M I T C H E L L R I V E R

I R R I G A T I O N PROJECT

ri

Mitchell River Irrigation Project

LOCALITY MAP

TCHELL RIVER FLATS

10 Kilometres

[~#(e] BUREAU OF AGRICULTURAL ECONOMICS. CANBERRA

MITCHELL RIVER IRRIGATION

PROJECT

ECONOMICS OF WATER RESOURCE DEVELOPMENT NUMBER 5

AUSTRALIAN GOVERNMENT PUBLISHING SERVICE CANBERRA 1976

@ COMMONWEALTH OF AUSTRALIA ISBN 0 642 02367 0

Printed by Progress Press Pty. Ltd., Canberra.

F0 REWO RD

In 1967, 1970 and again i n 1973, t h e Victorian Government submitted requests t o the Commonwealth Government f o r f inanc ia l a s s i s t ance t o construct an i r r i g a t i o n scheme on the Mitchell River. An economic appra isa l of the proposed scheme was commenced by t h e Bureau o f Agr icul tura l Economics i n June 1975. This r epor t provides the method, d e t a i l s and r e s u l t s of t h e Bureau's evaluation.

The analys is was accomplished only with the co-operation of many people both as individuals and members of t h e various organis a t ions involved. Accordingly, gra teful acknowledgment i s made t o the Victorian S t a t e Rivers and Water Supply Commission; the Victorian Department of Agriculture; t h e Bairnsdale Sh i re and Town Councils; the Mitchell River U t i l i s a t i o n Committee; vegetable and dai ry processing companies and t o the landholders who p a r t i c i p a t e d i n the f i e l d survey i n August 1975.

I t should be noted t h a t t h i s inves t igat ion c lose ly followed the in t roduct ion of t h e metric system of measurement and much of the bas ic data ava i l ab le t o the BAE was i n imperial u n i t s . In some cases, p a r t i c u l a r l y land areas and data i n Appendix B, t he conversion o f imperial da ta t o metr ic u n i t s has r e s u l t e d i n a degree of accuracy i n the presenta t ion of da ta which was not intended.

The analys is of t h e proposal and t h e prepara t ion of t h i s r epor t were the r e s p o n s i b i l i t y of M r R.F. Woolcock who was a s s i s t e d by M r A. Amos and Mrs R. Lance of the Projec t Economics Section. The Livestock Commodities Analysis Section provided information on the long-term p r i c e s of da i ry and beef products.

N.D. HONAN Director

Bureau of Agr icul tura l Economics Canberra, A.C.T. September 1976

( v i i )

CONTENTS

FOREWORD

ABSTRACT

Par t 1 INTRODUCTION

1. Regional Desc r ip t i on

2. Main C l imat ic , Topographical and S o i l Features

3. Backgrqund t o the I r r i g a t i o n Proposal

4. Descr ip t ion o f t he Proposed Works

Par t I 1 METHOD OF ANALYSIS

1. The Nat ional Analys is

2. The I n d i v i d u a l Farmer Analys is

3. The Regional Analys is

Par t I11 THE PRESENT SITUATION IN THE PROJECT AREA

1. Descr ip t ion o f the P r o j e c t Area

2. Present Land Use

3. E f fec ts o f Drought

(a) EvaZuation of Cropping Losses

(b) EvaZwztion of Livestock Enterprise Losses

Par t I V THE ESTIMATED INCREMENTAL BENEFITS TO THE IRRIGATION PROPOSAL

1. Future Land Use w i t h the Scheme

2. Water Demand

(a ) Irrigation

(b) Urban and ~ d $ s t r i a Z Demand

( c ) R i v w heshening

(d) River Losses

l e ) Total Demand

Page

(v)

(X)

( v i i i )

Par t I V (continued) Page

3. Water Supply from t h e Scheme

4. Economic Appraisal f rom the Nat ional Viewpoint

(a) Project Li fe

(b) Public Capita2 Costs

( C ) Annual Public Operating Costs

(d) Rate o f Development

( e ) Private On-Farm Capital Expenditure

(f) EvaZuation of Benefits

(g) Sens i t iv i ty Analysis

5. Results o f the Economic Appraisal from the Nat ional Viewpoint

6. Economic Cost o f Water

7. Impact o f the Scheme on I n d i v i d u a l Landholders

8. Economic Appraisal f rom t h e Regional Viewpoint

P a r t V SUMMARY AND CONCLUSIONS

i 1 Appendices

A PROJECTIONS OF FUTURE VEGETABLE AREAS ON THE MITCHELL FLATS

l B ENTERPRISE GROSS MARGINS l

3-1 AREAS OF AUTHORISED IRRIGATION : 1 9 7 4 - 7 5

3 - 2 AREA OF IRRIGATION BY SOURCE AND TYPE : 1974

3-3 TYPE AND AREA OF ENTERPRISES I N THE PROJECT AREA : 1974 AND 1975

3-4 FLOW C R I T E R I A FOR INTRODUCTION O F IRRIGATION RESTRICTIONS

3-5 PROBABILITY OF RESTRICTIONS : BY MONTH AND CATEGORY

Page Tab7 es (continued)

3-6 PERCENTAGE LOSS I N PROCESSIBLE YIELD RESULTING FROM IRRIGATION DELAYS

4-1 PRESENT AND FUTURE LAND USE ACCORDING TO LAND- HOLDER EXPECTATIONS

4 - 2 CUMULATIVE INCREASE I N VEGETABLE AREAS ON THE FLATS FROM 1 9 8 1 - 8 2

4-3 PRESENT AND PROJECTED FUTURE LAND USE PATTERN

\

4-4 ESTIMATED NET BENEFITS TO THE SCHEME : SELECTED YEARS

4- 5 CASH FLOWS OVER THE L I F E OF THE PROJECT

4-6 ESTIMATED ADDITIONAL ANNUAL EXPENDITURE ON MAJOR AGRICULTURAL INPUTS

4- 7 VALUE OF LOCAL MATERIALS, GOODS AND SERVICES USED I N CONSTRUCTION OF THE PROJECT

5-1 A. ESTIMATED MONETARY IMPACTS

B. MONETARY IMPACTS NOT QUANTIFIED AND NON-MONETARY EFFECTS

B- l ENTERPRISE GROSS MARGINS : NATIONAL ANALYSIS

B- 2 ENTERPRISE GROSS MARGINS : LIVESTOCK : NATIONAL ANALYSIS

B- 3 LIVESTOCK : PHYSICAL ASSUMPTIONS

ABSTRACT

The Ktehe Z Z Aiver f la ts are an intensively f m e d vegetable and livestock producing area near Bairns&Ze i n East Gippsland, Victoria; Water usage from the r iver for irr igat ion i s subject to periodic restr-lctirms as the period of low natural flows i n summer and a u t m corresponds to the pegod of peak i rAgat ion demands.

The V ie tor im Government proposes t o constmct a storage of 25 000 megalitres capadty m the MitcheZZ River t o conserve surplus winter and spring flows i n order t o alleviate restrictions. m e project would provide assured s q Z u s e s of water t o the present irrigators and pemrit irrigation on the

l f lats. I t also rjould provide Mater for possibZe fu-t;ure wbm md 3ndustriaZ expansion around Bairndale.

l% to ta l public capita2 cost o f the project, i n 1975 prices, has been estimated a t $9.275 million, and the Victom'an Government has proposed that the Connonwealth provide funds for the project. The BAE has undertaken an economic e v a l u a ~ o n o f the p m ject and the resul ts of t h i s study are presented i n th i s report.

A benefit-cost analysis was undertaken t o appraise the economic impact a t three ZeveZs: the nation, the individual f m r and the re&on. From the national viewpoint, internal rates of return were ca leu la t~d ranging from 0.7% to 2.9% for a range o f c o m d i t y prices, crop yields and to ta l capital costs. I t was ccrvlsidered that a rate o f return of 1.9% would be achieved

l using the most l i ke ly ZeveZs o f these costs and returns. When compared with similar evaluations conducted by the B& these results m e judged as poor on econonric grounds. The capacity o f the proposed dam appears t o be i n excess of foreseeable future r e q ~ r e m e n t s but even i f the s i ze of the dmn i s reduced with a consequent reduction i n the capital cost, the economic resul t i s not significantly enhanced.

From the individual viewpoint, famners c m eqpect substantCaZ increases i n ne t incomes as a resul t o f the scheme, main Zy due t o the water being supplied a t a price below i6s actual cost. For excmple the real cost to the nation i s approximately $37.00 per megalitre, whereas the State Rivers m d Water Supply ~ o d s s i o n currently charges farmers $1.05 per megalitre. From the regi.onal nkwpoint the mdn bmeflciam'es are the landholders already mentioned, although the schew will also provide opportunities for the local labour force and suppliers of goods and services.

P a r t I

INTRODUCTION

1. Regional Descr ip t ion

The Mitchell River Catchment area i s la rge ly s teep and forested, covering an area of approximately 4000 square kilometres, of which only i so la ted pockets have been cleared f o r permanent settlement. Below Glenaladale t he r i v e r emerges from the f o o t h i l l s and winds along a corr idor of in tens ive ly farmed a l l uv i a l f l a t s approximately 2 kilometres wide and 20 kilometres long. The r i v e r discharges i n t o Lake King, an arm of the coas ta l lake chain known as the Gippsland Lakes. The r i v e r contributes an average annual flow of 900 000 megalitres t o the Gippsland Lakes, about ha l f t h e i r t o t a l inflow. The main towns i n the area a re Bairnsdale (population 9000), Paynesville (900) and ~indenow (500) .

The present use of the r i v e r is confined t o i r r i g a t i o n of the r i v e r f l a t s between Glenaladale and Bairnsdale and t o supply water t o the adjacent towns mentioned above. Water usage f o r these purposes represents only 2% of t he annual flow. However, the period of peak i r r i g a t i o n demand i n the summer and autumn months corresponds t o the period of low natural flows.

The major agr icu l tu ra l enterpr ises on the flats a r e dai ry and beef production although i n recent years the production o f french beans and a wide range of vegetables has been increasing f a i r l y rapidly. The t o t a l area of the f l a t s above Bairnsdale has been estimated a t 4600 hectares of which approximately 2500 hectares i s i r r i g a t e d from both the r i v e r and from ground water extract ion. Additional permanent i r r i g a t i o n development based on r i v e r diversion has been frozen f o r many years due to low r i v e r flows during summer and autumn. Groundwater resources a re unevenly developed but, i n areas of in tensive use, they a re fu l l y committed as shown-by the large f a l l i n water t ab l e s during the dry year of 1973. I r r i ga t i on from the r i v e r is subject t o r e s t r i c t i o n s and ros te r ing i n some years.

2. Main C l i ma ti c, Topographi ca1 and Soi l Features

The r i v e r f l a t s consis t of well drained loam s o i l s of high f e r t i l i t y with good conditions fo r root development. The s o i l s a l so have the advantage of being able t o carry heavy

machinery without los ing s o i l s t ruc tu re , pa r t i cu l a r l y following heavy r a in f a l l .

The average mean temperature recorded a t Bairnsdale is 13 .60~ with monthly averages ranging from 8,30C t o 18. S O C . The average r a i n f a l l a t Lindenow i s 671 mm and i s f a i r l y evenly d i s t r ibu ted throughout the year, although f a l l s tend t o be s l i g h t l y higher during the summer months. On the bas i s of ca lcula t ing evapotranspirat ion l e s s r a i n f a l l , i r r i g a t i o n i s required only during June and July. However, i n p rac t i ce t h i s is misleading i n t h a t r a i n f a l l i s very var iable and the p robab i l i ty of not receiving the monthly average during the summer months i s high. Consequently, i r r i g a t i o n occurs mainly during the summer and autumn period of low na tura l flow.

3. Background t o the I r r i ga t i on Proposal

Proposals f o r an i r r i g a t i o n scheme on the Mitchell River date back t o the 1890s when a weir was constructed across the r i v e r above Glenaladale. The p ro jec t was egentually abandoned when floods se r ious ly damaged t he p a r t l y constructed weir and landholders became disenchanted with the esca la t ing costs . In the following years, many proposals f o r both i r r i g a t i o n and hydro-electr ic developments were suggested.

More recent ly , i n 1965, the Mitchell River Water Ut i l i sa t ion Committee was formed t o promote an i r r i g a t i o n scheme designed t o reduce production losses on the f l a t s due t o recurrent water shortages. The committee, following a survey, found t h a t there was an addi t ional area i n excess of 77 000 hectares between the Avon and Tambo r i v e r s t h a t could be i r r i g a t e d from a dam on the Mitchell. A proposal f o r a very large s torage was then submitted t o the Victorian Government. However, the S t a t e Rivers and Water Supply Commission (SR and WSC) considered t h a t development o f the Mitchell r i v e r should be planned i n two s tages , with Stage I involving a dam of 20 000 megalitres capacity designed t o c a t e r f o r i r r i g a t i o n on the Mitchell F la t s only. Stage I1 would, a t a l a t e r date, be designed t o water approximately 100 000 hectares between Bairnsdale and Sale as well as provide hydro-electr ic power.

The Stage I proposal was submitted t o the Commonwealth Government i n 1967 f o r f inanc ia l ass is tance under the then National Water Resources Development Program. Following the drought o f 1967-68, a fu r the r submission was made i n 1970. However, - - f inanc ia l ass is tance f o r these proposals was not approved.

A fu r ther request fo r Commonwealth f inancia l a i d was made i n 1973 and t h i s was supported by a re-examination o f t he proposal submitted i n 1974, (1) The current proposal involves t he construction of a 25 000 megalitre storage on the Mitchell with t he primary objective of safeguarding the ex i s t ing i r r i g a t i o n development and t o provide f o r the extension o f such development throughout the f l a t s . The Mitchell River w i l l eventually be regulated t o a high degree by a major storage of several hundred thousand megali t r e capacity. However, there is no immediate j u s t i f i c a t i on seen by the SR and WSC f o r works on t h i s large sca le and the present scheme proposed involves only the smaller Stage I works.

4. Descr ip t ion of the Proposed Works

The works involve the construction of a decked r o c k f i l l dam on the Mitchell River near Tabberabbera, approximately 3 kilometres south-west of the Wentworth River Junction (Si te 10). This s i t e was chosen following a preliminary examination o f more than 20 possible dam s i t e s on the Mitchell River system, and of these, three were chosen for f i n a l se lec t ion based on technical , economic and environmental comparisons.

