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Dam economics fail at the farm

March 12, 2013

Yesterday I was treated to an in-depth analysis — looking at an existing dairy farm in CHB — that modeled the costs and benefits of adding irrigation (at the costs contemplated by the Regional Council’s dam scheme) versus increasing production through better farm management.

This is the type of real world analysis, worth about $10k per farm, that can be done by an experienced farm adviser for any farm in the footprint of the proposed dam. It’s a picture every farmer in that footprint should absorb, as well as every political and commercial leader in Hawke’s Bay as they contemplate the economic viability of this $600 million investment.

The bottom line?

Far superior farm profitability is achieved, reflecting greater yield from fewer cows, when best practices alone are employed to optimise production on the farm studied — a 275 hectare farm carrying 610 dairy cows. With no increase in nitrogen leaching.

In fact, with irrigation added, higher costs, outstripping production gains, erode farm profit while increasing leaching. This particular farm, if irrigated, would generate only 63% of the profit attainable without irrigation, while increasing nitrogen leaching by 66%.

When independent, real farm analysis — as opposed to bank (lender)-driven projections — produces results like this, is it any wonder HBRC cannot lure farmers to buy into the proposed scheme?

When post-dam farms begin to fail — because of the added costs of on-farm irrigation infrastructure, the cost of changing farming systems, the debt/interest payments and depreciation associated with those costs, and the cost of the water itself — the bank lenders will still have collected their interest, and then will ‘re-cycle’ the land itself. Current farmers will become mere ‘interim managers’ for the lenders.

The reality of farm-by-farm economics appears beyond the interest or comprehension of our average HB regional councillor, all but one of whom, Liz Remmerswaal, cannot wait to pass the buck and advance the scheme to a Board of Inquiry that, dealing only with environmental issues, will not examine the economic viability of the scheme.

If Hawke’s Bay wants greater net economic value generated on the Ruataniwha Plains without further degrading the Tukituki, that goal is attainable … without a dam. Yet, in the mad rush without reason to the Board of Inquiry, no one seems interested in giving that proposition a hearing. Most of the performance gains disingenuously attributed to irrigation in the HBRC’s projections will in fact come from the also assumed migration to farming best practices.

With a dam, more gross economic value is projectable … for awhile; unfortunately, it just happens that the individual farms will go bankrupt, because they produce a bit more but lose even more money in the process. And when they can no longer pay for their new borrowings, then the real ‘conversion’ will begin in CHB.

Interim managers will become collateral damage.

Tom Belford

P.S. The ‘best practices’ modeled for this CHB dairy farm are the same as trialed at the Lincoln University Dairy Farm, a model operation already performing with the best 2-5% of NZ dairy farms. In that case, farming system changes increased production 12.5% and profitability by 15%.

 

 

 

 

Comments

9 Responses to “Dam economics fail at the farm”

  1. Lea

    on March 12th, 2013 6:28 pm

    It’s always been a no-brainer that the only people who are going to be able to afford to buy into the scheme are foreign investors, especially the Chinese. Just take a look at Canterbury. That’s us in the near future if we let the dam go ahead.

  2. Meg Rose

    on March 13th, 2013 9:32 am

    Great to see this type of analysis taking place. What an ideal opportunity for the Regional Council to bring the public into the picture with an equally succinct summary of the financial analysis behind their own projections to assist the farmers, economists and ratepayers struggling to make sense of the methodology provided by HBRC to date.

    Unfortunately the recent announcement at the field day in Ongaonga by economic development manager Michael Bassett-Foss that water rights are likely to be made available to ‘non farmers’ did little to reduce the growing public perception that this dam project may favour investors and lenders over the region’s ratepayers and Ruataniwha farmers.

    I’m sure the Regional Council will want to jump in very quickly to assure ratepayers (and voters) that this is not the case.

  3. Paul Bailey

    on March 14th, 2013 8:24 am

    It’s a pity we the ratepayers haven’t had the opportunity to have a say on Newman’s Folly. This type of analysis, if presented to the wider public in an easily digestable form as you have done here Tom, would would be sufficient evidence for many to say no to putting the TukiTuki at risk.
    For all you trolling Regional Councillers – We want a referendum.

