Irrigators’ considerations for investment in farm irrigation systems: learning from farm case studies

Rabi Maskey and Rob O’Connor

Irrigation delivery system

Upgraded/automated main supply channel

Plastic lined main supply channel

Solar powered control box

Supply wheel

Farm Water Program– Farm Water Program (also known as On-farm Irrigation Efficiency

Program) is about achieving farm water savings through improved farm irrigation

– The water savings are shared between farmers and the environment, with at least half the water savings transferred to the State or Commonwealth environmental water holders

– Invest over $200 million of government money

– Approximately 400 projects been funded

Farm Water Program– The program assess the water savings – based on

• Soil type• Types of crop grown• Technology to be adopted

– Half of the water savings transferred to government

For example:• Say a landowner saves 100ML• Then he/she will receive (eg. $1800/ML X 50ML= $90K) on transfer

(90 ML)• the balance (eg. up to $1800/ML X 50ML= $90K) after the

completion of the work

On-farm irrigation systemsCentre pivot Pipe and riser

Laser gradingImproved border check irrigation

On-farm irrigation systemsRe-use system

Linear move system Computerised scheduling system

Is the irrigation investment financially viable to my situation?

Outline of presentation– Identify whether or not irrigation investments

are viable from irrigators’ perspective

– Identify the reasons for irrigators’ participation in the Farm Water Program and the learning from it

–How the learnings are shared with other irrigators and the broader industry

Case Study approach– 5 case studies– Examined ‘without’ and ‘with’ project situations– Partial budget analysis & discounted cash flow analysis– Project life 20 years– 7% real discount rate

– Economic criteria used: Net Present Value (NPV) Benefit-Cost Ratio (BCR) Internal Rate of Return (IRR) Period to break-even (years)

– Sensitivity analysis

Summary of five case studies  Case Study 1 Case Study 2 Case Study 3 Case Study 4  Case Study 5 

Irrigation technology

Improved Border- Check

Irrigation

Automatic Irrigation

Improved Border- Check

Irrigation

Pipes and Risers

Centre Pivot

Industry Dairy Dairy Cropping Cropping Cropping

Project area 24 ha 24 ha 65 ha 109 ha 25 ha

Crops ‘without’ project

Perennial pasture

Perennial pasture

Barley and wheat

Rye grass and oats

Rain-fed wheat

Crops ‘with’ project

Perennial pasture

Perennial pasture

Canola, wheat and lucerne

rotation

Canola, wheat and lucerne

rotation

Canola and wheat rotation

Project costsCosts (per ha)

Irrigation technology

Improved Border Check

Irrigation

Automatic Irrigation

Improved Border Check

Irrigation

Pipes and Risers

Centre Pivot

Industry dairy dairy cropping cropping cropping

Capital cost $2,994 $1,627 $2,700 $3,300 $4,120

Annualised capital cost* $283 $154 $255 $312 $390

Annualised other costs**

$122 

- $38 $30 $26

Maintenance cost $60 $98*** $52 $66 $82

Notes: *Assumes 20 year life project with 7% discount rate**Once off decommissioning costs, pasture re-establishment costs, removal of lucerne*** Includes yearly licence fee

Project benefitsImproved

Border Check Irrigation

Automatic Irrigation

Improved Border Check

Irrigation

Pipes and Risers

Centre Pivot

Industry dairy dairy cropping cropping cropping

Production benefits

2 t DM/ha/year No productivity benefits

High value crop mix; increased production

High value crop mix; increased production

High value crop mix; increased production

Water saving benefits

2.4 ML/ha/year 5% of water applied

6ML/irrigation (reduction of leakage in channels) and 20% of the water applied

7ML/irrigation (reduction of leakage in channels) and 20% of the water applied

 

- Targeted water application possible

- Irrigation complemented the use of increased fertiliser input to increase productivity.

- Pumping cost of $30-$40/ML in addition to the cost of water

Time saving benefits

4 hrs/irrigation

7.5 hrs/irrigation

30 hrs/irrigation

36 hrs/irrigation

Vehicle use benefits

- 36km less travelled/irrigation

60km less travelled/irrigation

70km less travelled/irrigation

Government incentives

$28,700 $18,500 $81,000 $180,000 None

Case Study approach

– 7% discount rate (opportunity cost of capital)

Year 0 1 2 3 4 5…. 20most costs (now)

most benefits

some costs

bring it to today’s $

(Present value of the investment)

Benefit cost analysis with incentiveImproved

Border Check Irrigation

Automatic Irrigation

Improved Border Check

Irrigation

Pipes and Risers

Centre Pivot

Industry dairy dairy cropping cropping cropping

Net Present Value +$90,200 +$5,600 +$266,000 +$545,000

Did not receive incentive

Benefit-Cost Ratio 1.60 1.09 2.2 2.2Internal Rate of Return (%) 14% 8% 27% 30%

Period to break even 8 years 9 years 5 years 4 years

Improved Border Check

Irrigation

Automatic Irrigation

Improved Border Check

Irrigation

Pipes and Risers

Centre Pivot

Industry dairy dairy cropping cropping cropping

Net Present Value +$62,850 -$11,985 +$185,000 +$365,000 +$29,357

Benefit-Cost Ratio 1.42 0.81 1.8 1.8 1.24Internal Rate of Return (%) 10.5% 0.37% 16.5% 16.5% 10.4%

Period to break-even 12 years >20 years 7 years 7 years 12 years

Benefit cost analysis without incentive

Learnings

The key benefits from investments are:• Production benefits

2 t DM/ha/year (dairy) high value crop rotation and increased production

(cropping); • Water savings

↓ 2.0ML/ha/year (dairy) ↓20% of water application (cropping)

• Save time chasing water for both cropping and dairy, i.e. automation of irrigation infrastructure

• Capital costs can range from $1,625 to $4,120 per hectare depending on the type of technologies

• Energy costs could be a significant ongoing operating cost for pressurised irrigation systems. For example, the energy cost for a pipe and riser system is likely to be in the range of $7-10/ML and $25-40/ML for a centre pivot system

• The Farm Water Program provided funds for irrigators to implement irrigation upgrades quicker than would have been possible without these incentives

Learnings

• The size of the productivity improvement is the key to the viability of irrigation infrastructure investment

• Water savings and labour savings only (without productivity increase) are unlikely to make the irrigation infrastructure investment viable

Learnings

Extending the learnings

Farm walks

Irrigation Expo

Workshop for service providers

Publications

Thank you.