The s i t e a t B i l l y Goat Bend (Si te IS), which w a s t he s i t e chosen i n previous proposals, was super ior by a c l ea r margin on the bas i s of construction costs alone. However, t h i s s i t e involves qu i te serious environmental costs through t he inundation of a unique r a in fo r e s t and t he loss of the scenic and recreat ional values of the Mitchell River Gorge. The t h i r d a l t e rna t i ve s i t e ( s i t e 3A) was ruled out as being i n f e r i o r t o the other two s i t e s both economically and environmentally. Thus, the Tabberabbera s i t e was chosen on environmental grounds despite the f a c t t ha t construction costs could have been 20% lower fo r a storage of the same capacity a t Bi l ly Goat Bend.

In order t o determine t he storage capacity required, t h e SR and WSC has estimated t he following water requirements from the r iver :

(1) Sta te Rivers and Water Supply Commission, MitcheZZ River Proposed Storage - Stage I , Report on TechnicaZ, Economic and EnvironmentaZ Aspects, Melbourne, April 19 74,

Megalitres

I r r i ga t i on o f 3642 hectares

Urban and Indus t r i a l supply a f t e r allowing f o r a doubling o f present demand

River freshening

River losses

To s a t i s f y demands o f t h i s order, t he SR and WSC estimated t h a t a dam of 20 000 megalitres capacity would be required. However, due t o the low incremental cost of addit ional capacity i t was decided t o bui ld a storage o f 25 000 megalitres capacity y ie lding an assured annual supply o f 46 500 megalitres, This addi t ional capacity was designed t o provide a reserve beyond immediate requirements f o r purposes such a s accelerated regional , urb an and industrial growth,

The t o t a l cos t of the works has been estimated by t he SR and WSC a t $9.275 mil l ion comprising the following components:

Access 1 250 000 Works establishment 850 000 Outlets and diversion 1 350 000 Spillway 3 000 000 Embankment 2 100 000 Fish ladder o r equivalent 150 000 Land resumption 575 '000

~ Total 9 275 000

The scheme does no t involve a pub l ic ly financed water d i s t r i bu t i on system; ra the r , landholders w i l l be required t o make t h e i r own arrangements f o r d iver t ing water from the regulated flows i n the r i v e r t o t h e i r proper t ies .

Part I 1

METHOD OF ANALYSIS

The method of economic analys is follows c losely the b a s i c framework used i n o the r BAE repor ts on i r r i g a t i o n developments i n recent years.(2) A benef i t -cos t analys is o f t h e proposal was undertaken t o appraise t h e economic impact a t three l eve l s : the nation, the individual landholder and t h e region.

The bas ic task i n ' the evaluation was t o measure the difference i n fu tu re product iv i ty within the p ro jec t area between the 'withf scheme and 'withoutf scheme s i t u a t i o n s . This required the i d e n t i f i c a t i o n and, where possible, the quan t i f i ca t ion of the major d i r e c t and i n d i r e c t monetary and non-monetary impacts of the scheme.

1. The National Analysis

From the na t iona l point of view only d i r e c t (or primary) cos t s and re tu rns were included i n t h e analys is which provides an indicat ion of the contr ibut ion t h a t the scheme would make t o the na t iona l economy. Ind i rec t (or secondary) benef i t s es-ated as increases i n n e t incomes accruing t o the region were excluded from the na t iona l ana lys i s as i t would have t o be shown t h a t a l t e r n a t i v e investment oppor tuni t ies i n the region and elsewhere i n the economy would no t generate comparable b e n e f i t s , Transfer payments such as charges f o r water were excluded whi l s t the b e n e f i t t o farmers o f f e r t i l i s e r subsidies was included as a cos t t o the nation. When valuing the addi t ional output from the scheme, export p r i ces were used where Aus t ra l i a is a n e t exporter of the commodity and home market p r i ces were used i n cases such as vegetables which a r e v i r t u a l l y e n t i r e l y consumed domestically.

The d i r e c t cos ts considered were pub l ic and p r i v a t e I c a p i t a l , operat ing and maintenance cos ts . The d i r e c t b e n e f i t s

taken i n t o account were those t h a t a r i s e from:

The method of analys is is discussed i n more d e t a i l i n an e a r l i e r r epor t : Eton Irrigation Proposal - Queens land, Kconomics of Water Resource Deve Zopment Nwnber 2, Bureau of Agricultural Economics, Canberra 19 73; and a de ta i l ed discussion o f BAE experience i n evaluat ing water resource p ro jec t s i s contained i n D . Wesney and R.F. Woolcock, tThe Economic Assessment of Large Scale I r r i g a t i o n Pro jec t s ' , Proceedings of the Queensland Society of Sugar Cane T~chno Zogists, 42nd Conference, Mackay, Queensland, 19 75 .

. increased productivity a r i s i ng from the expansion of i r r i g a t i o n onto present ly dwland areas,

increased product ivi ty resu l t ing from a switch t o more intensive enterpr ises as the r e s u l t of a more r e l i ab l e water supply and

the avoidance of production losses due t o droughts.

To obtain estimates of the above costs and benef i ts it was necessary t o co l lec t data from a wide var ie ty of S t a t e and local Bairnsdale organisations as well as t o conduct a f i e ld survey of a l l farmers on the Mitchell f l a t s above Bairnsdale. The f i e l d survey was necessary because r e l i a b l e data on the physical aspects of current and future land use were not available from other sources.

A l l of the above est imates of costs and benef i ts were assembled i n t o a complete time p ro f i l e of cash outlays and inflows over the l i f e of the project . Evaluations according to conventional economic c r i t e r i a require t h a t these cash flows be reduced t o a s ing le value a t a pa r t i cu l a r point i n time, usually the present day, by the use of a discount factor. The actual calculat ions required depend on the c r i t e r i a o r c r i t e r i on se lected f o r appraising the project . There are three generally accepted c r i t e r i a avai lable ; the ne t present value, the benefi t-cost r a t i o and the i n t e rna l r a t e of re tu rn (IRR). A s i n most previous analyses of t h i s type carr ied out by the Bureau, the I R R alone has been used t o provide an indication of the economic merit of t h i s project . For a more deta i led discussion on these c r i t e r i a and t h e i r general advantages and disadvantages, the reader i s referred t o some of the standard t ex t s on the subject ; (3)

1 The I R R , by def in i t ion , i s t h a t r a t e of i n t e r e s t which, when used as a discount factor , w i l l equate the present values of the income stream and t he expenditure stream ovex the l i f e of the project . The IRR, i n theory, may be used t o evaluat.: and compare projects i n re la t ion t o two important economic conditions which

(3) For example see Mishan E . J., Cost-Benefit Analysis : An Informal! Introduction, A 1 len and Ihwin, London, 19 75 ; Pearce, D .W, , Cost-Bene f i t AnaZysis, McMi l lan Studies i n Economics, McMillan Press Ltd., London 1971; and Prest A.R. and Turvey R. , 'Cos t-Benefi t Analysis : A Survey', Ec. J. 75: 683-735 (1965).

should be s a t i s f i e d before government investment i n one o r more of the projects being appraised is undertaken. The first condition is t h a t the benef i ts should be a t l e a s t equal t o the cost of acquiring the cap i ta l invested i n it which ensures t h a t only projects with I R R s a t l e a s t equal t o the opportunity cost of c ap i t a l a re considered f o r government funding. The second and more rigorous condition is t h a t i n any investment period, the group of projects se lected should maximise the overal l benef i t s generated by the t o t a l amount of investment. This requires t h a t projects be ranked i n order of merit t o enable only the optimum por t fo l io of investments to be undertaken.

The IRR can, i n theory, be used t o rank projects under ce r ta in conditions, but i n pract ice , i t has been found impossible due t o the d i f f e r en t timing of a large number of submissions f o r f inancia l assistance and the l imited time avai lable t o complete many of the invest igat ions before a decision was required by the Government. In addit ion, investment periods become blurred and assumptions modified between projects evaluated a t d i f f e r en t points i n time. In these circumstances, only the first of the abovementioned investment conditions can be expected t o be s a t i s f i e d with the resu l t ing r i sk of misallocation of resources occurring when the second condition is not s a t i s f i e d . Thus it is not possible t o make accurate comparisions between I R R s calculated i n pas t evaluations and t he I R R calculated f o r the Mitchell Project . However, it i s f e l t t h a t economic evaluations of t h i s type do provide the decision makers with t he best possible information concerning whether a pa r t i cu l a r scheme i s economically sound, when compared with a pre-determined standard o r benchmark, o r whether implementation would e n t a i l a subs tan t ia l and continuous program of subsidisation.

I t is considered t h a t the most appropriate benchmark current ly avai lable which measures the cost o f publ ic cap i t a l is the r a t e of i n t e r e s t payable on long-term government borrowings. However, t he long-term bond r a t e is a nominal r a t e which contains a component t o allow fo r t he long-term in f l a t i on r a t e . The I R R as calculated by the Bureau is expressed i n real terms because o f the e x p l i c i t assumption t ha t the re la t ionsh ip between costs and re turns w i l l remain unchanged over the l i f e of the project . The bond r a t e would therefore need t o be adjusted downwards by an estimate of the long-term r a t e of i n f l a t i o n before any va l i d comparisons with t he I R R could be made. A fu r ther problem i s t ha t the longest term fo r government bonds is current ly 30 years compared with t he l i f e of water projects of 50 t o 75 years, thus the adjusted bond r a t e may d i f f e r from the market s a t e of i n t e r e s t applicable t o t he p ro jec t period. However, t h i s difference is not c r i t i c a l as the ne t cash flows a f t e r year

t h i r t y are not as subs tan t ia l as the e a r l i e r f igures due t o the discounting procedures used t o calcula te present values.

2. The Individual Farmer Analysis

The main benef ic iar ies i n most i r r i ga t i on schemes are the individual landholders involved and the analysis of the impact on t h i s group is very important f o r a number of reasons. F i r s t l y , the nat ional and regional benef i ts are usually derived from an aggregation of the impacts on individual farms. Secondly, the scheme may have an impact i n areas involving government policy such as reconstruction and adjustment , depressed farm incomes, various subsidy and quota schemes and so on. Most of these types of i ssues can only be analysed a t the farm level .

Detailed gross margins were constructed f o r both ex i s t ing and possible future post-scheme enterpr ises . These were then used t o e s t w a t e increased returns per hectare by applying the gross margiqs o f relevant i r r i ga t ed enterpr ises t o the expanded q e a , ef i r r i g a t i o n a f t e r changing the ex i s t i ng enterpr ise mix tdgtake account o f the switch t o more in tensive enterprises. Th3:budgets d i f f e r s l i g h t l y from those used i n the national viewpoifi"ta1ysis. For example, f e r t i l i s e r subsidies were deducted from the costs , S t a t e water charges were added and the export dai ry returns used i n th6 n a t i o ~ a l viewpoint analysis were adjusted upwards t o allow f o r the equalisat ion ' of priceS received f o r dairy produce sold on domestic and overseas markets.

The individual impact i n t h i s repor t has largexy been confined t o a marginal analysis f o r an 'averaget farm, which gives an indication of the increase i n cap i ta l required and the l i ke ly change i n ne t farm income resu l t ing from the scheme, As the proposal had no t been i n i t i a t e d on welfare grounds, no attempt was made t o estimate economic indicators such as farm incomes a t the individual farm level . In any case, t h i s would have been a d i f f i cu l t task given the wide range of farm s izes and enterpr ise types present ly undertaken on the f l a t s .

3. The Regional Analysis

The economic appraisal from the regional viewpoint should take i n to consideration two main types of impact. These are the t o t a l change i n soc ia l welfare and the way i n wfiich t h i s change i n welfare is d i s t r ibu ted between various groups of people within the region.

A complete appraisal of the above fac tors would require a deta i led and complex input-output analysis f o r the whole

regional economy. This would not only be time consuming and expensive but it: would a l so be extremely d i f f i c u l t to ca r ry out. In addit ion the value of such an exercise rlray be q u e ~ t i o n a b ~ e as it would have t o 6e shown tha t the impacts, a s estimated, i n terms of nat ional objectives, such a s decentra l isa t ion o r employment, could not be achieved more e f f i c i e n t l y -through a l t e rna t ive forms of investment o r government i n i t i a t i v e s .

For these reasons the Bureau has confined i ts analyses t o ident i fying the l i ke ly magnitude o f increased expenditure on farm materials and services , addit ional labour requirements during the construction and operational phases o f the scheme and, where appropriate, addit ional income earned by local producers and processing companies.

P a r t I11

THE PRESENT SITUATION I N THE PROJECT AREA

1. Descr ip t ion o f the p r o j e c t Area

Above Glenaladale the Mitchell River catchment is s teep and i so la ted and not su i t ab l e f o r agr icu l tu ra l development. Downstream from Glenaladale, the r i v e r passes through an area of r i ch a l l uv i a l f l a t s which a r e in tensively farmed and i t is t h i s area t o which most o f the scheme benef i ts w i l l accrue.

A t Bairnsdale there i s a t i d a l barrage across the r i v e r which creates a pumping pool of f resh water f o r the town's water supply. Below the barrage, i r r i g a t i o n from the r i v e r is possible only during periods when r i v e r flow i s s u f f i c i e n t t o provide fresh water f ree from t i d a l influence, The SR and WSC has s t a t ed t ha t the scheme w i l l not s i gn i f i c an t l y a f f e c t i r r i g a t i o n supplies below the barrage and thus t h i s area o f the f l a t s has been excluded from the Bureau's analysis . The area of the scheme's influence has therefore been taken as the area of the Mitchell River f l a t s from jus t above Glenaladale down t o the t i d a l barrage. The f l a t s along t h i s s t r e t ch o f the r i v e r a re f a i r l y well delineated from the surrounding h i l l country by an escarpment which, f o r the purposes of t h i s analysis , has been adopted as the boundary of t he area which w i l l be supplied with scheme water. The gross area o f these f l a t s has been estimated by the SR and WSC a t 4600 hectares. However, i n determining the ne t i r r i gab l e area, deductions fo r unproductive areas such as roads, lagoons, buildings, and unsuitable areas due to s o i l type o r poor drainage would have t o be made.

The gross area o f the f l a t s on each property was obtained from the records o f the Bairnsdale Shire Council and these f igures were substant ia ted during a BAE survey of a l l landholders on the f l a t s which was conducted during August 1975. The t o t a l area of f l a t s thus obtained was 4018 hectares which is equivalent to the gross area of 4600 hectares above, minus roads and o ther unproductive areas external t o property boundaries. To a r r i ve a t the n e t i r r i gab l e area of f l a t s , each landholder was asked during the survey t o estimate the area on the property which was :

(a) not su i t ab l e f o r future i r r i g a t i o n but which is current ly used f o r some form of agr icu l tu ra l production e.g. grazing.

(b) not current ly being used f o r production and not su i tab le fo r future use e.g. roads, house, yards, swamps e tc .

