- 1.1 Background
- 1.2 Product market outlook and projections
- 1.3 A Vision for New Zealand Agriculture and Forestry Landuse - 2010
- 1.4 Creating a water supply and demand profile
- 1.5 Conclusions
1 - Executive Summary
1.1 Background
The ability to accurately project the likely demand on water resources by creating a vision of New Zealand agriculture and forestry landuse is critical to the future development of many regions. Regions with affordably sustainable water resources will have a distinct advantage in attracting economic development finance from the investment community. Regions with increasing demands on water resources will have to apply logical development programmes to meet the demand and optimise the use of the resources under their stewardship. This process exposes a range of issues to consider including the environmental sustainability of certain land uses and their economic viability.
This report has been commissioned to provide a vision of agriculture and forestry landuse, and identify the water resource supply and demand pressures following application of the vision. There are many other aspects that could be applied to a vision of agriculture and forestry, however for the purposes of this exercise the vision is confined to landuse.
1.2 Product market outlook and projections
Sheep & wool
Market prospects for sheepmeat (lamb in particular) are in the main very encouraging over the medium term with the key fundamentals positive. Productivity gains will likely continue and New Zealand's dominant position will be a significant asset. The wool sector prospect is reasonably positive for fine Merino wool, however the outlook for mid-micron wool is uncertain at best.
Beef
In relation to other pastoral land use options, beef operations are inherently more risky and volatile than dairy, lamb and to a lesser extent venison markets. New Zealand has few real competitive advantages in international beef markets. The short/medium (2-3 year) term prognosis for the NZ beef industry is promising with the US beef cycle in a rebuilding phase resulting in market strength. The longer- term outlook is much less promising as the increased herd numbers in the US move through to the markets. We expect beef to be more volatile over the longer term as it has less brand strength, greater competition and fewer points of differentiation with competition, relative to NZ dairy and lamb.
Deer
New Zealand has a competitive advantage in farmed deer and this enterprise offers excellent growth potential via the 3 income streams of venison, velvet and co-products. Increased supplies from growth in the national herd numbers will require careful and co-ordinated management by exporters. Farm establishment costs (fencing and costs of livestock) will act as a partial constraint on growth.
Dairy
The fundamentals of the New Zealand dairy industry are such that its future over the long-term is extremely promising. World demand in the year 2000 grew at 2% while production is increasing at 1%. The majority of consumption growth is occurring in developing economies. Based on its infrastructural strength, economic farm surplus figures will continue to outperform competing pastoral landuse options on a national average basis in New Zealand.
Forestry
New Zealand has a competitive advantage in being able to grow pinus radiata to maturity faster than any other country. Supplies of pine are set to increase annually as trees planted in the late 1970's and 80's come on stream. Greater investment in further processing, expanding the skill base and promotion of the scientifically proven benefits of pine is required to improve the prospects for processed pine products. Alternative species to pine will become more popular.
Viticulture
Viticulture expansion has been rapid. As the industry matures, change will result in a small number of large producers/processors and a large but declining number of small boutique producers as this latter group struggles to maintain profitability.
Future growth opportunities will lie predominantly in the export sector. Given the high costs of production relative to other new wine exporting nations, NZ exporters will need to secure premiums for distinctive high quality product in order to remain competitive. Regional brands will play a key role in the success of this. Land prices will need to be realistic to ensure profitability levels are sustainable.
Horticulture
Kiwifruit and apples dominate and market prospects for kiwifruit are good, however prospects for the apple industry are uncertain. Poor profitability in the apple industry in recent seasons has increased grower dis-satisfaction with industry structures. This is having an impact, resulting in declining production. Some apple growers are turning to alternative crops for their highly productive land.
Avocado is one sub-tropical crop with bright prospects. The area in vegetables amounts to approximately 60 percent of the total horticulture area and large vegetable processing companies have shown an increasing interest in New Zealand in recent years. This is expected to continue, particularly for organically grown produce.
Arable
New Zealand is a relatively small player in world grain production terms with less than half of one percent of world production. Areas of competitive advantage are extremely limited and low cost supplies of imported product are easily accessible. New Zealand cereal grain producers are able to provide a high quality product that is sought after by food processors, however scale efficiencies relative to other countries are difficult to obtain. Imports are likely to feature more prominently particularly with a stronger NZ currency.
