Farm level analysis and market assessment

Joioba Farm level analysis and market assessment

ABARE report prepared for the

Murray-Darling Basin Commission

October 1996

e
ABARE

Morrissey, H., Van Hilst, R., Watson B. and Oliver, M. 1996, Jojoba: Famz Level Analysis and Market Assessment, B A R E report prepared for the MurrayDarling Basin Commission, Canberra, October. Australian Bureau of Agricultural and Resource Economics GPO Box 1563 Canberra 2601 Telephone (06) 272 2000 Facsimile (06) 272 2001 Internet http://www.abare.gov.au ABARE is a professionally independent government economic research agency.

Acknowledgments
The assistance received from representatives of the various state departments, businesses and associations involved in the jojoba industry is gratefully acknowledged. In particular, thanks are due to Peter Milthorpe (NSW Agriculture), Neville Hall (Department of Natural Resources and Environment), Noel Flavel (NSW Department of Land and Water Conservation) and Bob Dunstone (Jojoba Science Pty Ltd). Thanks are also extended to members of the project steering committee - John Powell (Murray-Darling Basin Commission), Peter Milthorpe (NSW Agriculture) and Ian Hume (NSW Agriculture) -for their input to the report. The report was researched and written by Helen Morrissey, Mark Oliver and Roger Van Hilst. Bill Watson was responsible for overall management of the study. Eric Danzi and Colin Mues acted as internal referees and John Grivas, Vern Rudwick and Walter Shafron created the maps and extracted farm survey data. The project was fully funded by the Murray-Darling Basin Commission.

ABARE project 1112

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Contents

Summary
1. Introduction

2. Australian jojoba industry

Background Supply and utilisation update Australian industry prospects

3. Wimmera/Mallee study area

Study area location Suitability of Wimmerdsouthern Mallee for jojoba

4. Farm level analysis

Method Results

5. Planting for recharge control

Planting scenarios Oil production projections Impact on the market

6. Conclusions
Appendixes
A Existing and potential uses of jojoba B Potential jojoba production areas in the Murray-Darling Basin

22

24 26 27

References

iii

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Boxes
1 The main operations required for jojoba production and their timing 2 Price, yield and cost variables used in FARMULA 3 Reference farm characteristics 4 Effect on price of increasing supply
12 16 17 21

Figures
A Indicative price bands for potential product competitors B Jojoba production area in the WimmeralMallee C Jojoba oil production projections
9 11 20

Tables
1 Australian supply and use of jojoba oil 2 World production of jojoba seed and oil 3 Jojoba establishment scenario

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Summary
Extensive clearing of native vegetation in the mallee regions of South Australia, Victoria and New South Wales has led to accelerated groundwater recharge rates which in turn has resulted in widespread rises in watertables and associated dryland salinity problems. This study forms part of a larger project commissioned by the Murray-Darling Basin Commission to investigate the potential for using deep rooted perennial shrubs such as jojoba in strategies to control dryland salinity in the mallee regions of New South Wales and Victoria. The objectives in the study are to evaluate the farm level profitability of growing jojoba in the Wimmerd southern Mallee region and to evaluate the market impact of increased jojoba plantings and production resulting from a more strategic approach to recharge control. Following significant commercial interest in jojoba plantations in the early to mid-1980s, the Australian jojoba industry largely collapsed because of factors such as unsuitable cultivars and mismanagement. However, research and development efforts in recent years, mainly in Australia, have produced significant improvements in suitable cultivars, crop management practices and mechanisation and these have created renewed commercial interest in jojoba production. The focus area for growing jojoba for recharge control purposes is the Wimmerdsouthern Mallee region of north west Victoria, where agronomists advise that there should be no major technical impediments for the integration of a jojoba enterprise into the typical farm production system. The economic feasibility of integrating jojoba into a farming system typical of the Wimmerdsouthern Mallee has been assessed using the FARMULA model. FARMULA calculates the costs and benefits of changes in farm management practices by simulating the production and sales activities of existing and proposed farm plans. The change in management practice under consideration in this report was to introduce jojoba into the current farming system. At the current farmgate price for jojoba seed of around $4500 a tonne, the net present value of establishing 15 per cent of a typical farm to jojoba is more than double that of a farm with no jojoba. For the introduction of 150 hectares

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of jojoba into the fann system to be as profitable as a farm with no jojoba, a long term average seed price of around $1600 a tonne is required. The profitability of jojoba production indicated in the above analysis is subject to qualification. The farmgate price quoted is from avery thin and infant jojoba market. Further, farmers may also require a price above $1600 a tonne before introducing jojoba into their farming system to cover the risk and costs related to adjustment. The use of a strategic approach to reduce groundwater recharge rates to a level that would ensure a sustainable future for agriculture would reauire 15 Der cent of the study area, or around 405 000 hect&es, to be planted tdjojoba.-~nnual oil production from the 405 000 hectares is projected to rise to a maximum of around 190 000 tonnes, an amount that is more than 250 times current world production. This analysis ignores the potential for even higher world production of oil if other areas in Australia or other countries were to increase plantings of jojoba. Increases in production of this order of magnitude from the Wimmera/southern Mallee alone would result in significantly lower prices in the short to medium term and a deterioration of farm profitability. However, the ultimate price impact would depend critically on the extent and rate at which research and product development could expand the jojoba oil product range. For the reasons above, it would not be prudent to rely on an infant jojoba industry alone to resolve the region's recharge problems. Rather a strategy based on changes in current management practices and a multispecies deep rooted perennial approach is recommended. This implies that future research programs addressing salinity problems may involve assessing the economic and environmental benefits of other potential perennial species. However, this study demonstrates that where information is available, it may be beneficial to conduct preliminary economic assessments before in-depth technical research is started. Such preliminary assessments may prove to be a valuable guide to research, development and extension programs more generally.

