Chapter 6: Overview of economic opportunities and constraints

Author:

Stokes, Chris; Jarvis, Diane

Date of Publication:

2018-06-29

Publication Type:

Report Chapter

Pages:

32

Editor:

Petheram C, Chilcott C, Watson I and Bruce C

Abstract:

Scheme-scale financial viability: Viable new irrigation development in the Darwin catchments would require challenging combinations of low-cost infrastructure, high-productivity farms, management of a wide range of risks, and/or off-farm value adding. The capital cost of development is the dominant factor affecting scheme viability. It is unlikely that farm gate revenue from irrigated broadacre agriculture alone would be sufficient to fully cover the development costs of irrigation schemes with capital costs above $15,000/ha (plus farm setup costs of about $7000/ha). Adding a processor to a scheme (i.e. vertical integration) could provide increases in revenues (from processed versus unprocessed goods) that are proportionally larger than the additional capital cost of the processing facility. This, or other off-farm, value-adding options, can assist in improving the commercial viability of a scheme, but can also add risk. Viable processors, particularly in remote locations, rely on secure supplies of raw farm commodities at scale. This requires upfront commitments from farmers supported by assured access to the required water and land. Farm performance can be affected by a range of risks, including water reliability, climate variability, price fluctuations, and learning to adapt farming practices to new locations. Setbacks that occur early on after a scheme is established have the largest effect on scheme viability. There is a strong incentive to start any new irrigation development with well-proven crops and technologies, and to be thoroughly prepared for the anticipatable agronomic risks of establishing new farmland. Staging development can reduce some of the early learning risks. Risks that cannot be avoided need to be managed, mitigated where possible, and accounted for in determining the realistic returns that may be expected from a scheme, and the capital buffers that would be required. Regional economic impacts: Justifying the costs of public investment in new water infrastructure and/or supporting community infrastructure in the Darwin catchments could well depend on indirect benefits beyond the irrigation scheme. It was found that during the initial construction phase of a new irrigation development in the Darwin catchments, there could be an additional $1.06 of indirect regional benefits, over and above the direct benefits of each dollar spent on construction within the local region. During the ongoing production phase of a new irrigation development, there could be an additional $0.46 to $1.82 of indirect regional benefits for each dollar of direct benefits from increased agricultural activity (gross revenue), depending on the type of agricultural industry. Indirect regional benefits would be reduced if there was leakage of some of the extra expenditure generated by a new development outside the catchment. Each $25 million increase in agricultural activity could create about 40 to 340 jobs, depending on the agricultural industry.

Publisher:

CSIRO

Place of Publication:

Canberra

Keywords:

agriculture, development, financial, viability, risk, staging, regional, economics; Northern Australia Water Resource Assessment; NAWRA

Field Of Research:

Agricultural Economics

DOI:

https://doi.org/10.25919/5b86ee09500d9

Rights Notice:

This report has been placed on the CSIRO repository and may be made available to persons outside of CSIRO for non commercial purposes, in its entirety and without deletion of disclaimers and copyright information.

Funding Sources:

Funding Body Name	Project/Grant ID
Australia. Department of Infrastructure, Regional Development and Cities

Series Title & No:

Water resource assessment for the Darwin catchments. A report to the Aust Govt from the CSIRO Northern Australia Water Resource Assessment, part of the National Water Infrastructure Development Fund

Identifier:

EP186711

Publication Sub Type:

Report Chapter - Technical

Language:

English

Attribution Statement:

Stokes, Chris; Jarvis, Diane. Chapter 6: Overview of economic opportunities and constraints. Canberra: CSIRO; 2018. csiro:EP186711. https://doi.org/10.25919/5b86ee09500d9