3 Economic Impacts
In September 2003, the Ministry of Economic Development commissioned Sinclair Knight Merz (SKM, 2004), to undertake a study into the costs and benefits of water use in the Waitaki Catchment. This study was aimed primarily at understanding the impacts of the different competing uses for the water in the catchment. In November 2004, the Ministry for Environment commissioned a complementary study to address the regional social and economic benefits (Harris et al, 2004). Analyses of the economics of irrigation for farmers within the upper Waitaki Catchment were also undertaken by Collier (2004) and Donnelly (2004) as part of their provision of information to the WCWAB on behalf of Mackenzie Irrigation Ltd. Using similar methodologies as used by Harris et al (2004), a separate analysis has been undertaken as part of the current review specific to the volumes of water and area defined under the 1969 Order in Council.
3.1 Analysis of economic impacts of irrigation using 14.7 m3/s
3.1.1 Approach taken
The analysis used McIndoe's estimate of a further 25,000 hectares which could be irrigated with the quantity of water specified in the former Order in Council as being able to be used for irrigation. This available irrigable area was allocated to different parts of the command area using figures from the MacKenzie Irrigation Company submission to the WCWAB. Their anticipated development scenario (section 8 of the submission) was pro-rated across the potential 25,000 hectares in two ways. The first assumed that the Order in Council applied only to takes above Ohau A, and the second assumed that the Order in Council could apply to any takes above the Waitaki Dam. These estimates are shown in Table 1 below.
Table 1: Estimates of irrigation development areas for the quantity of water specified in the former Order in Council
|
Area |
MacKenzie Irrigation Company estimate of development uptake (ha) |
Estimates pro-rated above Ohau A only (ha) |
Estimates pro-rated for areas above Waitaki Dam (ha) |
|---|---|---|---|
|
Lake Tekapo |
5,500 |
5,978 |
4,583 |
|
Tekapo canal |
8,000 |
8,696 |
6,667 |
|
Lake Pukaki |
9,500 |
10,326 |
7,917 |
|
Ruataniwha |
500 |
417 |
|
|
OHB-OHC canal |
300 |
250 |
|
|
Benmore |
5,000 |
4,167 |
|
|
Aviemore |
600 |
500 |
|
|
Waitaki |
600 |
500 |
|
|
Total |
30,000 |
25,000 |
25,000 |
The costs and benefits of the two different estimates were assessed using the method set out in Harris et al (2004). Costs and benefits were estimated from a national perspective, and the ongoing direct impacts in terms of employment, population and value added in the economy are assessed from a regional perspective. The assumptions have been adopted directly from Harris et al (2004) and are summarised in a series of tables in Appendix 1. They assume uptake of water commences in year one, and takes two years to full utilisation of the take. The assumptions do not include a time lag for full production to be achieved on the irrigated land, although this is likely to be significant where poorer soils are irrigated. It should be noted that the analysis is undertaken on a particular scenario, but that this scenario does not necessarily represent the single "right" scenario. The scenario selected to represent a reasonable level of inputs and returns that could reasonably confidently be expected to occur based on available evidence. There are other scenarios which may arise, and for this reason sensitivity testing was also undertaken using higher and lower assumptions that the base scenario. The results from the base case and sensitivity testing are discussed below.
3.1.2 Results
These results have been presented in terms of the total outcomes and average outcomes per cumec of water in Tables 2 and 3 below. The detailed results are also presented in Tables 11 to 14 within Appendix2.
The results show that:
- the options for irrigation using the quantity of water specified in the former Order in Council produce considerable surplus in terms of net benefit from agricultural production
- however when the opportunity costs of hydro-generation are taken into account, the results are negative overall in all scenarios using base case assumptions
- the negative outcome is worsened by the inclusion of additional hydro-generation in the lower Waitaki which effectively increases the opportunity cost of water extracted for irrigation
- there is little difference in terms of agricultural outcomes between the two scenarios, but that the electricity generation losses are 10-20 percent greater when the quantity of water specified in the former Order in Council is concentrated in the upper part of the catchment
- the discount rate at 7.5 percent produces higher losses but also higher agricultural returns per cumec of water than does the 10 percent discount rate. While there is some movement of the net outcome with these different discount rates, the negative sign of the outcome is not changed.
These tables also show the direct impacts of the agricultural development in terms of employment and value added. These estimates show:
- an increase of approximately 300 to 400 full-time equivalent (FTE) employees directly employed in agriculture (70/cumec)
- an associated population gain of approximately 800 to 900 people (180/cumec)
- value added, an indicator of economic activity, changes by approximately $12 to $13 million per annum [Although it should be noted that this does not include the change in added value associated with the lost energy generation, which would be substantial but largely does not affect the local economy.] ($2 to $3 million per cumec) directly associated with the increase in agricultural production.
There will be wider impacts on the regional community, and the Harris et al report uses an estimate of 1.8 to 1.9 total FTEs for every one FTE of direct employment, and approximately 2.2 to 2.3 ratio of total value added to direct value added in a regional community comprising Timaru, Mackenzie, Oamaru and Waimate districts.
The agricultural gross margin used in the main exercise is based on estimates of a property running a system where the irrigation would be complementary to its existing farming enterprise. A sensitivity analysis was also undertaken using a high set of assumptions such as where the irrigation was used to undertake a very intensive livestock system (Collier, personal communication), and a low set of assumptions where the returns were lower and costs higher than the base case. The results for this are shown in Table 4 below for the scenarios with no new hydro in the system. They show that the results are very sensitive to the agricultural gross margin and water use assumptions. In this analysis they vary between large net positive outcome overall and a large net negative outcome overall depending on the assumptions used.
Table 2: Outcomes for the quantity of water specified in the former Order in Council in the Waitaki, 7.5% discount rate
Table 3: Outcomes for the quantity of water specified in the former Order in Council in the Waitaki, 10% discount rate
Table 4: Sensitivity tests for outcomes development upstream of Ohau A
View sensitivity tests for outcomes development upstream of Ohau A (large table)
3.2 Irrigation and tenure review
There are approximately 25 Crown pastoral lease properties in the Mackenzie basin (M Clark, personal communication). Over 50 percent of these properties are currently in negotiation with Land Information New Zealand (LINZ) over tenure review. In the majority of these negotiations access to water for irrigation will be a significant factor as irrigation increases the options available to pastoral lessees who are looking to freehold part of their land. For this reason the two processes, provision of water and tenure review, are likely to be linked.
