Farm development economics

Peter Stone

1. Physical resources favourable

2. Favourable gross margins for most activities

3. Whole of development view essential

4. Planning and patience profitable

Planning for robust cash flow is essential

plan for the full costs of development

plan for the cost of making mistakes and learning when doing something new

plan for the time lags involved in becoming profitable

Scale up at a considered pace

– avoid overcapitalising early, before the wrinkles have been ironed out of production and marketing systems

Thank you

Peter Stone

Project Director, Northern Australia Development

m +61 419 285 192

e peter.stone@csiro.au

Useful websites

http://www.regional.gov.au/regional/ona/reports-publications.aspx

A history of irrigated development attempts

Qld-British Food Corporation (1948)

Territory Rice Limited (1955)

Ord River Irrigation Area (1960)

Tipperary Land Corporation (1967)

Camballin Irrigation Area (1969)

Northern Agricultural Development

Corporation (1970)

Lakeland Downs (1968)

Mareeba-Dimbulah (1958)

Burdekin River (1987)

Qld-British Food Corporation (1948)

Territory Rice Limited (1955)

Ord River Irrigation Area (1960)

Tipperary Land Corporation (1967)

Camballin Irrigation Area (1969)

Northern Agricultural Development

Corporation (1970)

Lakeland Downs (1968)

Mareeba-Dimbulah (1958)

Burdekin River (1987)

A history of irrigated development success

Irrigation helpful

...but sufficient?

Georgetown, Qld

Irrigation helpful

...but sufficient?

• increases yield >2x

Georgetown, Qld

Irrigation helpful

...but sufficient?

• break-even yield 3x

Georgetown, Qld

Water resources

Peter Stone

Key messages

1. Water supply very highly variable

2. Dryland agriculture opportunistic

3. Significant irrigation potential

4. Good gross margins for irrigated crops

5. Need whole farm development budget to make a case for irrigation

Flinders key findings #1 – soil & land

• >8 Mha of soil (73%) moderately to highly suited to agriculture

• 68% cracking clay − underlying salt ‘bulge’ requires careful

ongoing management

• significant areas prone to flood risk;

− amongst most flood prone catchments in Australia

• 3.7 Mha with low flooding and salinity risk

in most of catchment, area of suitable soil is not limiting

Flinders key findings #2 – climate

• 492 mm mean annual rainfall

− 800 mm at coast − 350 mm in south of catchment

• 1860 mm potential evaporation

− evaporation 3.8 x rainfall

• 88% of rainfall falls in wet season

− 90% evaporates − 8% streamflow − 5% at mouth

• highest global variability for rainfall total (cv = 0.4)

• dry runs most intense in Australia

strongly water limited, water storage at a premium

Flinders key findings #3 – in stream water storage

• topography, geology & hydrology militate against in-stream water storage

− flat landscape − where it’s not flat: coincidence of weak rock,

low rainfall, small catchments

• best dam option provides 40 GL at dam wall

− 20 GL to crop, 2,000 ha irrigated land − ca $6,000/ML at farm gate ($432/ML annuity)

• every possible dam site provides total 150 GL at dam wall

− 75 GL to crop, 7,500 ha irrigated land − >$20,000/ML at farm gate

no prospective in stream agricultural storage

Flinders key findings #4 – off stream water storage

• soils generally OK for off-stream storage

• capacity to capture & store 350 GL in 70-80% of years

− deliver 175 GL to crop − irrigate 10-20,000 ha, depending on crop, etc

• scaled land and water development costs ca $10,000/ha

• do the sums to examine your economics

− positive NPV not a consistent feature of our case studies

generic physical opportunity; particular economic opportunities

Flinders key findings #5 – cropping

• a wide range of annual crops possible − short season crops present lowest risk

• dryland crops highly opportunistic (8, 2, 1)

• continuous and double irrigated cropping unlikely

− variable rainfall & storage; inefficient carryover − use water early & fully

• strong gross margins in good years − good years easy to identify

• significant capital and development costs − $1,000/ha dryland − $10,000/ha irrigated

generic physical opportunity; particular economic opportunity

Gilbert key findings #1 – soil & land

• ca 2 Mha of soils (43%) moderately to highly suited to agriculture

− many sandy/loamy soils suited to intensive horticulture

• largest area of suitable soils above the confluence of Gilbert & Einasleigh rivers

− low flood risk, adequate water volume

− other suitable locations distributed

significant area of suitable soils; sift to locate best soils

Gilbert key findings #2 – climate

• 775 mm mean annual rainfall − 1050 mm at coast − 650 mm in SE of catchment

• 93% of rainfall falls in wet season − 84% evaporates − 13% streamflow − 10% at mouth

• 1868 mm potential evaporation − evaporation 2.4 x rainfall

• highest global variability for rainfall total (cv = 0.4)