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1. Introduction
This study forms part of a broader Murray-Darling Basin Commission funded project titled 'Episodic recharge under crops and shrubs in the mallee zone'. The objective in the episodic recharge project is to investigate the potential to use perennial shrubs in strategies to address dryland salinity problems in the mallee cropping areas of New South Wales and Victoria. While it is recognised that salinity is an issue in the mallee area of South Australia, that area was not included in the terms of reference for the project. The mallee region of north west Victoria and south west New South Wales takes its name from the multisternmed eucalypt species -collectively known as 'mallee' - which once dominated the native vegetation of the region (Dryland Salinity Management Working Group 1993). Since European settlement, however, large areas have been cleared for cereal cropping and livestock production. In the Victorian mallee region, native vegetation is estimated to have been reduced to approximately 30 per cent of its former distribution (Mallee Vegetation Management Working Group 1991).
A direct link between native vegetation clearing and increased recharge of groundwater systems in the mallee (and other) regions has been known for some time (Robertson 1995). Perennial native species such as the 'mallee' eucalypts are capable of using soil water at all times of the year, while annual crops only use water during their short growing periods. Furthermore, the roots of native perennials generally extend to significantly greater depths than those of annual crops and are able to extract soil water from a root zone which is significantly deeper than that for most cultivated annual crops and consequently, from more than one season's rainfall (Mallee Vegetation Management Working Group 1991).

In areas that have been extensively cleared of native vegetation, accelerated groundwater recharge has led to widespread rises in watertables and associated salinity problems. In parts of the Victorian mallee, dryland salinity is now considered a serious problem (Dryland Salinity Management Working Group 1993). It is likely that existing problems will worsen without changes in land management practices to minimise recharge on cleared land. For example, it has been estimated that 330 000 hectares are at risk of becoming salinised within the next fifty years (Mallee Dryland Community Salinity Working Group 1992).

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Given the links between groundwater recharge and plants' use of water, the use of deep rooted perennial species has been identified as an important land management strategy to control rising watertables and associated salinity problems (Mallee Vegetation Management Working Group 1991). Jojoba, broombush and blue mallee are three deep rooted perennial species capable of surviving in both arid and saline conditions and which may have potential as a commercial crop for the Mallee region. The ABARE component of the episodic recharge project comprised three stages: to establish the existence and nature of domestic andor international markets for jojoba, broombush and blue mallee; to examine the profitability of farming the shrubs in the mallee region; and to analyse the impact of increased production (stemming from planting for recharge control) on markets. Other Commonwealth and state government researchers involved with the project are investigating production and water use aspects of the shrubs, including measuring recharge rates for current agricultural land uses in the mallee and refining an existing hydrological model for the mallee region. Stage one of the ABARE study was completed in 1994 -see McKelvie, Bills and Peat (1994). Following consideration of the McKelvie et al. report, which indicated that the market prospects for jojoba were more favourable than for blue mallee or broombush, the project steering committee decided that stages two and three of the ABARE study would be confined to jojoba. The results for stages two and three -namely, the profitability of farming jojoba and the market impact of increased jojoba production - are presented in this report.

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2. Australian jojoba industry

Background
Jojoba, Simmondsia chinensis, is a long lived, deep rooted, evergreen shrub. The jojoba plant is native to the harsh climate of the Sonoran Desert which extends from north west Mexico to the south west United States. Jojoba exhibits the same toughness and drought resistance as native Australian arid zone species such as mulga and brigalow. The jojoba plant produces a bean which when crushed yields a liquid wax, commonly referred to as jojoba oil. In its natural form the oil has many applications, especially in the cosmetics industry, but when chemically modified has many more potential uses such as in lubricants, printers inks and waxes - see appendix A for a detailed list. A more detailed overview of the uses and climatic requirements of jojoba is provided in Milthorpe and Dunstone (1996). Interest in the commercial production of jojoba oil in the 1970s was largely motivated by a ban on whaling and the consequent search for alternatives to sperm whale oil. Jojoba oil was heralded as being able to fill this gap because of its similar chemical properties. Jojoba also had environmental appeal as it is produced from a relatively common plant resource rather than an endangered animal species. Taxation incentives further spurred investment in the crop in Australia. These factors resulted in approximately 2000 hectares being planted to jojoba between 1980 and 1984. Most of these early plantations failed because of financial mismanagement, lack of plant selection and poor agronomic practices (Wood, Chudleigh and Bond 1994). By 1994 there were only an estimated 130 hectares of jojoba in Australia. McKelvie et al. (1994) provided a comprehensive overview of the Australian and international markets for jojoba. The following section provides a brief update of that market report.

