Disclaimer: At the time of writing, David Pannell was a member of a Ministerial Task Force to review salinity policy in Western Australia. This paper expresses the personal views of David Pannell, and not those of the Task Force.

Economic, social and environmental dimensions of salinity in wheatbelt valleys are intertwined in a number of ways. For both individuals and the community as a whole, there are limits to the financial resources which can be (or should be) allocated to salinity management, whether for economic, social or environmental outcomes. Sometimes, which considering the options for salinity management, there are tradeoffs which must be made between the economic, social and environmental objectives. Economic incentives influence what farmers and other wheatbelt residents will do to prevent or exacerbate salinity. This paper commences with a brief description of the links between these issues, so that we can think clearly about the choices in front of us. Then I review the available evidence on the economic costs and benefits of salinity management for impacts of various kinds. I also identify those economic issues about which we have insufficient information. While some aspects of the economics of salinity are rather discouraging, there are also unrealised opportunities to harness economics to pursue win-win outcomes which provide salinity benefits in tandem with other benefits.

In Western Australia, the story of salinity is largely the story of wheatbelt valley floors. The valley floors are special in a number of ways. Today, they are the locations of the most severe dryland salinity problem in the world, but historically, they were where agriculture was first established in the region, and they often produced the best crop yields. They are home to a host of unique biology, and are the sites of creeks, rivers and lakes. Because of their flatness, valley floors often determined the routes chosen for railway lines, and consequently the locations of many towns now suffering salinity damage. The drawing power of the railway lines is illustrated by the siting of Merredin (the venue for this conference). The first dwellings established in the locality were on the valley slopes, north of Merredin Rock (near the current golf course), probably to provide easy access to water from the rock. After the railway was installed along the valley floor, the town moved. To my eyes, wheatbelt valleys look special, in their vastness and their gentle curves and slopes, reflecting their great age.

The salinity story is complex and multifaceted. Economics is only one facet but clearly it is an important one. Economic development was one of the key objectives in opening up and clearing the wheatbelt in the first place. These days, many see the harnessing of economic incentives as providing the best prospect for dealing successfully with the salinity which resulted from that clearing. .

But it is also important to recognise the social and environmental dimensions of salinity. This paper starts by exploring the links and inter-dependencies between economics, social issues and the environmental in the context of salinity. After that, the importance of economic incentives as drivers of behaviour are discussed. Then I review the economic costs and benefits of salinity management in wheatbelt valleys, breaking the review into three sections: agriculture, infrastructure and the intangibles. Finally, the opportunities to harness economics as a force to deal constructively and effectively with salinity are discussed.

As noted above, economic development objectives provided much of the impetus for clearing almost all of the WA wheatbelt, starting with the valley floors, over the course of the twentieth century. However, social objectives played a key role as well, particularly the objective of providing for returned servicemen following each of the World Wars (Beresford et al. 2001). It is hard to distinguish between economic and social objectives in that context. Environmental objectives did not appear to be high on the agenda until late in the century, but this has changed radically. Indeed, an environmental issue (commercial harvesting of logs from old-growth forests) is credited with contributing substantially to the change of state government in Western Australia in the election held earlier this year.

The old-growth forest issue involves difficult and sometimes-messy tradeoffs between environmental, social and economic outcomes. Increasingly, salinity will do so as well. Here are three examples which illustrate the shape of things to come.

The sort of trade-offs involved in these examples are the stuff of politics. They will inflame communities, especially those groups who feel they are losers, but they may also act as catalysts for community action and consensus.

Until fairly recently, economists considering salinity most commonly attempted to estimate "the cost of salinity", usually in comparison to a mythical and unachievable scenario of zero salinity. "The cost of salinity" is a concept of almost no practical value (Van Bueren and Pannell, 1999; Bathgate and Pannell, 2001). Indeed, the large estimated costs have probably done more to mislead thinking about salinity than to improve it. It is better instead to focus on the costs and benefits of specific management strategies, allowing for realisitic levels of effectiveness, appropriate for each particular management strategy. As much as possible, that will be the perspective taken here.

Salinity management practices for agriculture are considered here in three categories: prevention, living with salinity (adaptation), and repair.

