Irrigation & Economics

1. Irrigation & Economics David Armstrong AK Consultants Robin Badcock Badcock Irrigation Services February 2010

2. Issues to discuss • The cost of the water • Costs of storage • Costs of pumping Electricity v Diesel • Equipment costs • Economic analysis Will an investment be profitable? Is the investment affordable?

3. How much water do I need? • Depends on the area and type of crops:Generally 4-6 megalitres/ha for pasture Around 3 ML/ha for spring crops • What is a Megalitre (ML)? 1 ML = 1,000,000 litres 1 ML = 100 mm on 1 hectare

4. Crop water requirements

5. Cost of water • TIDB – Water to Oatlands & Jordan River: $98-$120/ML (delivered 365 days/year). • So storage of 50-60% will be necessary.The biggest factor in dam construction costs is the Storage Ratio

6. Dam costs Earthworks costs • Added costs, clearing, keyway, spillway, outlet pipe. • Approvals, surveys & reports etc.

7. Pumping costs

8. Electricity V Diesel

9. Irrigation Equipment • Centre pivot, fixed or towable Depends on soils, rotation, economics • Linear or lateral move machinesSquare paddock layout More labour Higher cost • Gun type irrigators, hard or soft hoseLow capital investment Higher labour cost Higher pumping cost Suits odd shaped irrigation areas Very portable Potentially poor uniformity

10. Capital costs - Pivot

11. Capital costs - Pivot

12. Capital costs - Traveller

13. Capital costs - Traveller

14. Economic analysis Analyse the Centre Pivot example

15. Economic analysis Components of the analysis Income from the irrigated area (Gross Margin income) Subtract irrig. costs (water, electricity, labour) Subtract the dryland Gross Margin Subtract extra wages and overheads. Deduct interest, deprecn. & maintenance = PROFIT MARGIN OR deduct Finance Payment = CASH FLOW MARGIN

16. Centre Pivot, 23 ha/year

17. Centre Pivot system • Towable pivot, 1 circle/year, 23 ha. • Dam 51 ML. • Design 4 ML/ha per year. • Electric pump-set; total head 50m. • Pumping 50% OP. • Water cost $120/ML

18. Economic analysis

19. Economic analysis

20. Economic analysis - Profitability

21. Economic analysis – Cash Flow

22. Summary • Consider the fixed and variable costs Fixed (interest, deprec, maintenance): $1,336 ha • Variable costs: Water, 4 ML @ $120/ML $480 Electricity $129 Labour $25 • With most irrigation schemes fixed costs are much greater than variable costs. So…

23. Summary • There is a difference between Profitability and affordability. • This Centre Pivot scheme was profitable at GM of $2,300/ha. • But at that GM the annual cash flow losses for the first 6 years is around $37,500. After that the cash flow position is eased. Can the business afford such cash flow losses?

24. Summary • All schemes are different, so be careful about generalisations. • But in the Midlands we will generally need crops with relatively high Gross Margins for schemes to be profitable and affordable.

25. So, is the opportunity too expensive? • Depends on your situation: Business & personal situation Land and soils Topography for irrigators and dams • The capital costs in your situation • What you can grow The crops you can contract Expected yields

26. So… • Do your homework • Find out where and what you can irrigate. • Work out a design, get it costed. • See what cash income you can generate. • Then do the sums and consider the risks.