Splitting Irrigation Cost Between Neighbors

1. Splitting Irrigation Cost Between Neighbors Lyndon Kelley MSU Extension/Purdue University Irrigation Management Agent St. Joseph County MSU Extension, 612 E. Main St., Centreville, MI 49032 kelleyl@msu.edu, 269-467-5511 www.msue.msu.edu - find St. Joseph Co. - then hit the Irrigation button

2. Irrigation will expand in MichIana • Over 400,000 irrigated acres within 80 mile radius of South Bend, Indiana. • Largest pool of irrigated ground East of Mississippi. • Closest pool of irrigated land to the USA major population centers. • Sustainable - annual recharge is greater than irrigation use. • Centered on excellent transportation and utility resources.

3. Future of Irrigation in MichIana • Higher transport costs increase interest in moving vegetable/food production back to Midwest • Higher input cost increase the desire to reduce risk • The irrigated west is running out of water Expect expansion in vegetable, seed production and other specialty crops. All about controlling risk - Irrigated land is most often sandy loams that prevent planting and harvest delays.

4. Indiana Irrigated acres Summarized from 2007 Agricultural Census 11 Counties = 71.5 % of total

5. Many areas have very few large acreages left. • Working with neighbors can often lower irrigation cost.

6. Field #5

7. 1320’

8. Field #2 2640’

9. Splitting Irrigation Cost Between Neighbors Permanent investments Early termination agreements Initial investment Annual operating cost

10. Water Supply

11. Do I have enough capacity to share • Maximum water use for most crops is .27 - .32 in./day • 3 gal/minute/acre pump capacity = 1”/week • 5 gal/minute/acre pump capacity = .25 in./day • 7 gal/minute/acre pump capacity =.33 in./day, 1” every 3 days • 500 gal/minute pump can provide 1” every 4 days on 100 acres

12. Riparian DoctrineEast of Mississippi Prior AppropriationWest of Mississippi - first in use, first in right • - allows transfer of water rights - based on Common Law - handed down from British law - legal “doctrines” - interpreted by the courts • sets precedents - may be modified by legislative action

13. A B C D E F G Surface Water Sources- Riparian Doctrine, Severance Rule • If challenged water rights may be restricted to Riparian parcels • Once a parcel has been subdivided, the parcels no longer retaining waters edge loose their Riparian Rights. • Once rights are lost they may not be regained (reattachment of subdivided parcels dose not re-establish their water rights). • Commonly violated, but one of the easiest ways to get injunction against a neighbor. Lakes Rivers Streams Drainage ditches Private ponds

14. Groundwater Sources • Ground water belongs to State for all land owners to use to the extent their use dose not interfere with neighboring uses. • Movement of ground water between parcels is legal and common. Deep wells Horizontal suction wells Shallow suction wells Shallow wells

15. Permanently installed equipment belongs to landowner at time of installation.What is Permanent? ………Up to the courts Anything bolted down and not on skids or wheels Legal agreement is needed to protect non-owners investments.

16. Legal agreement is needed to protect non-owners investments. • Example …. • Well , Well starter panel, Electrical discounts, buried pipe and pivot pad will be installed at leasee expense. ($30,000) • Full use of the above stated equipment is that of the leasee for the ten years of this agreement. • If the termination clause (described below) is utilized the leasee will be compensated according to the following chart.

17. Often difficult to owner equipment Jointly - Alternative to joint ownership • Annual ownership cost • Determine the benefit to each party –(i.e.. 75% ,25% Split) • Party with greatest benefit purchase equipment. • Estimate the annual cost per acre for the investment. • The owner is compensated annually for the % of benefit * the annual ownership cost per acre by second party. • Annual total of energy bills is divided by total acre inches of water applied . (cost per acre inch of application) • Example – • 160 acre system With a Total Annual Ownership Cost of $93.26 / irrigated acre / year • Actual irrigated acres of 132, 25% * 132= 33 acres •   33 acres * $93.26 = $3,078

18. Estimate the annual cost per acre for the investment • Dirti formula = Deprivation, Interest, Repairs, Taxes and Insurance http://www.msue.msu.edu/stloseph and navigate to the irrigation button on the left hand side.

