Tom Belford: Dam plans ignore vital point

Tom Belford

HBRIC is intensively lobbying CHB farmers to sign water purchase contracts in sufficient quantity to pay cash flow for the Ruataniwha dam project.
HBRIC says contracts for 40 million cubic metres of water annually will suffice. Some believe that number must be closer to 60 million.
The pressure is on, as evidenced by the heavily promoted sales meeting sponsored on Tuesday by Federated Farmers and Irrigation NZ in Waipawa. Two farmers described their successful experiences with South Island irrigation schemes. Unfortunately, they were comparing apples to oranges.
In those schemes, there's no taxpayer or ratepayer subsidy, farmers must purchase shares upfront as investors in the distribution infrastructure (and therefore pay for asset value) and drive its gradual expansion. Water is taken from massive rivers - no dams were built. Farmers pay a variable rate for water, and only for the water they use. None of these conditions apply to the Ruataniwha scheme. No one noted those key differences, the meeting was deliberately misleading.
And yet at this orchestrated sales show, still not one member of the audience stood up to declare their commitment to a 35-year water contract.
With its "customer base" proving resistant to the pitch, HBRIC would welcome any farmer willing to sign at this point.
But what would that foreshadow about the viability of the scheme?
A little-publicised assumption behind the scheme economics is that each and every farmer who would use irrigated water is assumed to be a "top 20 per cent" farmer. Each one is expected to be using state-of-the-art farming practices to squeeze the optimal production out of their land.
HBRIC's infamous Macfarlane report on farm profitability, which drives all subsequent financial and economic analysis of the scheme, anticipates universal adoption of best practices like:
¦Fenced and destocked waterways
¦Marginal buffer strips of vegetation.
¦Nitrogen applied at a rate that can be taken up by pastures and crops.
¦Fertiliser applied according to a nutrient budget such as Overseer.
¦Careful cultivation to minimise soil loss by erosion and reduce nitrogen loss from breakdown of organic matter.
¦Careful grazing management to minimise pugging and runoff of silt containing phosphates.
¦Irrigation management to maintain the soil moisture in tight band between wilting point and field capacity in order to maintain growth but minimise leaching.
Moreover, Macfarlane specifically notes that his modelling assumes "no additional measures have been applied to reduce nitrogen loss". But, to HBRIC's consternation, nitrogen leaching limits have now been imposed by the board of inquiry to protect the Tukituki, compounding the improvements farmers must make.
How likely is this level of super-performance?
Actually, it's highly unlikely. As farming publications report regularly, in reality a narrow band of "Top 20 per cent" performers is offset by a stubborn underbelly representing the preponderance of farmers who struggle through, making money in the best of times, but losing money when conditions are challenging.
Farming sector leaders are perplexed by these under-performers - the ones who do not show up at the farm days, don't use the available research or planning tools, and show no interest in emulating their next-door neighbours who are getting visibly better results (and profiting) by farming smarter.
Example: A recent ANZ study showed that only 64 per cent of farmers even had annual financial budgets for their farms, let alone sophisticated analytics regarding their input use and productivity, only 33 per cent benchmarked their performance against others in their industry.
Example: NZ's superstar dry land sheep and beef farmer, Marlborough's Doug Avery, recently wrote of his astonishment that only 5 per cent of NZ farmers use Farmax, a key planning tool considered basic to profitable farming. He shows photographs comparing his non-irrigated land's super condition and performance, compared to a struggling neighbour literally on the other side of the fence.
So, even if HBRIC produces a tidy stack of water purchase agreements at some stage, what might these really represent in terms of scheme viability?
HBRIC's own consultants have identified "average" farm productivity (ie, lower than HBRIC's base assumptions) as the chief threat to the scheme, because individual farmers would then not generate the returns from increased production they need to pay for their new water costs. At Waipawa, a South Island presenter said he needed to increase his yield by $1500 per hectare to make irrigation pay, emphasising the need to step up his farming intensity. "Irrigation is not a hobby or insurance," he said.
HBRIC consultant Macfarlane cautions that if only "average" productivity persists, farmers' returns from irrigation will be lower than their cost of borrowing to use the water. And if CHB farmers don't universally lift their productivity as his model assumes, the scheme as a whole will not produce the regional economic benefits we've been promised.
Is this a real danger?
Crowe Horwath business advisers looked at returns of 125 CHB farmers and reported in the May 13 CHB Mail on how well those farmers are doing:
¦Overall return on assets dropped from 4.3 per cent in 2012 to 1.1 per cent in 2013.
¦Average gross income per hectare of $813 in 2013 was down 23 per cent from 2012's $1055.
¦The "economic farm surplus" per hectare - excluding debt servicing and rent - fell from $335 in 2012 to $69 in 2013.
¦Debt servicing as a percentage of gross farm income "blew out" to 17 per cent in 2013 from 11 per cent in 2012.
Nevertheless, Crowe Horwath runs adverts in the CHB Mail touting the benefits of the dam to farmers. So, yes, there is a danger that even with paper commitments to purchase water, HBRIC might have a leaky dam on its hands. Within a few years, individual farmers might well find themselves under water if they're not among the handful of superstar farmers. And when that happens, it will be Hawke's Bay ratepayers who will be forced to bail them out, along with the $300 million scheme.
# Tom Belford is a Hawke's Bay Regional Councillor