Addendum

Based on the assumption that limed country supports a fully improved perennial grass pasture whereas unlimed country is semi-improved with subclover and annual grasses, it would be reasonable to predict an additional 0.5 kg of wool cut per head.

1. Increased Returns From Limed Country

Where these conditions apply and wethers are run on unlimed country as opposed to limed country, the following gross margin returns per wether will result (see Table Al over page).

Limed Unlimed
Gross Margins Wether $16 $14

The initial establishment cost per hectare of liming and pasture improvement on granite country is $250 (Table A2). These costs are based on lime spread on the ground at a value of $62 per tonne and ploughing and sowing by the owner/operator. This cost will enable an increase in annual carrying capacity of 2 wethers per hectare as well as the increase in wool yield of 0.5 kg per head.

TABLE A2 Establishment costs pasture “Kalbilli” (Conventional per hectare)

(a) Using a seed mix suitable for granite soils:

Establishment Costs:
Seed:
Fescue Sirosa phalaris Cocksfoot Haifa white clover	4.5 kg/ha @ $1.80 1.7 kg/ha @ $5.70 1.1 kg/ha @ $3.50 0.3 kg/ha @ $10.00	kg kg kg kg	$8.10 $9.69 $3.85 $3.00

Tractor operating costs:
Tractor hour @	$11.10/hour for 4.03 hours/ha		$44.73

Fertiliser:
Mo Super Superfine lime		125 kg/ha @ $175.00 tonne 75 kg/ha @ $65.00 tonne	$21.88 $4.88
Lime:
Superfine lime		2500 kg/ha @ $62.00 tonne	$155.00
		TOTAL ESTABLISHMENT COST/ha	$251.00
		Total establishment cost over 15 years/ha	$17.00

TABLE Al Sheep gross margin budget for limed and unlimed pastures.

ENTERPRISE NAME:	MERINO WETHERS	REGION:	“KALBILLI”
ENTERPRISE UNIT:	1000 WETHERS	DATE:	June 1986

LIMED
INCOME:					Standard budget
Wool	Kilograms 6.5	Number 980	Class Wethers	@ $1kg $3.40	21658.00
Sheep	Number 230	Class Wethers c.f.a.	@ $ /head $11.00		2530.00
		A.	TOTAL INCOME:		$24188.00

VARIABLE COSTS: Shearing Crutching Drenching Dip and jet: Dip Jet	Numbers 980 1000 1000 980 1000	Cost ($) $2.00 $0.45 $0.15 $0.10 $0.25	Repetitions 1 1 2 1 1	1960.00 450.00 150.00 98.00 250.00
Vaccination
‘Glanvax” PP rates	1000 1000	$0.13 $0.09	1	130.00 90.00
Selling costs:
Livestock, Wool, Cartage,
Stock insurance	1000	$0.08		80.00
	B.	TOTAL VARIABLE COSTS		$3208.00

PURCHASES:	Numbers 250	$ $20.00	$5000.00 C. TOTAL PURCHASES $5000.00
UNLIMED			GROSS MARGIN (A-B-C) $15980.00 GROSS MARGIN/Wether $16 GROSS MARGIN/OSE $16 GROSS MARGIN/$100 Livestock Capt.Invested $82
INCOME: Wool	Kilograms 6.0	Number 980	Standard budget Class @ $ /kg Wethers $3.40 19992.00
Sheep	Number 230	Class Wethers c.f.a.	@ $ /head $11.00 2530.00
		A.	TOTAL INCOME $22522.00

VARIABLE COSTS: Shearing Crutching Drenching Dip and jet: Dip Jet	Numbers 980 1000 1000 980 1000	Cost ($) $2.00 $0.45 $0.15 $0.10 $0.25	Repetitions 1 1 2 1 1	1960.00 450.00 150.00 98.00 250.00
Vaccination
‘Glanvax’ PP rates	1000 1000	$0.13 $0.09	1	130.00 90.00
Selling costs:			I
Livestock, Wool, Cartage, Stock insurance	1000	$0.08		80.00
	B.	TOTAL VARIABLE COSTS		$3208.00

PURCHASES: Numbers 250	$ $20.00	C.TOTAL PURCHASES	$5000.00 $5000.00
		GROSS MARGIN(A-B-C)	$14314.00
		GROSS MARGIN/Wether	$14
		GROSS MARGIN/DSE	$14
		GROSS MARGIN/$100
		Livestock Capt. Invested	$74

A grazier faced with the prospect of investing funds in a liming and pasture improvement programme will have to assess the alternatives available. These may be:

(i) use available funds and cost them at their after tax opportunity value, say 9%;

(ii) borrow funds necessary at current market rates of 18% (July 1986); (iii) assess the extra return on capital invested from commencing the

pasture improvement and liming programme.

