5. Parameter Assessment Issues
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 the basis of 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 recorded. These assumptions should be made explicit in the reporting.
Because these assessments are essentially predictive it is important that decision makers understand the impact of some of these predictions and are able to achieve a degree of comfort in the resultant analysis. Therefore it is more appropriate to model a number of scenarios in order to get a range of possible impacts. These impacts should be reported with some comment made on the likelihood (or probability) of the assumptions under each scenario occurring. In this way potential impacts of irrigation schemes should be reported as being "in the order of" certain ranges of outcomes rather than a single definitive figure.
It has been common in the past to use "rule of thumb" assessment tools to measure the worth of irrigation proposals. Although these methods may be appropriate at a farm level they are not appropriate in measuring flow-on impacts. The most common error in this category is the use of standard multipliers and the misinterpretation of the location of impacts.
5.1 Significant Parameter Choices
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. In the past, land use predictions have been created through detailed survey methodology and the use of expert opinion. Detailed survey is a time-consuming and expensive exercise. An alternative is to rely on a combination of experience from existing community irrigation schemes tempered with a degree of expert opinion based on detailed knowledge and understanding of the relevant resources in the scheme area.
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. Recent experience with both private development and community schemes indicate that land use can change rapidly. It should be recognised that land use change may take considerably longer to occur than has been assumed by optimistic scenarios, and that the benefits will be delayed accordingly.
Location of Impacts
Although direct impacts occur at the farm level, the location of flow on impacts is poorly understood. The location of benefits is strongly driven by the nature of the inter-relationship between the local, district and regional economies and the location of servicing and processing industries. Assessments of the location of impacts should be explicit in describing the boundaries of the geographic locations modelled. Each different scheme analysis will generate a unique set of multipliers according to its location. Therefore it is potentially misleading if "rule of thumb" multipliers are used or if sets of multipliers developed for one location are used in another.
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. What this technique does is assume that the present farming systems are static and that irrigation development would not occur without the community scheme. It also assumes that all change is as a result of irrigation. History has shown that dryland farming systems continue to progress in their productivity and profitability. Therefore it cannot be assumed that an area would remain static without the development of the community irrigation scheme. It may be true that in some areas irrigation development will not occur without the aid of a community irrigation scheme. However there has been exponential growth in the development of private irrigation capacity in New Zealand over the last 25 years. The majority of which has been based on the development of groundwater resources. Because of these two factors "before and after" analysis tends to over state the potential growth in output due to community irrigation development 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. The "without" analysis should incorporate a degree of progress in terms of increased productivity along with an assessment of the potential for private irrigation development occurring in the scheme area. Neither scenario will be static. There will also be progress made in the irrigated area as farming and irrigation technologies develop. All of the assumptions made on the degree of development or progress made should be explicit in the reporting of the results.
Community Benchmarking
The nature of change in communities is of a slow but gradual process over time. Therefore it is necessary to be able to establish benchmarks for the community being studied and then compare the trends occurring in that community over time with other similar communities or the nation as a whole. A single snapshot community assessment at one time tells us very little about the community unless we understand the underlying changes and trends occurring in that community. In some cases community change may not be positive in total but analysis may show that irrigation is counteracting other negative trends.
Assessment of the changes that occur in a community as a result of irrigation development can be confused by the impacts of other social and economic changes occurring in the community the region and the nation. Therefore it is necessary to understand and isolate these other processes and be able to correctly attribute only the relevant impacts to irrigation development.
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. Choice of the average system is best based on expert knowledge of the range of farming systems which would be adopted in the area. This expert opinion should be based on knowledge of the farming resources, such as soil types, in the scheme area and should realistically represent the range of activities that will eventuate.
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. For example, at the time of writing this report, (April 2002), the majority of our primary industry prices are at historically high levels. Market predictions expect these levels to fall off their peaks to varying degrees. Any analysis of a scheme done on current prices will risk greatly over estimating potential returns in the medium term.
Therefore it is more prudent when assessing farmer behaviour to adopt a price series which reflects a similar planning horizon to the farmers in the scheme area. Experience shows that this is a medium-term outlook of three to five years. The most reliable provider of medium-term price outlook information is MAF Policy in their publication Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF). This report is updated two times a year and takes into account other effects such as foreign exchange movements etc. In the absence of any other price information this source should be seen as a credible source of price series information.
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