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= Economic Cost-Benefit Analysis =

The basic principles for carrying out financial and economic analysis are the same and both are required for project screening and selection. However, the Financial Analysis deals with the cost and benefit flows from the point of view of the individual, farmer or food processor in our case, while the economic analysis deals with the costs and benefits to society. The Economic Analysis takes a broader view of costs and benefits, and the methods of analysis differ in important aspects. An enterprise is interested in financial profitability and the sustainability of that profit, while society is concerned with wider objectives, such as social and environmental issues, and net benefits to society as a whole.

An economic analysis takes into account energy subsidies and taxes, the impacts of the renewable energy project on land, labor and human rights, local people livelihood, environment, GHG emission, etc. (FAO, 2015). These and other externalities and co-benefits are context specific and can be inserted in the analysis in order to modify the structure of economic costs and benefits of the project. These include for example economic incentives to renewables or fossil fuels, or costs to mitigate climate change or to ensure the more efficient use of water and land, costs accrued in the treatment of water, measures to contain negative environmental impact, etc. which are of course part of the picture, although not present in the financial investor business plan.

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== Analysis Tools ==

Cost-Benefit Analysis can be unfriendly to a non-professional audience. Several online tools are available to support small and medium businesses in performing cost-benefit evaluation of their investment in an energy-food context. A non-exhaustive list with some examples is provided below:

*'''''WinDASI - a software for Cost-Benefit Analysis (CBA) of investment projects:'''''FAO provides this tool to carry out cost-benefit calculations of investment projects. After cost and benefit data are inserted in the database, WinDASI guides the user how to calculate. In addition, WinDASI allows for calculation and comparisons of different projects alternative scenarios (with–project versus without-project). The WinDASI program is downloadable from the [http://www.fao.org/3/a-am370e.pdf FAO EASYPol website].<br/>
*'''''VCA Tool - a software for Value-Chain Analysis to assess socioeconomic and environmental policy impacts''''': developed by FAO, this tool allows different scenarios to be built and to analyse the socio-economic impact of various policies such as the adoption of new low-carbon energy efficient technologies or support for renewable energy. The information about how inputs and outputs would change before and after the intervention is exogenous and can come from other sources. The software is available at: [http://www.fao.org/docs/up/easypol/432/value_chain_analysis-brochure-e-version.pdf HERE]<br/>
*'''''SPIS Payback Tool''''': this tool evaluates economic, environmental and social aspects of different energy sources for irrigation in order to help operators to assess the economic viability of different power supply options and water pumping technologies. The tool assesses the economics associated with different energy sources for irrigation including the cost, price, and payback time. It can be accessed: [https://energypedia.info/wiki/File:INVEST_Payback_Tool_V1.0.xlsx HERE]<br/>
*'''''RuralInvest - A Participatory Approach to Identifying and Preparing Small/Medium Scale Agricultural and Rural Investments''''': developed by the FAO Investment Centre, it provides support to local communities, private entrepreneurs or producers’ associations to conceive and implement their own investment projects through a range of materials and training courses including technical manuals, custom developed software, user guides and instructor’s materials. More information: [http://www.fao.org/fileadmin/templates/tci/pdf/RuralInvestBrochure_en.pdf HERE]<br/>
*'''''RETScreen''''': the tool performs cost and financial analysis considering for instance: base case system energy cost (e.g. retail price of heating oil); financing (e.g. debt ratio and length, interest rate); taxes; environmental characteristics of energy displaced (e.g. oil, natural gas, grid electricity); environmental credits and/or subsidies (e.g. GHG credits, deployment incentives); indicator such as payback period, ROI, NPV, energy production costs. It has been developed by CanmetENERGY and can be downloaded [http://www.nrcan.gc.ca/energy/software-tools/7465 HERE]

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== Steps in Economic Cost-Benefit Analysis ==

#Convert all market prices into economic/shadow prices that better reflect the social opportunity cost of the good.<br/>
#Remove transfer payments (taxes and subsidies) and quantify externalities (positive and negative).<br/>
#Compare costs and benefits of the project with the benchmark scenario to obtain the project's incremental net flows.<br/>
#Calculate economic performance indicators adopting a social discount rate: ENPV, IRR, B/C ratio and payback time.<br/>
#Perform sensitivity analysis in order to deal with the main risks and uncertainties that could affect the proposed project.

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