The r e su l t s o f these questions indicated t ha t there were 76 hectares i n category (a) and 77 hectares i n category (b) . This r e su l t s i n a ne t i r r i gab l e area of f l a t s within the project area of 3865 hectares fo r which the scheme w i l l supply 6.1 megalitres of water per hectare per year.

In addit ion to the f l a t s , the majority o f landholders own o r lease areas of adjacent ' h i l l 1 country which is usually operated i n conjunction with l ivestock en te rpr i ses on the f l a t s . For example, beef breeding may be pract ised on the h i l l country with fa t t en ing of the progeny carr ied out on the f l a t s , o r i n t he case of dairying, dry cows may spend pa r t o f the year on the h i l l country pastures. The BAE survey indicated t ha t a t o t a l of 13 691 hectares of h i l l country within the Bairnsdale Shire were operated i n conjunction with the f l a t s .

I r r i ga t i on development on the f l a t s above the barrage has been based on both r i ve r diversions and groundwater extraction. The i s sue o f addit ional r i v e r diversion l icences, which a re granted f o r a period of 15 years and thus could be regarded as permanent, has been frozen f o r many years because the SR and WSC has estimated t h a t the unregulated flows i n the r i v e r are not s u f f i c i e n t l y r e l i a b l e f o r any fur ther permanent development.

As an a l t e rna t ive , temporary l icences are issued which enable landholders t o d iver t from the r i v e r when flows are adequate. There a r e two types o f temporary l icences as follows:

Provisional Permits, which are issued fo r one year and which e n t i t l e the holder t o d iver t from the r i v e r when flows a r e i n excess of the requirements of permanent licensed areas, and

l

Sporadic Permits, which a re issued f o r one watering only and which take a lower p r i o r i t y to both permanent l icences and provisional permits.

Restrict ions on the issue of groundwater l icences have not ye t been introduced. There i s a l so a small amount o f i r r i g a t i o n from other sources such as swamps, farm dams e tc . The following tab le shows t h e areas authorised t o be i r r i g a t e d from each of the above sources f o r the period 1974-75.

Table 3-1

AREAS OF AUTHORISED IRRIGATION: 19 74- 75

Source Are a

hec ta res

1. Surface Diversion

Licences

Provis ional 'Permi ts

Sporadi c Permits

2. Groundwater

3. Other (No l i cences required) 55

Total Area

sowee: 1. and 2. SR and WSC. 3 . BAE Survey.

As each type o f l i cence is i ssued f o r a s p e c i f i c a rea only on each holding, t h e r e i s i n p r a c t i c e some overlap between the areas author ised from su r face and from groundwater sources. From information supplied by the SR and WSC and from the BAE survey, i t has been est imated t h a t 208 hec ta res l icensed f o r r i v e r d ivers ion a r e a l s o l icensed f o r groundwater ex t rac t ion . This e f f e c t i v e l y reduces t h e author ised a rea from 3068 hec ta res i n Table 3-1 t o 2860 hec ta res . Thus, t he re remains 1005 hectares o f p o t e n t i a l l y i r r i g a b l e land which does no t a t present have access t o some form o f water supply.

The BAE survey which recorded d e t a i l s o f i r r i g a t e d areas f o r t h e yea r 1974 only, showed t h a t 2458 hectares were a c t u a l l y i r r i g a t e d i n t h a t year. Some landholders were found t o be i r r i g a t i n g i n excess o f t h e i r l icensed a reas , while the majori ty were i r r i g a t i n g l e s s ; probably because o f the exce l l en t seasonal condit ions p reva i l ing during 1974. Table 3-2 below s e t s out r e s u l t s o f the survey f o r 1974, inc luding a breakdown of each source o f i r r i g a t i o n i n t o i r r i g a t i o n type (spray o r f lood) . The amount o f i r r i g a t i o n p rac t i sed on adjacent h i l l country is a l s o included.

- 13 -

Table 3-2

Source Type Flats H i l l s (a)

Permanent Licences Spray

Flood

Provisional Permits Spray

Flood

Sporadic Permits Spray

Flood

Groundwater spray

Flood

Other Spray

Flood

hectares

1013

5 26

185

10

60

n i l

635

n i l

2 9

n i l

hectares

4 1

n i l

7 8

n i l

Total 2458 154

Source : BAE Survey.

Note (a) Assumed t o be a l l spray i r r i ga t ed .

In addi t ion t o i r r i g a t i o n , r i v e r diversion a l s o supplies water t o the towns o f Bairnsdale (population 9000), Paynesville (900) and Lindenow (500). Total annual use f o r t h i s purpose i s approximately 1700 megalitres . The Bairnsdale and Paynesville water supply i s current ly obtained by pumping from the r i v e r i n the v i c i n i t y of the barrage across the r i v e r on the ou t sk i r t s o f Bairnsdale. Water qua l i t y fa1 1s markedly during dry periods espec ia l ly as the off take i s downstream of the in tense agr icu l tu ra l area o f the f l a t s .

The Bairnsdale Water Works' Trust has plans t o replace the ex i s t i ng pumping plant by construction o f a 60.96 cm (24 inch) p ipel ine from a low diversion weir t o be constructed on the r i v e r above the Glenaladale bridge. This o f f t ake would avoid t he present r i sk s o f pol lu t ion of the town water supply by agr icu l tu ra l drainage and give the town water supply a physical p r i o r i t y over i r r i g a t i o n diversions.

The above works a re independent of the i r r i ga t i on scheme works arid are t o be constructed with o r without the scheme. Accordingly, the benef i t s and costs associated with the town water supply scheme have not been included i n t h i s analysis.

2. Present Land Use

During the course of the BAE survey, deta i led information on the type and area of enterpr ises conducted on the f l a t s and on the associated h i l l country was collected fo r the years 1974 and 1975 f o r a l l propert ies i n the p ro jec t area. The survey r e su l t s a re shown i n Table 3-3 below. The r e su l t s indicate t h a t the l ivestock industr ies , pa r t i cu l a r l y dairying, a re the dominant enterpr ises i n the val ley. The t o t a l area cropped, a f t e r allowing f o r -double cropping, was only 919 he'ctares i n 1975 compared with 3024 hectares o f permanent pasture. Cropping la rge ly comprises vegetables of which french s t r i ng l e s s beans f o r processing dominate i n terms o f area. The majority of the vegetables produced i n the val ley are used fo r processing purposes due i n p a r t to the a rea being proclaimed f o r the purposes of f r u i t f l y control and consequently t he opportunity fo r s e l l i n g on the f resh market i s reduced.

Double cropping o f vegetables i s a f a i r l y common prac t ice , pa r t i cu l a r l y i n the case of summer crops with a shor t growing period such as beans which can be followed i n the winter by crops such as cauliflowers o r fodder crops such as rye grass. A l l bu t 41 hectares of the 919 hectares of land cropped has access t o i r r i g a t i o n water supplies, which r e f l e c t s the necessi ty o f i r r i g a t i o n t o viable vegetable production on the f l a t s .

3. Effects of Drought

The SR and WSC has 'est imated t h a t the present demand for r i v e r water f o r the purposes of i r r i ga t i on , urban water supply, r ipa r ian stock and domestit use, and r i v e r freshening represents only 3% of the average annual flow a t Glenaladale. However, the present i r r i g a t i o n development is subject t o recurrent water shortages during sharp recessions of natural flow i n the summer and autumn months. This has necess i ta ted the introduction of a ros te r ing system which assigns p r i o r i t i e s t o r ipar ian and urban users, and t o the various types of diversion l icences during times of low r i v e r flows.

Table 3-3

TYPE AND AREA OF ENTERPRISES I N THE PROJECT AREA : 1974 AND 1975

F l a t s H i l l s (a) Enterprise

1974 19 75 1974

hectares hectares hectares

A. Cmpping

Cash crops

French beans 283 369 3 Tomatoes 65 114 3 Lucerne 140 158 . 9 Maize 10 1 99 - Caul iflowers 25 70 - Gherkins 15 l S 3 Capsicums 12 12 - Cabbage 14 17 - Turnips 11 N I L - Sweet Corn 8 4 5 - . Other vegetables 19 47 13

Fodder crops

I t a l i a n rye 196 201 3 Oats 42 9 - Other 15 14

Total area of crops(b) 946 1170

Total land area f o r cropping 735 919 34

B. Permanent Pasture

Dairying 1466 1360 1 Beef 1184 1056 Sheep

1 5 1 4 5 1

Other 9 9 > 13 657 Dairy/Beef 363 36 5 I Bee f/Sheep 135 189 I

Total permanent pasture 3208 3024 13 657

Land not used 75 75 . - Total area 4018 4018 13 657

(a) Data f o r the enterprise's on the h i l l country was col lected f o r 1974 only. (b) Totals d i f f e r from the sum of the individual f igures due t o double cropping. Thus the a rea double cropped was 211 hectares i n 1974 and 251 hectares i n 1975.

The r e s t r i c t i o n po l icy agreed t o by the Mitchell River Advisory Committee and adopted fo r implementation as necessary i s based on flows a t the Glenaladale gauging s t a t i o n which i s upstream o f a l l but 64 hectares o f permanent i r r i g a t i o n development. A minimum flow of 40 megalitres per day i s reserved t o ensure adequate supplies f o r urban use and r i v e r freshening. The flow c r i t e r i a f o r the introduction of i r r i g a t i o n r e s t r i c t i o n s a r e s e t out i n Table 3-4 below:

Table 3-4

FLOW CRITERIA FOR INTRODUCTION OF 1 R R I GAT1 ON RESTRI CTIONS

% Avai lab i l i ty o f Water Entitlement Category Flow a t

l No. Glenaladale Ml/day Provisional Sporadic

Licence Permit Permit

% % %

1 >205 100 100 100

2 185- 205 100 100 N I L

~ 7 40- 50 8 t t

8 <40 N I L I I

Somce: SR F7 WSC

The main qua l i f i ca t ion with t h e flow c r i t e r i a i s i n r e l a t i on t o the actual demand. Licence holders are e n t i t l e d t o 6. l megalitres pe r hectare per annum, although the demand f o r t h i s water would occur mainly during the summer/autm months. The above flow c r i t e r i a have been derived from a demand of 100 mm per un i t area each 14 days which is considered by the SR and WSC t o be a reasonable maximum, but of course, w i l l not occur throughout the whole i r r i g a t i o n period.

Flow s t a t i s t i c s a t the Glenaladale gauging s t a t i o n were obtained, f o r the period 1937-38 t o 1974-75 inclus ive , f r o m the SR and WSC and the number and s eve r i t y of r e s t r i c t i o n s i n each o f the above r e s t r i c t i o n categories were determined. The p robab i l i ty o f r e s t r i c t i o n s i n each of the categories, by months, i s shown i n Table 3- 5 below.

Table 3 - 5

PROBABILITY OF RESTRICTIONS : BY MONTH AND CATEGORY

P - .

Whole Category Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Years

Note: By def in i t ion , Category 1 indicates t he r e a r e no r e s t r i c t i o n s i n force; thus t he probabi l i ty of t he r e being a r e s t r i c t i o n of any sever i ty i s then given by t he f igures for Category 2 which includes a l l r e s t r i c t i o n events of Category 2 or greater sever i ty .

The above t ab le indicates t h a t i n 39 years out o f 100 there w i l l be no r e s t r i c t i o n s encountered a t a l l [ i .e . Category 1) and t h a t permanent l icences w i l l be completely f r e e o f r e s t r i c t i ons i n 5 3 years i n every 100 (i.e. Categories 1 t o 4 ) - Restrict ions a re confined mainly t o the period January t o April which corresponds t o the period o f summer vegetable growth, pa r t i cu l a r l y beans. Sporadic and provisional permits would be f u l l y avai lable i n 39 years i n every 100.

In assessing the monetary losses associated with i r r i g a t i o n r e s t r i c t i ons , the en te rpr i ses were divided i n to cropping and permanent pasture categories and a number o f simplifying assumptions were necessary, as s e t out below.

1 (a) EvaZuation of Cropping Losses l

( i ) Beans were assumed t o represent a l l summer crops and a

l 70 day growing period was adopted.

( i i ) For periods of r e s t r i c t i ons , it was assumed t h a t the avai lable water would be used on crops a t the expense of permanent pasture. Most farms have both l ivestock and cropping enterpr ises and i t would seem logical t o use the water on the most valuable ones.

( i i i ) Inherent i n the analysis is the assumption t h a t applicat ion r a t e s o f water pe r hectare remain unchanged and the imposition of r e s t r i c t i ons would mean t h a t ce r ta in areas were not watered ra the r than water being spread more t h i n l y over t he whole area. This assumption was necess i ta ted by a lack o f data on the re la t ionship between water usage and yie lds . However,

. er ro rs resu l t ing from this assumption are not l i k e l y t o have a s i gn i f i c an t e f f e c t on the ana ly t i ca l r e su l t s and

l would tend t o overs ta te the benef i t s of drought avoidance t o the scheme.

(iv) . Areas o f crops watered from groundwater would not be s ign i f i can t ly af fected by r e s t r i c t i o n s o r droughts and on farms where groundwater is used i n conjunction with r i v e r diversions, groundwater could be diverted from permanent pasture onto the cropped area.

An examination o f the individual farm schedules from the BAE survey, taking i n t o account the above assumptions concerning water use, indicated t h a t o f the t o t a l area o f summer crops i n 1975,

- 12 hectares would have.been affected by a category 3 o r greater r e s t r i c t i o n (i.e. no water avai lable) ,

- 24 hectares by a category 4 r e s t r i c t i on ,

- 73 hectares by a category 5 r e s t r i c t i o n ,

- 155 hectares by a category 6 r e s t r i c t i o n ,

- 281 hectares by a category 8 r e s t r i c t i on ,

i .e. a t o t a l of 281 hectares would be completely without water during a category 8 r e s t r i c t i on .

(vi) To take account of the f a c t t h a t the re w i l l be a range of p lant ing and harvesting dates over the summer, t h e annual crop has been divided i n to 4 phases on the bas i s o f f igures f o r factory intake. Thus i t was assumed t h a t 25% o f the crop would be harvested by mid-February, 50% by the end o f February, 75% by mid-March, and 100% by the end of the f i r s t week i n April. Consequently, t he 4 growing phases are:

- 7 December t o 15 February,

- 20 December to 28 February,

- 5 January t o 15 March,

- 28 January t o 7 April.

I t was assumed t h a t the area affected by r e s t r i c t i o n s was equally d i s t r ibu ted between the 4 growing phases so t h a t f o r example, there would be approximately 70 '

hectares affected by a category 8 r e s t r i c t i o n i n each growing period.

(v i i ) The percentage loss i n processible y ie ld as the r e s u l t of s h o r r f a l l s i n i r r i g a t i o n i s based on t he data contained i n Table 3-6.

