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Dams plan full of challenge
01-02-2010
Six new dams for irrigation in Central Hawke's Bay are a great idea but making it pay at an individual farm level is the challenge, Phil Tither says.
The AgFirst Hastings agricultural consultant says it's a matter of finding a way to make the irrigation proposals work. At the moment, the engineering cost estimates delivering water to the gate at $8500/ha, too high to make the project economic for farmers under current land-use options.
To finance this at an interest rate of 8%, with the additional cost of $60/ha/year for pumping, would cost $750/ha/year. On top of that farmers would also face on-farm irrigation and development costs of up to $4500/ha.
In this economic climate that's just too much debt for many farmers to carry. With banks now saying farmers shouldn't borrow too much, it is hard to make the numbers work.
"It has to pay because people have to run viable businesses and service debt," Tither says.
A time will come, however, when it will pay, and the benefits to the region and food production will be significant, he says. "History has shown over time most farmers grow their equity through investment in irrigation."
Tither did a pre-feasibility study to look at the economics of the proposal inside the farm gate and found dairy farmers were likely to get a return on investing in the water. Further work is needed to look at specialist cropping or horticultural land uses.
The work was done for the Hawke's Bay Regional Council, which has proposed the dams as a way of augmenting water flows in dry times and increasing development on the Ruataniwha Plains. Tither's figures show 13,000ha of land would have to be irrigated for the schemes to work.
A typical finishing farm in the area is 440ha, and his figures assume 300ha of this would be irrigated with 400mm of water a year.
That means around 43 farms on the plains could be converted to irrigation. The debt levels they would face using the current estimates are high and systems to reduce the cost of water to the gate and land-use options with better returns need to be considered.
Tither's figures show a return on the marginal investment in irrigation and associated farm development for cropping of 3.3%, sheep and beef 1.6%, and dairying 8.5%.
"Probably only dairy farms could afford this at the moment" (using a milksolids price of $5.50/kg).
"This is an investment that has to be sustainable for 20 to 30 years if someone is taking out a big debt. It won't be paid off in five years."
Average sheep and beef farms of 440ha, without irrigation, but including land and stock, are worth around $5.7 million as a going concern. Adding in the farm-gate water cost, an irrigator, development, more livestock, and another house for staff, would take the value of the property to $10.9m.
Arable farm values come out at a similar level, but irrigated dairy farms require a great deal more investment. This would be worth around $17.5m, which is $11m more capital over only 300ha. And two-thirds of that capital investment is outside the farm gate, Tither says. "Whichever way an irrigation company would be structured, the off-farm capital cost had to be met by users."
Engineering costs for delivering the water to the farm gate are high. "We will need to keep looking for engineering solutions to moderate that."
Tither says he hopes the project can be made to work because it will have significant long-term benefits to individuals and to the region. Farmers receiving water at the gate will have to develop their farms to take advantage of it. "You have to take the farm to another level, with pasture renewal, higher soil fertility, more subdivision and a general intensification."
Tither believes less water efficient irrigation systems such as K-line irrigation would be unlikely to be used as part of this project. "For this scheme I don't see very much of that being used; these movable sprinkler systems are good for reducing capital cost but only suit an environment where water is inexpensive."
Instead, farmers would be spending significant money inside the gate on irrigation technology to make the best use of every little bit of the water.
Tither has done many irrigation feasibility studies in his 27 years consulting on the east coasts of both the north and south islands.
"It has always been hard to get the numbers to fit in the short term but looking back many farming families are pleased they made the investment."
He says there are many other community benefits from the project such as recreational lakes. Some of the dams would augment summer low flows in the rivers.
And his work, which looked at the economics inside the farm gate, didn't include looking at a regional multiplier effect.
"Irrigation has the ability to more than double meat production per ha in an average year and a proportionally more significant impact in drought years."
• Footnote: As this edition went to press, the Hawke's Bay Regional Council announced it is starting a feasibility study on water storage for the Ruataniwha Plains. The council is investing $882,000 at this stage and MAF has committed funding and advisory help.