1. Summary
1.1 Background
The overall objective of this Study is to establish the economic returns from a national, regional and individual viewpoint and the social changes that occur with community irrigation development. The specific objective is to determine socio-economic parameter values, established as being important in concurrent studies on the roles of central and local government, for previous irrigation schemes, and to establish an assessment framework and tools for determining parameter values in future ex ante studies of proposed irrigation projects.
It was recognised that assessment parameters include a range of qualitative and quantitative measures. While these cannot be mixed in one overall benefit assessment, it is possible to include them in an overall framework that assists decision-makers to evaluate the worth of various community irrigation schemes from a wider viewpoint.
In the present environment there is a need to establish a range of tools to determine parameter values for the assessment of irrigation schemes on a multi-objective basis. There is a need to both establish the parameters identified in studies three and four and to determine the methodology to be used in assessing them.
1.2 Assessment Framework
The multi-objective assessment framework that has been developed for this analysis is a combination of analysing the key assessment characteristics from various viewpoints and then developing assessment parameters that are important for each of those viewpoints.
The viewpoint assessment has identified four important viewpoints that can be taken in assessing community irrigation schemes:
- Farmer viewpoint.
- Promoter viewpoint.
- Central and local government viewpoint.
- Community/stakeholder viewpoint.
The assessment parameters which have been identified in Studies three and four are:
- Commercial viability.
- Economic contribution.
- Social impact.
The farmers and the scheme promoters are primarily interested in the commercial viability of the scheme. Central and Local government and the community or stakeholder interests are primarily interested in the economic and social impacts of the scheme.
Summary Table 1 gives an outline of the assessment framework developed, the left hand column lists the viewpoint and the right hand column lists the broad assessment parameter headings that each of the viewpoint groups is primarily interested in.
Summary Table 1: Assessment Framework
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Commercial Viability |
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Farmer Viewpoint |
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Promoter Viewpoint |
|
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Economic Contribution |
|
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Central and Local Government Viewpoint Community / Stakeholder Viewpoint |
|
|
Social Impact |
|
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Central and Local Government Viewpoint Community/ Stakeholder Viewpoint |
|
1.3 Assessment Parameters
There have been a wide range of parameters used in the past to assess the worth of community irrigation development schemes. The most significant element in choice of parameters is the viewpoint of the assessor. For example, schemes which may look worthwhile from a regional or national perspective may not be attractive from an individual farm business point of view.
The assessment parameters examined in this report have been developed and identified as the key or most important, parameters from different viewpoints. There are other assessment parameters which may be important from other party viewpoints or which may be specifically relevant to projects with unique or special characteristics.
Summary Table 2: Summary Table of Assessment Parameters
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Parameter |
Measure |
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Farmer Viewpoint |
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Farm Profitability |
Cash Farm Surplus |
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Return on Marginal Capital |
% return on total development costs |
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Water Affordability |
Water charge as % of Marginal Capital |
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Farm Asset Value |
Net increase in asset value |
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Irrigation Company Viewpoint |
|
|
Scheme Viability |
Annual profit / break even |
|
Water Charge |
Annual Water Charge per Hectare |
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Asset Value |
Net Value of Irrigation Company |
|
Central and Local Government Viewpoint |
|
|
Output |
Total Output |
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Employment |
Total Full Time Equivalents |
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Value Added |
Total Value Added |
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Location of Impacts |
All above by Location |
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Usually Resident Population |
Number and % change over time |
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Population Age Structure |
Percentage in each Age Groups |
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Age of Farmers |
Percentage in each Age Groups |
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Dairy Farmers |
% of Dairy Farmers |
|
Dairy Farmer Age |
Percentage of Age Groups |
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Educational Qualifications |
% with or without educational qualifications |
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Employment by Industry |
Employment by Sector |
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Occupational Status |
Status of Occupations |
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Employment Status |
Employees / Employers as % of population |
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Labour Force Status |
Full time / Part time employment |
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Household Incomes |
Median Household Income |
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Distribution of Incomes |
% of household incomes by $ range |
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Schools |
Numbers/ Rolls / Ages / Facilities |
|
Community Organisations |
Number / Variety / Range |
1.4 Assessment Parameter Values
The assessment of parameter values requires the development of both economic and social models in order to calculate impacts. The development of these models may be required at a very early stage in the development of the proposal and therefore may have to be developed on relatively incomplete information about the nature of the project. Any assessment of a project that is done in advance (ex-ante) requires a number of assumptions to be made about some of the key drivers. The assessment of irrigation projects requires development of a number of assumptions that essentially drive the models and therefore have a huge influence on the ultimate impacts reported. These assumptions should be made explicit in the reporting.