Supply and utilisation update

Domestic market
In 1994-95 Australia produced approximately 7 tonnes of jojoba seed, roughly the equivalent of 3 tonnes of oil (table 1). The increase in production leading

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7 Australian supply and use ofjojoba oil

Production Imports Exports

Use

~-

na Not available. p preliminary estimate. Source: McKelvie et al. (1994); Milthorpe. P.. NSW Agriculture, personal communication. May 1996.

up to 1994-95 was a result of improved seasonal conditions rather than increased area plantings (Milthorpe, P., NSW Agriculture, personal communication, May 1996). Australian imports of jojoba oil have varied considerably since the late 1980s; however, declining prices and increasing end product opportunities led to a sustained rise in imports over the four years to 1994-95. The average import prices of oil declined from $3 1 a kilogram in 1991-92 to just over $15 a kilogram in 1994-95. The United States has continued to be the main supplier of jojoba oil, supplying 87 per cent of Australia's imports in 1994-95. Apparent consumption of jojoba oil in Australia for 1994-95 was 12.7 tonnes, nearly 20 per cent higher than the 10.7 tonnes used in 1993-94. Nearly all of the 12.7 tonnes consisted of imported oil. While imported oil is valued at around $15 a kilogram, the relatively small quantities of domestically produced oil can sell for between $35 and $50 a kilogram depending on the amount being purchased. The Australian product attracts a higher price since it is marketed on the basis that it is Australian, high quality and (where appropriate) pure jojoba oil. Some producers using jojoba in cosmetics are reluctant to use cheaper imported oil as the product then loses its Australian marketability and there are concerns about the consistency of the quality of imported oil. With minimal local production, Australian exports are basically bulk imports that are value added and re-exported. Australia's exports of jojoba oil have been consistently low in volume and attract a range of export prices. In 199495, export prices averaged around $66 a kilogram, with the bulk of the exported oil going to the United States. New Zealand, the Netherlands and Denmark were the other main buyers (Australian Bureau of Statistics 1996).

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International market
In 1994-95, world production of jojoba seed was around 1600 tonnes, equivalent to 752 tonnes of oil (table 2). Total world production has almost halved since 1991-92, caused largely by low yielding, inefficient US plantations closing down or not harvesting their crop because of falling prices (Milthorpe, P., NSW Agriculture, personal communication, May 1996). During the early 1990s, the United States had some large, consecutive jojoba crops. Despite this increased supply, prices initially remained high as growers stockpiled product. With high prices, however, end users increasingly substituted other products for jojoba, which in turn resulted in lower demand and falling prices (Milthorpe, P., NSW Agriculture, personal communication, May 1996).

2 Worldproduction of jojoba seed and oil

Seed

Oil

Source: McKelvie et al. (1994); Brown, I., Flontech. personal

communication, March 1996.

The United States is still the largest producer of jojoba but with falling production its market share is also falling. Production in Argentina and Israel is increasing as a result of higher yielding varieties and is expected to continue to rise for some years (Milthorpe, P., NSW Agriculture, personal communication, May 1996).Australiacurrently produces less than 1 per cent of total world production.

Australian industry prospects

Many of the technical factors inhibiting adoption of jojoba have been largely overcome since initial plantings in the 1980s. Considerable research has gone into developing cultivars suitable for a variety of Australian conditions (including those of the WimmeraMallee) - as mentioned earlier, the lack of appropriate cultivars was a major factor in the collapse of the Australian jojoba industry in the 1980s. Research being conducted by the NSW Agriculture has led to significant advances in crop management practices and mechanisation and it appears likely that jojoba will integrate readily into many broadacre

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cropping systems (Milthorpe and Dunstone 1996). These research activities are likely to have contributed to a reduction in both production costs and the degree of risk associated with growing jojoba on a commercial scale. With improved agronomic and crop management information it is likely that the price of jojoba oil will be an increasingly important factor influencing profitability and therefore the future development of Australia's jojoba industry. An assessment of jojoba's profitability if grown in the Wimmera/southern Mallee region of north west Victoria is provided in chapter 4.

Market prospects
Ongoing research and development, coupled with likely environmental benefits from planting deep rooted perennials in recharge areas and the need for alternative enterprises on rangeland pastoral leases, have resulted in renewed and widespread interest in jojoba production. This resurgence of interest is leading to a cautious increase in new plantings. Between 1993-94 and 1995-96, around 100 hectares were planted in addition to existing jojoba areas (predominantly in New South Wales, with lesser amounts in Queensland, Victoria and Western Australia). These new plantings of improved cultivars are projected to produce around 50 tonnes of jojoba oil a year when the plants reach their maximum yield ten years after planting. Estimates of further plantings vary, however; some industry representatives believe new plantings may increase at a rate of about 500 hectares a year until the year 2000 (Milthorpe, P., NSW Agriculture, personal communication, May 1996). The ultimate impact of any significant increase in production will be determined in conjunction with changing demand for jojoba oil and changes in production overseas. As stated by McKelvie et al. (1994) the success of the Australian and even the world jojoba industry will be largely determined by the extent to which jojoba oil can be substituted for other oils in manufacturing and industrial uses. Currently, an estimated 90 per cent of world production of jojoba oil is used in the production of cosmetics (Milthorpe and Dunstone 1996). Jojoba oil is also used as an additive in specialist motor vehicle lubricants and this industry accounts for much of the remaining 10 per cent of the jojoba market. In general, detailed and up to date market information for the current, and in particular the potential, uses for jojoba oil, is not readily available or is nonexistent. Furthermore, the available market information almost invariably

