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<br />. <br />. <br />. <br />. <br />I <br />. <br />. <br />I <br />. <br />. <br />. <br />. <br />.. <br />I <br />I <br />. <br />. <br />. <br />. <br /> <br />0r.....~~~t'!. <br />r,J ".l.',..1- ..'- . <br /> <br />increased production by comparing the market value of farm commodities with <br />their production costs. This method produces only an approximation of true <br />net benefits, since net benefits are conceptually measured as consumers' <br />willingness to pay for increased farm production, minus the opportunity <br />costs associated with the production of those commodities. The Guidelines <br />implicitly assume that market value is an adequate approximation of <br />willingness to pay, and that prices paid by farm producers for production <br />inputs are an accurate reflection of opportunity cost. Although these <br />assumptions are seldom true in a strict sense, they provide an adequate <br />approximation of net benefits in many situations. <br />2.3 Cost Estimation <br />As discussed in Section 2.1, there are three conceptual cost elements <br />that enter into the evaluation of PIA. Two of these elements, on-farm <br />production and marketing costs and on-farm irrigation costs, are usually <br />subtracted from NED benefits to obtain a net benefit measure. The <br />resulting net benefit measure is then compared with an estimate of off-farm <br />water delivery costs to determine whether the irrigation project is <br />economically feasible. <br />According to the Guidelines, all three cost categories should include <br />costs for equipment ownership and operation, production materials, labor <br />and management, system operation maintenance and replacement (OM&R), and <br />interest payments. The value of all purchased inputs in any of these <br />categories should be valued at current market prices; the use of subsidized <br />rates for purchased inputs is not allowed. This provision specif<j.:ally <br />eliminates the use of subsidized electrical power rates for computing water <br />delivery pumping costs. <br /> <br />8 <br /> <br />- <br /> <br />i; ~ _ _~ <br />