The term "prevention" is used here to mean avoidance (in part or in full) of a further worsening in salinity. It is not intended to imply a reduction in current levels of salinity. The scales of treatments recommended by hydrologists for preventing the various impacts of dryland salinity are daunting, particularly in large wheatbelt valleys. In recent years, we have lost earlier hopes that large-scale preventative impacts on salinity could be achieved by clever selection and placement of relatively small-scale treatments, or by changes to the management of traditional annual crops and pastures (in all but the most localised and small-scaled groundwater flow systems). The new consensus is that large proportions of land in wheatbelt catchments would need to be revegetated with deep-rooted perennial plants (shrubs, perennial pastures or trees) for at least part of the time. The perennials would need to be integrated with engineering works, particularly shallow drainage for surface water management. (Deep drains are discussed below under the heading of "repair".)

How much income would perennials need to generate to be worth growing? Figure 2 shows results of calculations done by Bathgate and Pannell (2001) to answer this question from the perspective of farmers. The answer depends on issues like:

• the area of land protected from salinity per hectare of land sown to perennials,
• the cost of establishing perennials, the interest rate,
• the time lag until salinity would have occurred,
• the income from crops or pasture on the land if not replaced with perennials,
• and the potential to earn income from grazing off salinised land.

Even in the most favourable situation, perennials must do better than covering their input costs. For time lags of 20 years or more, the profitability of perennials must nearly equal that of traditional crops or pastures, even if land protected is greater than land treated.

Overall, the results show that the indirect benefits of perennials due to salinity prevention will be small relative to their direct, short-term benefits and costs. In wheatbelt valleys of Western Australia, it appears that it is rarely possible to implement treatments that protect much more than the land on which they are situated (and perhaps not even that much). This information requires us to fundamentally re-think the nature of the salinity abatement problem. It implies that for adoption of perennials to be financially attractive to farmers, the perennials need to be directly profitable, without considering the benefits of salinity prevention (or the indirect or non-financial benefits other than for salinity need to be sufficient).

In the past, the interdependence of farmers within a large catchment has been emphasised. At least with respect to movements of groundwater, wheatbelt farmers are now seen to be much less dependent on each other for groundwater management. Importantly, it is now known to be possible for groundwater management to be effective locally, at least temporarily, even without cooperation from neighbours. Typically, soils in the large wheatbelt valleys of Western Australia have low "transmissivity", meaning low potential for water to pass through them. This, combined with the very low slopes, means that lateral water movement is very slow indeed and transmission of pressure is low. Even if equilibrium areas of salinity are reduced little (as in parts of Figure 1), the planting of large areas of perennials is likely to delay the process of reaching that equilibrium by between 20 and 80 years (Campbell et al. 2000). This delay is worth money directly, and it may also buy time for better management options to become available.

But the treatments still need to generate money directly. The availability of perennial options which can generate an income will be critical for our future salinity management in the wheatbelt. A big effort to prove (and improve) lucerne is underway. The other option on the horizon is oil mallees. Oil mallees appear likely to become profitable for farms located within the transport limits of processing plants/power generators (Bartle 1999; Cooper 2000; Herbert 2000). A pilot plant is planned for the town of Narrogin. However it is clear that we will need many more options that these two. The new Cooperative Research Centre for Plant-Based Management of Dryland Salinity has as its prime objective the development of new profitable plant based options for salinity management.

Farmers with large areas of salt-affected land are already trialling and implementing farming systems based on salt-tolerant species (e.g. salt bush, balansa clover). In addition, there is growing interest in economic uses for saline water (e.g. aquaculture, electricity generation, irrigation with brackish water, algae [e.g. for agar, b -carotene, pigments, fish food], seaweed) and the potential to extract valuable salts and minerals (e.g. magnesium, bromine, potassium chloride) (see http://www.ndsp.gov.au/opus/menu.htm for the OPUS database, accessed 5 June 2001).

There has been little economic analysis of these practices (which seems an important oversight). However, there is reason to expect that they will become of considerable economic importance. Much of the forecast salinisation of land is not technically avoidable without implausibly large changes in land use. The plant-based options for saline land have at least one advantage over perennials planted in recharge areas. Recharge areas are still productive and valuable for traditional production, so farmers will be reluctant to switch to other land uses unless they are about as profitable. Establishing salt-tolerant species on salt-affected areas does not involve the same sort of sacrifice. Therefore, provided that up-front establishment costs are low enough and/or adequate productivity can be demonstrated, the prospects for widespread adoption of new salt-tolerant plants for economic production on salt-affected land appear good.