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relates to a quantity estimate only. The types of products and, in particular, the prices at which jojobaoil would become competitive with other oils are usually not provided with these quantity estimates. For example, Brown (1994) estimated that the potential world market for jojoba oil is between 64 000 and 200 000 tonnes a year but does not estimate the level to which price would need to fall in order to realise that potential. With a fall in prices, jojoba oil will become increasingly price competitive in a range of potential markets. Figure A shows indicative price bands for a range of potential industrial and food oil competing products (the solid line within each price band represents the average indicative price for each product). While laboratory research has established that it is technically feasible to use jojoba oil in many of the products listed in appendix A, to date there has been little commercial application. Many products are likely to require further time consuming research and development before being produced commercially. For example, with further research and development, jojoba oil may be used in general engine oils in addition to specialist lubricant products. Lanny (1993) estimated that the engine oil market could use 146 000 tonnes of jojoba oil a year. To enter this market, jojoba oil would have to compete with synthetic friction modifiers which currently sell for between $5 and $10 a kilogram. The food oil market could be another substantial market if jojoba oil is widely accepted as being suitable for human consumption. Australia's most expensive bulk food oil, olive oil, has an import price of about $3.30 a kilogram while

A Indicahve :price bands for potential product competitors

Jojoba Lubricants lnsecl w u e s Olive oil Vegetable wares Parrafin wares I
I

E I a

C I = l

Canola oil Palm oil

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the price for canola oil is about $1.60 a kilogram. Average prices in the wax market, another potential jojoba oil market, range from just over $1.00 a kilogram for high volume paraffin wax to $2.40 a kilogram for vegetable waxes such as carnauba and $6.40 a kilogram for insect waxes. To compete in the above markets -engine oil, food and waxes -the 1994-95 jojoba oil import price of $15 a kilogram would have to fall by between 50 and 90 per cent.

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3. WirnrneraLMallee study area

Study area location

As outlined in chapter 1, the focus of the episodic recharge project is the potential use of perennial shrubs for recharge control in the mallee region of New South Wales and Victoria. The Munay-Darling Basin Commission has asked that jojoba be examined as a potential crop for the Wimmera and southern Mallee cropping regions of north west Victoria. Figure B shows a part of the Wimmeralsouthern Mallee that best satisfies the climatic requirements for jojoba production. A map showing areas considered most suitable forjojoba production elsewhere within the Murray-Darling Basin is presented in appendix B. The Wimmeralsouthern Mallee study area stretches north-south from Swan Hill to Horsham and east-west from Wycheproof to Nhill. The main farming enterprises are dryland cropping, wool and prime lamb production (O'Brien 1996; Hall 1996). The area identified in figure B occupies around 2.7 million hectares and includes about 1 million hectares currently under crops and pastures. Jojoba is not currently grown on a commercial scale in the study area.

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Box I : The main operations required for jojoba production and their timing
Establishment phase Groundpreparafian Fallowing Levelling Banking

Ripping Fertilising Irrigation installation

Timing Begin at least 12 months prior to planting Optional, as convenient Early winter or 3 4 months prior to planting to allow settling Immediately after banking May be included as part of the ripping operation Optional, dripper lines laid after banking

Planting Timing

Bank profiling and hole punching Planting Watering

In spring (when soil temperatures reach 20'C) and late summer Periodically throughout the day of planting Within an hour of hole punching to minimise drying of holes Immediately after planting then at not less than three day intervals for first fortnight, less frequently for next fortnight

Ongoing maintenance General management Weed control - inter-row areas - spot spraying - followup protection

%ing
As required to prevent seed set of weeds As above (in calm weather only) Early autumn (in south) andlor spring (summer rainfall areas) As required As required After year 3 (incorporated in inter-row weed control) After year 2 (incorporated with weed control along hanks) If used, dependent on application method Late February-May

Bank maintenance Pest control Fenilising

Plant shaping

Irrigarion Harvesting Source: Milthorpe and Dunstone (1996).

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Suitability of Wimmerdsouthern Mallee for jojoba

The biophysical characteristics of the northern Wimmerdsouthern Mallee regions largely conform with the agronomic requirements for commercial jojoba production (Milthorpe, P., NSW Agriculture, personal communication, October 1996). Soils range from predominantly sandy clay loams in the southern Mallee to the self-mulching grey clay soils typical of the northern Wimmera. In keeping with the soil types preferred by jojoba they are well drained and have an average soil pH of between 7 and 8.5 (Hall 1996). Although the nutrient status of the soils is generally poor (increasing in fertility in the southern regions) annual applications of phosphorous and nitrogen enable commercial jojoba production. The climate of the Wimmera/southem Mallee is semi-arid. Rainfall ranges from around 300 millimetres a year at Ouyen in the north to approximately 425 mm at Horsham in the south (Department of Agriculture 1981). The majority of the rain falls between May and October, and most of the water is trapped by the topsoil and stored in the clayey subsoil. Sufficient water should be stored in the soil each winter-spring to meet the year round needs ofjojoba in those areas that receive greater than 400 mm annual rainfall (Milthorpe, P., NSW Agriculture, personal communication, October 1996). The annual temperature pattern of the Wimmerdsouthern Mallee suits jojoba. The low temperatures from mid-May to late August are necessary for plant dormancy, while temperatures of around 25-30C in the spring are ideal for post-winter plant growth and subsequent flowering and seed set. Milthorpe and Dunstone (1996) suggest that jojoba will integrate well with existing operations on wheat-sheep farms as the timing of many operations for jojoba are not as critical as for traditional crops such as wheat and barley. Once the initial ground preparation and planting of seedlings has been completed, most of the ongoing maintenance operations (box 1) may be conducted over a six to seven month period without detriment to plant production. Small areas of jojoba can be established and maintained using conventional three point linkage equipment that would normally exist on a broadacre farm. However, for larger areas, specially built equipment is recommended to speed up operations (Milthorpe and Dunstone 1996).

