Executive Summary
This paper calculates the contribution of existing irrigation to the national economy in 2002/03 and uses the same methodology to estimate the potential contribution of further irrigation development.
The method adopted follows a “with minus without” irrigation approach, adjusted for changes in farm type and scale. The result is an indication of the contribution irrigation makes to farmgate GDP in the 2002/03 season.
The net contribution of irrigation to GDP at the farmgate is estimated to be in the order of $920 million in 2002/03. This is over and above GDP that would have been produced at the farmgate without irrigation. Total farmgate contribution of all primary production excluding forestry is estimated to be $8.1 billion in 2002/03 (SONZAF1 2003 ), so irrigation contributed in the order of 11% of farmgate GDP in that year. This is produced from 475,700 ha of land, which is 3.9% of the12.1 million ha farmed (excluding forestry). Assuming all the extra production is exported, the value of these exports is in the order of $1.7 billion (12% of total agriculture and horticulture exports).
Variations between land uses and regions are interesting. Horticulture land uses, including viticulture and vegetables, contribute $550 million (60%) of the total, and dairy farming $270 million (29%). Canterbury has 287,000 ha (60%) of irrigated land, which contributes $330 million (36%) of the total, or $1160/ha irrigated reflecting the generally lower value of land uses in that region. Hawke’s Bay has 18,100 ha of irrigated land, with each hectare contributing on average $5,500 of farmgate GDP.
Irrigated land uses employ in the order of 5,000 full time equivalents on farms and horticulture units. Flow-on impacts through the rest of the economy are not included in these calculations.
The same methodology was applied to different irrigation development scenarios to derive an estimate of the contribution to farmgate GDP from future irrigation development in 10 years.
Two scenarios were investigated. Scenario 1 assumes the irrigated area increases by 201,000 ha by 2013 (the “likely” scenario). This consists of about 84,000 ha of private development and 117,000 ha of community scheme development, based on a report for the Ministry for the Environment in 2000.
Scenario 2 assumes the irrigated area increases by 470,000 ha by 2013 (the “possible” scenario). This is based on the same rate of private development as in Scenario 1 and a greater number of community schemes being operational in 10 years. The community scheme area was from a survey of the 21 community irrigation proposals currently at various stages of investigation.
Future land use was estimated by MAF Policy regional staff for private developments and by the promoters of each community scheme. At 2002/03 prices and production levels, the calculation showed that by 2013 annual farmgate GDP could be increased in the order of an additional $330 million ($1,640/ha) under Scenario 1 and $660 million ($1,400/ha) in Scenario 2.
Gross margin calculations generally assume that a change in output has no effect on prices. However, large-scale land use changes generated by irrigation on the national scale to date are likely to have had some measurable effect on output prices.
These impacts were modelled using the Lincoln Trade and Environment Model (LTEM). The model only covers dairy, lamb, wool, beef, kiwifruit and apples, which together make up about 45% of the output from irrigated land uses. The modelling indicates that current prices for these products would be slightly different if the 475,700 ha of current irrigation was in dryland farming systems. When applied across all New Zealand’s output of those products, this has the effect of reducing the calculated contribution of irrigation to GDP by the order of $100 million (from $920 million down to $820 million).
The change in output from future irrigation is likely to also have very little impact on price even at the most optimistic estimates of output change. The exception to this is kiwifruit. These price changes applied across all New Zealand’s forecast output of LTEM products in 2013 result in a fall in the contribution of irrigation to GDP in the order of $80 million. However, influences such as marketing programmes are not taken into account in the modelling, and there is no ability to model the products not covered by the LTEM, so this result is indicative only. The price results are reasonably insensitive across the range of output scenarios considered.
There are several other measures of national interest that could be used. All economic ones could be based on the information in this study with appropriate adjustments. Measures of social, environmental, cultural, and recreational values could be examined alongside these economic measures in seeking to optimise the combination in New Zealand’s national interest.
1 Situation and Outlook for New Zealand Agriculture and Forestry, MAF Policy Dec 2003. Source: http://www.maf.govt.nz/mafnet/rural-nz/statistics-and-forecasts/sonzaf
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