Many farmers would prefer to repair salinised land and continue with traditional agriculture, if that is possible. This requires engineering. Deep open drains that have been installed by many farmers to enhance discharge. Measurements by researchers have found that they reduce groundwater levels within only a few metres of the drain on high-clay soils and rarely more than 40 metres on favourable soils (George, 1985; George and Nulsen, 1985; Speed and Simons, 1992; Ferdowsian et al. 1997). However farmers have observed positive effects of deep drains on plant growth over greater distances than this. An economic analysis of deep open drains on agricultural land by Ferdowsian et al. (1997) reached negative conclusions about their cost effectiveness, but given farmer observations and new evidence that is emerging about their effectiveness in some situations, further research and analysis is needed. A key issue to resolve with deep drainage is the cost-effective and environmentally safe disposal of discharged waters.

Proposals to construct major regional engineering systems, fed by pumping from agricultural land, have been made (e.g. Belford 2001; Thomas and Williamson 2001). At this stage I don’t have a professional opinion on the merits of these proposals, other than that they need careful evaluation.

The impacts of salinity on built infrastructure have received increasing attention. According to the National Land and Water Resources Audit (2001), assets across the country at high risk from shallow saline watertables by 2050 include 67,000 km of road, 5,100 km of rail and 220 towns.

Low water "transmissivity" of soils was described earlier in relation to agriculture. It also has important implications for rural towns on valley floors. It is estimated that it would take 3000 years for groundwater to move from the top of the Merredin catchment to Merredin town (Matta, 1999). Clearly, the only land that has contributed groundwater directly to Merredin town site in the 100 years since the region was developed is land in or very close to the town site. Hydrologists recommend that the most important and effective treatment for preventing salinity damage within town sites is reducing recharge within the town site, and/or enhancing discharge in and around the town by engineering treatments, such as pumping (Matta, 1999; Dames and Moore – NRM 2001). It is believed that, in most cases, benefits from revegetation of surrounding farm land will be insufficient and/or too slow to prevent major damage to town infrastructure.

For towns such as Merredin, which have fresh water piped to them for domestic use, the problem is exacerbated by release of this imported water into the ground from garden irrigation systems or septic tanks. For some towns in Western Australia (e.g. Cranbrook, Tambellup), imported water and runoff from roofs and roads accounts for a substantial part of the groundwater rise within the town.

The Rural Towns Program is concerned with 42 WA towns facing salinity impacts. A number of these towns have been subjected to hydrological studies to identify systems of intervention which would be needed to reduce the impacts of salinity, and for six of them, detailed economic analyses conducted of these interventions have been conducted. These are very important studies and they have major implications for the management of salinity in the towns. Some of the common findings from the six towns are listed below, drawn from the report by Dames and Moore – NRM (2001).

• In low-lying towns like Merredin and Katanning, groundwater beneath the towns has low rates of lateral flow through material of low transmissivity. The implication is that actions taken to reduce groundwater recharge higher in the catchment will have very little impact on groundwater behaviour beneath the town within time frames needed to prevent damage. The corollary is that actions to prevent groundwater rise or to lower existing levels need to occur within or immediately adjacent to the townsite.
• Surface water management within the towns is inadequate. In some cases, observed damage is being caused by poor domestic water management or a lack of sealed drainage, rather than rising groundwaters.
• Roads are the biggest cost item from salinity in the towns, amounting to about 60 percent of the total.
• There is great variability in the situation in different towns. Towns need individual investigation and advice in determining the most appropriate course of action. Without specialist professional input, affected towns are unlikely to grasp the necessary approach to urban water management that is needed.

In the case of Merredin, the consultants concluded that "the actions warranted for immediate implementation include advice with water management to reduce recharge and damage to infrastructure, continual improvement in drainage systems, and tree planting within the town to reduce recharge," (Dames and Moore – NRM 2001, p.13).

It was noted above that the biggest costs incurred in salt-affected towns are from damage to roads. Roads outside towns will also be affected. Dames and Moore – NRM (2001) based their road costings on a report of the Murray Darling Basin Commission (1994), which reported, for example:

• The average life of sealed roads in Victorian irrigation areas with water tables of 2.0 m or less was 20 years, compared with 40 years for equivalent roads in dryland areas over deep groundwater tables.
• When replacing major highways, the additional cost in situations with shallow groundwater (less than 2.0 m) was around $100,000 per km, on top of the normal construction cost of around $400,000 per km. Repair costs for a major highway due to shallow groundwater (i.e. the cost of patching and repairing the road to maintain the pavement condition) was $10,000 per km per year.
• For a standard sealed country road, estimated construction costs were $100000?? per km, plus $25,000 to $35,000 in locations with shallow watertables. Additional maintenance costs due to shallow water tables would be $400 to $2,900 per km.
• For gravel roads, the construction cost was $7000 per km plus $3000 for shallow water tables, with annual maintenance increased by $200 per km for shallow watertables.