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4. Farm level analysis

Method
The objective in the farm level analysis was to assess the feasibility of commercially incorporating jojoba into an existing farm typical of those which exist in the study area. The approach taken in making this assessment was to utilise the whole-farm planning model, FARMULA, developed by the Western Australia Department of Agriculture (Kubicki, Denby, Haagensen and Stevens 1991a,b). The farm level analysis does not account for any possible production losses resulting from dryland salinity. Dryland salinity is a highly complex process with the linkages between on-farm land use and the level of salinity difficult to assess. A hydrogeological model being developed for the region is expected to provide better information on regional dryland salinity processes.

FARMULA as a project evaluation tool

FARMULA is a model which evaluates the costs and benefits of changes in farm management practices. For example, the changes may relate to new fence layouts, conservation earth works (such as contouring), changes to flock structure or the introduction of a new crop or livestock enterprise. FARMULA has a spatial dimension which allows the operator to track the progression of proposed changes over time on a property map. While not an optimising type model, FARMULA is a particularly useful tool for breakeven, sensitivity and what-if types of analysis. FARMULA simulates the production and sales activities of existing and proposed farm plans and calculates the costs and returns of each plan over a twenty year time period. To account for the worth of future income flows from long lived jojoba plantations (it is assumed that jojoba has a commercial life of forty years) a salvage value was included at year 20. The model uses discounted cash flow techniques - expressing future income streams in present dollar values -to determine the profitability of alternative farm plans. The specific technique used in the model is net present value (NPV), which is simply the sum of annual discounted net cash flows. A real discount rate of 8 per cent has been used in this analysis. This rate is based on the prevailing inflation rate -measured by the consumer price index- and nominal interest

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rates being charged by rural lending institutions (Commonwealth Development Bank, personal communication, August 1996). The data requirements for FARMULA are specific to the farm being analysed and include physical input data such as farm and paddock boundaries and roads, production data including yields for each agricultural practice that needs to be evaluated and financial data such as overhead and operating costs andcommodity prices (Kubicki et al. 1991b). A list of the main specifications used in the model is presented in box 2. Average seasonal conditions are assumed over the twenty year period. Using these data, an existing farm reference plan is created and this forms the basis against which all other proposals can be compared.

Reference farm
For the purposes of this study a reference farm has been created to represent a farming system typical of that in the Wimmerdsouthem Mallee study area. In establishing the reference farm a number of data sources were used. The primary source of information was the ABARE Australian agricultural and grazing industries survey (AAGIS) database. A subset of AAGIS broadacre farms lying within the study area was created from the database and the physical and financial characteristics of farms in this subset were used to construct the reference farm. Gross margin handbooks published by Agriculture Victoria for the Wimmera and southem Mallee regions were used in determining the variable costs of production associated with various cropping and livestock enterprises (Hall 1996; O'Brien 1996). Regional economists in Swan Hill and Horsham as well as ABARE crop analysts were also consulted to determine appropriate rotation sequences over the twenty year time frame. The layout of the reference farm, including paddock shapes and access ways, was derived from an actual map of an existing fanning enterprise in the Wimmerdsouthern Mallee area. The main physical and financial characteristics of the reference farm (averages over the twenty year period) appear in box 3. The financial figures are expressed in 1995-96 dollars. The reference farm comprises around 970 hectares of which almost half are under crops, 20 per cent under fallow and 32 per cent devoted to pasture production. On average the reference farm generates an annual net income of just over $59 000.

Jojoba establishment scenarios

In this analysis the change in management practice was to establish 15 per cent or 150 hectares of the reference farm to a commercial crop of jojoba (table 3). This percentage is based on assumptions made in chapter 5 about the extent of perennial vegetation coverage necessary to reduce groundwater recharge

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Box 2: Price, yield and cost variables used in FARMULA
Jojoba Current jojoba farmgate seed price: $4500 a tonne Establishment costs Year 1 $/ha Land preparation Fencing Plants Planting Cultivation Herbicide Fertiliser Watering Pruning Total establishment costs 125 247 3 500 200 Year 2 $/ha
-

Year 3 $/ha

. . . .