To reduce the complexity of determining. the loss i n processible yie ld , the above percentages were ~ e i g h t e d according to the number of days i n the growing period and an average loss determined, so t ha t f o r example:

- a 3 - d a y d e l a y w o u l d r e s u l t i n a 1 0 % loss , - a l O t t I I t t 11 t t I I 24% 11

#

Table 3-6

PERCENTAGE LOSS IN PROCESSIBLE YIELD RESULTING FROM IRRIGATION DELAYS

CROP STAGE

Delays with a Particular Establishment Fruit Fruit Pre-

Establishment Flowering Irrigation (Day 0 to (Day 24 to (Day 36 Setting Development Harvest

Day 23) Day 35) (Day 46 (Day 56 (Day 67 to Day 45) to Day 55) to Day 66) to Day 70)

3 days - 10 2 5 15 10 20

10 days - 30 60 35 30 20

15 days - 5 0 8 5 50 50 20

20 days - 100 100 8 0 50 20

25 or more days - 100 100 100 5 0 20

Source: J. Ferguson, Private Diversions, Mitchell River - The Effect of Irrigation Restrictions , Attachment 11, SR and WSC (unpublished), 1975.

( v i i i ) F Q ~ each of the 4-crop phases, the average length and the p robabi l i ty of occurrence of droughts i n each category were estimated. These fac tors were then applied t o the number of hectares affected by droughts i n each category (see v and v i above) and t h e i r y ie ld loss factors (see v i i above), t o a r r i ve a t t he equivalent number o f hectares which would be to t a l l y l o s t during an average year.(4) The r e s u l t s of these calculations a r e as follows :

(4) These calculations can be followed through by considering the following example fo r the first crop phase. The necessary data i s contained i n the follow2ng table.

Number of Loss i n Total Loss Average Additional ~ e t t a r e s Yield per Dmught of Affected by Each

. Drought Factor i e , (c X d) Category

days

2 na 0 n i l 0 3 19 3.2 0.48 1.5 4 14 3.2 0.34 1.1 5 9 12.1 0.22 2.7 6 6 20.2 0.16 3.2 7 5 15.0 0.14 2.1 8 3 16.6 0.10 1.7

l Total na 70.3 ns 12.3

nay not applicable.

Thus there would be an equivalent o f 12.3 hectares l o s t during an average drought f o r the firs* crop phase. However, droughts occur only i n 42 years out of every 100, thus the average annual l o s s would be 12.3 X 0.42 = 5 hectares.

Crop Phase No. hectares l a s t

I In monetary terms, t h i s loss would represent a reduction i n gross revenue of $18 000 p. a. However, ce r ta in items of the var iable costs of production would not need t o be spent. The magnitude of the savings i n variable costs depends on the s tage i n crop growth a t which t he r e s t r i c t i o n s occur and t h i s would be exceedingly complex t o determine with any accuracy. For s impl ic i ty , it has been assumed tha t 10% of the variable costs would no t be spent which would reduce the loss due t o droughts from $18 000 p.a. t o $17 350 a . In pract ice , ' th i s reduction is so small t h a t the e f f ec t on the overa l l r e su l t s would be completely ins ignif icant .

(b) EvaZuaCion of LCvestock Enterprise Losses

( i ) A drought was defined as any period greater than 10 consecutive days o f i r r i g a t i o n r e s t r i c t i ons .

( i i ) I t was assumed t h a t as r e s t r i c t i ons a re introduced, ce r ta in areas o f permanent pas ture receive no water r a the r than the avai lable water being spread more th in ly over the t o t a l l icensed area. As already noted above, the crop areas receive p r i o r i t y over permanent

l pasture and i n areas where groundwater overlaps l icensed areas, subs t i tu t ion of groundwater f o r r i v e r water occurs.

( i i i ) The effect of a drought on pasture i s measured i n terms of the following:

. the cost o f supplementary feed f o r the maintenance of a l l affected l ivestock,

. the cost o f the addit ional feed required by l a c t a t i ng dairy cows for periods of up t o 21 days of drought,

f o r droughts of g rea te r than 21 consecutive days, it is assumed t h a t l a c t a t i ng cows would begin t o be dr ied o f f prematurely r e su l t i ng i n a loss of milk production. (The majority of the herd would normally be dr ied o f f during February and March).

(iv) The area o f permanent pasture affected by t he introduction o f i r r i g a t i o n r e s t r i c t i o n s was calculated f o r each o f the SR and WSC r e s t r i c t i o n categories, based on the assumptions i n ( i ) and ( i i ) above and t he BAE survey resul ts . In addit ion, the length of r e s t r i c t i o n s o f greater than 10 days duration, over t he period 1937-38 t o 1974-75 was determined f o r each category as follows .

Area of Permanent Total No. of Days Category Pasture without o f Rest r ic t ions

Water over t he Period 1937-38 t o 1974-75

hectares

(v) The da i ly cost of supplementary feed plus the value o f the da i ly quant i ty of milk l o s t due t o premature termination of l a c t a t i on were obtained fo r the above areas from the assumptions provided by SR and WSC.(S) These f igures were then applied t o the above areas and respective periods t o a r r ive a t an average annual loss due t o droughts. The value of milk production foregone t o the nation was taken as $0.20 per l i t r e as discussed Latex i n t h i s report. The r e s u l t s of these Calculati6n3 a re &S f 6 l ldW.:

(5) J. Ferguson, Private Diversions, Mitchell River - The Effect of I r r i ga t i on Restr ic t ions , Attachment I, SR and WSC, Unpublished Paper, 1975.

$ per annum

Cost o f supplementary maintenance feeding f o r a l l a f fec ted l ives tock 8 600

Cost o f addit ional feed requirements o f l a c t a t i n g dai ry cows fo r up t o 2 1 days o f droilght 1 020

Cost o f milk production l o s t during prolonged droughts o f over 21 days 5 150

Total Cost $14 770

Par t IV

THE ESTIMATED INCREMENTAL BENEFITS TO THE IRRIGATION PROPOSAL

1. F u t u r e Land Use w i t h t h e Scheme

With the introduction of the i r r i g a t i o n scheme, a t o t a l of 3865 hectares a f the Mitchell River f l a t s is t o be provided with a very r e l i a b l e water supply which is expected t o r e s u l t i n an expansion of the area used f o r cropping, pa r t i cu l a r l y f o r 1 vegetable production.

In discussions with the Victorian Department of Agriculture, it was considered t h a t processing beans, cauliflowers, maize, tomatoes, sweet corn, gherkins, capsicum and lucerne a re the enterpr ises agronomically sui ted t o t he area and tha t t he expansion of cropping should be based on these crops. The SR and WSC i n t h e i r 1974 repor t (6) , allowed f o r an increase of 931 hectares i n the area of processing beans (from 526 t o 1457 hectares) over a 9-year period and an increase i n other vegetables from 162 t o 405 hectares over the same period. The f e a s i b i l i t y of achieving these increases w i l l , of course, depend la rge ly on access t o market ou t le t s .

As a guide t o fu ture land use, each landholder was asked during a BAE survey, what en te rpr i se mix he would adopt when t he scheme water became avai lable i n t he v i c i n i t y of 1981. These r e s u l t s a r e shown i n Table 4-1, where t he present land use is a l so included f o r comparative purposes,

The r e s u l t s indicate a f a i r l y subs tan t ia l increase i n vegetable cropping, par t i cu la r ly beans and cauliflowers, a t t h e expense of the permanent pasture. A s with t he increases i n vegetable areas estimated by the SR and WSC, t he f e a s i b i l i t y of achieving these increases w i l l , of course, depend largely on access t o market ou t l e t s which, i n the case of vegetables, means the ava i l ab i l i t y of processing company contracts.

( 6 ) Sta te Rivers and Water Supply Commission, Op. cdt., p. 12 .

Table 4-1

PRESENT AND FUTURE LAND USE ACCORDING TO LANDHOLDER EXPECTATIONS

(Hectares)

Enterprise

~ (1) Cash Crops

Beans

Tomatoes

Lucerne

Maize

Cauliflowers

Gherkins

Capsicums

Sweet corn

Other vegetables

(2) Fodder Crops

Tot a1 crops (b)

Total land area for crops(c)

1 (3) Permanent Pastwe l

(4) Unknown

1 (S) Land Not Used

~ (6) Total Area of F k t s

(a) Indicates landholder intentions following the introduction of the scheme in 1981. (b) and (c) The difference between areas in (b) and (c) represent t h e influence of double cropping.

S m c e : BAE Survey.

A s only ins ignif icant quan t i t i es of vegetables a r e imported and exported, the large po ten t ia l increase i n production from the project area must be disposed of on the Australian market. Under normal circumstances, the quant i ty produced is determined by f r e e market forces acting through t he e f f ec t s of supply and demand on prices. In the case of vegetables f o r processing, a s l i g h t modification is introduced because a processing company contract is generally necessary before access t o market o u t l e t s can be obtained. Thus although t h i s same s e t of market forces, acting upon t he companies and i nd i r ec t l y t he growers, determines the quanti ty produced, it is la rge ly the companies which control such things a s the location of growing areas and the methods of production t o be adopted.

There seems l i t t l e doubt tha t the Mitchell River f l a t s would become more a t t r a c t i v e t o these companies as a source of vegetables once a guaranteed water supply becomes available. However, t he companies a re Australia-wide organisations which find it desi rable t o spread t h e i r operations over as wide an area as possible i n order to :

. minimise t he agricultural, r i s k s ,

, take advantage of season81 var ia t ions ,

. minimise f re igh t charges, and

. optimally use t h e i r p lant capacity i n each S ta te ,

In the future , as growing areas around c i t i e s become urbanised and ex i s t ing factory capacity and technology needs updating, these companies may decide t o r a t i ona l i s e t h e i r whole operation by building l a rge r p lants in new regions. This could involve closing down some of t h e i r operations i n some regions completely, especia l ly i f ex i s t ing plants have l imited expansion po ten t ia l f o r one reason or another. One major processing company, Cottees General Foods Limited which processes a large proportion of t he vegetable production from the pro j ec t area, has recen t ly announced plans t o close down i ts Victorian operation.(7) Thus, although i r r i ga t i on schemes may make some areas more a t t r a c t i v e vegetable growing areas, large scale increases i n processor contracts a r e not necessar i ly guaranteed.

Processors may increase t h e i r contracted areas on the Mitchell f l a t s due to :

. increasing market shares f o r t h e i r products,

. the area becoming more a t t r a c t i v e than other areas once water is guaranteed,

. increases i n demand f o r t h e i r products due t o increasing population andlor per cap i ta consumption, and

. loss of o ther areas due t o urbanisation.

From the nat ional viewpoint, increases resu l t ing from the f i r s t two points above have the ne t e f f ec t of a reduction in areas grown elsewhere i n t he nation. Although some gains may be achieved by moving from one a rea t o another of higher p r o d u c t i ~ i t y o r lower costs , t h i s type of change is unlikely t o be able t o generate suf f ic ien t bene f i t s t o j u s t i f y the high costs of public investment i n an i r r i ga t i on scheme.

Accordingly, i n projecting fu ture land use on the f l a t s f o r the purposes of t h i s analysis , the increase in vegetable production has been based only on t h e changes i n demand due t o population growth and changes i n per cap i ta consumption, and on the need t o replace areas which have been forced out of production due t o urban expansion. The other enterpr ises mentioned above, maize and lucerne, as well as the l ives tock industr ies (dairy and beef) a re not u l t imately confined t o t he domestic market and the projected increases in these a c t i v i t i e s a re not expected t o have any impact on markets f o r these product S.

A de ta i l ed description of t he methods used t o project fu ture vegetable areas on the f l a t s i s provided i n Appendix A. Projections were ca r r ied forward t o the year 2001 which is 20 years a f t e r t he water becomes avai lable iL 1981. I t was assumed tha t without t h e scheme, the re would be no fu r ther increases i n the area of summer vegetables due t o t he reluctance o f processors t o take on the r i s k of droughts. Thus increases i n crop areas due t o the scheme commence in 1981.

The r e s u l t s of t he analysis of pas t t rends i n vegetable production indicate t h a t , i n general terms, the production of vegetables has been increasing s ince World War I T according t o

population growth and per cap i ta consumption. This increase in production has been achieved from a f a i r l y constant area due t o increases i n yiklds as the r e s u l t of technological advances. The s i tua t ion f o r individual vegetables i s generally s imi la r , although, i n some cases, changes i n consumption pat terns and yie lds have caused areas of c e r t a in vegetables t o expand and others t o contract .

The r e s u l t s of the project ions i n Appendix A a r e shown in Table 4-2 below. The increases shown in t he t ab l e represent increases over the present (1975) areas f o r which it i s considered t h a t ou t l e t s w i l l be available.

Table 4-2

CUMULATIVE INCREASE I N VEGETABLE AREAS ON THE FLATS FROM 1981-82

(Hectares)

-

Crop by 1985-86 by 1990-91 by 2000-2001

Beans 7 5 150 299 Caul i f lowers N i l N i l N i l

Tomatoes 89 89 89

Sweet Corn 13 25 49

Gherkins ) Capsicums )

8

The other crops considered t o have po ten t ia l f o r the area are maize and lucerne, although landholders did not express any s ign i f ican t i n t e r e s t i n expanding these enterpr ises . This is probably due t o the f a c t t ha t they wished t o expand t h e i r areas of beans, caulif lowers and other vegetables with much higher gross margins t o a g rea te r extent than the above t a b l e suggests might be feas ib le from the nat ional viewpoint. However, i f the vegetable expansion is confined t o the above f igures , then it is considered t h a t landholders would wish t o introduce other crops such as maize and lucerne in to t h e i r en te rpr i se mix. This would be especia l ly so i f the scheme, as expected, leads t o an increase

i n land values due t o water being supplied a t a cost much l e s s than the value of i t s marginal product.

The BAE survey indicated t ha t landholders intended t o crop a t o t a l of 1308 hectares of t h e f l a t s following the scheme's introduction. A s the projected increase i n vegetable area above does not f u l l y account fo r t h i s 1308 hectares, it has been assumed tha t the balance of t h i s area w i l l be used fo r maize and lucerne production. The projected vegetable area does not reach i ts maximum u n t i l the year 2000 and i n the meantime, it has been assumed tha t maize and lucerne w i l l be grown on t ha t area. The balance of the f l a t s , 2635 hectares, i s assumed t o be devoted t o permanent pasture i n accordance with landholder intentions. Table 4-3 s e t s out the land-use pat tern adopted f o r the year 2000 and the resu l t ing changes from the 'without' scheme areas.