Campbell et al. (2000) estimated that for the Great Southern region of south-west Western Australia, 1200 buildings (15 per cent of all buildings in the region), 3,300 km of roads (26 per cent) and 16,000 farm dams (44 per cent) face the risk of damage or destruction from salinity. No similar study has been conducted for the central, eastern or northern wheatbelt.

Increased flood risks have been studied for only a small number of case studies (e.g. Bowman and Ruprecht 2000). Extrapolating from these, George et al. (1999) concluded that, with the predicted two- to four-fold increase in area of wheatbelt land with shallow watertables, there will be at least a two-fold increase in flood flows.

There has been no economic analysis of this additional flood risk or its management. One question is whether the costs of floods will be sufficient to justify major revegetation of catchments. Based on a consideration of the large areas over which flood waters can be collected in wheatbelt catchments, and the occasional nature of floods, my hypothesis would be that flood risk will provide only small to modest additional incentives for establishment of perennials. It may be more efficient to conduct engineering works near to flood prone assets. Further economic studies to examine these issues would be useful.

According to George et al. (1999), in Western Australia, without massive intervention, most or all of the wetland, dampland and woodland communities in the lower halves of catchments will be lost to salinity. There are at least 450 plant species and an unknown number of invertebrates which occur only in these environments and are at high risk of extinction (State Salinity Council 2000; Keighery, 2000). National estimates by the National Land and Water Resources Audit (2001) are that by 2050, there will be a high salinity hazard for 2,000,000 ha of remnant and planted perennial vegetation, 41,000 km of streams or lake perimeter, and 130 important wetlands.

Economists have taken an increasing interest in environmental impacts such as these. One body of work attempts to place dollar values on intangible impacts such as these (e.g. Van Bueren and Bennett 2001). My personal view is that this is fraught with the greatest difficulties, and probably does not greatly help us to make the decisions we need to make about these assets. Nevertheless economists can make an important contribution to these decisions by quantifying accurately the direct and indirect costs to the public and private sectors involved in protection of environmental assets.

There are at least four distinct sets of social issues related to salinity.

1. Community input to planning and decision making is needed.
2. There are social impacts of salinity and its management.
3. Social issues affect the uptake of new management practices.
4. The community needs support from government to manage and protect assets at risk.

There are economic dimensions to each of these social issues.

1. Community input to planning and decision making

The community should play a strong role in setting the objectives of salinity policy and salinity management. The economic dimension here is that the appropriate balance between economic, environmental and specific social objectives should strongly reflect current attitudes and values of the people with an interest. Members of the farming community, in particular, also provide important site-specific and community-specific information (including economic information) about the salinity problem and its management in different situations.

2. Social impacts of salinity and its management.

Among the various impacts of salinity, social impacts are a prominent category. In addition, there are social impacts of salinity treatments.

Losses of productive land to salinity will contribute to declines in farm numbers and farm incomes, with flow-on social effects on rural towns and the provision of services. Overall, salinity is just one of a number of factors contributing to economic pressures on farmers. For most farmers, salinity is not the most important of these factors. The rate of adjustment of some farmers out of agriculture is not likely to be greatly influenced by land salinisation, although it will no doubt be the decisive factor for some individuals. Other economic pressures will continue to be the main influence on farm numbers and farm incomes.

In regions where salinity treatments (particularly woody perennials) are adopted at very high levels, their social impacts are likely to be even greater than those of salinity per se. To be adopted at such levels, woody perennials will need to be highly attractive in economic terms. In such cases, they will have a mixture of positive social impacts (e.g. employment associated with harvesting and processing) and negative social impacts (e.g. reduced farming populations in some areas). The positive social impacts will particularly arise where processing and value adding of harvested product occurs within rural areas. A good example will be the integrated processing plants which have been proposed for oil mallees, to provide oil, energy and activated carbon. Negative social impacts have been strongly identified by some communities where blue gums have been established in large areas. It is likely that this is a sign of things to come. If we are as successful as we hope to be in developing new woody perennials which are profitable enough for very high adoption across the agricultural region, there will inevitably be a range of social impacts of the type observed for blue gums on the south coast.

3. Social influences on the uptake of new management practices

Government policies for salinity rely very much on farmers to voluntarily adopt new farming practices to manage salinity. The speed and level of adoption of new farm management practices depends on many factors. The economic profitability of the practices is probably the most decisive influence, but economics interacts with social factors in this realm as well.

