Risk Analysis in the Appraisal of the Ord River Irrigation Area, Western Australia

Abstract

The economic history of the Ord River Irrigation Area is chequered with controversy. A sugar cane growing and milling industry is the latest proposal for exploitation of the existing infrastructure. The economic worth of such a new investment is explored in this study. Two major methods are used, the first being a traditional deterministic appraisal of the project using conventional benefit-cost analysis. There are, however, many uncertainties inherent in the new project and these are accounted for in the second method of appraisal used herein, namely a stochastic analysis of benefits and costs accomplished with the aid of a digital simulation model of the project. The project appears rather uneconomic according to both methods, given the present outlook for continued low and unstable export sugar prices.