Variables which effect the profitable allocation of capital within irrigation farming systems : a thesis submitted in partial fulfillment [sic] of the degree of Master of Agricultural Science [Lincoln College]

Abstract

The effect of a number of variables on the profitable allocation of capital within irrigation farming systems has been investigated. The study has been confined to the geographical area in Canterbury, New Zealand where ground water is available for irrigation.

In order to carry out the analysis a model was developed which integrated the economic supply and demand functions for irrigation water. The model was made up of two components: the first component being a linear programme which was employed to achieve optimal allocation of water in a multi crop situation. The second component was a simulated cash flow which accounted for the effects of taxation and overheads and calculated the profit levels in terms of the criteria adopted.

Specific irrigation farming systems have been built up from combinations of the following variables: farming system, irrigation method, farm size, predevelopment tax rate and irrigation strategy adopted. The profit levels for each complete irrigation farming system have been measured in terms of both profit criteria adopted and then deductions about capital allocations have been made.

Model results indicate that diminishing returns have a strong impact on profitable levels of capital expenditure in irrigation development. Further to this the annual cost of servicing capital borrowed is the dominant cost factor in all cases. Consequently when all investment options on a specific farming system are considered there is a high correlation between capital expenditure and profit levels achieved. Farm size, predevelopment tax rate, farming system employed and irrigated strategy adopted appear to be critical variables in the profitability of irrigation systems.

Within each farming system where investment decisions were based on the 'best' scheme capacities for each irrigation method and earthworks' costs were close to the mean, there was little difference between the profitability of each of the irrigation methods included in the study. However where essential resources were constrained and earthworks' costs differed greatly from the mean, irrigation method choice was critical to profitable capital allocation.

An important dimension which arose from the application of the model and the ensuing results was the conception of irrigation choice along a multi system approach. New Zealand farming is noted for the geographical diversity within each farming unit apart from the diversity of individual farming methods. It would appear both economically desirable and feasible from the practical viewpoint that irrigation choice be tailored to these more specific variables and the use of more than one irrigation method within a single farming unit. The multi system concept recognizes the overall need to develop irrigation systems in New Zealand in a manner which plainly hallmarks attention to the characteristics of the local ecosystem.