COST-BENEFIT ANALYSIS ON GIS APPLICATIONS FOR

AGRICULTURAL LOCAL EXTENSION SERVICES

http://www.inea.it/cartografia/page.html

Fais A.1, Bonati G.1

1INEA, via Barberini 36, 00185 Rome (Italy), fais@inea.it, bonati@inea.it

Abstract: this work has the main objective to determine the economical and
technical convenience of GIS applications in agriculture with a bottom-up
approach. It is also a contribution to defining the expected benefits to take
into account in GIS applications on local scale in extension services.

Keywords: GIS - agriculture, bottom-up, cost-benefit, pay back period, ROI.

1 Introduction

The reform of agricultural policies started in 1985 with three main objectives: agriculture for
environmental control; agriculture integrated with a set of rural policies; income support directly to
farmers as compensation for the reduction of prices for agricultural products. In this context
information is becoming a resource of increasing importance for policy planning and implementation
at UE, national or local level, for farm management and for diversification, quality and specification
of agricultural products. The detailed knowledge of territorial resources is the essential assumption to
promote these politics and in aiding the farmer in strategic choices.
The ability to view data in a spatial dimension, through the interaction between cartographic
information and related alphanumeric based data, made GIS (Geographical Information System) a
valuable tool for the knowledge of territorial resources and to manage the land variables.
Geographic information technologies are presently in the "takeoff" stage of diffusion for most
classes of potential users and in the "pre-takeoff" for the agricultural sector. Actually the "visibility"
of benefits is probably the main factor affecting the up-take of GIS in agriculture. The true
economical and social benefits of GIS technology are to be found at the operational support levels (for
Italian agriculture at local extension services level). Only by providing support to the fundamental
operations and functions of extension services a true cost benefit can be achieved. This is a key to
accepting GIS technology as an agricultural information support system. The evolution of GIS
technology from a scientific tool to a production and operational support system at a desktop level,
has enabled it to operate in extension services environment even with moderate economic resources,
because of the following factors:
- increased computing power and limited cost of PC;
- availability of user friendly, powerful and cheep GIS software;
- availability of a large amount of data bases, both geographic and alphanumeric;
- possibility of taking advantage of on line data communication systems.
A detailed cost-benefit analysis is a critical component in the life-cycle of geographic information
systems. A GIS is a complicated investment and the tangible benefits can take years to materialise.
Many of these benefits are abstract in nature (for example, higher productivity). An evaluation of the
benefits is critical in understanding the overall cost/benefit of a GIS system.

First European Conference for Information Technology in Agriculture, Copenhagen, 15–18 June, 1997
2. Work purposes and short description of the project

The work starts from the project "Numeric soil cartography" financed by the Agricultural Italian
Ministry with the contribution of a CEE Program (2052/88), concerning a few pilot areas of the
Italian Southern Regions. The project has involved 8 pilot units (UOT), selected from public local
extension services (SSA) in 8 different Southern Italy regions, 152.000 hectares, mostly in typical
products areas, and 28 soil specialised advisors. Each unit has developed his own GIS, with related
components and has realised soil and land suitability maps. INEA and Italian Institute for Soil Study
and Conservation (ISSDS) have had the co-ordination and the scientific-technical control and advice.
The work purpose was to demonstrate that GIS applications on SSA at local scale and with a
bottom-up approach has low costs and consequently minimal benefit requirements and offers the
highest benefit/cost ratio, with a very short "pay back period". It would also be a contribute to the
defining of the benefits to be expected from a correct GIS application in agriculture.
The bottom-up approach has permitted the immediate use of GIS in decision making and into the
daily operations of local extension services. An agricultural information system, in order to work,
needs to reach a "critical mass" of coherent information with the problematics which are being
considered. Below this "mass" of information there is not a level of knowledge of the territory
sufficient to give efficient answers. Since the process of obtaining and validating data is slow and
complex, an information system can become operational in a short period of time by acting on sub-
projects regarding small and medium portions of the territory of immediate interest on specific
problems. This kind of approach has allowed a completely internal development to the SSA system, in
contact with the local farmers, and has allowed the agricultural extension technicians to direct the
choices of farmers towards productions of quality and to support diversified technical and more
conscious choices (appropriate land use, fertilisation plans, etc.). Furthermore it gave the SSA's
advisors the chance to acquire the necessary skills for the future administration and implementation of
the system. In a relatively short period of time and with limited costs, there has been an acquisition of
detailed knowledge of the chemical-physical characteristics of the soils through a semi-detailed soil
survey (scale 1:25,000) and derived thematic maps. They have reached likewise the objective to
create a culture on GIS applications, sensitising the public administration to GIS potentiality.