Working within a basic framework of:

• a pay off period of 15 years

• a 12 month delay in returns from the programme

• an increase in land value of 2 dry sheep equivalents at the end of 15 years.

The following results may be interpreted from a series of cash flows (Table A3, A4 and AS).

(i) Using available funds - not until year 15 do the increased returns reduce the cumulative net cash flows from a negative to a positive. (Table A3).

(ii) Borrow funds - where funds are borrowed at current commercial rates the interest on borrowingmakes this alternative uneconomic. (Table A4).

(iii) A return on extra capital invested of 13.6% will be achieved by implementing the programme. This is less than alternative market investments available currently (Government Bonds 14.7S%, July 1986), however taxation incentives would enhance this return and would at least push the return on investment to a point above off-farm investment. The return of 13.6% does not allow any margin for uncertainty of investment success (Table AS).

Summary

In the present economic climate of high interest rates, depressed rural commodity prices, and high interest bearing investment opportunities, the attraction of liming and pasture improvement is dampened by a lower return on investment.

However, liming can be considered an attractive proposition if it is assumed that the carrying capacity of unlimed pasture will either decrease steadily over future years or alternatively there will be a sudden crash in pasture production and the ability to carry stock. This phenomenon has been experienced in the Holbrook district of

NSW.

TABLE A3 THE ECONOMICS

1. Has the lime, super and seeding programme paid off over a 40 hectare paddock?

2. Assume an opportunity cost on funds invested of 9% after tax.

Cash Flow Of Additional Costs And Returns Comparing The Limed Paddock With The Unlimed Paddock

YEAR	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
Total Extra Income 40 ha Increase in wool yield Extra wethers carried Salvage value on improv.	0 0	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280 6400
Total Extra Income:	$0	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$8156
Total Extra Costs 40 ha
Seed Tractor Costs Fertiliser Lime	986 1789 195 6200
Extra sheep		1600
Opportunity interest (9% after tax)	825	900	966	895	818	734	642	541	432	313	183	41	0	0	0
Total Costs	$9995	$2500	$966	$895	$818	$734	$642	$541	$432	$313	$183	$41	$0	$0	$0
Net Cash Flow	(9995)	(744)	790	861	938	1022	1114	1215	1324	1443	1573	1715	1756	1756	8156
Cumulative Net C.F.	(9995)	(10739)	(9949)	(9089)	(8151)	(7128)	(6014)	(4799)	(3475)	(2032)	(459)	1256	3012	4768	12924

TABLE A4 THE ECONOMICS

1. Has the lime, super and seeding programme paid off over a 40 hectare paddock?

2. Assume current overdraft interest rates on borrowed funds (18%)

Cash Flow Of Additional Costs And Returns Comparing The Limed Paddock With The Unlimed Paddock

Year 1		2	3	4	5	6	7	8	9	10	11	12	13	14	15
Total Extra Income 40 ha
Increase in wool yield Extra wethers carried Salvage value on improv. Total Extra Income:	0 0 0	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 $1756	476 1280 S1756	476 1280 6400 $8156
Total Extra Costs 40 ha
Seed Tractor Costs Fertiliser Lime Extra sheep	986 1789 195 6200	1600
Overdraft interest Total Costs Net Cash Flow Cumulative Net CF	1651 $10821 (10821) (10821)	1948 $3548 (1792) (12612)	2270 0 $2270 (514) (13127)	2363 $2363 (607) (13733)	2472 0 $2472 (716) (14449)	2601 $2601 (845) (15294)	2753 0 $2753 (997) (16291)	2932 $2932 (1176) (17468)	3144 0 $3144 (1388) (18856)	3394 $3394 (1638) (20494)	3689 0 $3689 (1933) (22427)	4037 $4037 (2281) (24707)	4447 0 $4447 (2691) (27399)	4932 0 S4932 (3176) (30574)	5503 0 $5503 2653 (27922)

TABLE A5 THE ECONOMICS

1. Has the lime, super and seeding programme paid over a 40 hectare paddock?

2. Determine the INTERNAL RATE OF RETURN

Cash Flow Of Additional Costs And Returns Comparing The Limed Paddock With The Unlimed Paddock

YEAR	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
Total Extra Income 40 ha Increase in wool yield Extra wethers carried Salvage value on improv.	0 0	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280	476 1280 6400
Total Extra Income:	$0	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$1756	$8156
Total Extra Costs 40 ha Seed Tractor Costs Fertiliser Lime	986 1789 195 6200
Extra sheep		1600
Opportunity interest Returning 13.6% on invest.	1247	1417	1588	1S6S	1S39	1S10	1477	1439	1395	1346	1291	1227	liSS	1074	981
Total Costs	$10417	$3017	$1588	$1565	$1539	$1510	$1477	$1439	$1395	$1346	$1291	$1227	$11S5	$1074	$981
Net Cash Flow	(10417)	(1261)	168	191	217	246	279	317	361	410	465	S29	601	682	7175
Cumulative Net CF	(10417)	(11678)	(11510)	(11319)	(11103)	(10857)	(10S77)	(10260)	(9899)	(9490)	(9024)	(8495)	(7895)	(7212)	(37)

2. Alternative Approach - Unlimed Paddocks Will Experience Reductions In Carrying Capacity

If it is to be assumed that pastures not sown to perennial grasses and treated with lime will decrease in productivity over subsequent years with increasing soil acidity, then the potential of pasture liming and improvement should be reassessed.

