Appendix 2: Assumptions used in irrigation value calculations

A2.1    Land use assumptions for current irrigated area

Generally, production from dryland systems is less certain over time, both within and between years. Therefore, while gross margins reflect a difference in farmgate returns that may or may not be a positive return on investment, they do not take into account the fluctuations in returns from year to year or the risk of not achieving the yield in any one year. Therefore, inherent in the following assumptions on land use is a judgement about the likelihood of being able to profitably operate a farm system without irrigation. For example, many arable crops don’t require irrigation every year – but without having irrigation available, it is increasingly likely that the farmer will not be able to get a contract to grow the crop, or will otherwise take on considerably more marketing risk.

Table A2.1 Land use assumptions for current irrigated areas

 Specific land use assumptions made in the analysis are:

Northland

•  All irrigated dairy, maize and perennial horticulture (kiwifruit, citrus and avocados) would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (squash, flowers and fresh vegetables) would be in perennial horticulture predominant in the region (kiwifruit, citrus and avocados) due to relatively lower reliability of production.

Auckland

• All irrigated dairy, kiwifruit, avocados, citrus and grapes would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (potatoes, onions, squash and fresh vegetables) would be in dairy farming as best dryland use for that land.
• Other irrigated horticulture (mainly flowers and strawberries) would be in other horticulture common in the area (avocados and kiwifruit).

Waikato

• All irrigated dairy, kiwifruit, avocados and grapes would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (potatoes, onions, squash, flowers, berryfruit and fresh vegetables), would be in dairy farming as best dryland use for that land.

Bay of Plenty

• All irrigated dairy, kiwifruit and avocados would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (potatoes, onions, squash and flowers) would be in dairy farming as best dryland use for that land.

Gisborne

• Irrigated annual crops (lettuces, squash and sweetcorn) would be in dryland pastoral farming as best dryland use for that land because market demands would not accept the low reliability of production inherent in dryland systems.
• Irrigated kiwifruit and flowers would be in grapes as the best dryland option for that land, as the majority of viticulture in Gisborne operates on dryland.

Hawkes Bay

• Irrigated dairy farms on heavy soils and grapes and apples would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (potatoes, onions, peas, sweetcorn, squash and flowers) would be in dryland arable systems as best dryland use for that land. Canterbury gross margins have been used as the dryland scenario in this case.
• Irrigated cereals would be in dryland arable as the best dryland use for that land.
• Irrigated stonefruit and kiwifruit would be in apples as the best dryland use for that land.

Manawatu-Wanganui

• Irrigated dairy farms on heavy soils would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated dairy farms on sandy soils would be in pastoral production as best dryland use for that land.
• Irrigated annual crops (potatoes, lettuces, cabbages and flowers) would be in dairy farming as best dryland use for that land.

Taranaki

• Irrigated dairy farms would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (potatoes, fresh vegetables and flowers) would be in dairy farming as best dryland use for that land.

Wellington

• Irrigated dairy farms, apples and grapes on heavy soils would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated fresh vegetable crops and the remaining grape land would be in lifestyle blocks as best dryland use for that land.
• Olives and flowers would be in dryland arable as best dryland use for that land.

Tasman

• Irrigated dairy, pastoral and arable farms, and grapes and some apples would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated annual crops (fresh vegetables and flowers), kiwifruit, berryfruit and most apples would be in a combination of arable, other lower value horticulture and lifestyle blocks as best dryland use for that land.

Marlborough

• Irrigated dairy farms on heavy soils and good rainfall areas, plus irrigated arable farms on good soils, irrigated pastoral farms, and apples would be in the same land use without irrigation.  Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Grapes on heavy soils will remain in the same land use without irrigation. However, the majority of grapes would be in dryland arable and lifestyle blocks as best dryland use for that land.
• Irrigated dairy and arable farms on lighter soils and process vegetable land would be in dryland pastoral and dryland arable uses as best dryland use for that land.
• Irrigated fresh vegetables and flowers would be in a combination of dryland arable and lifestyle blocks as best dryland use for that land.

Canterbury

• Irrigated dairy farms on heavy soils and pastoral and arable systems on medium and heavy soils would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated dairy farms on medium soils, process and most fresh vegetable crops, and blackcurrants would be in dryland arable systems as best dryland use for that land.
• Irrigated dairy and arable farms on light soils would be in pastoral systems as the best dryland use for that land.
• Irrigated apples, olives, flowers, grapes and some fresh vegetables would be in lifestyle blocks as the best dryland use for that land.

Otago

• Irrigated pasture and arable land would be in the same land use without irrigation. Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated arable, vegetable land and flowers would be in dryland arable systems as best dryland use for that land.
• Irrigated dairy, apples, stonefruit and grapes would be in extensive pastoral systems as the best dryland use for that land.

Southland

• Irrigated dairy and arable and land would be in the same land use without irrigation.  Irrigation would not alter the land use as the profitability of the land use under dryland is still greater than alternative land uses. However, Gross Margins reflect lower annual production.
• Irrigated vegetable land and flowers would be in dryland crop as best dryland use for that land.

