Agenda

Irrigation Scheme Viability

Greg PetersenRegistered Valuer

Crighton Anderson Property & Infrastructure Limited

Agenda

– What’s holding us up?

– How much is water worth?

– Leveraging external funding

What is the hold up?

– Lengthy timeframes

– Public perception

– Farmer support & uptake

– Large capital requirements

Irrigation is important to NZ

It’s no secret ...

– Stimulate the economy

– Invigorate rural communities

– Provide employment

– Reduce climatic risk of farming

Jolly tough to finance…

How much is water worth?

… significantly more than many realise

– Cost reflects• cost of developing and financing the infrastructure • annual water charge

– Value typically incorporated into land value

– Existing schemes provide a ‘windfall gain’ to the land owner

North Otago case study

The North Otago Irrigation Scheme - NOIC

– Commissioned October 2006

– One of the driest regions in the country - 450 to 650mm

– 10,000 hectares of typically rolling country

– Proximity of Waitaki River

North Otago changing land use

Land use before and after NOIC

DairyDairy SupportSheepBeefDeerArableOther

Translating the impact to a farm

Isolating the value of water

Market Value MV/ha

Irrigated Dairy $12.34m $41,133

Cost to Convert & Profit & Risk

$5.36m $17,866

Dryland Block with Irrigation Potential

$6.98m $23,267

Dryland Sheep & Beef $4.23m $14,100

Difference Attributed to Availability of Irrigation Water

$2.75m $9,167

Funding the North Otago scheme

Stage one combination of:

– Farmer capital $18.5m • 10,000 shares @ $1,850 per share = $2,100 per share today• One share per hectare for dairying, less for arable

– Waitaki District Council loan $10m

– Term bank debt $29.5m

Meridian Energy involvement was important to the success of the development

Outcome….. Increase in Land Value $9,167ha less $2,100 results in $7,000 land owner windfall

Leveraging external investment

– Long term investment

– Relatively low risk once established and up and running

– Increasing recognition of water as a scarce resource with economic value

– Synergies with other investments and expertise

Getting the balance right…

….Establishing a fair price for water!

Benefits of external funding

– Removal of farmer capital constraints to development

– Doesn’t require universal farmer agreement

– Water on farms faster

– Quicker economic gains

– New expertise

Challenges of external funding

– Change in governance, perceived lack of control

– Water a farm input to be paid for accordingly

– Giving up some profit

– Less dramatic increase in land value

Summary

– Economically important….jolly hard to finance

– Water is more valuable than currently recognised

– Existing developments giving windfalls to landowners

– External investment can make it happen faster

– Important to get the balance right