ECONOMIC CONSIDERATIONS

Drainage Benefits

For the producer, the decision to install or improve a drainage system is a practical one, based on principles of good economics and good husbandry. If the benefits outweigh the associated costs, then drainage makes good sense. However, the cost/benefit analysis is not always cut and dry.

The benefits of drainage include better soil aeration, more timely field operations, less flooding in low areas, higher soil temperatures ,less surface runoff, better soil structure, better incorporation of herbicides, and better root development, all leading to increased crop yields. The associated costs include the cost of laterals, the cost of mains, installation costs, and maintenance costs. There may also be other costs, such as increased haulage costs, associated with the increased yield that comes from drainage. Even more difficult to grasp and to quantify are the hidden costs associated with water quality degradation. Nevertheless, one should bear these in mind when trying to decide if drainage should be a part of an overall farm management plan.

Many tools have been developed to assist in the determination of the practicability of drainage. This Guide, for example, includes an economic calculator that can be used to determine the profitability of a drainage system. It provides many measures of profitability, but they are all consistent with each other, and are but a reflection of user preference. The measures of profitability used in the Guide are listed below.

· Net Present Value (NPV). The Net Present Value is the present value of the expected future cash flows minus the initial cost. A positive NPV value is indicative of a profitable system.

· Profitability Index (PI). The Profitability Index, also known as the Benefit-Cost Ratio, is the ratio of the Net Present Value and the Initial capital Investment. If the NPV is positive, then the Profitability Index is greater than 1.0, indicating that the benefits of a system outweigh the costs.

· Internal Rate of Return (IRR). The Internal Rate of Return in the rate at which the future cash flows, discounted back to the present, equals its price. It can be viewed as the interest rate that results in an NPV of zero or a PI of one. If the IRR exceeds the interest rate at which capital can be obtained, then the system is profitable.

· Discounted Payback Time (DPT). The Discounted Payback Time is the length of time it takes to recover the cost of an initial investment, with regard to the time value of money. For this measure, the value of future income is discounted by the cost of obtaining capital, that is, the interest rate charged on a loan.

· Undiscounted Payback Time (UPT). The Undiscounted Payback Time is the length of time it takes to recover the cost of an initial investment, without regard to the time value of money. In effect, the UPT is the same as evaluating the DPT under the assumption that the cost of capital, the interest rate, is zero.

Drain spacing plays an important role in determining the cost of a drainage system. A typical drainage system in the Midwest is designed with a drainage coefficient of 3/8 inches, that is, it is designed to remove 3/8 inches of water in 24 hours, when the water table is initially at the soil surface. This drainage coefficient can be achieved with different combinations of depth and spacing. In Drummer Silty Clay Loam, for example, a 3/8 inch drainage coefficient can be achieved by installing drains 60 feet apart at a depth of 2.5 feet, or by installing drains 100 feet apart at a depth of 5 feet. The system with the more closely spaced laterals would be more expensive. In general, for a given depth, yield increases with decreased drain spacing up to a point, beyond which yield is insensitive to decreases in spacing. In fact, computer simulations indicate that in some soils in some locations, it is possible to place drains so close together yield is adversely affected. Field experiments are being conducted to determine if these simulations are reflected in reality. The objective is to determine the spacing that maximizes profitability.

Drainage Strategy

Once the decision has been made to incorporate drainage into a farm management plan, a good strategy is to start with fields/sections of fields that will benefit most from drainage. The proceeds from this exercise can then be applied to areas with lesser benefit until the desired coverage is achieved. It is important to remember that there may be situations in which the yield increase does not justify drainage, and the best option is not to install a drainage system in that field or section of a field. Under most conditions drainage makes economic sense on most hydric soils. However, if the mains are too costly, the outlets are distant and inaccessible, or the soil is such that iron ochre or sedimentation would reduce the life of a drainage system to an uneconomic level, it is best to not install a drainage system.

System Layout

Typically, drainage systems are laid out to minimize the cost of installation. However, the lowest cost layout does not necessarily maximize the benefits of a drainage system. Shown in the figure below are two possible drainage systems that could be installed on the same field. In all likelihood the lower cost system would be the one selected for installation. In the system optimized for drainage water management, however, it would be less expensive to implement drainage water management, which would lead to decreased nitrate transport and possibly increased yield. If the increased yield and the savings from reduced nitrate transport exceed the extra cost associated with the more expensive layout, the benefits would exceed that of the system with the lower cost of installation.

Installation

The price of drain installation is dependent of many factors such as the equipment used in installation, the size of the job, the time of year at which the system is to be installed; the contractor’s pricing structure, and the level of competition in the county or region. These factors make it worthwhile to obtain quotes from two or more drainage contractors. Different contractors have different pricing structures and business strategies.

The choice of a drainage contractor can have a significant effect on the profitability of a drainage system. Improper backfilling or grade reversals during installing can dramatically reduce the life of a drainage system. These problems may not show up in the first few years. It is best, therefore, to select a contractor with a good reputation and who will provide a performance guarantee. Care should be taken to select a contractor whose emphasis is on quality of installation rather than speed of installation. While it is possible to move through the field relatively quickly with modern drainage equipment, problems such as excessive tile stretch and grade reversals can be reduced by reducing the speed of travel to recommended levels.

Some producers choose to install their own drainage systems. It is suggested that these producers get some training on drain installation techniques. Such training is often offered by Extension Services, trade associations, and equipment manufacturers. It is also strongly recommended that lasers be used in all drain installations. Because of the small slopes at which drains are typically installed, there is not much room for error. Therefore, the use of a properly calibrated laser system is essential.

Conclusion

The importance of drainage to agricultural production has been known for more than two millennia. Here in the Midwest, the introduction of tile drainage has brought millions of otherwise uncultivable acres under agricultural production. The decision to install a drainage system is primarily an economic decision. There are tools available on the Internet and elsewhere, which producers can use to determine if the benefits of drainage a field or a section of a field exceeds the cost. One such tool, an economic calculator, is available on the Illinois Drainage Guide (Online).

Producers should choose a spacing that maximizes the return on investment, bearing in mind that it is possible to space drains too closely. It is recommended that producers choose a drainage contractor with a good reputation that guarantees his or her work. It is also recommended that producers incorporate principles of conservation drainage into their drainage plan.