Determinants of the economic viability of mallee eucalypts as a short rotation coppice crop integrated into farming systems of Western Australia

Mallee eucalypts are being developed as a short rotation coppice crop for integration into agricultural systems in the south‐west of Western Australia. These have potential for biomass production for bioenergy, eucalyptus oil and generating carbon credits and to help control the extensive occurrence of dryland salinity. Some 12,000 ha of mallee planting has been undertaken since 1994, mostly in the form of wide‐spaced, narrow belts within the annual agricultural system. Production and market data were used to estimate levelized costs (LC) of mallee biomass production under different harvest regimes across 11 sites from 2006 to 2012. We found LC ranged from AUD40 to AUD257 fresh Mg^?1. LC was most strongly determined by mallee production, followed by the crop/pasture rotation decisions of the landholder. Mallee harvest regime had minor impact on LC. Crop and pasture yield loss due to competition from the mallee belts accounted for 38% of costs, harvesting biomass was 32%, opportunity cost of the land occupied by the mallee belts was 16% while establishment and maintenance costs accounted for 14% of the costs. When income from carbon sequestered in mallee root biomass was included, the LC dropped by an average of 11% at the current Australian price of AUD15 Mg^?1 CO₂ equivalent (CO₂e). The income from carbon sequestered in root biomass alone is unlikely to make mallee agroforestry economically viable. Hence, income from harvested biomass in the form of feedstocks for industry or carbon credits is necessary to make mallee agroforestry commercially attractive. LC for unharvested mallee belts ranged from AUD33 to AUD237 Mg^?1. Where above‐ and below‐ground biomass is converted to CO₂e at AUD15 Mg^?1, the LC drops to AUD11–AUD64, with three of 11 sites likely to be profitable. These three sites were characterized by high biomass production with low agricultural gross margins.