The most significant parameter assessment issues that occur in irrigation scheme analysis are as follows.
- Land Use Change - The land use mix in an irrigation area is the single most important factor in determining the potential direct and flow on impacts. It may be necessary to model a number of different land use scenarios.
- Timing of Impacts - It is well established that the development of irrigation schemes causes significant land use and ownership change. However these changes occur over a period of time. It is important to understand the impact that rate of change will have in achieving expected economic and social flow on impacts.
- Location of Impacts - Although direct impacts occur at the farm level, the location of flow on impacts is poorly understood. Assessments of the location of impacts should be explicit in describing the boundaries of the geographic locations modelled.
- Basis of Analysis and Incorporating Change - A number of assessments of the economic worth of irrigation schemes have been carried out on a "before and after" basis. This form of analysis tends to attribute too much of the growth in output to irrigation and therefore over estimates the economic impact of the scheme. It is more appropriate to carry out assessments on a "with and without" scheme basis.
- Community Benchmarking - The nature of change in communities is a slow but gradual process over time. A single snapshot community assessment at one time tells us very little about the community. What is required is an understanding of the underlying changes and trends occurring in that community.
- Averaging - In order to create economic farm models for each of the land uses adopted in a scheme area it is necessary to establish an average level of farm performance or alternatively, model an expanded range of farm systems. It is necessary for this to be representative of a wide range of farming systems and levels of productivity.
- Price Series - The choice of price series used in the economic farm models can have a huge impact on the farm gate and flow on impacts of the scheme. When predicting farmer behaviour it is more prudent to adopt a price series which reflects a similar planning horizon to the farmers in the scheme area. A longer term economic analysis may have a longer time horizon.
1.5 Testing Parameter Values – Results
The parameter values established in this report have been put through a process to both test and prove them in a real scheme analysis. The analysis has been carried out on an ex-post basis on the Lower Waitaki Irrigation Scheme, which compared the economic and social changes that have occurred in that area with those that have occurred in the Rangitata area which doesn’t have a community irrigation scheme. The results from that analysis have also been compared with forecast results prepared as part of an ex-ante analysis of the proposed Central Plains irrigation scheme.
1.5.1 Economic
The Return on Capital has been calculated by updating scheme capital costs to give a total of $25.226 million. On- farm development costs of the current land use mix are estimated at $205.436 million. The net change in annual Cash Farm Surplus from dryland to "with" scheme development is $28.967 million per annum. Therefore the scheme achieves a 14.1 percent return on capital at the farm gate.
A summary of the economic impacts identified in the ex post study are shown in Summary Table 24(expressed on a per thousand ha basis).
Summary Table 1: Net Increase in Economic Parameters as a shift from Private to Community Scheme Development by Location (per ‘000 Ha)
|
Farm |
District |
Region |
NZ |
|
|
Output ($ mill) |
2.5 |
3.4 |
9.2 |
9.7 |
|
Employment (FTEs) |
7.5 |
12.6 |
27 |
29.4 |
|
Value Added ($ mill) |
1.5 |
1.8 |
3.2 |
3.4 |
The increase in output attributable to the development of a community irrigation scheme ranges from $2.5 million per thousand ha at the farm gate through to $9.7 million per thousand ha at the national level.
The increase in employment attributable to the development of a community irrigation scheme ranges from 7.5 FTEs per thousand ha at the farm gate through to 29.4 FTEs per thousand ha at the national level.
Added value increases as a result of the development of the community irrigation scheme ranges from $1.5 million per thousand ha at the farm gate through to $3.4 million per thousand ha at a national level.