Working within a framework where a grazier currently runs 280 wethers on a 40 hectare paddock, then three possibilities may be explored and compared over a 15 year period.

(i) Undertaking a pasture improvement and liming programme which will, as outlined earlier, enable a further 80 wethers to be purchased and an increase in wool yield of 0.5 kgs per head. (Table A6).

(ii) Assume a deterioration in pasture carrying capacity on unimproved country of 5% annually with income and variable expenses reducing correspondingly. (Table A7).

(iii) Assume that the unimproved country will continue carrying stock at a steady level for 5 years till a crash of 25% in stock carrying capacity occurs with income and variable expenses reduced accordingly. (Table A8).

The net cash flows derived from Tables A6, A7 and A8 indicate the marked difference between long term returns possible from a liming programme compared to the two scenarios of differing productivity drops from unlimed pastures. This is evident in Figure Al.

Figure Al Liming vs unlimed regressing pasture

limed pasture

unlimed pasture – 5% reduction in carrying capacity

unlimed pasture – 25% crash in carrying capacity in year 5

TABLE A6 THE ECONOMICS OF LIME AND PASTURE IMPROVEMENT

1. Has the lime, super and seeding programme paid over a 40 ha paddock?

Cash Flow Of Costs And Returns Involving The Liming Of A Paddock

Year	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
Income 40 Ha Limed Country
Carrying 350 wethers Salvage value on improv.	0	8470	8470	8470	8470	8470	8470	8470	8470	8470	8470	8470	8470	8470	8470 6400
Total Income:	$0	$8470	$8470	$8470	S8470	$8470	$8470	$8470	$8470	$8470	$8470	$8470	$8470	$8470	$14870
Total Costs 40 ha
Seed Tractor Costs Fertiliser Lime Extra sheep	986 1789 195 6200	1600
Variable costs & purch. Opportunity interest (9% after tax)	825	2870 900	2870 621	2870 172	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0	2870 0
Total Costs:	$9995	$5370	$3491	$3042	S2870	$2870	$2870	$2870	$2870	$2870	$2870	$2870	$2870	$2870	$2870
Net Cash Flow	-9995	3100	4979	5428	5600	5600	5600	5600	5600	5600	5600	5600	5600	5600	12000
Cumulative Net CF	-9995	-6895	-1915	3512	9112	14712	20312	25912	31512	37112	42712	48312	53912	59512	71512

Table A7 Cash Flow Of Costs And Returns From An Unlimed Paddock Paddock Productivity Decreases By 5% Per Annum

YEAR	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
Income 40 Ha Unlimed Country Carrying 270 wethers	6097	5792	5487	5182	4877	4572	4268	3963	3658	3353	3048	2743	2439	2134	1829
Total Income:	$6097	$5792	$5487	$5182	$4877	$4572	S4268	$3963	$3658	$3353	$3048	$2743	$2439	$2134	$1829
Total Extra Costs 40 Ha
Variable Costs & Purch.	2870	2727	2583	2440	2296	2153	2009	1865	1722	1579	1435	1292	1148	1005	861
Total Costs:	$2870	$2727	$2583	$2440	$2296	$2153	$2009	$1865	$1722	$1579	$1435	$1292	$1148	$1005	$861
Net Cash Flow	3227	3065	2904	2743	2581	2420	2259	2097	1936	1775	1613	1452	1291	1129	968
Cumulative Net CF	3227	6292	9196	11938	14520	16940	19198	21296	23232	25006	26619	28071	29362	30491	31459

Conclusion

It may be concluded that:

(i) liming definitely pays dividends;

(ii) these dividends in the present economic climate are not as apparent compared to the high interest rates prevailing;

(iii) where it is assumed that the lighter acid soils will fail to maintain present stock numbers then the value of a lime and pasture programme is quite evident, doubling accumulated returns over a fifteen year period.

This paper is not exhaustive in its analysis and relies basically on a non-discounted simplistic cash flow approach. The differences in returns are realistic as are the input costs which are based on a Southern Tablelands property near Bungendore. The findings should be regarded as a bench mark and an indicator, as no one can accurately predict the amount by which untreated acidic pasture country will drop in grazing production capacity over future years. It is, however, believed that present carrying capacities will reduce as acidity of soils increases and spread, an investment in a liming programme is an investment and insurance against future loss.