In addit ion, an expansion of fodder ,cropping is expected t o occur as pa r t of a double cropping ro ta t ion with the summer crops such as beans and tomatoes. Landholders indicated t ha t the area of such fodder crops would expand t o 485 hectares following the scheme's introduction. However, an examination of the future enterpr ise s t ruc ture indicated t h a t the po ten t ia l f o r fodder cropping was considerably greater than t h i s and it was assumed tha t an expansion t o 603 hectares would occur. In the event of t h i s expansion not occurring the scheme benef i ts would need t o be reduced accordingly.

2. Water Demand

( a ) Irrigation

The t o t a l area of the f l a t s which is i r r i gab l e has been estimated by the BAE a t 3865 hectares. Survey r e s u l t s indicate t h a t only 196 hectares of t h i s a r e expected t o remain using groundwater, leaving a balance of 3669 hectares t o be supplied with 6.1 megalitres per hectare (2 acre f ee t per acre) per annum from the scheme. The t o t a l annual demand for r i ve r diversion from the scheme is thus 22 380 megalitres.

Table 4-3

PRESENT AND PROJECTED FUTURE LAND USE PATTERN Wectares]

Enterpr ise Pre-Scheme Post-Scheme Change i n (Year 2000) Area

(1) Crops

Beans Tomat oe S

Caul i f lowers Gherkins/Capsicums Sweet corn Fodder crops Maize Lucerne Other vegetables

Total Area of CropsCa)

Total Crop Land Area

Dairying - dryland - i r r i ga t ed

Beef - dryland - i r r i ga t ed

Sheep - dryland - i r r i g a t e d Dairy/Beef - dryland - i r r i ga t ed Beef/Sheep - dryland - i r r i ga t ed Other

Total Permanent Pasture 3024 2635 - 389

(3) Land Not Used 75 75 0

Total Area of F la t s 4018 4018 na

na, not applicable. (a) Allows f o r double cropping. Discrepancies i n t o t a l s due t o rounding and conversion of metric un i t s . (b) From BAE Survey.

(bl Urban and IndustriaZ Demand

The SR and WSC has al located 4933 megalitres from the scheme f o r urban use, based on a doubling of the present demand which was estimated by the S ta te au thor i t i es a t 2467 megalitres. The Bairnsdale Town Council however, puts actual current usage a t 1730 megalitres.

(cl River Freshening

The 8R and WSC considers t h a t it would be desi rable t o - maintain a base flow of not l e s s than 25 megalitres per day past Bairnsdale fo r r i v e r freshening and t o prevent the backflow of s a l i ne water from Lake King. Total annual use f o r these purposes has been estimated by the SR and WSC a t 8600 megalitres. Some of t h i s flow w i l l be u t i l i s e d by r ipar ian holdings downstream from Bairnsdale f o r stock and domestic purposes and f o r i r r i g a t i o n when water qua l i t y permits. (8) I t i s not expected t ha t t he scheme w i l l have any s ign i f ican t impact on these downstream users.

l (d) River Losses

The SR and WSC has estimated t ha t 3700 megalitres per year should be allowed f o r r i v e r losses.

l ( e ) Total Demand

The t o t a l demand fo r water from the scheme, a t t h e storage, i s therefore summarised as follows:

Megalitres per annum l

l

I r r i ga t i on demand Urban and i ndus t r i a l use River freshening River losses

Total demand 39 613

3. Water Supply from the Scheme

m e re la t ionsh ip between storage capaci ty and avai lable supply fo r varjous l eve l s of l i k e l y annual demand for water has

--

(8) Sta te Rivers and Water Supply Commission, O p . cit.,p. 13.

been examined by the SR and WSC. In addit ion, a study was made of the e f f ec t of various frequencies of f a i l u r e based on r i v e r flow records from 1890 t o 1973. Further d e t a i l s of these exercises can be found i n the S ta te report.(9)

In view of the high value of production envisaged and the dependence of processing indus t r i es on the s t a b i l i t y of t h a t production, the SR and WSC decided t o adopt a frequency of f a i l u r e such t ha t supply would have been guaranteed i n every year over the 83 years of monthly flows examined. The r e s u l t s of the analysis indicated t h a t f o r demands over the range covered, the effectiveness of t h e storage i s independent of i t s locat ion i n the r i ve r system provided it i s not too f a r upstream f o r f i l l i n g i n the spring. The - ac t ive storage capacity required fo r an estimated demand of 39 500 megali tres per year was estimated at 17 250 megalitres, Pending de ta i l ed designing of the dam, dead storage was assumed t o be 2500 megalitres, bringing required t o t a l capacity t o 19 750 megalitres.

In addition t o the above estimates, consideration was given t o the merits of building a l a rger storage i n view of t he low incremental cos t of addi t ional capacity. For example, an increase i n capacity from 20 000 t o 25 000 megali tres a t S i t e 10 has been estimated t o cost $260 000. A s a r e su l t , t he SR and WSC decided t o adopt a capacity of 25 000 megalitres which would give an annual assured supply of 46 500 megalitres. Thus t he system would yie ld about 7000 megalitres i n excess of projected annual demands over t he next 20 years. The S t a t e repor t suggests t h a t t h i s water could be used t o support accelerated i ndus t r i a l and urban growth and t o make greater provision f o r r i v e r freshening i f experience shows t h i s t o be necessary.

The a l locat ion of water from the scheme f o r urban use already assumes a doubling of demand over the next 20 years and from information supplied t o t he BAE, present use fo r . urban purposes a t Lindenow, Bairnsdale and Paynesville t o t a l s only 1730 megalitres per year compared with the S t a t e estimate of 2500 megalitres. Neither the Bairnsdale Town Council nor t h e Bairnsdale Shire Council can envisage any dramatic increase i n water consuming i ndus t r i a l growth i n t he foreseeable future . Under t h ~ circumstances, it would be hard t o j u s t i f y a t taching any benef i t s t o the provision of this addit ional capacity.

-

(9) S t a t e Rivers and Water Supply Commission,op. cit., pp. 15 and 17.

In addition t o the above excess capacity, it should a l so be noted t ha t the storage has been designed on the bas i s of an unusually high r e l i a b i l i t y of supply. A s mentioned above, the SR and WSC has adopted a dam s i ze which would have ensured 100% of supply being available during t he worst year on record. Thus it would be of i n t e r e s t t o ca lcu la te the storage capacity required t o s a t i s f y only t he known demands over the next 20 years and adopting a s l i g h t l y l e s s r e l i a b l e supply. After excluding the excess capaci t ies discussed above, a known demand of 38 000 megalitres i s obtained and Figure 3 of the S t a t e report out l ines the re la t ionsh ip between act ive storage capacity and assured annual supply fo r various levels of supply r e l i a b i l i t y . For an annual demand of 38 000 megali tres, the required storage capacity can be read off the graph i n Figure 3 as follows:

Frequency of Supply Restr ic t ion

Required Storage Capacity

(megalitres)

N i l 1 year i n 80 1 year i n 40 1 year i n 20 1 year i n 10

These f igures indicate t h a t i f a l e s s r e l i a b l e water supply was adopted then a storage of a lower capacity than t ha t proposed by the SR and WSC, may suff ice . For example, a storage with a r e l i a b i l i t y of 95% could be achieved with 44% of the proposed capacity (11 100 megali tres) .

Also, the Victorian Department of Agriculture considers t h a t the requirements f o r various cropping ro ta t ions would be i n the v i c i n i t y of 1.5 t o 3.0 megali tres per hectare in an average year and appl icat ions of t h i s order were confirmed by data collected during the BAE f i e l d survey. This suggests t ha t , i n many cases, considerably l e s s water than the 6.1 megalitres per hectare entitlement may ac tua l ly be used by i r r i ga to r s . Permanent pasture i n comparison i s expected t o consume 4.6 t o 6.1 megalitres per hectare per annwn.

4. Economic Appraisal from the National Viewpoint

(a) Project L i f e

The SR and W C have s ta ted that t h e ba s i c dam s t ruc tu r e would have an 'e ternal ' l i f e , with items such as pipes and valves

not needing replacement fo r a l e a s t 70-100 years. The Bureau normally adopts a l i f e of 75 years fo r i r r i ga t i on projects , however i n t h i s case, the S t a t e has foreshadowed a second s tage storage which would supersede t he presently proposed works i n approximately 50 years hence. For t h i s reason, no allowance has been made by the SR and WSC i n the annual cos t s of operation and maintenance f o r replacement of the pipes and valves. I t i s therefore considered t h a t a project l i f e of 50 years should be adopted although, i n r ea l i t y , cos t s and benef i t s occurring beyond, say 50 years, a r e normally ins ignif icant due t o the e f fec t s of discounting.

(b) PubZic Capita2 Costs

The co.st of the dam and associated works has been estimated by the SR and WSC a t $8.7 mill ion, with an addi t ional cost of $575 000 f o r land resumption. A breakdown of these cos t s in to works components was given i n Part P and a fu r ther breakdown of material cos t s appears l a t e r in the discussion of t he appraisal from the Regional viewpoint.

(cl Annual PubZic 0perat;ng Costs

The t o t a l annual cos t s of operation and maintenance including s a l a r i e s f o r two rese rvo i r keepers, materials , t ranspor t and other cos t s has been estimated by the SR and WSC a t $30 000.

Cdl Rate of ~ezreZopazt

Public expenditure was scheduled t o commence i n 1975-76 with f i n a l design and invest igat ional work. Construction is scheduled t o commence i n 1977-78 and t o f i n i s h i n 1980-81. The r a t e and timing of public expenditure a s estimated by the SR and WC i s a s follows:

l Year $

The S ta te au thor i t i es have s ta ted t h a t t h i s schedule of expenditure w i l l be the same whether o r not Commonwealth f inancia l ass is tance is approved. The timing depends t o a l a rge degree on t he completion of Dartmouth Dam on schedule releasing the required f inancia l resources and sk i l l ed manpower.

Assuming t h a t t he Mitchell River Dam is completed i n Ju ly 1981, it i s expected t h a t the f u l l water supply would be available fo r i r r i ga t i on i n the spring of 1981. Landholders have indicated during the BAE survey, t ha t they w i l l commence i r r i ga t i on on over 95% of the proposed area immediately i .e . in the summer of 1981. Thus for s impl ic i ty , it has been assumed tha t the whole of the i r r i ga t i on water enti t lements a re taken up i n t ha t year.

(eS Private On-Famn CapituZ Expenditure

Expenditure f o r addit ional i r r i g a t i o n equipment and f a r m machinery on each farm depends bas ica l ly on the following fac tors :

. the addi t ional area of current ly dryland country t o be i r r i g a t e d and the spare capacity of exis t ing p lan t which could be used fo r such an expansion,

. the adequacy of ex i s t ing i r r i g a t i o n p lan t t o handle i r r i g a t i o n under scheme conditions especia l ly i n cases where more water per hectare w i l l become available and where there w i l l be a switch t o more in tensive agr icu l tu re such as vegetable production,

. the need f o r many landholders t o switch from using grbundwater t o r i ve r diversion. This would involve providing a main t o the r i ve r , a pumping f a c i l i t y and some rearrangement of the in te rna l farm main system and

. the s u i t a b i l i t y and capacity of ex i s t ing farm plant and machinery t o handle the increases i n i r r i g a t e d area and cropping a c t i v i t i e s .

Information on the above fac tors was col lected from a l l landholders during t h e BAE survey and addit ional data on costs of i r r i ga t i on equipment was obtained from the SR and MSC and loca l Ba iq sda l e i r r i g a t i o n plant suppl iers . The t o t a l cost of addit ional farm i r r i g a t i o n equipment was estimated by t he Bureau a t $833 000 and addit ional farm plant a t $85 000. Tke addit ional

fixed and semi-fixed cos t s associated with the above equipment including depreciat ion on a l l plant and repa i r s and maintenance on the i r r i g a t i o n p lan t , was estimated a t $73 870 per annum.

ff) Eva~uation of Benefits

To es tab l i sh the benef i t s due t o i r r i g a t i o n , it i s necessary t o obtain est imates i n economic terms of the di f ference i n productivi ty within the p ro jec t a rea with and without the proposed scheme. In the 'without' scheme s i t ua t i on , i t has been assumed t h a t no fu r t he r i r r i g a t i o n development w i l l occur due t o the u n r e l i a b i l i t y of r i v e r flows during the c r i t i c a l period and due t o the reluctance of processors t o take on the r i s k of droughts. I t has been assumed a l so t h a t the changes i n t he urban water system w i l l occur i n the 'withoutt scheme s i tua t ion .

The re levant physical information on present and fu tu r e land use, enterpr ises and water a v a i l a b i l i t y has a l ready been deta i led e a r l i e r in t h i s Par t . The gross margins analyses f o r each en te rpr i se i n the 'with1 and 'withoutt scheme s i t ua t i ons a r e given i n Appendix B. These budgets l ist a l l the assumptions with respect t o gross re turns and var iab le co s t s which were required t o est imate the ne t r e tu rns per hectare f o r each enterpr ise . A l l of the income and cos t est imates were expressed i n June 1975 pr ices i n l i n e with other est imates such as public c ap i t a l expenditure. Transfer payments such a s f e r t i l i s e r subsidies and charges f o r water have not been included.

Long-term commodity p r ices expressed in r e a l 1975 p r i c e levels were determined f o r the beef and da i ry enterpr ises . In the case of da i ry products, any increase o r decrease i n da i ry production from the scheme represents , from the nat ional viewpoint, a change i n t he quant i ty of b u t t e r and skim milk powder sold on the export market and has been valued accordingly. Thus from the nat ional viewpoint da i ry production has been valued a t $0.02 per l i t r e of milk produced on a farmgate bas i s . This pr ice r e f l e c t s the demand and supply condit ions l i k e l y t o prevai l on the export market in 1980 and i s expressed i n r e a l 1975 p r i c e levels . Beef pr ices were projected t o 1980 and resu l ted i n an average r e a l p r i c e assumption of $0.86 per kilogram.

The commodity p r i c e s used f o r vegetables were the pr ices gontained i n the processing company con t rac t s with

2

growers. Th.&e'pflces a re the subject of negot ia t ions each year between growerr-organisations and t he processing companies on a

Sta t e wide bas i s , with regard t o the i n t e r s t a t e s i t u a t i o n and would presumably represent p r ice l eve l s which r e f l e c t demand and supply i n equilibrium i n a competitive s i t ua t i on . I t i s therefore f e l t t h a t these p r ices represent a reasonable long-term outlook f o r use i n the analys is .

In addi t ion t o the above benef i t s r esu l t ing from the expansion of i r r i g a t i o n and changes i n land use, the scheme w i l l r e s u l t i n a benef i t due t o the avoidance of per iodic crop and l ivestock losses incurred during periods of i r r i g a t i o n r e s t r i c t i o n s . These losses have been quant i f ied i n Part 111.