• dry runs amongst most intense in Australia

strongly water limited, water storage at a premium

Gilbert key findings #3 – off farm water storage

• off farm most prospective water storage method

• 15 possible dams identified

• best 2 dam options yield 500 GL at dam wall − Green Hills (172 GL at dam wall); 15 km to soil − Dagworth (326 GL at dam wall); 80 km to soil − 250 GL to crop, 25,000 ha irrigated land − ca $20/ML at dam wall − $1,500/ML at farm gate

• 6 best dam sites provides total 600 GL at dam wall

− 300 GL to crop, 30,000 ha irrigated land − ca $4,400/ML at farm gate

two most prospective in stream storages

Gilbert key findings #4 – on farm water storage

• soils not generally well suited to on-farm storage

− dearth of clays near irrigable soil − sands & loams seep

• most suitable soils occur where streamflow low

• seepage can be overcome at considerable expense

significant on-farm water storage not a universal proposition

Gilbert key findings #5 – cropping

• a wide range of annual crops physically possible

• dryland crops opportunistic − 10, 3, 2

• continuous irrigated cropping made possible by potential inter-annual storage of off farm dams

− reliability of acreage depends on relative size of storage & cropping program

• attractive gross margins possible for a wide range of crops

irrigation reliable at optimal areas; dryland highly opportunistic

Lots of water in the north

• Hydrologic variability will be enhanced:

-

Modelled change in future mean annual runoff

(2090–2099 relative to 1980–1999)

[Milly et al., Nature, 2005]

[IPCC, 2007]

[Bates et al., IPCC, 2008]

That’s not likely to change a lot

evapo-transpiration

stream flow

groundwater

<20% of water makes it to streamflow

Most of the water evaporates

Which partly explains modest runoff...

Dam design and constuction summit | Cuan Petheram | Page 2

Very little northern water is diverted to direct human use

Rainfall highly variable...

Median rainfall Jan-Mar

(Wet season)

Dry season

Source: Petheram and Bristow (2008) Towards an understanding of the hydrological factors, constraints

and opportunities for irrigation in northern Australia: a review. CSIRO Land and Water Science Report

0

50

100

150

200

J F M A M J J A S O N D

Mo

nth

ly r

ain

fall

(mm

)

Range Median Mean

Monthly rainfall Flinders catchment

Wet season

Streamflow even more variable...

break even yield about 25% of years

Georgetown, Qld

Dryland agriculture challenging

Current in-stream dams in the north

Potential future in-stream dams in the north

Groundwater prospectivity....

Flinders – climate

• 492 mm mean annual rainfall

− 800 mm at coast − 350 mm in south of catchment

• 1860 mm potential evaporation

− evaporation 3.8 x rainfall

• 88% of rainfall falls in wet season

− 90% evaporates − 8% streamflow − 5% at mouth

• highest global variability for rainfall total (cv = 0.4)

• dry runs most intense in Australia

strongly water limited, water storage at a premium

Flinders – in stream water storage

• topography, geology & hydrology militate against in-stream water storage

− flat landscape − where it’s not flat: coincidence of weak rock,

low rainfall, small catchments

• best dam option provides 40 GL at dam wall

− 20 GL to crop, 2,000 ha irrigated land − ca $6,000/ML at farm gate ($432/ML annuity)

• every possible dam site provides total 150 GL at dam wall

− 75 GL to crop, 7,500 ha irrigated land − >$20,000/ML at farm gate

no prospective in stream agricultural storage

Flinders – off stream water storage

• soils generally OK for off-stream storage

• capacity to capture & store 350 GL in 70-80% of years

− deliver 175 GL to crop − irrigate 10-20,000 ha, depending on crop, etc

• scaled land and water development costs ca $10,000/ha

• do the sums to examine your economics

− positive NPV not a consistent feature of our case studies

generic physical opportunity; particular economic opportunities

Gilbert – climate

• 775 mm mean annual rainfall − 1050 mm at coast − 650 mm in SE of catchment

• 93% of rainfall falls in wet season − 84% evaporates − 13% streamflow − 10% at mouth

• 1868 mm potential evaporation − evaporation 2.4 x rainfall

• highest global variability for rainfall total (cv = 0.4)

• dry runs amongst most intense in Australia

strongly water limited, water storage at a premium

Gilbert – off farm water storage

• off farm most prospective water storage method

• 15 possible dams identified

• best 2 dam options yield 500 GL at dam wall − Green Hills (172 GL at dam wall); 15 km to soil − Dagworth (326 GL at dam wall); 80 km to soil − 250 GL to crop, 25,000 ha irrigated land − ca $20/ML at dam wall − $1,500/ML at farm gate

• 6 best dam sites provides total 600 GL at dam wall

− 300 GL to crop, 30,000 ha irrigated land − ca $4,400/ML at farm gate

two most prospective in stream storages

Gilbert – on farm water storage

• soils not generally well suited to on-farm storage

− dearth of clays near irrigable soil − sands & loams seep

• most suitable soils occur where streamflow low

• seepage can be overcome at considerable expense

significant on-farm water storage not a universal proposition