3 Method

The goal of the cost-benefit analysis process is to permit a fair determination of the worth of an
investment in GIS technology. The cost-benefit analysis should cover the projected life-cycle or the
portion of the projected life-cycle up until the pay back is reached, whichever is shorter.
In the present case it was really difficult to apply the correct cost benefit analysis, considering that:
- the project will be implemented in the next years with new applications and topics (new costs and
benefits not already predictable); - benefits may not easily quantified (in a service environment value
added benefits and advisor productivity are more difficult to quantify; benefits at farms level depend
on if and how the farmers want to apply the GIS products); - data on benefits and costs are not
complete. For these reasons it has been chosen to take into account only one case study, to define only
the "pay back period" (is the time required for the net benefit to pay back the investment amount. It
has been calculated by subtracting the yearly net benefits from the investment amount) and the
Return On Investment (the net benefit as a percentage of the investment amount. It has been
calculated by dividing the net benefit by the investment amount minus 1- ROI = B/A -1). The value of
intangible benefits related to quantitative or qualitative changes in SSA work flow (expected
improvement of productivity and efficiency) has been calculated by determining the value of the time
savings to the organisation. Costs were been defined for the five Regions, benefits only for one
Region, trying to follow the major tasks of the benefit/cost analysis.
Costs: Cost analysis had taken into account the following components (Table 1): 1. Data; 2.
Personnel; 3. Hardware; 4. Software; 5. Training, methodology, system management, co-ordination
and standard quality control; 6. overhead costs. This division has been chosen to compare the costs
with those of other GIS applications and because of the role of technical and scientific co-ordination
(essential in a bottom-up approach by sub-project) of ISSDS, that has directly managed the work and
the relative budget of the above point 5. These costs were been distributed into the Region's costs in
function of the hectares involved in the project. This situation has allowed to not separate non-
recurring costs (hw, sw, methodology, etc.) from recurring costs (data and system management,
training, etc.). A cost per hectare and the weight in % of each GIS component have been identified.
Benefits: benefits are often intangible, difficult or impossible to quantify. In this kind of GIS
application there are really several benefits that can derive. Included are: Tangible Benefits:
optimisation of land use, with increase of crop productivity, of the area of typical products and of the
quality of the products, and with decrease of fertilisation costs and of environment impact; increased
productivity in map updating and information handling; reductions in data communications and in
data processing charges, in travel (soil survey in the farms), in soil analysis and training; additional
processing capacity for increased volume of extension service activities; local SSA-wide accessibility
to information; Intangible Benefits: increased area and number of farms advised; accurate and timely
information; stronger decision making; improved data utilisation, operational effectiveness and
accuracy; one source data updates which mean fewer errors and less redundancy of effort; improved
archiving and retrieval of information which improves utility responsiveness to the farmers; the ability
to expand the system easily without major structural change. In the present case it has been possible to
take into account only the data on the following expected benefits provided by the advisors of
Calabria Region: short period: optimisation of fertilisation plan and of soil tillage techniques; medium
and long period: increased area advised and of typical and quality productions.
Since the pay back period was less then one year, the quantified benefits and costs (value per
hectare) had been compared only for the first year of the life-cycle of the project.