The t o t a l benef i t s , a t the farm leve l , a t t r i bu t ab l e t o the scheme, were determined as follows:

Net Benefits due t o I r r i ga t i on = Net re turns f o r each en te rpr i se with the scheme,

plus Avoidance of drought losses , minus Net re tu rns f o r each en te rpr i se without the scheme, and minus Fixed and semi-fixed cos t s of t he addi t ional p lant and

equipment required.

l The r e s u l t s of these calcula t ions a r e shown i n Table 4-4. Changes i n land use occur u n t i l the year 2000, so t ha t only se lected years have been shown i n the t ab l e fo r s impl ic i ty .

( g ) Sens i t iv i ty Analysis

In order t o t e s t the impact on the r e s u l t s of poss ible changes i n some of the bas ic parameters used t o construct the flow of benef i t s and cos t s over time, the e f f ec t of a 10% change i n commodity p r ices , crop yie lds and t o t a l c ap i t a l cos t s were included i n the r e s u l t s .

5. Results o f the Economic Appraisal from the Nat ional Viewpoint

A l l the cos t s and benef i t s discussed i n the foregoing sect ions were assembled i n t h e i r respect ive time p ro f i l e s t o give a ne t cash flow over the l i f e of the p ro jec t (Table 4-5) from which the i n t e rna l r a t e of re turn (IRR) was calcula ted.

The I R R ca lcula ted from these bas ic assumptions was 1.9%. I t w i l l be reca l l ed t ha t the I R R as calculated by t he Bureau is a real r a t e of re turn and not a nominal r a t e . The s e n s i t i v i t y of the r e s u l t t o changes i n the bas ic assumptions was a l so t es ted , r e su l t i ng i n the following range of IRRs.

Table 4-4 ESTIMATED NET BENEFITS TO THE SCmE : SELECTED YEARS(a)

(Dollars)

2024-2025

Net re turns - with schemecb) 263 337 427 746 467 707 505 306 544 789

- Net re turns - without S cheme (c ) 74 939 74 939 74 939 74 939 74 939

+ Drought protection 32 124 32 124 32 124 32 124 32 124

- Additional farm fixed costs 73 870 73 870 73 870 73 870 73 870

= Scheme Net Benefits 146 652 311 061 351 022 388 621 428 104

(a) A s many of the areas have a common land use i n the with and t he without s i t ua t i on , only t he area which undergoes a change i n land use has been included i n t h i s t ab le . (b) 'Net re turns - with scheme' were estimated by multiplying t h e area of each enterpr ise i n t h e post-completion enterpr ise mix by i t s g w s s margin. The type of i r r i ga t ed cropping i s expected t o change over t he l i f e of the proposal a s deta i led i n Appendix A . (c) 'Net re turns - without scheme' were determined by multiplying the gross margin of t he pre-scheme, pasture-based enterpr ises by t h e i r gross margins. These estimates represent an opportunity cost and a r e constavt a s farmers a r e expected t o change from pasture t o cropping a s soon as water i s avai lable (i.e. during 1981-82).

Table 4-5

CASH FLOWS OVER THE LIFE OF THE PROJECT

Year Item

1 2 3 4 5 6 7 8

Public Sector

Capital cos ts

- works 100 000 200 000 1 000 000 3 300 000 3 600 000 500 000

- land resumption 125 000

Operating cos ts

Private Sector

Capital cos ts

- cul t iva t ion p lan t

- i r r i g a t i o n p lan t

Repairs, maintenance and depreciation

- i r r i ga t ion p lan t

Depreciation

- cul t iva t ion plant

Net Returns

Crop enterprises

Pasture enterprises

Drought protect ion 32 124 32 124

Net cash flow -225 000 -200 000 -1 000 000 -3 300 000 -3 600 000 -950 000 801 545 168 767

(Continued on next page)

Table a-5 bontinued)

Year Item

9 1 0 11 12 1 3 14 15 1 6 1 7

Public Sector

Capital cos t s

- works

- land

- land resumption

Operating cos t s 30 000 30 000 30 000 30 000 30 000 30 000 30 000 30 000 30 000

Private Sector

Capital cos t s

- cul t iva t ion plant

- immigration plant

Repairs, maintenance and depreciation

- i r r i g a t i o n p lan t 59 100 59 100 59 100 59 100 59 100 59 100 59 100 59 100 59 100

Depreciation

- cul t iva t ion p lan t 14 770 14 770 14 770 14 770 14 770 14 770 14 770 14 770 14 770

Net Returns

Crop en te rpr i ses 367 568 419 683 427 746 435 691 443 754 451 699 459 762 467 707 475 227

Pasture en te rpr i ses -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939

Drought protect ion 32 124 32 124 32 124 32 124 32 124 32 124 32 124 32 124 32 124

Net cash flow 220 883 272 998 281 061 289 006 297 069 305 014 313 077 321 022 328 542

(Continued on next page)

able 4-5 (continued)

Year Item

18 19 20 21 22 2 3 24 2 5 26-50,

Public Sector

- works

- land resumption

Operating costs 30 000 30 000 30 000 30 000 30 000 30 000 30 000 30 000 30 000

Private Sector

Capital costs I

- cul t iva t ion p lan t

- immigration p lan t l

Repairs, maintenance

v .

an& depreciation

- i r r i g a t i o n p lan t 59 100 59 100 59 100 59 100 59 100 59 100 59 1 0 0 59 100 59 100

Depreciation

- cul t iva t ion p lan t 14 770 14 770 14 770 14 770 14 770 14 770 1 4 770 14 770 1 4 770

N e t Returns

Crop en te rpr i ses 482 747 490 267 497 787 505 306 512 826 520 346 527 866 535 386 544 789 .

Pasture en te rpr i ses -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939 -74 939

Drought protect ion 32 124 32 124 32 124 32 124 32 124 32 124 32 124 32 124 32 124

Net cash flow 336 062 343 582 351 102 358 621 366 141 373 661 381 181 388 701 398 104

Variat ion IRR (%)

Basic assumptions 1.9 10% increase i n y ie lds /p r ices 2.9 10% increase i n t o t a l c ap i t a l co s t s 1.4 10% decrease i n y ie lds /p r ices 0.7 10% decrease i n t o t a l c ap i t a l cos t s 2.3

These r e s u l t s ind ica te t h a t the IRR i s r e l a t i v e l y sens i t ive t o changes i n the bas ic assumptions; f o r example a 10% increase i n y ie lds o r p r ices r e s u l t s i n a 50% increase i n the IRR. However, i n absolute terms these changes make l i t t l e s ign i f i can t d i f ference t o the r e s u l t s i n terms of economic v i a b i l i t y . The s e n s i t i v i t y analys is ind ica tes t h a t t o achieve a more s a t i s f ac to ry r a t e of re tu rn of say 5% t o 6 % , enormous increases i n re turns would be necessary, o r a l t e rna t i ve ly , very large decreases i n cos t s and c a p i t a l requirements would be needed.

6. Economic Cost o f Water

The charges f o r i r r i g a t i o n water t o farmers vary markedly from S t a t e t o S t a t e and from region t o region but , a s a general r u l e , the p r i c e charged i s f a r l e s s than the f u l l economic cost of the water. Pr ic ing po l i c i e s i n general have been aimed a t recovering from farmers only the annual cos t s of operation and maintenance of a scheme. However, the f ixed cos t s of publ ic i r r i g a t i o n schemes a r e r e a l cos t s t o be borne by the community i n general and unless these a r e recovered from farmers, ' represent a subs tan t ia l subsidy t o a small number of landholders on no pa r t i cu l a r c r i t e r i o n o ther than t h e i r geographic locat ion1 (10)

I n Victor ia , the re is a standard p r ic ing code and charges vary according t o the type of i r r i g a t i o n being provided; e.g. channel supplies, r i v e r diversion e t c . In cases such a s the Mitchell Scheme, r i v e r d ive r t e r s pay $1.05 per megali tre of

l annual l icence with a minimum payable of $15.75 per annwn.

The economic cost of water is derived by est imating the costs of i n t e r e s t and redemption on the publ ic c ap i t a l cos t s p lus the annual publ ic cos t s of operation and maintenance and applying t h i s t o t a l t o the quan t i ty of water a c tua l l y consumed by. the end users . I f i n t e r e s t and redemption is taken a t 10% pe r annum over 50 years then the t o t a l annual publ ic cos t s would be $965 469.

(10) RuraZ Policy I n AustraZia. Report t o the Prime Minister by a Working Group, May 1974, AGPS, Canberra, 1974,para. 5.77.

The s to rage i s expected t o y i e l d 47 000 megal i t res per annum which gives a cos t of $20.54 p e r megal i t re of annual y i e l d . However, i t appears t h a t only about 26 000 megal i t res o f t h i s w i l l a c t u a l l y be used f o r urban and i r r i g a t i o n purposes which pu t s the cos t of water a t $37.00 p e r megal i t re .

7. Impact of t h e Scheme on Individual- Landholders

An ana lys i s o f the e f f e c t of t h e scheme on each l landholder was not undertaken due t o the complexity and wide

v a r i e t y of individual circumstances on each property. However, some i n d i c a t i o n of the individual impact of t h e scheme can be gained by using the f igures f o r t h e aggregate increase i n n e t farm income ca lcu la ted i n the na t iona l viewpoint ana lys i s . Before t h i s can be done, these f i g u r e s need t o be adjus ted t o allow f o r f e r t i l i s e r subs id ies which were excluded from t h e na t iona l ana lys i s and f o r the add i t ion of water charges. In addi t ion , the r e tu rns t o da i ry ing were increased t o allow f o r the e f f e c t of equa l i sa t ion o f s a l e s on the domestic and export markets .

In aggregate, landholders w i l l need t o spend $918 000 on c a p i t a l items such a s increased i r r i g a t i o n capacity, mains t o the r i v e r and add i t iona l farm p lan t and equipment. The n e t b e n e f i t s a t f u l l development of the scheme associa ted with t h i s expenditure can be derived as follows:

Increase i n revenue l e s s va r i ab le c o s t s 499 594

plus. f e r t i l i s e r subsidy 565 plus avoidance of drought

losses 40 549 l e s s add i t iona l f ixed and

semi-fixed c o s t s 73 870 l e s s water charges 23 500

Increase i n n e t farm income 443 338

This increase i n ne t farm income represen t s a 49% r a t e of r e t u r n on t h e add i t iona l c a p i t a l requi red and t o any increase i n owner/operator input .

From the BAE Survey r e s u l t s it was estimated t h a t t h e r e a r e a t o t a l of 99 farm u n i t s on t h e f l a t s a f t e r allowing f o r amalgamations of p roper t i e s operated j o i n t l y o r under s i n g l e management. Thus, although the r e s u l t s f o r each property w i l l

d i f f e r widely according t o s i z e and type of e n t e r p r i s e s conducted, an 'average1 property w i l l need t o i n v e s t $9270 i n add i t iona l p lan t and equipment and w i l l achieve an increase i n n e t farm income of $4478 pe r annum a t f u l l development.

8. Economic Appraisal from the Regional Viewpoint The main benef ic i a r i e s o f the scheme a r e t h e

landholders whose n e t incomes w i l l r i s e a s t h e r e s u l t o f s t a b i l i s e d and increased production. As already discussed, the increase i n ne t farm incomes amounts t o some $443 000 p e r annum and t h i s amount l e s s income t a x would be ava i l ab le f o r spending both within and outs ide the region.

Associated with t h i s r i s e i n ne t farm incomes i s an increase i n the demand f o r both a g r i c u l t u r a l inputs and i n employment oppor tuni t ies on farms. The increase i n vegetable production w i l l lead t o an increased demand f o r casual labour f o r harves t ing opera t ions and f o r i r r i g a t i o n a c t i v i t i e s . The estimated increased demand f o r the major a g r i c u l t u r a l inpu t s i s d e t a i l e d below i n Table 4-6. Although most of these inpu t s a r e manufactured outs ide the region, loca l supp l i e r s w i l l bene f i t through the r e t a i l margins on goods supplied.

Table 4-6

ESTIMATED ADDITIONAL ANNUAL EXPENDITURE ON MAJOR AGRICULTURAL INPUTS(a)

Input Value

($1 Seed, seedl ings e t c . 65 042 F e r t i l i s e r 19 760 H o r t i c u l t u r a l chemicals 48 676 E l e c t r i c i t y f o r i r r i g a t i o n 14 015 Fuel and o i l f o r cu l t iva t ion(b ) 12 779 Casual labour 51 295

Tota l 211 567

(a) These a r e low es t imates a s the c o s t s of the inpu t s which a r e supplied by vegetable processors a r e not included. (b) Includes an est imate f o r the fodder e n t e r p r i s e t o cover pas tu re establishment and c u l t i v a t i o n bu t does not account f o r any s i m i l a r expenditure on permanent pas ture a s t h i s would be neg l ig ib le .

The construction of the publ ic works w i l l i n j e c t an estimated $8.7m i n t o the region and provide f o r considerable loca l employment oppor tuni t ies during the 6-year construction period. The value of loca l mater ia ls , goods and se rv ices used i n the construction, a s estimated by S t a t e au tho r i t i e s , is s e t out i n Table 4-7. Local employment oppor tuni t ies were estimated t o t o t a l 265 man years a t a value of $2.0m. The number of men employed i n each year of the construction period is a s follows:

Year Men Employed

1 5 2 10 3 5 0 4 80 5 100 6 20

Total 265 man years.

Table 4-7

VALUE OF LJCAL MATERIALS, GOODS AND SERVICES USED TN CONSTRUCTION OF THE PROJECT

Ttem Cost

$ Gippsland cement 200 000 Aggregate f o r concrete 100 000 Timber 80 000 Local contracts f o r housing i n

Lindenow, s i t e camp and workshop 350 000

Miscellaneous loca l purchases 100 000 Local labour cos t 2 000 000

Total 2 830 000

The annual public operation and maintenance cost of $30 000 provides f o r the employment of two r e ~ r v o i r keepers on a f u l l time basis plus transpoz2 and misceI laneous ma.terialS .

Pr iva te on-farm cap i t a l expenditure oT $918 000, althoagh consis t ing- largely of purchases of goods manufactured outside -the region, w i l l benef i t local -sbppliers and i n s t a l l a t i o n contractgrs.

A l l of the above expenditures within the region would have a m u l t i p l i e r e f f e c t on regional incomes and provide f u r t h e r employment oppor tuni t ies f o r the l o c a l workforce. I n addi t ion , the dam i t s e l f w i l l provide the regional population with a rec rea t iona l resource and add t o the t o u r i s t a t t r a c t i o n s of the region.

