Chapter 6: Overview of economic opportunities and constraints [the Darwin Catchments]

Stokes, Chris, and Jarvis, Diane (2018) Chapter 6: Overview of economic opportunities and constraints [the Darwin Catchments]. Report Section. CSIRO, Canberra, ACT, Australia.

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Abstract

Scheme-scale financial viability: Viable new irrigation development in the Darwin catchments would require challenging combinations of low-cost infrastructure, high-productivity farms, management of a wide range of risks, and/or off-farm value adding. The capital cost of development is the dominant factor affecting scheme viability. It is unlikely that farm gate revenue from irrigated broadacre agriculture alone would be sufficient to fully cover the development costs of irrigation schemes with capital costs above $15,000/ha (plus farm setup costs of about $7000/ha). Adding a processor to a scheme (i.e. vertical integration) could provide increases in revenues (from processed versus unprocessed goods) that are proportionally larger than the additional capital cost of the processing facility. This, or other off-farm, value-adding options, can assist in improving the commercial viability of a scheme, but can also add risk. Viable processors, particularly in remote locations, rely on secure supplies of raw farm commodities at scale. This requires upfront commitments from farmers supported by assured access to the required water and land. Farm performance can be affected by a range of risks, including water reliability, climate variability, price fluctuations, and learning to adapt farming practices to new locations. Setbacks that occur early on after a scheme is established have the largest effect on scheme viability. There is a strong incentive to start any new irrigation development with well-proven crops and technologies, and to be thoroughly prepared for the anticipatable agronomic risks of establishing new farmland. Staging development can reduce some of the early learning risks. Risks that cannot be avoided need to be managed, mitigated where possible, and accounted for in determining the realistic returns that may be expected from a scheme, and the capital buffers that would be required. Regional economic impacts: Justifying the costs of public investment in new water infrastructure and/or supporting community infrastructure in the Darwin catchments could well depend on indirect benefits beyond the irrigation scheme. It was found that during the initial construction phase of a new irrigation development in the Darwin catchments, there could be an additional $1.06 of indirect regional benefits, over and above the direct benefits of each dollar spent on construction within the local region. During the ongoing production phase of a new irrigation development, there could be an additional $0.46 to $1.82 of indirect regional benefits for each dollar of direct benefits from increased agricultural activity (gross revenue), depending on the type of agricultural industry. Indirect regional benefits would be reduced if there was leakage of some of the extra expenditure generated by a new development outside the catchment. Each $25 million increase in agricultural activity could create about 40 to 340 jobs, depending on the agricultural industry.

Item ID: 57897
Item Type: Report (Report Section)
ISBN: 978-1-4863-1069-2
Keywords: agriculture, development, financial, viability, risk, staging, regional, economics; Northern Australia Water Resource Assessment; NAWRA
Copyright Information: © Commonwealth Scientific and Industrial Research Organisation 2018. To the extent permitted by law, all rights are reserved and no part of this publication covered by copyright may be reproduced or copied in any form or by any means except with the written permission of CSIRO.
Funders: Department of Infrastructure and Regional Development, Australian Government
Date Deposited: 24 Jul 2019 01:59
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140201 Agricultural Economics @ 40%
14 ECONOMICS > 1402 Applied Economics > 140202 Economic Development and Growth @ 30%
14 ECONOMICS > 1402 Applied Economics > 140205 Environment and Resource Economics @ 30%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9101 Macroeconomics > 910103 Economic Growth @ 50%
96 ENVIRONMENT > 9609 Land and Water Management > 960905 Farmland, Arable Cropland and Permanent Cropland Water Management @ 50%
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