1.5.2 Social
Population Trends
The Waitaki area has had a net population gain of 15.4 percent since 1981 compared to Rangitata's loss of 0.6 percent and a national gain of 18.9 percent. This equates to a 16 percent increase in population as a result of development of the community irrigation scheme.
Both study areas showed a similar age structure.
Occupation Trends
The proportion of farmers and farm workers under 30 years of age in Waitaki is markedly higher than for the country as a whole. By contrast the proportion of farmers in this age category in Rangitata steadily declined.
Increases in the proportion of dairy farmers and dairy farm workers in the Waitaki area demonstrate a major shift in the land use to dairying over the last 20 years. The Rangitata area has shown a similar increase in the 1990s which is associated with a growing number of dairy conversions.
The Waitaki area shows a relatively younger population of dairy farmers with the proportion of farmers below 30 being significantly higher than Rangitata and New Zealand as a whole.
The Waitaki area has retained its proportion of residents employed in primary production while Rangitata has had a growing proportion of residents employed outside the primary sector.
Employment Type
The proportion of residents with higher status occupations in Waitaki increased threefold over the study period while the proportion with these occupations in Rangitata increased by nearly two and a half times. The shift in Waitaki was much stronger than the national trend suggesting that over this period residents have gained access to high-quality jobs.
Analysis of the number of wage and salary earners and employers in each area indicates that the scale of enterprises has increased in the Lower Waitaki as there are more employers and wage and salary earners among the population and that additional jobs have been created. In Rangitata the findings suggest that the scale of enterprises may not have changed and thus have not contributed to job creation in the area.
The proportion of Waitaki's residents with full-time employment increased over the study period. Rangitata almost maintained its proportion of the work force in full-time employment over this period while the national results show a decline in the proportion of people employed full-time. Lower Waitaki's residents have benefited from major changes to the local economy through additional full-time employment.
Income Status
Households in the Waitaki area have improved their incomes relative to the Rangitata area and the rest of the country.
Waitaki shows a consistently smaller proportion of households in the lower income category than Rangitata. However Waitaki also shows a greater proportion of households with incomes above $50,000 per annum. This indicates that Waitaki's households have improved their incomes relative to Rangitata.
Qualitative Analysis
A result of analysis of school rolls and community organisations is inconclusive in being able to indicate any significant differences between the two areas. This is partly due to an inability to adjust for the economic and social changes from other sources that have occurred during the period.
1.6 Assessment Toolbox
One of the objectives of this study was to examine the possibility of developing some values for the assessment parameters, which were identified. The purpose of estimating these parameter values was so that they could be used to assess the potential flow on impacts of various irrigation schemes being proposed.
Although the use of standard parameter values should not be considered as a substitute for detailed modelling and assessment of individual schemes impacts, they could have a place in determining "in the order of" levels of impacts for schemes in their very early investigation stages.
1.6.1 Direct Impacts
Appendix 1 reports the direct economic impacts calculated in the study for each individual land use type expressed on a per ‘000 Ha basis. If the land use mix for a proposed scheme was able to be estimated then this mix could be multiplied by the parameter values in the table to estimate direct or farm gate impacts that would occur as a result of the scheme.
1.6.2 Flow on Impacts
Separate sets of multipliers need to be developed for each geographic location in which impacts are being assessed. The set of multipliers will differ significantly according to the make up of the economy in each geographic location.
Therefore the authors advise caution in the use of the coefficient's and resulting multipliers used in this report for any other detailed assessment. However they may be appropriate for the assessment of regional flow-on impacts for schemes in the Canterbury region. People who wish to gain access to the co efficients and multipliers used should contact the authors.
1.6.3 Social Impacts
The social impacts reported in this study do not provide quantitative data that can be used for extrapolation into other project areas. However the results of the social impact assessment can be seen as providing quantitative proof of social impacts which up until now has been based on qualitative and anecdotal evidence. Therefore the results reported can be used as a basis to indicate the likely social impacts of irrigation developments as long as they are reported alongside assessment of other community changes which are occurring.
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