Final ly , it should be mentioned t h a t ca re should be taken i n i n t e r p r e t i n g the r e s u l t s of t h i s regional ana lys i s a s any a l t e r n a t i v e investment of a s i m i l a r magnitude elsewhere i n the economy may produce comparable o r s u b s t a n t i a l l y g r e a t e r benef i t s . Thus, unless i t can be es tab l i shed t h a t this p a r t i c u l a r investment i s super ior t o the a l t e r n a t i v e s a v a i l a b l e with respect t o i ts regional impact, the r e s u l t s a r e of doubtful value.

Par t V

SUMMARY AND CONCLUS IONS

An economic evaluation of the Mitchell River I r r iga t ion Scheme, as proposed by the Victorian Government, has been undertaken and the r e s u l t s considered with respect t o the nat ional , regional and individual farmer viewpoints. The main conclusions drawn from the analys is a re as follows:

1. From the nat ional viewpoint the i n t e rna l r a t e s of re tu rn ranged from 0.7 t o 2.9% f o r a range of commodity pr ices , crop y ie lds and t o t a l c ap i t a l cos ts , A n IRR of 1.9% was calcula ted using the level of commodity pr ices , y ie lds and cap i t a l cos t s considered most l i k e l y . The analys is of the scheme was based on the design put forward by the SR and WSC bu t it should be noted t h a t t h i s design may not represent the most economic one from the nat ional viewpoint. The SR and WSC has adopted a dam s i z e which would have assured 100% of supply being avai lable during the worst year on record, A s torage giving f u l l supply i n 95 years i n 100 could be achieved with 44% of the proposed dam capacity. In addit ion, vegetable crop water requirements appear t o be considerably l e s s than the l icence entitlement on which the SR and WSC estimated the required storage capacity. Hence, there seems t o be considerable scope fo r adopting a much smaller storage with resu l t ing reductions in the public c ap i t a l requirements. However even i f public c ap i t a l cos t s could feas ib ly be reduced by say one-half, the scheme i s unlikely t o show re turns of g rea te r than 4% using t h e most l i ke ly level of pr ices and yie lds .

3. The IRR obtained i n t h i s study should be considered i n the l i g h t of the discussion on the in te rpre ta t ion of the IRR contained i n Part 11. I t w i l l be recal led t h a t the IRR as ca lcula ted is i n r e a l t e n s and should be compared with the long-term bond r a t e only a f t e r adjustments have been made f o r the long-term r a t e of in f la t ion . A s t h i s project has not been evaluated i n comparissn,, with any other schemes which may be competing far l imited f inanc ia l resources, the IRR cannot be used fo r ranking purposes. However, the r a t e

of re turn obtained is almost c e r t a i n l y below the cos t of borrowing funds and thus on economic grounds, t h e p ro jec t would not be included on any shor t l is t f o r funding purposes.

4. From the experience gained .by t h e BAE i n appraising r u r a l water development p ro jec t s during t h e pas t 10 years, t h e overa l l r e s u l t s obtained could be judged a s poor on economic grounds when compared with o the r i r r i g a t i o n schemes.

5. From the individual viewpoint t h e scheme w i l l r e s u l t i n increased net farm incomes due t o t h e expansion of i r r i g a t i o n and t h e el imination of i r r i g a t i o n r e s t r i c t i o n s during dry periods, Public investment i n the scheme t o t a l s $9.275m which, when spread over t h e 99 farms within t h e scheme area , represents an investment of about $94 000 per f a n . In addit ion p r iva te farm investment i s expected t o be approximately $9300 per farm, In comparison, t h e average increase i n net farm income is expected t o be $4478 which represents a 48% re turn on p r iva te funds invested bu t only a very low r a t e of r e t u r n i f a l l c a p i t a l and public operat ing c o s t s a r e included.

6. Water i s t o be supplied t o farmers a t $1.05 per megali tre which i s way below t h e ac tual cos t t o t h e nation of the water supplied. This has been ca lcula ted i n Part I V of t h i s repor t a t about $37 per megalitre.

7. From the regional viewpoint t h e main benef ic ia r i e s a r e t h e individual farmers involved, with t h e regional workforce a l s o gaining employment oppor tuni t ies a t t h e construction s i t e and on t h e farms. Regional suppl iers of ag r icu l tu ra l inputs , construction mater ia ls and services w i l l a l so benef i t through t h e p r o f i t margins on increased turnover. However,most of the agr icu l tu ra l produce processors a r e located outside t h e region. The overa l l r e s u l t s a re displayed f o r i l l u s t r a t i v e purposes and quick v i sua l appreciat ion i n t h e impact statement s e t out i n Table 5-1.

Impact Level Monetary Impacts Not Quantified Non-monetary Impacts

National Increased r e l i a b i l i t y of supply of vegetables t o processors

Secondary benef i t s which would occur on a national s ca l e ( i . e . within and without t he region) - mul t ip l ie r e f f ec t from spending by farmers,

labour, p r i va t e f i rms . - t a x revenue from the above groups which has a

mul t ip l ie r e f f ec t throughout t h e economy - increases i n revenues of backward linked

en te rpr i ses supplying farm and processing company inputs

Individual Vegetable producers i n other regions may have t h e i r f u tu r e growth poten t ia l r e s t r i c t e d due t o t he a b i l i t y - of Mitchell River producers t o increase t h e i r production over t he next 25 years

Producers i n t he pro jec t area w i l l receive both higher and more s t a b l e incomes a s a r e s u l t of t he el iminat ion of drought and a switch t o more intensive en te rpr i ses .

Regional Probably minor net benef i t s from p r o f i t s a r i s i ng from Recreation - enhancement of camping and expenditure on farm cap i t a l , dam construction, farm f i sh ing i n the a rea input goods and services and labour a s well. a s t he - access f o r boating a c t i v i t i e s r e su l t an t regional mul t ip l ie r e f f ec t s . Ecological detriment is l i k e l y t o be

minimal as f l o r a and fauna adversely a f fec ted a r e mainly non-indigenous-to t h e area. May be l imited adverse ecological e f f ec t s from f e r t i l i s e r and chemical residues.

Improved r e l i a b i l i t y of urban water supply (probably minor bene f i t ) .

Table 5-1 A. ESTIMATED MONETARY IMPACTS

Impact Level Benefits Costs Estimated Net Economic Effect

Annual net return Capital cos ts as Internal Rates of a s valued t o the valued t o the Return :

National

nation: Additional annual production

Drought losses saved

nation : public: p r iva te :

t o t a l :

Annual public

Basic assumptions 10% increase i n yields/ p r ices

10% increase i n t o t a l c ap i t a l

operation and 10%- decrease i n yields/ maintenance cost $ 30 000 pr ices 0.7%

Total annual pr iva te 10% decrease i n t o t a l depreciation plus R . cap i ta l 2.3% and M. on i r r i g a t i o n Overall range when plant $ 73 870 tes ted f o r

s ens i t i v i t y 0.7% t o 2.9% I

m Benefits a s valued t o Costs as valued t o Total increase i n ne t CI

farmers : farmers : farm income I

Net re turn from additional Farm cap i t a l $918 197 $443 338 agr icu l tura l production Water charges $23 500

Individual $417 013 Total annual pr iva te depreciation plus R .

Drought losses and M. on i r r i ga t ion saved $40 549 plant $73 870

Additional employment opportunities created by the project :

Farm employment $126 750 Regional Dam c o n s t r u c t i ~ n $2 000 000

Dam operation and maintenance $20 000

Reta i l park-up component of addit ional farm input expenditure af $211 600

('Continued on next page)

Appendix A

PROJECTIONS OF FUTURE VEGETABLE AREAS ON THE MITCHELL FLATS

As discussed i n Part IV of the repor t , increases i n vegetable production i n t he project area have been confined t o changes i n demand due t o increased population and changes i n per cap i ta consumption and t o the need t o replace exis t ing areas which w i l l be urbanised,

The method used t o project the fu ture areas of vegetables on the Mitchell f l a t s and the underlying assumptions necessary are s e t out below:

1. I t i s assumed tha t imports and exports i n most cases a re f a i r l y ins ignif icant and constant.

2. Area of vegetables = Production = Yield

Population X Per Capita Yield

C6risumpt ion

3 . Estimates of the increase i n vegetable area were obtained using the following formula:

INCREASE I N AREA

= (Pt X Pcc x V - Pto x P c c xV) x M + U t t o

where :

P = Pcc = v =

Population (Australia) Per cap i ta consumption (Australia) Proportion of t o t a l production produced i n Victoria

Assumed proportionate increase f o r the Mitchell River f l a t s Urbanised production which could be t ransferred t o Mitchell Time [years) I n i t i a l time period C1981) I r r iga ted , post-scheme yield on the f l a t s .

Notes on the derivation of t he above parameters:

- Time s e r i e s data was col lected f o r vegetable area, production and per cap i ta consumption f o r both Victor ia and Austral ia. Simple l i nea r regressions provided re la t ionships between these var iables and time fo r beans, caulif lowers, tomatoes, sweet corn and t o t a l vegetables.

- The population projections used were those put forward by the National Population Inquiry, 1975(11) , and a level of net migration of 50 000 per annum was assumed.

- The proportion of Australian vegetable production produced i n Victoria was taken a s the average f o r t h i s f igure over the past .10 years. This proportion has remained f a i r l y constant i n the past and it was assumed tha t it would not change s ign i f i c an t l y i n the future.

- Where the trends i n per cap i ta consumption suggested marked changes i n t h e future , these f igures were modified, i f appropriate, by checking on consumption f igures from comparable overseas countries,

- The yie lds used were the i r r i ga t ed post-scheme yie lds fo r the f l a t s as determined f o r the gross margins analysis by t he Victorian Department of Agriculture. It should be noted t h a t the analysis of trends i n yie lds over time fo r both Austra l ia and Victor ia showed tha t , i n general, s ign i f ican t increases i n yie lds could be expected t o occur over the next 25 years. This expected increase takes i n t o account increasing the proportion of i r r i ga t ed t o dryland cropping and the influence of technological advance. However, these fac tors have not been included i n t h i s analysis a s t h e influence of i r r i g a t i o n on vegetable production on t he Mitchell River f l a t s has been taken i n to account and it is inappropriate t o consider the bene f i t s of any fu ture technological advance without a l so taking account of the costs .

(11) NationaZ PopuZation Inquiry. PopuZation Projections for the States and Territories of AustraZia. Cmponents o f PopuZation Growth and Sex Age Composition. Resea~ch Report No. 1, AGPS, Canberra, 1975.

- The proportion of increases i n Victorian production which could be a l located t o the Mitchell f l a t s i s d i f f i c u l t t o determine and by necess i ty must involve some very subjective assumptions. A s a general r u l e , it was decided t o a l loca te the overal l increase t o each d i s t r i c t according t o present shares, with the exception of those d i s t r i c t s where urbanisation i s l i k e l y t o reduce areas i n the medium-term future . However, t h i s r u l e had t o be modified i n most cases t o a1 low fo r the specia l circumstances associated with each individual crop. These are discussed in more d e t a i l below.

- I t was assumed tha t i n the absence of the scheme no fu r the r increases i n summer vegetables would occur. Thus increases on the f l a t s area commence i n 1981 when water i s scheduled t o be available from the scheme.

1 Results o f t h e P ro jec t i ons

1 (a ) Beans

The following tab le shows the main fac tors which were taken in to account i n determining the future area of beans on the f l a t s . Approximately 70% of beans a re used f o r processing and it was .assumed tha t t h i s f igure w i l l remain constant. A l l of the Victorian increase i n processing bean production beyond 1981 has been al located t o Mitchell (i .e. M = 0.7) because, f i r s t l y , 97% of processing bean areas a re located i n East Gippsland, mainly a t Bairnsdale and Orbost. Secondly, i t i s f e l t t h a t Bairnsdale w i l l

l have an advantage over Orbost following the scheme. Both of these areas have problems a t present; the Mitchell f l a t s a re prone t o droughts and Orbost i s subject t o flooding. A choice between these two areas i n future would favour t h e Mitchell once droughts a re eliminated and because the area i s c loser t o the processing works i n Melbourne. I t should a l so be noted t ha t there are no areas of processing beans in danger of being

l eliminated due t o the urban expansion of Melbourne.

His to r ica l t rends fo r caulif lowers ind ica te t h a t although population has increased, higher yie lds and a decl ine i n per cap i ta consumption have resul ted i n significant decreases i n t he a rea devoted t o cauliflower production i n both Australia and

CALCULATION OF THE INCREASE IN BEAN AREA:

SELECTED YEARS

(a) Population P. (Australia) 14 406 166 14 570 299 15 234 772 16 062 617 17 611 756

(b) Per capita consumption Pcc (kg/head)

(c) P X Pcc 50 565 51 724 55 912 61 199 73 142

(e) Victorian production (i .e. (C) X (d) tonnes)

(f) Production increase (cumulative) na 162 749 1 489 3 161

(h) Increase on Mitchell flats (tonnes)

(i) Yield (tonneslhectare) na 7.4 7.4 7.4 7.4

(j) Increase in area (hectares) na I S 7 1 141 299

na, not applicable.

Victoria. These trends are expected t o continue in the fu ture and thus, from the nat ional viewpoint, it seems unl ikely t h a t any future increases i n the area of caulif lowers on the Mitchell ' f l a t s could be jus t i f i ed . There a re s ign i f ican t areas of cauliflowers around Melbourne which may be -replaced by urban subdivision, however, even i f these were t ransferred elsewhere, it would not be expected t o o f f s e t the overal l downward trend i n these a l t e rna t ive areas , In the case of the Mitchell f l a t s , the a rea planted may o r may not decl ine a s t h i s would depend on the long-term super io r i ty of the area f o r cauliflower production. If

1 a decline i n area did occur it would occur w%th or without the i r r i ga t i on scheme, as cauliflowers are a winter crop which would not be g rea t ly affected by t he present periodic i r r i g a t i o n r e s t r i c t i ons . I t was therefore assumed f o r the purposes of the analysis t ha t the present area of caulif lowers on the f l a t s w i l l remain unchanged i n the future.

Analysis of h i s t o r i c a l data indicates t ha t the re w i l l be s ign i f ican t increases i n fu ture production of tomatoes due t o both increasing population and increasing per cap i ta consumption. In addition there a r e s ign i f ican t areas around Melbourne which will be affected by urban expansion.

In the case of the Mitchell f l a t s it i s considered t ha t the re would be only l imited scope f o r increases in the area grown. The t r ad i t i ona l tomato areas of northern Victor ia and t h e Riverina of N.S.W. a re more sui ted t o t h i s crop c l imat ica l ly and it is probable t h a t most of the expansion w i l l occur i n areas such as these. Although s imilar y ie lds can be obtained a t Bairnsdale, t he higher humidity causes a much greater disease problem and these yie lds a re only obtained through much greater disease control expenditure. The f r e e draining s o i l s a t Bairnsdal'e a r e more sui ted t o machine harvesting operations following r a in , however, the higher f e r t i l i t y of these s o i l s produces excess vegetation i n re la t ion t o f r u i t which is detrimental t o machine harvesting. rn addit ion, expansion of t h e f resh market supply does not appear a t t r a c t i v e t o Bairnsdale producers because of the complexity of administrat ive procedures involved i n f r u i t f l y quarantine.