A2.2 Land use change assumptions for future irrigated areas

The land use change assumptions for both the future likely irrigation scenario (Scenario 1) and the future possible irrigation scenario (Scenario 2) are based on both individual private irrigation development and identified community schemes currently under investigation. 

The land use assumptions for private and community schemes are different. The land use now and in future of land served by private development is based on knowledge of the region and market trends. The land use now and in future of land served by community schemes under investigation is based on a survey of the scheme promoters by MAF Policy regional staff.

Table A2.2 Land use assumptions for likely future irrigation (Scenario 1)

Note numbers may not add due to rounding

 Table A2.3 Land use assumptions for possible future irrigation (Scenario 2)

 Table A2.4 Land use assumptions for conservative land use scenario (used in section 5.4)

Note numbers may not add due to rounding

NORTHLAND

Private Development – 5,633ha

• 50% of the new irrigation will be dairy. Fifty percent of this will occur on existing dryland dairy country while the remaining irrigated dairy area will be conversions from dryland sheep and beef.
• 40% of new irrigated area will be kiwifruit, citrus and avocado orchards. Fifty percent of the new irrigation will occur on existing dryland orchards. The remaining 50% will be land use change from sheep and beef.
• 10% of land would be converted from sheep and beef to grow green vegetables.

AUCKLAND

Private development - 506 ha

• All new irrigation will be in intensive horticulture. Apart from the avocados and citrus, which were existing dryland orchards of that variety, all land use change is from dairy.

WAIKATO

Private development – 5,061ha

• 80% of new irrigation will be in intensive horticulture. Apart from some of the kiwifruit and avocados, that were existing dryland orchards, the land use change is from dairy.
• The remaining 20% will be dryland dairy becoming irrigated.

BAY OF PLENTY

Private development – 3,536 ha

• Irrigated area will be kiwifruit and avocados. 50% of the new irrigation would have previously have been dryland kiwifruit and avocado orchards.  The remaining land has come from dairy.

GISBORNE

Private development - 795 ha

• All irrigated area to be in squash, sweetcorn and lettuce. Land would previously have been dryland sheep.

HAWKES BAY

Private development 10,883 ha

• Hawkes Bay was identified as having 5,000 ha of new irrigation from predicted community scheme. It is believed this 5,000 ha has been double counted, and is accounted for in the 10,883 ha of private development.
• 6,883 ha of the new irrigated area will be dairy. The remaining will be processed crops, arable, apples and grapes.  Land use change will be from dryland arable and sheep and beef.

MANAWATU/WANGANUI

Private development – 7,648 ha

• 80% of new irrigation will be dairy farms. The other 20% of new irrigation will be potatoes and green vegetables. The majority of dairy irrigation will be development on existing dryland dairy, the remaining will be land use change from sheep and beef.

WELLINGTON 

Private development & future likely – 2,292 ha

• 20% of private development will be in dairy, all of which will be development from existing dairy farms. 
• 40% of new irrigation will be sheep and beef, all of which will be development from existing pastoral land use.
• The remaining new irrigation will be intensive horticulture; grapes, apples, kiwifruit, fresh vegetables and processed vegetables. All this will be land use change from sheep and beef.

Possible scheme development - 30,000 ha

• 45% of possible development will be irrigated sheep and beef, all of which will be development from existing pastoral use.
• 25% of possible development will be dairy, from dryland pastoral land use.
• 30% of possible development will be horticultural/arable land use, most of which will be developed from existing horticultural/arable land use, the remaining from dryland sheep and beef.

TASMAN

Private development – 1,204 ha

• 1,000 ha of private development will occur on sheep and beef farms, from existing dryland sheep and beef
• The remaining will be development of grapes and viticulture. Land use change will be from hops, dryland apples and dryland pastoral.

Likely scheme development – 700 ha

• 100 ha of dryland dairy will be developed into irrigated dairy.
• 300 ha of sheep, beef and deer will be irrigated, this will be development from existing sheep and beef farms.
• The remaining will be apples and grapes, from existing dryland apples and dryland pastoral.

Possible scheme development – 6,000 ha (including the likely 700 ha)

• 40% of the possible new development is in grapes, land use change from dryland pastoral.
• 25% of the possible irrigation development will be pastoral, land use change from dryland pastoral.
• 15% of the possible new development will be apples, some development from existing orchards, but majority land use change from dryland pastoral.
• 10% of new development will be in berryfruit, development from hops and dryland pastoral.
• Remaining area is dairy development, from existing dryland dairy farms, and flowers, from dryland pastoral.

MARLBOROUGH

Private development - 2,423 ha

• 25% of private development will be dairy, some from existing dryland dairy, but majority from dryland pastoral.
• The rest of private development will occur on pastoral, all of which is from existing dryland pastoral.

Likely scheme development – 9,500 ha

• 40% of likely scheme development will be vineyards, majority of which will be developed from existing vineyards, the remaining from dryland pastoral.
• 30% of likely scheme development will be dairy, land use change from dryland sheep and beef.
• 25% of likely scheme development will be pastoral, developed from dryland pastoral.
• Remaining is arable development, majority of which is from dryland pastoral.