1.3 A Vision for New Zealand Agriculture and Forestry Landuse - 2010
A key assumption in the landuse vision is that overall land supply for agriculture and forestry is limited, therefore all landuse change projections out to 2010 will be variations within a static amount of suitable land. The projected changes in the New Zealand agricultural landscape over the ten-year period to 2010 are illustrated in figures 1 & 2 below.
The major features are:
- The area of land used for dairy farming is projected to increase by an average of 26,500 hectares per annum or 265,000 hectares over the 10-year period. Dairy cow numbers will increase by an average of 81,000 per annum or 810,000 to 5.16 million in 2010 (an average annual increase of 1.8 percent)
- Deer numbers will increase by just under 80 percent to 3.95 million with the land used for deer farming increasing by 145,000 hectares to an estimated 329,000 hectares.
- Sheep numbers will decline by an annual average of 0.3 percent to 42.8 million due to the ongoing competition for landuse from dairy and deer. Land loss will be in the vicinity of 312,000 hectares over the 10-year period. This will occur despite good market prospects and returns. The rate of decline will be less than the rate throughout the 1990's due to a reducing impact from forestry.
- Beef numbers will increase in the period to 2003 (reaching a high of 4.95 million) before declining thereafter to end the period down 3.5 percent at 4.45 million in response to world market conditions.
- Forestry is likely to increase in total area but at a rate much lower than occurred in the 1980's and 1990's due to increased competition from sheep, beef and deer. New areas planted will average 22,500 ha per annum over the 10 year period while harvested areas being replanted will account for a greater share of the annual plantings.
- Arable is expected to decline by 10 percent to approximately 180,000 hectares due to the increased competition for land particularly from dairying in traditional arable regions.
- Horticulture (excluding grapes) is projected to increase 8 percent to just under 110,000 hectares.
- Viticulture is projected to increase by 81 percent to 24,000 hectares over the 10-year period.
- Lifestyle blocks are projected to continue in popularity and compete for class 1 & 2 land in all regions. It has not been possible to quantify on a national or regional basis the area of land in lifestyle blocks.
The rate of change from one sector to another is expected to be less dramatic than that which occurred throughout the 1990's due to generally good prospects in the 'other pasture' landuse category. This category covers deer, sheep and beef and the prospects of the respective sectors (refer below) are such that they are likely to provide stronger competition to dairy (on good land) and forestry (on marginal land).
Suitability of soil types, topography and climate will continue to be key drivers for landuse. There will undoubtedly be variations within a landuse category. For example, the growth in avocados in Northland will likely come from land already used for horticulture. The 'other pasture' landuse may also see significant internal changes with the projected growth in deer taking up land already used for sheep and beef (this change will not reduce the total in the other pasture category whereas conversion to dairy or forestry will reduce the 'other pasture' category). For large areas of most regions, 'other pasture' landuse will be the most profitable activity.
Figure 1
The difference in land area total between 1990 and 2000 is estimated to be largely marginal extensive farmland land that has been allowed to revert to its natural state.
Figure 2
The projections for landuse change in 2010 as illustrated in figures 1 and 2 above are based on market demand conditions and do not take into account the impact that water supply may have on a particular sector's expansion/contraction. The 2010 landuse vision/projection is compared with the water supply and demand situation in section 4 of this report.
While horticulture and viticulture are projected to grow by 8 and 80 percent respectively in the period, they barely register in terms of overall land area in agriculture. Given that dairy and horticulture in particular occupies the more productive (high quality) land it is useful to compare its share of land classes 1-3.
The following table makes the assumption that 80 percent of dairying and viticulture takes place on land in classes 1-3, while 100 percent of horticulture activity is on this land class. With all 3 sectors projected to grow, their collective dominance of the high quality land is projected to break the 80 percent mark in 2010.
Figure 3: Estimated area in land-use classes 1-3
1.4 Creating a water supply and demand profile
The Canterbury and Otago regions dominate in terms of land area under irrigation, accounting for an estimated 81% of the irrigated land in New Zealand in the year 2000.