60 30

60
30 40 40
-

60 30

4 242

40 40 170

40 40 170

Annual operating costs, year 4 onwards $/ha Cultivation Herbicide Fertiliser Pruning Harvesting Total operating costs 60 30 40 20 120 270

Assumed annual dryland yield increases for jojoba in study area Age of plant (years)
4 5

6
t/ha 0.45

8
tfha 0.63

9
dha 0.72

10
tfha 0.81

11

12
dha 0.9

13
dha 0.9

tiha Assumedyield Other commodities 0.27

tfha 0.36

Uha 0.54

Uha 0.9

Variable costs $/ha Wheat (ASW) Barley Field peas Pasture 110 110 153 25

Yield t.ha 2.1 1.9 1.1

Price (less charges) $It

1 64 154 211

Wool Assumed long term greasy wool price is $5.30 a kilogram

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Box 3: Reference farm characteristics
Physical Arable area Soil type Financial Income wheat barley peas wool sheep other Total Costs Net income Farm debt

970 hectares sandy loam

Average crop areas' share of total arable area wheat(ASW) barley (malting) field peas fallow pasture

9 0 23 16 9 20 32
1 524

. --

77 720 44 865 20 409 39 894 8417 36 700 228 005 168 659 59 346 100 000

Average total sheep (DSEa)

a Dry sheep equivalent is a common measure of stocking rate.

rates. As indicated in table 3 the area established each year is assumed to increase as farmer familiarity with production of the crop increases and returns from initial plantings are realised. This jojoba establishment scenario was compared against the reference or existing farm plan (no jojoba enterprise) on the basis of the NPVs of each. The NPV for the jojoba establishment scenario was calculated using an estimate of the current farmgate seed price for jojoba of $4500 a tonne (Crow, R., NutriGreen Pty Ltd, personal communication, August 1996).In addition, a minimum enterprise switchover price was calculated for the scenario. That is, the jojoba seed price which results in the NPVs from the existing farm plan and the jojoba scenario being equal was also calculated. The enterprise switchover price can be interpreted as the minimum long term average farmgate price required before

3 ojoba establishment scenario

Area Share of total farm Establishment period Approximate area planted each year year 1 year 2 year 3 year 4 year 5 150 hectares

15 per cent 5 years

20 hectares
20 hectares 20 hectares 40 hectares 50 hectares

Source: Milthorpe, P. NSW Agriculture, personal communication,May 1996.

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a farmer would choose to change part of the reference farm from existing enterprises such as wheat or sheep to jojoba based wholly on NPVs. There are essentially two selling options available to commercial producers of jojoba seed. The seed can either be sold directly to crushers for which a farmgate price is received or it may be crushed on-farm (incumng additional costs) to produce oil for sale at higher values. Because the costs of crushing seed on-farm are not well known and may vary considerably if the press is owned cooperatively, this analysis assumes that jojoba is grown for the sale of seed at the 'farmgate'.

Results
Over a twenty year period, the NPV of the existing farm plan was estimated to be around $760 000. Incomparison, the NPV for the jojobaplanting scenario (at the current farmgate price of $4500 a tonne) was considerably higher at just over $2 million. Clearly, the results of this analysis using the representative farm indicate that introducing jojoba into the reference farm could be quite profitable at current farmgate prices of $4500 a tonne.

Enterprise switchover price

The financial analysis of the 150 hectare jojoba establishment scenario yielded. a switchover jojoba seed price of $1616 a tonne. As stated above, this switchover price is the jojoba seed price at which the NPV of the jojoba planting scenario is equal to the NPV of the existing farm plan as calculated using the model. That is, at the switchover price, the existing farm plan and the jojoba scenario are equally profitable. At prices above the enterprise switchover price, jojoba establishment would be more profitable than the existing plan. Conversely,jojoba seed prices below the switchover price mean the existing plan is more profitable than the jojoba scenario. While the enterprise switchover price is calculated strictly on the basis of NPV over a long time frame, some farmers may not change enterprises at this price because of a range of factors such as risk or because they plan over periods of less than forty years. Consequently, farmers are also likely to have a reservation price, which would be higher than the enterprise switchover price calculated using the model and which would offer them sufficient incentives to change their enterprise mix. No reservation prices have been calculated as part of this analysis because data on factors such as farmers attitudes to risk are not available.

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5. Planting for recharge control

Plantings scenario
Central to any strategy involving the use of deep rooted perennials for recharge control is the extent of perennial vegetation coverage required. Preliminary research results on recharge control within the Murray-Darling Basin suggest that in 600-800 millimetre average annual rainfall areas, a 30 per cent coverage with deep rooted perennial vegetation would substantially reduce groundwater recharge rates (Hatton, T., Division of Water Resources, CSIRO, personal communication, May 1996). Marcar and Crawford (1996) also state that in this rainfall zone it is usual to recommend revegetation coverage of up to 30 per cent for salinity control. Whether this degree of coverage is sufficient to halt or reverse the situation of groundwater recharge is not yet known. The average annual rainfall in the Wimmeralsouthern Mallee study area is 325-425 millimetres. Therefore, the percentage coverage with perennial vegetation required for recharge control is assumed to be less than the 30 per cent suggested for 600-800 mm rainfall areas. For the purposes of this study, a 20 per cent coverage with deep rooted perennials is assumed to be sufficient to reduce recharge rates and stabilise water imbalances. Ongoing research being conducted by the New South Wales Agriculture as part of this MurrayDarling Basin Commission funded project is expected to provide more accurate information on plant water use-recharge relationships in the southern Mallee in the longer term. While approximately 30 per cent of the WimmeraMallee area as a whole is under deep rooted perennial vegetation, just 5 per cent (136 000 hectares) of the study area is similarly vegetated. Therefore, it is assumed that 15 per cent of the study area, or 405 000 hectares, will need to be planted to deep rooted perennials (in this case jojoba) to make up the 20 per cent coverage assumed necessary for recharge control.

