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.
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%.