010, $2,000,000 in year 2011,
$3,000,000 in year 2012, $4,000,000 in year 2013, $5,000,000 in year 2014, $1,500,000 in year
2015, and $500,000 in year 2016. The present value of the program costs was estimated at
approximately $16,850,000. The present value of benefits is divided by the net present value of
the project costs to calculate the benefit-cost ratio, as shown in Table 3. The low-marginal
returns crop mix has a benefit-cost ratio of 4.36, and the high-marginal returns crop mix has a
benefit-cost ratio of 8.11.³

Benefit-cost ratios equaling 1.0 are considered “breakeven.” These ratios exceeding 1.0 are considered
favorable.

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