  4. Ewan McGregor

    on March 16th, 2013 7:37 am

    It’s rather presumptuous, not to put too fine a point on it Tom, to advise the farmers of the Ruataniwha Plains what the economic disadvantages of the dam will be to them on the basis of a solitary visit to an un-named farm, accompanied by an un-named advisor, and to have an unstated plan where they can achieve ‘far superior farm profit’ through this ‘real world analysis’. If your farmer friend does not want the dam he knows what to do about it.

    I suggest that the farmers of the region are quite capable of seeking their own advice and determining what ‘best practices alone are employed to optimize production’. I don’t think for a moment that they are as doppy as you seem to imply, or they would no longer be in business. They’ll determine for themselves, with their own advisor, banker and self-interests as to whether they support the dam or not. If they don’t in sufficient numbers – and they may not – then the dam won’t proceed.

    I hope it does. Just think what it would be worth to Hawke’s Bay if it was there this season. But I believe that generally the water will be too costly for dairying and, if it proceeds, the land use will change to a replication to that of the Heretaunga Plains which saw the demise of dairying around the 1970s. This use does not concern the environmentalists; or at least, I have not heard them complaining of it. This would involve a major culture shift by farmers familiar with dry land livestock and cropping practice. Some obviously would not feel comfortable with this.

    Finally, what is the readership of BayBuzz among farmers who you seek to influence? Shouldn’t you be campaigning against the dam on the Ruataniwha Plains to help lead the farmers there to a prudent decision? There is a field day for dairy farmers there planned tentatively for April 10th Tom. That will be an ideal chance for you to have your say where it counts.

  5. ian Skins

    on March 16th, 2013 10:40 am

    This Dry

    Has highlighted that HBRC has granted excess water rights and these rights exceed suitable limits.

    even now the irrigators are working along Ascot road at midday – its madness .

    If the Scientists are right we should be planing Dry farming for HB , methods which use little water

    Dairying should be controlled and moved off leaching prone land to more suitable terrain this would reduce nitrogen pollution without reducing farm output , there has be regulation and control.

    One could ask does Dairying have any future in HB , even with the Newton Dam (a huge burden on rate/tax payers which will be a white elephant )and sure money could be better spent elsewhere.

    All HB rivers are been affected by major increases to nitrogen fertiliser and in a few years unless strict controls are put in place all will be dead land drains

    There has been more of a balance between the economy and the environment

    i am surprised more Councillors are not expressing there own opinions more as against the Newton line.

  6. Paul Bailey

    on March 19th, 2013 7:28 am

    @ Ewen McGregor

    It’s a bit rich for you to be taking a swipe at Tom when that is exactly what Tuki Tuki Chioces did to the rate payers of Hawkes Bay. It was the most insulting document to our intelligence that I have yet to see. What is good for the goose is good for the gander.

  7. Ewan McGregor

    on March 20th, 2013 5:32 pm

    Well Paul, as you made no attempt to challenge my points I assume that your concern was merely that Tom Balford was being subject to criticism. Where I come from, if you dish it out then you’ve got to be prepared to take it.
    My arguement is that if Tom has the knowledge, as he claims, to protect the longterm future of the Ruatanawha farmers then he should front up at a meeting of them when they are considering it to give them his advice. If he doesn’t show then we can see this for what it is; an exercise in jockying for political advantage in the Hastings Constituency of the Regional Council.
    Nothing wrong with that – it’s a free democracy after all – but let’s not pretend that it is something it isn’t.
    Ewan Mac

  8. Dexter McGhie

    on March 22nd, 2013 10:14 am

    Long-term there is no solution to Hawkes Bay water problems other than to re-flood the land that has already been drained all the way through Paki Paki reestablishing the Lake at TeAute to Waipawa.

    The current dam proposal is unafordable; makes no economic sense.

    This is necessary to recharge the water bores required for irrigation purposes.

    If the dam as proposed goes ahead overseas interests will not only take all the profits but make all of us poorer.

  9. Paul Bailey

    on March 22nd, 2013 10:22 am

    Ah Ewen but I did challenge your piont. You said Tom was presumptuous. I suggested that HBRC are the same.

    Tom is only offering an alternative to the council $11m view that the dam should proceed. He invested some time and effort to gain a second opinion which blows HBRC’s figures out of the water.

    It is also presumtuous of you to suggest how Tom should manage this issue when he is well capable to thinking things through himself.

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