irrigation & economics
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Irrigation & Economics. David Armstrong AK Consultants Robin Badcock Badcock Irrigation Services February 2010. Issues to discuss. The cost of the water Costs of storage Costs of pumping Electricity v Diesel Equipment costs - PowerPoint PPT PresentationTRANSCRIPT
Irrigation & Economics
David Armstrong
AK Consultants
Robin Badcock
Badcock Irrigation Services
February 2010
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?
How much water do I need?
Depends on the area and type of crops:Generally 4-6 megalitres/ha for pastureAround 3 ML/ha for spring crops
What is a Megalitre (ML)?
1 ML = 1,000,000 litres
1 ML = 100 mm on 1 hectare
Crop water requirements
Enterprise Irrigation, mm ML/hectare
Wheat 200 - 300 2 - 3
Lucerne 400+ 4+
Poppies 250 - 300 2.5 - 3
Potatoes 400 - 600 4 - 6
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
Dam costsEarthworks costs
Added costs, clearing, keyway, spillway, outlet pipe. Approvals, surveys & reports etc.
Dam type S/E Ratio Earthworks cost, $/ML
Ring tank –Turkeys Nest
3:1 – 5:1 $1,333 - $800
Gully dam – average sites
5:1 - 10:1 $800 - $400
Exceptional gully dam site
20:1 – 50:1 $200 - $80
Pumping costs
Energy source $/ML per 10m head
Off-Peak electricity $3.94
On-Peak $8.97 - 2.3 X OP
Average electricity (50% Off & On peak)
$6.46 - 1.6 X OP
Diesel (fuel plus oils & filters) $13.98 - 3.5 X OP
Electricity V Diesel
Electricity Diesel
Energy costs Lower Higher
Maintenance Lower Higher
Capital costs Lower for motorAurora line high
Higher for diesel engine
Location flexibility Linked to supply Very portable
Pivot drive Convenient Requires hydraulic pivot or gen-set
Pivot controls Very convenient More restricted
Irrigation Equipment Centre pivot, fixed or towable
Depends on soils, rotation, economics
• Linear or lateral move machines Square paddock layout More labour Higher cost
• Gun type irrigators, hard or soft hose Low capital investment Higher labour cost Higher pumping cost Suits odd shaped irrigation areas Very portable Potentially poor uniformity
Capital costs - Pivot
Capital costs - PivotCost, $
Dam, 51 ML $55,660
Pipe to dam $2,500
Pump station & pump $25,000
Mainline $44,450
Centre Pivot $100,000
TOTAL $227,610 ($9,896/ha)
Capital costs - Traveller
Capital costs - TravellerCost, $
Dam, 40 ML $43,560
Pipe to dam $2,500
Diesel pump-set $20,000
Mainline & Al pipe $74,025
Hard Hose traveller $40,000
TOTAL $180,085 ($10,005/ha)
Economic analysis
Analyse the Centre Pivot example
Economic analysisComponents 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
Centre Pivot, 23 ha/year
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
Economic analysis
Income GM, $2,300/ha, 23 ha
$52,900
Costs
Electricity – pumping
50% OP $2,970
Labour $575
Water $120/ML $11,040
TOTAL COSTS $14,585
Irrigation GM $38,315
Economic analysis
Irrigation GM $38,315
Less GM foregone, 8 dse/ha @ $20 $3,680
Less wages & overheads $3,832
MARGIN before Interest & Deprec. $30,804
Economic analysis - Profitability
MARGIN $30,804
Less fixed costs
Interest on the Water Right (1,100/ML)
$6,072
Depreciation $8,578
Interest on average capital $11,083
Aurora meter $883
Maintenance $4,111
TOTAL FIXED COSTS $30,727
PROFIT (above 6% real rate of return) $76
Economic analysis – Cash Flow
MARGIN $30,804
Less fixed costs
Maintenance $4,111
Aurora meter $883
Loan payments, equipment 6 yrs @ 7.5%
$48,491
Loan payments, Water Right 10 years @ 7.5%
$14,743
TOTAL $68,228
MARGIN after Loan Payments $-37,424
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…
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?
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.
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
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.