4 Results

The distribution of the costs (table 1 - % on tot. Lit/he) coincides with those of other GIS
applications1 and stresses the weight of data collection and of personnel on total cost. But, considering
that mostly of the personnel (SSA advisor) costs are ascribing to soil surveys, the costs related to data
are surely more then 21 % and consequently the personnel costs are significantly less then 27 %. In
the following table there are the amount of costs of the GIS investment for five Regions. The costs of
consultants are included in the point 5. The total of all cost represents the investment amount. The
yearly total costs of the next years (data management and dissemination) will be about 1.000 Lit/he.
Table 1: GIS costs (.000 Lit) for each component (with relative % weight) and Regions
GIS COMPONENT REGIONS Abruzzo Calabria Molise Sardegna Sicilia % (9)
Data acquisition, management and
1 57.638 51.926 27.373 32.500 13.734 21
dissemination
2 Personnel (SSA): extension agents 25.500 105.775 29.068 51.750 22.500 27
3 Hardware 11.420 25.336 19.349 35.000 43.173 15
4 Software 8.741 39.748 9.000 16.000 31.985 12
Training, method, system management,
5 13.200 55.200 12.960 21.840 7.200 13
co-ordination and quality control
6 Overhead costs 8.000 63.495 7.417 13.500 12.230 12
7 Total cost 124.499 341.480 105.167 170.590 130.822
8 Mapped area (Hectares) 9.000 37.556 8.910 15.000 5.000
9 Cost LIt/he (7/8) 13,833 9,093 11,803 11,373 26,164 100
Since the project started from zero (no methods, no skilled personnel, no software and hardware,
exc.), in future implementations some item will be either reduced or absent
On the basis of data furnished by the local advisors of Calabria, five expected benefits (table 2)
had been identified. Three of these are available from the first year (short term benefits - ST), they

1
From USA market, the weight (%) of the single components on total SIT cost are: hardware 24%; software 9%;
data 20%; formation & management of personnel 26%; implementation & maintenance of the system 21%.
were compared with the costs, covering entirely the investment amount. The 4th, avoidance of costs
estimated on the number of advisors that would needed to match the increased area advised (+ 30 %),
is a long term benefit (LT) and it was not compared with the costs. The value of all of these four has
been calculated dividing the yearly benefits by the total area (=Lit/he). It was impossible to quantify
the value related to the expected increasing of suitable area for typical and quality products (+ 1300
he).
Table 2: yearly quantifiable benefits in Calabria Region (Lit/he)
ST Decrease of fertilisation costs Decrease of tillage costs Avoidance of other costs Tot.
9319,5 14.378,5 1.065 24.663
LT Costs savings for increased area advised 3.994

The yearly net benefits were been calculated subtracting from the yearly tot. ST benefits the yearly
total costs for data management and dissemination (net benefits = 24.663 - 1.000 = 23.663 Lit/he).
This value has been compared with the investment amount. From the table above is possible to see
that the ROI is really profitable (1,6) and the pay back period is significantly short (only 4,6 months).
Table 3: cost-benefit analysis (Lit/he) of GIS application in extension services in Calabria
Investment Amount 9.093 Net Benefit( 23.663 Return on Investment 1,6 Pay back Period 4,6 months

5 Conclusion

The cost-benefit analysis demonstrates That GIS applications in extension services at local scale and
with a bottom-up approach is an available and profitable investment, particularly in the Southern Italy
Regions, which had never developed LIS nor cartographic archives. It is also a strategic investment,
being able to support the farmers towards the quality and the differentiation of agricultural products.
The visibility of these benefits could be in the future the key for the public extension services to
recover the marginal costs necessary to maintain the system and to respond to farmers request.
System expansion to the other functional duties of local extension services, should utilise previous
investments. Potential applications can use the existing technology in similar operational programs.
This will reduce application development costs, and maximise investments for the entire organisation.

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