Oil production projections

-

Figure C shows Wimmera/southern Mallee oil production projections for two planting scenarios. The first scenario is based on 405 000 hectares being planted to jojoba over five years in equal lots. The second scenario is based on the 405 000 hectares being planted over ten years.

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10 ear scenario

Plantings are assumed to commence in 1997; however, as plants are not harvested until they are four years old, commercial production only begins in the year 2001. The jojoba seed yields used in the projections are based on dryland yield results from New South Wales Agriculture jojoba trials (Milthorpe and Dunstone 1996). The ratio for converting seed weight to oil weight is 2.1 to 1.O. In the five year scenario, oil production reaches a maximum of 190 350 tonnes of oil in the year 2012. For the ten year scenario, the same maximum production is attained in the year 2017. The projection of 190 350 tonnes of jojoba oil for the Wimmerdsouthem Mallee study area alone is more than 250 times greater than the current world production of around 750 tonnes. More pointedly, the first harvest under either planting scenario would be significantly higher than current world production.

Impact on the market

Projected jojoba oil production from the study area increases at an annual average rate of about 30 per cent between 2001 and 2016. With increases in the demand for jojoba oil unlikely to match the rate of increase in supply over the short to medium term, it is likely that significant falls in price will occur over this period. A diagrammatic representation of the effects of supply and demand on price are shown in box 4.

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Box 4: Effect on price of increasing supply

Po

PI

p2

Quantity

In general the amount of a good demanded increases as the price falls. This is represented above by the downward sloping demand curve D. Conversely, the amount of a good supplied increases as price rises, and this is represented by the upward sloping supply curve So. At the intersection of the supply curve So and demand curve D, the market is in equilibrium (at price Po and quantity Q,). As the area planted to jojoba increases and production expands, the supply curve moves outwards to S , and as the area planted to jojobacontinues to increase, to S2. At the intersection of demand curve D and the new supply curve S,, price falls to P I .A further shift in the supply curve to S2 results in the price falling further to P,.

Production from the first harvest in the study area would exceed the quantities currently used in the cosmetics and motor vehicle lubricants markets. The most recent estimate of the potential market in the cosmetics industry, 20 000 tonnes a year (Milthorpe and Dunstone 1996), would be met within the first three harvests. Even with price falls making jojoba oil more competitive as a substitute for other products, there remains an issue of technical feasibility. That is, for many potential end uses, the technical feasibility of jojoba oil has not been proven on a commercial scale. It is unlikely that research and development into applications for jojoba oil will result in markets that can absorb such a rapid projected short to medium term increase in supply.

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6. Conclusions
Extensive clearing of native perennial vegetation in the mallee regions of the Murray-Darling Basin has resulted in accelerated recharge rates and rising watertables. The consequences of rising watertables have been widespread outbreaks of dryland salinity and associated costs to private and public landholders and infrastructure providers. Deep rooted perennials such as jojoba offer the potential to mitigate the effects of groundwater imbalances and at the same time provide a source of income for growers. The aims in this study were to evaluate the commercial feasibility of growing jojoba in the Wimmerdsouthem Mallee region of Victoria and to assess the likely market effects if jojoba were extensively grown for groundwater balance purposes. The farm level analysis indicates that at a current seed price of $4500 a tonne, incorporating jojoba into a typical Wimmera/southern Mallee farming system significantly improves farm profitability over a twenty year period. The assessed enterprise switchover seed price of around $1600 a tonne means that current offer prices could more than halve and there would still be the potential to generate a larger NPV by incorporating jojoba into the farming system. While agronomists advise that there should be no major technical impediments to the integration of a jojoba enterprise into a typical Wimmera/southern Mallee farm production system, the presence of risk and uncertainty is probably a major factor which has prevented more widespread plantings to date. To control groundwater levels, it was assumed that 15 per cent of the study area, or 405 000 hectares, would need to be planted to jojoba. However, strategic jojoba plantings on this scale would result in massive increases in not only Australia's total production but total world production. Maximum jojoba oil production from the study area is projected at 250 times current world production. In addition, other regions in Australia and around the world are also experiencing problems with rising groundwater and they could also turn to jojoba as a recharge control crop. Therefore the potential also exists for increases in oil production in other Australian and overseas regions. Increases in production of this magnitude from the Wimmerdsouthern Mallee region alone would result in significantly lower prices in the short to medium term and a deterioration of farm profitability. The extent of these price impacts would depend critically on the extent and rate at which research and product development can expand the jojoba oil product range. However, it is likely that