Possible scheme development – 13,000 ha (including the likely 9,500 ha)

• 28% of the possible development will be pastoral, from existing pastoral land.
• 40% of the possible development will be vineyards, 50% of which is from existing dryland vineyards, the remainder from dryland pastoral.
• 32% of the possible development will be dairy, land use change largely from dryland pastoral.
• Remaining development is arable, land use change largely from dryland pastoral.

CANTERBURY

Private development – 34,460 ha

• 65% of private development will be on dairy farms.
• 32% will be high value arable and process vegetables, and the remaining is berryfruit and grapes.
• Land use change will be from two-thirds pastoral and one-third dryland arable.

Likely scheme development – 95,000 ha

• 40% of likely development will be arable, largely developed from dryland arable.
• 40% of likely development will be pastoral, developed from dryland pastoral.
• The remaining development is dairy, land use change largely from dryland pastoral.

Possible scheme development – 288,100 ha (including the likely 95,000 ha)

• 65% of possible scheme development will be pastoral, developed from dryland pastoral.
• 20% of possible scheme development will be arable, largely developed from dryland arable.
• 10% will be dairy development, some from existing dairy land, but largely land use change from dryland pastoral.
• Remainder is horticultural development, land use change from dryland pastoral.

OTAGO

Private development 5,510 ha

• Two thirds of irrigation development will be pastoral farming.
• The remaining third is mainly dairy development with a small area in arable and viticulture.
• Land use change is from two-thirds dryland pastoral and one-third dryland arable.

Likely scheme development – 11,400 ha

• 65% of likely development is pastoral, developed from dryland pastoral.
• 25% of development will be dairy, some from existing dairy land, but largely from dryland pastoral.
• The remainder is arable and viticulture. Arable is developed from dryland arable, and viticulture from dryland pastoral.

Possible scheme development – 48,500 ha (including the likely 11,400 ha)

• 60% of development is pastoral, developed from dryland pastoral.
• 25% will be dairy, some developed from existing dairy, but largely from dryland pastoral.
• Remainder is arable and viticulture.

SOUTHLAND

Private development 2,445 ha

• Irrigation development will be from dryland dairy to irrigated dairy.

A 2.5 Gross margins, production levels used

The revenue and gross margins[1] by region used appear in table A2.3, along with the adjustments for irrigation and fixed costs.

Table A2.5 Revenue and costs by land use and region

Table A2.5 Summary of Revenue and costs by land use and region (continued)

A2.6 Fixed cost assumptions by land use

Fixed costs throughout the land uses are based on administration (communication, insurance, accountancy, legal and consultancy, and sundry) and repairs and maintenance, vehicle and fuel and contract labour. Casual/permanent wages and rates are not included (see Appendix 1 for explanation).

Dairy

• The dairy fixed cost of $545/ha is based on the 2002/03 national average fixed costs sourced from 2003 Farm Monitoring.

Pastoral

• The fixed cost of $70/ha is based on the 2002/03 season national average fixed costs sourced from 2003 Farm Monitoring. Contract shearing wages included in variable costs.

Arable

• The arable fixed cost of $300/ha is based on the 2002/03 Canterbury Arable Cropping Farm Monitoring model. All contract labour prices included in variable costs.

Processed and Fresh Vegetables

• The processed and fresh vegetable fixed cost of $300/ha is based on the Canterbury Arable Cropping model from 2003 Farm Monitoring. All contact labour prices included in variable costs.

Flowers

• Fixed costs for flowers without any labour component is $20,000/ha. There is no contract labour requirement for flowers.

Kiwifruit

• Fixed costs without any labour component are $5,570.
• Labour component is $9,872, of which approximately 50% is contract.
• Total fixed costs are $10,500.
• These costs are sourced from Horticulture Monitoring 2003.

Pipfruit

• Fixed costs without any labour component are $3,869.
• Labour component for Hawke’s Bay and Nelson is $14,412, of which approximately 50% is contract.
• Total fixed costs for Hawke’s Bay and Nelson is $11,100.
• Outlier regions have smaller labour requirement. Their total fixed costs are $8,000.
• These costs are sourced from Pipfruit Monitoring 2003.

Stonefruit

• Stonefruit fixed costs are the same as Pipfruit.

Citrus and Avocados

• Citrus and Avocado crops have fixed costs of $4,500. No labour costs are deducted as industry practice is to employ casual labour directly when required.

Grapes

• Fixed costs without any labour component are $2,862.
• Labour component for Hawke’s Bay, Marlborough and Gisborne is $5,870, of which approximately 50% is contract.
• Total fixed costs for Hawke’s Bay, Marlborough and Gisborne is rounded to  $5,000.
• Outlier regions have smaller labour requirement.  Their total fixed costs are $4,000.

Berryfruit

• The berryfruit fixed cost of $4,000/ha is based on the administration cost adjusted from 2003 Pipfruit monitoring.

Olives

• The fixed cost for olives of $3,000 is based on using many of the same costs as per grape production model, scaled down and adjusted where necessary.