Falling return rates sink schemes

Press, 27 April 1984, Page 17

Falling return rates sink schemes

The rate of development of irrigation schemes depends on the willingness of the Government to advance grant and loan money for their construction. For the Government, funding of irrigation schemes depends on the priorities it has set for itself, its development strategies and what internal rate of return a scheme must meet. During the boom decade in agricultural production (1965-75) a number of pastoral irrigation schemes were conceived for the eastern South Island. These were based on long-held ideas, and the lucky ones progressed — such as MorvenGlenavy in South Canterbury. But others have been caught by the recession, such as the Maniototo. Product prices have fallen below construction costs by about 25 per cent during the last nine years, which is having a profound impact on the economic viability of of the planned irrigation schemes.

The Government requires an internal rate of return for any proposed scheme of 10 per cent (itself down from a couple of years ago). This is the accounting term

for the positive net benefit to the country any scheme must have to’ receive Government approval, but even if it achieves this level, that does not mean that money will become available immediately. In Otago, extensive irrigation was proposed as part of the development of the Clutha River for hydro-elec-tricity. But, reviewed on the basis of present prices and costs, with prices stationary and costs caught by inflation, and overlooking any embarrassments about how the Ministry of Works office in Dunedin did the estimates in the first place, the returns on these proposed schemes no longer meet the Government’s economic criteria. Proposals for extensive pastoral irrigation in other parts of the country show the same picture. The best hope for irrigation in Otago in the immediate future seems to be to upgrade ■existing schemes, with minimum cost, to ensure the existing pattern of farm tenure remains secure. The Ministry of Works believes this would allow farmers to plan ahead without the present worry that water supply works (some of which are old and also

extremely decrepit) might fail. In addition, there is a long-term potential for 2000 to 4000 ha of horticultural development on the flats near Alexandra, if done in easy stages. Irrigation has been proposed for 16.000 ha in the Mackenzie Basin, using water from the power canals and Lake Ohau. Interest has been slow to develop in this, possibly because of uncertainty about land tenure with changes to leaseholds being initiated by the Government and working their way through the system. Some still have doubts, too, about the viability of irrigated farms in the area, although some landowners are pressing ahead quickly anyway. Costs of water and security of tenure will probably be the deciding factors in any major irrigation developments there. Canterbury, on the other hand, has seen a dramatic increase in private irrigation using groundwater in recent years. This trend is bound to continue as marketing prospects for crops continue to look good.

For example, the anticipated area for cropping in the proposed area of the

Lower Rakaia scheme has increased from about 20 per cent in 1980 to about 60 per cent now. Yet, even with this trend, the proposed scheme is marginal at the 10 per cent rate of return. North of the Rakaia River, the proposed Central plains irrigation scheme is planned to cover 70,000 ha. The possibility of combining it with the development of the Upper Rakaia River for hydro-electricity development is being mooted, but any concrete plans for such a joint use are still many years awav.

The Ministry of Works considers this hope, as in Otago, is fraught with the economic doubts which community schemes dependent on pastoral farming face. The updating of the old Levels Plain scheme, inland from Washdyke, and extending those based on the Rangitata Diversion Race, seem more promising. North of Christchurch, farmer response to the Waiau Plains scheme exceeded the Government's expectations. Also, the profitability of the Balmoral scheme may rise above the predicted 8.5 per cent rate of return if the optimism continues. Some of the most signifi-

cant prospects for irrigation in the South Island are in Marlborough and Nelson. Future planning could concentrate here, particularly where horticulture looks promising.

In the North Island, horti-culture-based irrigation studies are widely scattered — including the Wairarapa. Horowhenua, Wanganui. Taranaki. Waikato. Gisborne. Bay of Plenty. South Auckland and Northland.

The Ministry of Works is questioning whether the country's efforts and resources should be scattered so widely. Perhaps development should be limited to areas where there is already a well-established servicing and marketing industry. or where the climate is most favourable. Any limitation along these lines can only come from the Government itself. The total cost of schemes under investigation in the South Island is at least S34OM for pastoral irrigation. and SBOM for horticultural irrigation throughout .the country. Government decisions within the next three years will set the stage for what is achieved in the way of new schemes until the year 2000.