An economic analysis of conversion from border-check to centre pivot irrigation on dairy farms in the Murray Dairy Region, Australia

Abstract

The dairy industry in the Murray Dairy Region, Australia, is reliant on irrigation, as evapotranspiration greatly exceeds rainfall during the main growing season. Border-check irrigation is the predominant method of irrigation used in the region, but centre pivot irrigation has emerged as a potential alternative in response to the increasing scarcity and value of irrigation water. This paper presents an economic evaluation of conversion from border-check to centre pivot irrigation for dairy pasture production in the Murray Dairy Region. The evaluation was based on a hypothetical farm with available land to expand the area of irrigated pasture production to utilise water saving generated by converting from border-check to centre pivot irrigation. Income and cost related to the conversion were identified. A pre-tax discounted cash flow analysis was performed. Under the assumption that the conversion resulted in 20% less water use and 10% more pasture production per hectare, an investment in the conversion of border-check to centre pivot irrigation would produce a net present value of $218,200 and a benefit cost ratio of 1.36 at a discount rate of 10%, and an internal rate of return of 23.1%.

Appendix: Determination of centre pivot system capital costs

Centre pivot system capital costs include the equipment and labour associated with installation of the main above ground sprinkler components, water supply mainline and pump station. The system capital costs are based on a recent design of a 26 ha system (Table 10). This system has an end gun and can apply 16 mm/day to the irrigated area.

Table 10 Capital costs of the 26 ha centre pivot system

Each successive span of a centre pivot system irrigates proportionally more land, resulting in the costs of centre pivot systems decreasing as the irrigated area increases (O’Brien et al. 1998). A 1% increase in the area irrigated by a pivot, relative to full size (50 ha), increases the capital costs by 0.5% relative to the full costs (O’Brien et al. 1998). This results in a linear relationship between the capital costs and the area irrigated by the centre pivot (Eq. 1). Equation 1 was used to calculate the capital costs of the different size pivots used in this study.

$$ {\text{CCP}}_{x} = {\left[ {1 - 0.5 \times {\left( {\frac{{50 - A_{x} }} {{50}}} \right)}} \right]} \times 132,632\quad {\text{where }}10\;{\text{ha}}\; \le \;A_{x} \; \le \;50\;{\text{ha}} $$

(1)

where,

• CCP _x  = costs of a centre pivot system irrigation ($)

• A _x  = area irrigated by the centre pivot system (ha)