The strength of Landcare groups and catchment groups in Western Australia has been high in the past, but farmer dissatisfaction with the Landcare approach has increased in recent years. In part this reflects the new level of understanding in the farming community about the scale of response needed on farms in order to successfully prevent salinity, and a recognition that voluntary adoption of non-commercial treatments will not be viable at that scale. As a result, the importance of economic drivers for adoption of new practices has been re-emphasised.

Even where commercially viable treatments are available, social factors will play a role in their speed of uptake. Group cohesiveness, strength of information channels, credibility of information sources, and demographic trends all play roles. As an example of demographic influences, in Victoria, Neil Barr has identified that many farmers in parts of the Murray-Darling Basin have other sources of income and may view agriculture as a secondary occupation. A proportion are "on a trajectory out of agriculture". We cannot expect major investments in long-term land-use changes by people in these circumstances.

The above factors mainly relate to the incentive for change. Farmers also vary widely in their capacity to change. That capacity depends on factors such as the farmer’s level of economic resources, knowledge, time, family situation and other social pressures.

4. Government support of the community to manage and protect assets at risk

Where particular individuals or groups are responsible for protection of assets of high public value (e.g. an important nature reserve, or a river used for potable water supplies), it may be judged appropriate for the broader community to directly provide financial and other resources to encourage and facilitate a high level of management. There has been increasing discussion of the use of "economic policy instruments" to encourage adoption of new farming practices. One set of economic policy instruments involves financial subsidies, designed and delivered in a variety of ways. Realistically, such subsidies probably cannot be provided at sufficient levels to alter land use on a large enough scale across the wheatbelt.

The opportunity I would like to highlight is the potential to harness economics to produce win-win outcomes, where one of the wins is in salinity management, and the other is farm incomes, with resulting social benefits. The broad approach for government policy for salinity has been to rely on farmers to voluntarily make community-minded sacrifices for the common good. Relatively small financial subsidies have been provided to encourage and facilitate the farmers to act. Although some good things have come from this, and many farmers have made important contributions to protection of public assets (particularly environmental assets), the broad approach does not sufficiently recognise and deal with the financial imperatives which farmers face.

If it were possible to develop new farming practices which both generated an adequate income and helped to manage salinity, a range of benefits would occur. For a few years now, I have been advocating an increased effort to develop such profitable systems as one key element in a well-balanced approach to salinity.

The argument applies to on-farm engineering works, to productive plants for saline areas and to perennials for recharge areas. In general, there is a greater need to focus on practical and profitable management options for farmers to use. It is about providing farmers with options which are in everyone’s best interests.

This is the philosophy behind the establishment of a new Cooperative Research Centre for Plant-Based Management of Dryland Salinity. It is a national centre, with headquarters at the University of Western Australia. Over the next seven years, the Centre will set about providing a range of profitable new plant-based options for farmers. If it is successful, the CRC will result in some radical changes in land use in the wheatbelt of WA over the next 50 years. Associated with these changes will be new processing industries based in rural areas to make use of and market the products of the new perennials. These changes will probably be supported by initiatives to address the enhanced greenhouse effect, and increases in consumer willingness to pay for products with "green" credentials.

The CRC focusses on plant-based options. Even more radical methods of making money from salt land and salt water were discussed earlier, and at least some of these are likely to increase dramatically in importance in the medium to long term.

The other good news story relates to drainage. The state agencies and the CSIRO are planning concerted efforts to resolve the scientific uncertainties and disagreements regarding drainage. They are also taking steps to design regional drainage systems which deal adequately with the off-site impacts. Again, this work will have benefits for both farmers and the broader community. It should give farmers greater confidence (one way or the other) about the economic performance of engineering options, and it will help to protect public assets when those engineering options are used by farmers. Engineering approaches will also probably remain the most important methods for protection of public assets (environmental and infrastructure) for some time, at least until perennial options for recharge areas are sufficiently profitable to be adopted over very large areas and have been in place for some decades.

Thanks for Viv Read and Russell King for comments on the draft of this paper. Thanks to Mark Pridham for providing copies of the reports on the economics of salinity management in Rural Towns and to Don Burnside for checking that aspect of the paper. Thanks to the generous colleagues and collaborators who have contributed in various ways to my salinity research over the past four years. There are too many to list, but they know who they are. I thank Grains Research and Development Corporation for funding support.

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