New basis for assessing irrigation?

Press, 14 April 1978, Page 16

New basis for assessing irrigation?

One of the most important things to come out of the papers and discussion on the first day of the irrigation conference in Ashburton this week was that under the present system of evaluating irrigation schemes to justify the injection of Govenunent funds the criteria used may be too narrow and that irrigation investment would command higher priority if these were widened.

Dr W. A. N. Brown, of the Agricultural Economics Research Unit at Lincoln College, said that in the evaluation of community irrigation schemes from the national point of view the current costbenefit analysis undertaken did not reflect the full range of benefits or costs that these schemes might generate for the nation, since they only assessed projects in terms of one objective —profitability.

Because New Zealand had a scarcity of investment capital, which prevented the country undertaking all of the potential projects which were offering at any one time, he said that a choice had to be made between possible investments, and it was for this reason Treasury’ stipulated that a 10 per cent return was the normal minimum that public sector capital investment projects should generate in a national cost-benefit analysis before they could be considered for financing. Large community irrigation schemes had difficulty meeting this target when evaluated from the national viewpoint and that had led Mr E. J. Stonyer, director of the Economics Division of the Ministry of Agriculture, to conclude that “irrigation development. . . has probably produced a lower return on development funds that almost any other form of land improvement undertaken in this country.”

“Part of the problem, as I see it, is that we are evaluating community irrigation schemes solely in terms of their contribution to economic growth — their profitability,” said Dr Brown. “Impacts of the investment in other areas important from the national viewpoint are practically neglected but certainly should be included if we are to evaluate investment opportunities in a comprehensive framework. “Some overseas countries, in particular the United States, overcome this problem through evaluating alternative investments in terms of the impact on four objectives of national importance — national economic growth, regional development, environmental quality and social amenity. It is possible, for instance, that even though some projects have a small contribution to economic growth, it would still be of national interest to make these investments because of their contribution to regional development. But this kind of trade-off can only be made by broadening our approach to investment evaluation.” Dr Brown said that irrigation could markedly affect the level of economic activity in the local

region. This occurred through expenditure made during the construction of the scheme, expenditure on scheme operation and maintenance once it was completed, the additional income and output from irrigated farms and the addittional input purchases made by irrigation farmers. The impact of this spending was felt by regional businesses and the local population. It was very noticeable how sensitive the economy of rural towns was to the economic well-being of the surrounding fanning industy — a vibrant expanding rural sector was the major stimulus to the economic health of local urban centres. Dr Brown said that the Ministry of Agriculture had estimated that employment on farms in the Waiau plains irrigation scheme might increase by 84 labour units because of the additional stock carried and the increased area in crops. This could have a very significant impact on the region — the number of paid permanent employees in the Amuri county had been falling steadily from 208 in 1972 to 156 in 1976, an annual decline of 6 per cent. The addition of 84 labour units to this work force represented an increase of more than 50 per cent on current levels and would markedly reverse the rural-urban drift.

The effect on the regional population could also be very marked. The population in Amuri county, excluding work camps and Hanmer, had declined steadily during the last 15 years and now numbered around 1760 people. It was likely that initial stimulus would come from the construction work force which would come into the area, estimated to reach 60 in the third year of the programme.

As this work force declined after the fifth year, employment on farms and in the operation of the scheme and maintenance should increase so that, on average, a continuous additional labour force of 60 to 80 was maintained as a direct result of the irrigation scheme. This could imply an additional population of around 150 and indirect employment creation could increase this further.

It was likely, therefore, that the Walau irrigation scheme could add more than 7 per cent to the population in a county which had seen a steady exodus of people during the last 15 years.

Regional development was becoming increasingly important in New Zealand as an objective of Government policy and overseas experience suggested that stimulus of the agricultural base could be one of the most successful and

least costly approaches for raising income and employment levels in predominantly rural regions. But more research needed to be undertaken to quantify the type and size of regional impacts generated from alternative options. “It may well be that community schemes provide one of the most potent forces for regional development and social stability in agricultural areas of New Zealand by alleviating rural-urban drift in the population and offsetting the resulting decline in rural districts and towns. In addition, they provide a much more stable environment in which long term planning can proceed with confidence.