After considering a l l the information supplied by processors and various sect ions of the Department of Agriculture, it has been assumed t h a t t he maximum area of tomatoes l i k e l y t o

be grown on the Mitchell f l a t s i n the medium-term future would be 202 hectares , which represents an increase of 89 hectares over the present area.

Demand has been increasing due t o population growth and increasing per c ap i t a consumption. This has resul ted i n s t e a d i l y increasing areas planted desp i te t he s ign i f i can t y ie ld increases t h a t have been occurring. Projections ind ica te t h a t per c ap i t a consumption could double over t he next 15 t o 20 years and even i f t h i s does occur, Australian per c ap i t a consumption would be lower than t ha t of U.S. consumers.

Victorian growers have t r a d i t i o n a l l y produced only a small proportion of the S t a t e ' s sweet corn requirements, Projections indicate t h a t an addi t ional 250 hectares could be needed in Victor ia by t he year 2000 but very l i t t l e information i s avai lable on how much of t h i s increase may be taken up i n t he Bairnsdale area.

In t he l a t e s t s t a t i s t i c s avai lable , f o r t he year 1972-73, Gippsland as a whole produced about 40% of the Victorian crop and t h i s was confined almost exclusively t o the Orbost Shire. The BAE survey indicated t ha t i n 1974-75, t he area of sweet corn on the Mitchell f l a t s increased t o 50 hectares and landholders indicated t h a t t h i s would increase t o 76 hectares i n 1981. Without evidence t o the contrary, it has been assumed t ha t Gippsland w i l l continue t o grow 40% of t he Victorian crop, but t ha t from 1981 onwards, the Bairnsdale Shire [i.e. the Mitchell f l a t s ) w i l l t ake up h a l f of t he increases projected f o r t h e Gippsland S t a t i s t i c a l Division - t h a t is 20% of the Statewide increase. This would r e s u l t i n t he following increases i n t he scheme area:

From 1981 t o 1986 : 13 hectares From 1981 t o 1991 : 25 From 1981 t o 2001 : 50

( e ) Other Vegetables

The other vegetables considered by the Victorian Department of Agriculture t o be su i t ed t o the Mitchell f l a t s a r e capsicums and gherkins. S t a t i s t i c s fo r 1972-7 3 show t h a t gherkin production i n Victor ia i s ins ign i f i can t and t ha t capsicum production was only about 180 tonnes [probably l e s s than 4.0

Table B-l

ENTERPRISE GROSS MARGINS : NATIONAL ANALYSIS

Maize Sweet Corn Tomatoes Capsicums Beans Lucerne Item for Grain for Processing for Processing for Processing for Processing for Hay

Yield (tonnes per ha) 7.0 15.0 46.0 25.0 7.4 15.0

On-farm price ($ per 100.00 49.20 71.60 132.00 132.50 35.00 tonne)

Gross returns ($ per ha) 700.00 738.00 3293.60 3300.00 980.50 525.00

Variable costs ($ per ha)

Seed or seedlings

Fertilisers - cost to individual - nitrogen bounty Fuel and oil

Repairs and maintenance-

Plant hire

Weedicide

Insecticide

Growth regulating chemical

Labour

Contract harvesting

Other contracts

Freight - -

Total variable costs 190.56 68.33 947.68 1739.86 260.65 306.29

Gross margin [ $ per ha) 509.44 669.17 2345.92 " 1560.14 719.85 218.71

Table B-2

ENTERPRISE GROSS MARGINS : LIVESTOCK : NATIONAL ANALYSIS

Permanent Pasture - Beef Fodder

Permanent Pasture - Dairy - Beef Item

Dryland I r r i ga t ed Dryland I r r iga ted I r r i ga t ed

Stock Sales

Return ($ per ha) 15.20 30.40 193.73 383.95 715.98

Dairy Produce

Butterfat (kg per ha) 168.13 336.25 - - - Pr i ce ($ per ha) 0.46 0.46 - - -

Return ($ per ha) 77.34 154.67 - - -

Total re turn ($ per ha)

Variable Costs ($ per ha)

Stock purchase Veterinary and o r dairy

Shed 24.71 49.42 Bull costs (b) - - E l e c t r i c i t y - 36.69 Pasture establishment and

cu l t i va t i on - - F e r t i l i s e r 8.19 41.47 Purchased feeds 14.82 29.65 Chemical and pasture cos t s 2.47 4.94

Total var iab le costs 50.19 165.17 30.42 128.11 592.51

Gross Margin ($ per ha) 42.35 19.90 163.31 255.84 123.47

(a) This estimate does not include a commercial t ransact ion. I t is an estimated cost of t ransfer from a, breeding and rear ing a c t i v i t y on h i l l country t o t he fa t ten ing a c t i v i t y on i r r i ga t ed fodder. (b) Ar t i f i c i a l breeding (AB) i s assumed f o r dairy en te rpr i ses and t he cost is included as a veter inary charge.

hectares) . Over 60% of capsicum production occurred i n t he Melbourne S t a t i s t i c a l Division and t h e majori ty of t h i s i s not l i k e l y t o be affected by urbanisation. Gippsland accounts f o r about 15% of capsicum production which would probably amount t o l e s s than 4 hectares. BAE survey da t a f o r 1975 ind ica tes t h a t the re were 15 hectares of gherkins and 1 2 hectares of capsicums being grown on the f l a t s . I t would seem reasonable t o allow f o r these areas t o double during t he period 1981 t o 2000.

The BAE survey a l so indicated t ha t landholders would increase t h e i r areas of o ther miscellaneous vegetable crops i n a minor way i n the future. However, due t o the d i f f i c u l t y of obtaining cost and re turn da t a f o r a wide range of unusual crops and due t o the ins ign i f i can t e f f ec t t h a t t h i s would have on t he r e s u l t s of t h e analys is , it was decided t o ignore these very minor changes i n land use on the assumption t h a t these changes could happen with o r without the i r r i g a t i o n scheme.

Appendix B

ENTERPRISE GROSS MARGINS

The gross margins budgets i n Tables B . 1 and B.2 were derived from information drawn from the sources l i s t e d below:

de ta i l ed gross margin budgets f o r t h e en te rpr i ses involved were provided by t h e Department of Agriculture, Bairnsdale ,

da ta concerning i r r i g a t i o n plant and equipment su i t ed t o the enterpr ises were provided by t he S t a t e Rivers

l and Water Supply Commission of Victor ia , l . a survey of 99 landholders on t he Mitchell River f l a t s

by BAE i n August 1975,

. loca l r e t a i l e r s and suppl iers of farm inputs and cap i t a l equipment,

farm management guidebooks and other published mater ia l ,

other material compiled by the Bureau fo r use i n the evaluation of large sca le i r r i g a t i o n projects and

information supplied by t he processing vegetable companies which have contracts on the Mitchell River f l a t s .

The tab les give gross margin budgets f o r ho r t i cu l t u r a l crops, l ivestock enterpr ises based on i r r i ga t ed pastures and l ivestock enterpr ises based on dryland pasture,

l As, i n a number of instances, the annual allowance f o r repairs and maintenance t o i r r i ga t i on equipment i s spread over annual ro ta t ions involving more than one enterpr ise , the repairs , maintenance and depreciation allowances were deducted separately i n the cash flow analysis . (See Part I V , 4. Economic Appraisal from the National Viewpoint, Ce) Private On-Farm Capital Expenditure). In addit ion, t he available bas ic cost data f o r these items were able t o be more accurately incorporated i n to the analysis by using t h i s method.

The following assumptions and sources of da ta were used for derivation of par t i cu la r items i n the gross margins budgets.

l Fuel , Oil , Repairs and Maintenance The time requirement f o r work involving t r ac to r s and

other farm machinery was provided by the S t a t e Department of Agriculture. To these operating times, hourly r a t e s of $1.23 fo r 35 engine kW un i t s and $2.06 f o r 60 engine kW un i t s were applied t o cover fue l , o i l , r epa i r s and maintenance. Derivation of the

l fue l and o i l component of t h e cos t s was based on a formula t o which a percentage of c ap i t a l cost was added t o cover repa i r s and maintenance.

Seed and Seed1 ings

The sowing o r planting r a t e s per hectare and t he re la ted pr ices used i n t he budgets are as follows:

Maize 16 kg/ha a t $ O.SO/kg = $ 8.00 Tomatoes 0.35 kg/ha a t $52.8O/kg = $18.48 Capsicum 27 200 seedings a t $30.0O/thousand =-$816;DO Beans 90 kg/ha a t $ 1,5O/kg = $135.00

Where a cost f i g u r e i s not recorded agains t 'Seed o r Seedlingsf i n Table B . l , t h e seed i s provided a s p a r t of a processing con t rac t . and an appropr ia te allowance made i n determining the cont rac t p r i c e f o r t h e harvested crop.

Fertiliser

The f e r t i l i s e r app l i ca t ions used i n de r iv ing t h e f e r t i l i s e r c o s t s quoted i n t h e budgets a r e those recommended by t h e Department of Agricul ture. The amounts of t h e f e r t i l i s e r s applied per hec ta re were:

Maize - 200 kg of Super/Potash 1:l - 50 kg of Urea

Sweet corn - 250 kg of Super/Potash 1:l Tomatoes - 375 kg of Super/Potash 1:1

- 500 kg o f Superphosphate - 67 kg of Urea

Capsicum - 250 kg of 'P ivo t ' 800 Beans - 250 kg of 5:6:2 Lucerne - 375 kg of Super/Potash 2:l Fodder - 125 kg of Superphosphate I r r i g a t e d Permanent Pasture - 500 kg of SuperfPotash 3 : l Dryland Permanent Pas ture - 125 kg of Superphosphate

The p r i c e s per tonne of t h e above f e r t i l i s e r s were:

Super/Potash 1 : 1 Super/Potash 2 : l Super/Potash 3 : l Urea Superphosphate 'Pivot ' 800 5:6:2

' A t t he time of quotat ion (June 1975), only ni trogenous f e r t i l i s e r s were subsidised by t h e Commonwealth Government. The

1 per hec ta re value of t h i s subsidy i s shown i n Table B . 1 .

In the h o r t i c u l t u r a l crop e n t e r p r i s e s [Table B.1) i n s e c t i c i d e and weedicide app l i ca t ions a r e sometimes made i n con junct ion with c u l t i v a t i o n opera t ions . No attempt has been made t o sepa ra te t h e c o s t s of app l i ca t ion from o the r opera t ions

when these a r e performed simultaneously. Hence, t h e c o s t s of app l i ca t ions a r e included under ' f u e l and o i l 1 and ' r e p a i r s and maintenancef and the c o s t s recorded agains t t h e var ious chemical headings represent t h e cos t of t h e chemical only. The chemicals used and app l i ca t ion r a t e s per hec ta re a re l i s t e d below:

Weedicides Sweet corn and maize - 1.7 l of Gesaprim (banded) Tomatoes - 13 kg of Enide Capsicum - 5.0 1 of Lasso Beans - 5.0 1 of Lasso (banded)

Pest and Disease Contro l l ing Chemicals

Sweet corn and maize - 4.2 1 of D.D,T. Tomatoes - 33.6 1 of D.D.T. - 9.0 kg of Cuprox - 4.0 kg of Dithane Capsicums - 2.0 1 of Thiodan - 0.6 kg of Benomyl Beans - 1.0 1 of Demeton - S - methyl - 4.0 kg of Cupric hydroxide - 1.2 kg of Benomyl

Pr ices of t h e chemicals quoted above t h a t were used i n t h e de r iva t ion of c o s t s f o r t h e gross margins budgets a re :

Enide Gesaprim Lasso Benomyl Cupric Hydroxide Cuprox D.D.T. Demeton - S - methyl Dithane Thiodan

A cos t i s a l s o included i n the processing tomato budget t o cover the use of growth regu la t ing chemical which i s applied t o advance r ipening and increase the uniformity of maturi ty.

The chemical cos t s involved i n t h e pas tu re e n t e r p r i s e s a r e n e g l i g i b l e compared with those of the h o r t i c u l t u r a l crops. These have, the re fo re , been aggregated wi th app l i ca t ion and c u l t i v a t i o n cos ts .

Livestock Assumptions

The l ives tock gross margins were based on physical da ta provided by the Victorian Department of Agriculture from which the assumptions quoted i n Table B - 3 were drawn.

Vealers were assumed t o be turned of!? a t 9 t o 10 months dressing out a t approximately 136 kilograms while yearl ings were t o be turned off between 2 1 and 24 months a t a carcass weight of approximately 530 kilograms,

Freight

Freight cos t s cover the cos t s of f r e i gh t charged t o producers f o r farm de i ive ry of inputs and the cos t s incurred i n t ranspor t ing produce t o the market place of p r ice quotation.

Saleyard pr ices quoted f o r a l l c a t t l e c l a s s i f i c a t i ons include an allowance fo r stock t ranspor t from farm t o saleyard.

Contracts and Harvesting

Where applicable, contract harvest ing cos t s have been included in ho r t i cu l t u r a l crop budgets. Where cost quotations a r e not made, the harvest ing operation is met from within farm resources and h i red labour. In o ther instances, harvest ing i s provided by the contract purchaser and an allowance i s made i n the contract pr ice .

An allowance of $70.00 per hectare , representing $10.00 per tonne, has a lso been made f o r drying maize grain a f t e r harvest .

Labour

The costs quoted against labour represent payments t o ' casual labour employed i n operations such as sowing, harvest ing 1 and weed chipping.

Table B-3

LIVESTOCK : PHYSICAL ASSUMPTIONS

Permanent Pasture - Dairy

Permanent Pasture - Beef

Fodder

Dryland I r r i g a t e d Dry land I r r i g a t e d I r r i g a t e d

Stocking r a t e s (head/ha)

- Breeding cows - - 1.2 2.5 - - Milking cows 1 . 2 2.5 - - - - Yearling fa t t en ing (a)

Mortal i ty (%/pa) 3

Bull t o cow (%) (b)

Calving r a t e (%)

Turnoff Rates (head/ha)

- C.F .A. (C)

- c u l l b u l l s

l - year l ings - 0.72 1.41 3.70

l - c u l l calves C . 84 1.68 - - -

Applies only over period t h a t s tock a r e a c t u a l l y ca r r i ed . (b) A r t i f i c i a l breeding i s assimed f o r da i ry en te rp r i ses .. (c) Cast f o r age.

Cat. No. 76 3568 5