The demand for irrigation is driven by the combination of
- Contour and soil type
- Climate and Evapotranspiration (a factor of solar energy, crop cover and wind)
- Profitability of the land use.
This demand is offset against the availability and cost of water and the irrigation investment required. As the potential evapotranspiration increases and the rainfall and soil moisture holding capacity of the soils decrease, the greater will be the economic response from applying water in addition to rainfall. Analysis of land suitable for irrigation must consider not only the contour, and soil moisture deficit factors but also the soil water holding capacity and how these three factors interrelate.
The Landuse Capability Mapping system has identified all relatively flat land (slope less than 3 degrees) while soils have been assessed for their available water holding capacity. Evapotranspiration rates, the distance from water source and the impact of crop type on water usage were also assessed. This process identified six key regions - Waikato/King Country, Hawkes Bay, Wellington/Wairarapa, Marlborough, Canterbury and Otago in terms of their suitability to irrigation.
Supply was calculated using regional council data on 'surface water mean flow levels' combined with groundwater recharge rates to establish an overall supply in hectare equivalents.
The demand side of the equation was expressed in terms of current and future demand taking into account estimates of growth in non-irrigation and irrigation uses in line with sector profitability projections.
The result was a future demand projection for the region within a band or range and expressed in hectare equivalents.
1.5 Conclusions
Increased competition for high quality land will continue to alter the New Zealand landscape. Landuse change is driven largely by economic factors and the desire of landowners to reduce the risks associated with the agricultural enterprises they operate. Irrigation is a proven means of reducing risk and demand will increase for its use on suitable land.
Nationally, irrigation demand is projected to increase 28 percent on current levels bringing the total irrigated area to an estimated 650,000 hectares. Commercial, physical and environmental factors will be the key drivers in the growth or otherwise of irrigation and the projected increase may be threatened by all or a combination of the three.
Irrigation demand is a function of soil moisture deficit levels and the profitability of the potential agricultural activity resulting from irrigation compared with no irrigation. Irrigation does have an absolute ceiling that is fixed by the reliability and availability of water.
The sectors expected to grow in terms of overall landuse are dairy, horticulture, viticulture and forestry with all but forestry placing greater demands on irrigation. This projection is borne out of market demand strength, which in turn drives the economic return on capital for the various farm enterprises. Implicit in the market driven projections is the assumption that water supply will be sufficient to allow the growth projection to be achieved.
The regions of Canterbury (68 percent of total irrigated area) and Otago (13 percent) where water supply is a limiting factor on agricultural enterprises, will continue to dominate the water demand side. Landuse change has and will continue to be greatest in these two regions as landowners/investors seek to increase the returns from historically low cost land. The combined Canterbury/Otago regions are expected to account for almost 78 percent of all irrigated area in 2010 (down from 81 percent in 2000). There will be growth in the demand for irrigation in most other regions in particular the Hawkes Bay, Wairarapa, Marlborough and Waikato/King Country.
While most of the focus of irrigation growth is on the six key regions identified earlier, irrigation will also be important in the development of agriculture in many remaining regions such as Northland, Auckland, Bay of Plenty, Manawatu/Wanganui, Tasman, and possibly parts of Southland will be increasingly reliant on adequate access.
The projected growth in demand for water resources will increase the competition between agricultural, amenity, industrial, and recreation uses raising calls for further environmental preservation. Rising concerns over water quality and the impact of various intensive agricultural landuses will undoubtedly act as a counter to the increased agricultural demand.
The practicalities and cost implications of relocating significant water volumes over distances greater than 4 km are generally cost prohibitive for individual users and will likely require community water schemes.
Regionally, the Hawkes Bay is the only region where demand projection is expected to exceed the potentially available water supply. In remaining regions the potentially available supply under existing allocation policies will not be exceeded although in Canterbury utilisation is expected to be between 75-86 percent of potential supply. This could lead one to mistakenly believe that economic development will not be constrained in these key regions. The reality is that there are significant areas/districts within each region where deficit situations exist and economic development is currently being constrained.
