Massey University agri-business Professor Hamish Gow and agri-economist Peter Fraser say the option to go dairying on irrigated land, rather than the ability to source irrigation, is the reason some past schemes have got off the ground and why future schemes might struggle.
“Even before the Crown Irrigation Investment Fund was canned irrigation investment has always been tough. All our cheap rivers to use for water storage are gone. You can enhance existing schemes like the Rangitata Diversion Race with storage but starting from scratch, that is very expensive,” Fraser said.
While dam schemes are complex, at their simplest level it comes down to the cost of a scheme and investors’ decent rate of return exceeding what farmers are prepared to pay for the water from it.
The Ruataniwha scheme, where at its most optimistic, water had been costed out at about 28c a cubic metre, is a typical example.
But Fraser maintained the most farmers can afford to pay for water is 10c and the cheapest in the country is from the Opuha dam at about 8c a cubic metre.
Fraser’s estimates for the proposed Waimea dam scheme are 60c a cubic metre based on latest but ever-rising estimates on that dam’s construction.
Dams built on NZ’s young geography face extra costs because of unstable land, earthquake risks and high river flows.
“Schemes like Opuha cannot be replicated any more and that’s aside from the money Alan Hubbard put into it.
“Dairy is effectively the pricesetter for schemes. It forms 53% of Opuha, it’s been the high-value, high-volume anchor store in that investment.
“But it is getting harder to do dairy in some of these catchments and returns have been lower, removing that main anchor user from projects like the Wairarapa scheme.”
Dairying accounts for 47% of all irrigated land use in NZ, with sheep and beef at 23%.
Fraser said dam construction can be likened to ship building, where scale always rules in construction economics.
“You may build a box that is 1 cubic metre but double the sides and height and you end up with 8 cubic metres and you get the volume but you need the volume of demand also on hand from big users, namely dairy.”
However, if dairy is not an option, supporters talk about other high-value opportunities like seed crops and horticulture.
But Fraser said those sectors are relatively small with specialty seeds at about 7000ha and hops, for example, about 700ha.
“So if you started supplying those specialty areas with more crop from irrigated areas what do we think will happen to the return from those crops?
“They will no longer be the high-value crops we were drawn to.”
Even crops like stonefruit, pipfruit and grapes at 34,000ha would be susceptible to oversupply, assuming the skills to grow such specialty crops were even available.
Gow said dairying has, over the last decade, provided a template for capitalising on the higher earnings irrigated land brings.
“This has been a template that is well serviced by advisers and people skilled at putting it in place and farmers new to it feel comfortable with it.
“Beyond that, a lot of farmers in NZ are paralysed by uncertainty with new investment because it may compromise their capital wealth position so why put that at risk investing in land use they know little about?”
Add in a layer of environmental regulations around today’s farming operations, which are only likely to get tighter, and their appetite to grab a higher-value land use through irrigation is only dampened further.
“Then you have biosecurity uncertainty, banks wanting principal payments and not only interest and uncertain secondary finance.
“The only upside is the OCR is stable for the next two years but that’s not enough.”
Demographics also play a part. The average age of sheep and beef farmers is about 59.
“So if you are 50-60 you will look at it and say ‘why would I?’ (irrigate). Am I really going to get the benefit with a 10-year window before it even starts?
“That leaves you with a small group of progressive younger farmers who are top of their game with enough debt paid off.”
But the slow-burn learning in sheep and beef farming and one-off receipts for livestock income mean the sector by nature has to be more risk averse, again reducing appetite to throw investment into a new farm system.
“So that leaves you needing two generations to be engaged on irrigation and you may need corporate money, in a dry-stock sector dominated by owner-operators, compared to dairying.”
Gow also laments an information culture in NZ that lacks impartiality when it comes to providing farmers with good data on irrigation returns and economics.
“We have a competitive funding model and you will not get people standing up and challenging the status quo.
“There is no open or transparent process for people to go out and provide analysis. Government does not have an open policy where all analysis is openly shared with the rest of the country.”
He compares that to the United States, which ranks highly for sharing data openly through its Agriculture Research Service in the US Department of Agriculture.