JO JOBA
the size of production increases would result in a 'boom and bust' scenario that would yet again damage the potential for Australia's fledgling industry. Even if jojoba were to be adopted on a purely commercial basis there is little likelihood that the plantings would be confined to the priority areas for recharge control without some incentive system that would encourage targeted plantings of jojoba. Other areas both within the Murray-Darling Basin (see a ~ ~ e n dB) i xand outside of the Basin are as. or mav be even more, suitable for cbmmerciai jojoba production than the ~immera/iouthern ~ a l l e study e area. Conseauentlv. an area of greater than 405 000 hectares mav ultimately be planted with-the associatedimplications for production, befo;e groundwater recharge goals are met. For the reasons mentioned above, it would not be prudent to rely solely on an infant jojoba industry to resolve the region's recharge problems. Rather, a strategy based on changes in current management practices and a multispecies deep rooted perennial approach is recommended. Hence, future research programs to resolve salinity problems will need to give high priority to assess other potential perennial species which may provide economic as well as environmental benefits. This study highlights the potential benefits of undertaking a preliminary market and economic assessment prior to the possible commencement of more in-depth technical research. clearly, there is a parallel implication for preliminary biophysical assessments as well. Where information is available, such preliminary assessments may prove to be a valuable guide to research, development and extension programs, especially in circumstances where there are a large number of candidate crops or where the cost of the in-depth technical research is likely to be high.

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Appendix A: Existing and potential uses of jojoba

Type of modification Natural Description of product Clear liquid, odourless, stable, indigestible Uses Cosmetics, moisturisers, massage oil, soaps. Antifoam agent for fermentation of antibiotics. Shampoos and conditioners, sunblock formulations. Cosmetics Cosmetic creams, lip-chapstick, pharmaceutical creams. Cosmetic deep cleansers, paraffin wax, candles. Treatment of papers, textiles, insulating materials, matches. Carbon paper, soaps, salves, hot drink cups, crayons. Chewing sweets, coatings for food and tablets. Food mould release compounds. Blending with polyethylene as a plastic modifier. High pressure, high temperature lubricant for gearbox and differential applications. Crankcase lubricant, cutting oil for machine tools, special purpose grease. Fatliquoring of fine leathers. Varnishes, synthetic rubbers, adhesives ranging in characterisations from linoleum, insulating compounds, thick oils to rubbery solids, printers ink. Heating fluids, electrical apparatus, flame retardant in plastics, carrier for agricultural chemicals. Primary and secondary wetting agents, solubilisers for perfume oils.

Microencapsulation Transesterification Hydrogenation hardening

Microdroplets of the natural liquid Opaque cream to firm stick Hard, white, crystalline wax

Sulphurisation

Liquid with a high film strength

Halogenation

A large family of compounds

Alkoxylation emulsifiers,

Surfactants

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Phosphonation Liquid Antiwear additives for oils, separation of thorium from uranium. Thermal and UV stabiliser for TCP and DOP plasticised stocks.

Epoxidation

Solid

Source: Milthorpe and Dunstone (1996).

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Appendix B: Potential jojoba production areas in the Murray-Darling Basin

Potential jojoba areas in the Murray-Darling Basin

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References
Australian Bureau of Statistics 1996, Foreign Trade: Magnetic Tape Service, cat. no. 5464.0, Canberra. Brown, J. 1994, 'The jojoba industry 1994: a status and update', Proceedings of the Third International Conference on New Industrial Crops and Products and the Ninth International Conference on Jojoba and Its Uses, Catamarca, Argentina, 25-30 September. Department of Agriculture 1981, Climate in the Horsham District, Agnote 1659181, Melbourne. Dryland Salinity Management Working Group 1993, Dryland Salinity Management in the Murray-Darling Basin, Murray-Darling Basin Commission, Canberra. Hall, N. 1996, Mallee Gross Margins 1996-97, Agriculture Victoria, Swan Hill, Victoria. Kubicki, A,, Denby, C., Haagensen, A. and Stevens, M. 1991a, Farmula: User Manual, Division of Agricultural Economics and Marketing, Western Australian Department of Agriculture, Perth.

---and -1991b, Farmula: Reference Manual, Division of

Agricultural Economics and Marketing, Western Australian Department of Agriculture, Perth. Lanny, T. 1993, 'Development of jojoba products for international markets', Proceedings of the Jojoba Inaugural Goondiwindi Workshop, Goondiwindi, Queensland, 30 September. McKelvie, L., Bills, J. and Peat, A. 1994, Jojoba, Blue Mallee and Broombush: Market Assessment and Outlook, ABARE Research Report 94.9, Canberra. Mallee Dryland Community Salinity Working Group 1992, Mallee Dryland Draft Salinity Management Plan, Salt Action, Victoria.

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Mallee Vegetation Management Working Group 1991, Mallee Vegetation Management in the Murray Hydrogeological Basin, Murray-Darling Basin Commission, Canberra. Marcar, N.E. and Crawford, D.F. 1996, 'Other productive uses of saline land: tree-growing strategies', Proceedings of the 4th National Conference and Workshop on the Productive Use and Rehabilitation of Saline Lands, Albany, 25-30 March 1996, Promaco Conventions PTY LTD, Western Australia. Milthorpe, P. and Dunstone, R. 1996, Jojoba, Agfact P5.2.8, 2nd edn, NSW Agriculture, Orange, New South Wales. O'Brien, K. 1996, Wimmera Gross Margins 1996-97, Agriculture Victoria, Horsham, Victoria. Robertson, G. 1995, The national dryland salinity program, Paper presented at the National Agricultural and Resources Outlook Conference, Canberra, 7-9 February. Wood, I., Chudleigh, P. and Bond, K. 1994, Developing New Agricultural Industries: Lessons from the Past, RIRDC Research Paper Series No 9411, Rural Industries Research and Development Corporation, Canberra.