Regions such the Waikato, Marlborough and Otago appear to have adequate regional water supply, however these three regions have a common problem in that the majority of the surface water is contained in one major river in the respective regions (i.e. Waikato, Wairau and Clutha rivers respectively). Much of the water is 'potentially available' but from a practical access perspective it is not yet accessible. This leaves large areas of the region reliant on alternative ground/surface water sources or face large water relocation costs. Theoretically some of these shortfalls could be solved if water could be relocated in a cost-effective manner.
In Canterbury the cereal crop industry is a big user of water and traditional levels of irrigation appear to be close to those used for pasture. The trend toward increased dairying at the expense of cropping in this region, means that the use of a pasture based irrigation requirement will not create significant demand anomalies.
In Hawkes Bay there are changes taking place in landuse due to the availability of irrigation water in some areas. This is enabling landuse to change from extensive agriculture to more intensive land use such as dairying and viticulture, but availability of water is becoming the limiting factor. While the profitability of these options is higher, the margins have not been sufficient to cover the costs of major community water supply schemes like those in Canterbury and Otago. As a result irrigation has been associated with proximity to reliable surface and underground supplies being accessed by individual operators.
While a significant amount of land development in the Hawkes Bay is to viticulture, (which uses about 75% of the water used by pasture) the growth in demand still poses a serious regional problem. With the variation in location and site specific shortfalls, there are significant areas that cannot move into land use changes because water is not available from individual traditional avenues. This means that the productive and economic growth opportunities for the Hawke's Bay are being seriously limited by the lack of available water.
The Waikato/King Country region has huge water reserves and the potential growth in demand and subsequent potential growth in agricultural productivity is generally not appreciated because the Waikato is regarded as having a reasonably reliable rainfall. The substantial areas of sand and volcanic ash soils in the region dry out very quickly and the rainfall reliability is not sufficient to sustain adequate soil moisture levels in a significant number of years. The issues are not as pronounced as in Canterbury or Hawke's Bay but they are still significant and need to be seriously addressed.
The Marlborough region has soils that are generally free of volcanic influence and have a higher water holding capacity than many North Island soils. Low rainfall over extended periods makes the region highly susceptible to drought and irrigation is therefore a requirement for high value agricultural landuse. Community irrigation schemes are an urgent imperative if the Marlborough region is to continue its economic development.
The focus of this report is to highlight the demand pull factors and their impact on future water demand. Based on our estimates and recognising the inherent difficulties with imprecise data and the use of projections, the landuse vision for agriculture and forestry in 2010 appears to be achievable given potential water availability on a regional basis. Growth projections in Hawkes Bay, Marlborough (viticulture) Canterbury (dairying) and Otago (dairying) in particular will be dependent on access to irrigation on a localised district basis.
Access to meaningful data on a regional basis could be enhanced by a standardised national system of recording consent returns. Centralising this information would allow Regional Councils to have a clearer picture of the water resources they administer.
A growing range of issues confront irrigators/landowners/Regional Councils with regard to water usage in New Zealand. Many are topics of current research and are not expanded on in this report, but are listed as follows:
- Setting minimum river flows or groundwater levels,
- The economic and social impact of limits being set on the total amount of water that can be allocated
- Allocation policies and inter-regional attitudes toward irrigation of agricultural land
- The conflict between agricultural, industrial, amenity and environmental demands
- The need for more scientific evidence to support restrictive allocation policies
- Dealing with over-allocated resources
- Promoting efficient use. Allocating water permits according to soil type or crop usage (crop evapotranspiration rates to become a consideration in the allocation process)
- With irrigators not charged for water they pump themselves, the level of interest in bores on private land is likely to increase further (in particular, the impact on the aquifers in each region from the increased off-take from private bores).
- Tradeable water rights
- Environmental impacts in terms of water quality (nitrate levels), habitat loss from diversion, flood risk due to damming and diverting watercourses.
The accelerating drive for efficiency and productivity gains to maintain New Zealand's competitive advantage in many agricultural enterprises will continue to encounter mounting opposition from those wanting to promote the non-economic benefits. This conflict will ensure that water supply and demand factors will be of increasing prominence in the agricultural investment decisions over the next 10 years and beyond. Water should now be recognised as the key resource element in the expansion plans of landowners. Regional councils throughout the country will need to seriously address these issues on a catchment by catchment basis or risk constraining economic development in their region.
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