20. 160 Acre Center Pivot Example Estimating Annual Irrigation Operation Costs -3-10 Standard 160 acre system and end gun with actual irrigated area of 132 acres installed at a cost of $62,000 with a power and water source and connecting equipment cost of $32,000. Ownership Cost  Depreciation: (original cost ‑ salvage value)/years of use (pivot cost + installation cost ‑ salvage value)/10 years= ($62,000 ‑ 18,000)/10 = $4,400 (well cost ‑ salvage value) / 20 years = ($32,000 ‑ 12,000)/20 = $1,000 Interest: interest rate * average investment value 6.5% * (original cost + salvage value/2) = 6.5% * ($94,000 + $32,000/2) = $ 63,000 6.5% * $ 63,000 = $4,095

21. 160 Acre Center Pivot Example - continued Repair: estimated to between 2 to 5% of original cost well cost * 2% = $32,000 * 2% = $640 pivot cost * 3% = $62,000 * 3% = $1,860 Taxes: no personal property tax in Michigan the addition irrigation equipment should not increase property taxes. Indiana personal property tax estimated at 1%. $94,000 * 1% = $940 not shown in calculation Insurance: estimated at 0.5% * Average Investment Value 0.5% * (original cost + salvage value/2) 0.5% * ($94,000 + $32,000/2) = $ 63,000 0.5% * ($ 63,000) = $315 Total Ownership Cost = $4,400 + $1,000+ $4,095 +$640+ $1,860+ $315 = $12,310 $12,310/132 acres = $93.26 / irrigated acre / year

22. 160 Acre Center Pivot Example, Continued Operating Cost (per acre) or total actual annual cost These costs are best handled annually calculated using actual costs at the end of season. Power: use actual fuel or power bill is recommended estimated power cost: $3.50/ acre in. * 7 in.* 132 acres = $3,234 annually $2 to $7.50/acre in. range Labor cost: recommend use of actual labor bills Range of $1 to $3.50/acre in. $1 * 6 acre in. * 132 acres = $792 annually Total Operating cost annually = $ 4,026 Grand Total Estimated Annual Cost = $4,026+ $12,310 + = $16,336 $16,336 / 132 acres = $123.76 /acre at 6"

23. Irrigation Water Supply Example Estimating Annual Irrigation Operation Costs Calculated for a theoretical irrigation water supply with an estimated original total cost of $32,000. Cost may be a combination of well, pump, underground piping and electrical panel. Costs were spread over a 132 irrigated acre for the example. Ownership Cost Depreciation (well cost ‑ salvage value)/20 years = ($32,000 ‑ 12,000)/20 = $1,000 Interest: interest rate * average investment value 7.0% * (original cost + salvage value/2) = 7.0% * ($32,000 + $12,000/2) = $ 22,000 7.0% * $ 21,000 = $1,540 Repair: estimated to between 2 to 5% of original cost well cost * 2% = $32,000 * 2% = $640 Taxes: no personal property tax in Michigan the additional irrigation equipment should not increase property taxes. Indiana personal property tax estimated at 1%. $21,000 * 1% = $210 not shown in calculation

24. Irrigation Water Supply Example -Continued Insurance: estimated at 0.5% * Average Investment Value 0.5% * (original cost + salvage value/2) 0.5% * ($32,000 + $12,000/2) = $ 22,000 0.5% * ($ 21,000) = $110 Total Ownership Cost = $1,000+ $1,540 + $640+ $110 = $3,290 $3,290/132 acres = $24.92/irrigated acre/year Operating Cost (per acre) or total actual annual cost These costs are best handled annually calculated using actual costs at the end of season. Power cost: $3.50/acre inch * 7 inches* 132 acres = $3,234 annually $2 to $7.50/acre inch range Total Operating cost annually = $ 3,234 annually Grand Total Estimated Annual Cost = $3,290 + $3,234 = $6,524 $6,524/132 acres = $49.42/acre at 7" The example water supply has a $3,290 total ownership cost and a $3,234 operating cost annually. The per acre value are $24.92/irrigated acre/year and $49.42/acre at 7" assuming 132 acres of irrigation coverage.

25. Summery of typical irrigation cost, annualizedstandardized to 6” of irrigation From http://www.msue.msu.edu/stjoseph navigate to the irrigation button on the left hand side

26. Splitting energy cost • Annual total of energy bills is divided by total acre inches of water applied . (cost per acre inch of application) • Payment is made by % of water applied to each parcel. • Example. • John adds up the bills from the power company for the past year for a total of $8,000. • John applied 5 “ of water to his 99 acres portion of the system for a total of 495 acre inches. • His partner applied 10” of water to his 99 acres portion of the system for a total of 330 acre inches. • 495 acre inches + 330 acre inches= 825 acre inches • 330 / 825 = partners share, 40% * $8,000 = $3,200

27. Who pays for repairs? • Make sure it is agreed upon before hand. • Major disasters • Deductibles • Minor repairs • Maintained items • Winter drainage

28. Who pays for Insurance? • Make sure it is agreed upon before hand. • You must own it, to insure it • Deductibles • Total replacement value • Crop damage • Liability