In subsequent discussion Dr Brown suggested that better irrigation schemes might result from engineers and economists working together in the design process, but a problem here was that they tended not to talk the same language, which underlined the need for people to be taught in a multi-dis-cipline environment. The proposition was put to Dr Brown that on recent irrigation schemes the rate of return on the investment in them had been higher than predicted, and he said in his response that there had been a case of this happening in the Upper Waitaki, where there was a return of about 18 per cent whereas that forecast had been between 7 and 8 per cent, but in this case about 30 per cent of the return was derived from about 3 per cent of the area, which was the result of irrigating orchard crops. This was a reflection of the fact that highest returns from irrigation were associated with irrigating high value crops. Mr R. H. Williams said that it appeared that the return on the investment in schemes seemed to depend on the mix of products produced when these areas were irrigated. He was sure that farmers would use the water available to them to the best of their ability, and he noted that there had been instances of people repaying the total capital input in spray irrigation systems in only three years. “If that is not a return to the nation I don’t know what is,” he remarked.

Dr Brown said there was no doubt that a small irrigation project could be profitable to the nation and the farmer. But in the case of a large scheme involving the investment of a large amount of public money it was necessary to look at the over-all situation, and it was here that a different rate of return was generated Some farmers would maximise their production but others would not for various reasons, so that the average rate of return was not the same as was possible.

“You are delaying potential schemes?” queried Mr Williams.

Dr Brown said under the present system of assessing priorities for spending of public money irrigation could come fairly well down the list,

but if the system of evaluating such projects could be expanded to take in such factors as regional development, then it could come much higher in the ranking.

Mr W. R. Lobb, former superintendent of the Winchmore irrigation research station, said there was a danger that the country was committing a lot of capital to small schemes, that in the long term would be less profitable than the community schemes.

The immediate effect of the smaller schemes was being evaluated without allowing any time scale for development to take place on the larger schemes.

Mr Lobb said that if there was concern about the use of energy, then a person could not but be concerned at lack of application by the national planners on the establishment of low energy irrigation systems based on gravity, which were applicable to large areas of land that could be irrigated.

“I would suggest that the Government has shelved its responsibility to the taxpayer by failing to promote large-scale low-energy irrigation developments by shifting the necessary investment from its plate to that of a multitude of individuals by advancing Rural Bank (taxpayers) finance for numerous small schemes and sprinkler irrigation plants which have high energy requirements, a mighty capacity to eat up investment and a minicapacity to irrigate areas.

“In the long term I am of opinion that the Government cannot afford to overlook the advantages of the low-energy gravity systems of irrigation. These schemes have an assured future and this is well demonstrated by the Rangitata diversion race schemes in Mid-Canter-bury. The longer these schemes run the greater will be the comparative advantage derived from them. Farmers on the schemes serviced from the diversion race have invested between S3M and S4M without any subsidy to make their farms more productive. In doing this they have added more than $2.5M annually to our overseas earnings and this contribution will continue to grow. “Is it any wonder that Professor S. Mandel, a world authority on water management, expressed surprise that we regarded these schemes “with great modesty’.

“In Professor Mandel’s words they should be ‘presented as a major achievement, beautifully conceived and constructed and in fact something to be proud erf’. “In all the productive assessments of these schemes I have seen no reference to the value of the power generated,” said Mr Lobb. “In general it can be said to have been extremely short sighted to harness our major river systems for electricity

without giving any paralell consideration to planning for irrigation. In too many avenues where developments are involved, the social benefits are overlooked or seriously undervalued and in this respect irrigation has suffered probably more than most.

“The time is opportune to promote what might well be the greatest monument to irrigation and power planners — the planned development of the Rakaia river to have five hydro-electric power stations and 97,000 ha of irrigated land on its north bank and a power station and 6000 ha of land on its south bank. Allied to this would be recreational and sporting facilities for all to enjoy. "Such a scheme could be justified in many ways, but if past tradition continues justification would be on the grounds that it be economically comparable to other avenues of agricultural development.

“There is no doubt that such a development would have a dramatic effect on production and would intensify farming of all types and provide the potential to introduce new activities throughout the whole area and for the benefit of New Zealand as a whole.”