Bruce Wills says the Ruataniwha Dam project will be worth the cost to farmers, drought-proofing the region. The Opuha project proves the benefits

Bruce Wills says the Ruataniwha Dam project will be worth the cost to farmers, drought-proofing the region. The Opuha project proves the benefits
"The benefits outweigh the costs." Bruce Wills urges farmers to sign up in the Ruataniwha project.

By Bruce Wills*

The lead-item on TV3 News last Friday evening, about meat exports held up in China, would have caused concern among farmers.

China is not only our largest market by volume, but in the first three-months of 2013, became our largest market by value too.

The $204 million worth of lamb it took, knocked Britain off its perch as our number one lamb market for the first time

This mirrors recent Trade Statistics that saw Australia replaced by China, albeit temporarily, as our number one export destination overall.

New Zealand’s farmers value the Chinese market and we hope this message can be conveyed to the Chinese authorities.

What has happened seems to be an issue over paperwork on export certificates.  We can only hope this is solved and solved soon.

China is vital to our future but we must not repeat the dependency we had with Britain up until it entered the European Union.

Avoiding dependencies applies in our back yard too. 

To export primary produce, from trees to cheese, we need water and that is the simple truth underpinning the Ruataniwha Dam project.

Some have raised concerns it will not be financially viable, environmentally sustainable and that it will suffer from lack of demand.

To answer these criticisms, Hawke’s Bay Regional Council has consistently put publicly accessible information onto its website.

The large-scale storage of water isn’t a new concept because towns and cities do that with ‘town water’.

Given we have plentiful, if uneven, rainfall at times Federated Farmers strongly supports water storage for farming.

We also support Ruataniwha in principle but our final backing awaits the final business case; then we will know if it is financially viable.

To his credit, that is the same view held by Labour’s Shadow Minister for Primary Industries, Damien O’Connor.

The last big water storage scheme to open for farming was South Canterbury’s Opuha Dam. 

This opened in 1998 but work towards it started back in the 1980’s.  It came about because of the same issues we have here; a lack of reliable water over summer.

Today, Opuha irrigates farmland, supplies town water and generates electricity.

It also provides permanent flow to the formerly ‘summer-dry’ Oipihi River and offers recreational, tourism and environmental opportunities.  In drought proofing South Canterbury, Opuha has vindicated every promise made about it.  Yet Opuha only came about due to the perseverance of a small band of believers spanning two decades. 

If everything stacks up here, financially and environmentally, having Hawke’s Bay Regional Council’s involvement advances Ruataniwha’s timeline.

From a bottom line perspective, added farm values could rise by $70 million each year putting an average $391 each year into every Hawke’s Bay household.  Ruataniwha could also create 632 new full time jobs on-farm, aside from that needed to construct it or the downstream jobs these will create.

Ruataniwha potentially frees central Hawke’s Bay from the rainfall lottery by avoiding absolute dependency on it raining.

It also enables new types of land use, farming and environmental innovation.  All things the Opuha Dam has proven.

Ruataniwha will have the capacity irrigate 25,000 hectares while generating 6.5 megawatts of electricity.  Enough to supply over 3,000 households with clean renewable energy.

Where are the downsides? 

Much of the criticism revolves around low take-up due to the cost and that dairying will be the only land use that will use it. A council report released, in November 2010, puts the on-farm investment at $7,394 - $9,428 per hectare. In the latest September 2012 report, the on-farm water distribution cost is put between 20c and 30c per cubic metre.

But can farmers like me not afford to do it?  Current water takes are prone to summer irrigation bans highlighting the absolute need for reliable water when those bans affect 200 consent holders. 

Budget 2013 estimates this year’s drought will shave 0.7 percent off the nation’s economy; upwards of $2 billion.  Having run a calculation on my farm the costs above seemingly add up. Sheep and beef farmers, like me, would likely irrigate a portion of a farm creating a ‘pasture factory’ if you like.  This means we can keep stock on-farm rather than destocking in dry summers.  This means I can send stock at the optimum time rather than being forced into it by a lack of feed or water. 

Macfarlane Rural Business predicts irrigation will be taken up by dairy (37 percent), arable farming (32 percent) and sheep and beef (13 percent). Other land uses, like horticulture, will likely fill the balance.

Reliable water may see distinct ‘farm types’ blur along with better farming practices to maximise income per hectare. Doing this boosts the community’s payback in terms of jobs, incomes and the environment.

Irrigation and keeping our pastures green mean that soils and valuable nutrients stay on-farm and out of water.

Drought is a fact of life in the Hawke’s Bay.  It has happened before and it will happen again but Ruataniwha means we can farm through it benefiting all.

-------------------------------------------------------------

Bruce Wills is the President of Federated Farmers. You can contact him here »

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sh*t Bruce you swallowed that 'hook line and sinker'.  

From a bottom line perspective, added farm values could rise by $70 million each year putting an average $391 each year into every Hawke’s Bay household. 
 
This example of unsubstantiated alchemy calls into question all other statements of praise Bruce makes for the scheme.

Indeed.
Personally am supportive of water storage projects, assuming they are not somehow  environmentally silly; as both drought insurance, and supporting some extra production.
But they do need a business case of capital amount required (and who pays it) plus ongoing opcosts and funding (and again, who pays, per cubic metre or per annum or however calculated.)
Presumably this project has been on the drawing board for long enough for most of those details to be getting close to finalisation. Good if Bruce or someone else then to set the details out.

Does anyone know how this "added farm values of $70 million" is transferred so that it "puts an average $391 each year into every Hawkes's Bay household"?  I would like to know the mechanism involved.

No idea.  Hopefully Bruce will pop in and explain.  If I lived in the area - I'd want to know who to invoice! LOL.

It might be useful to read the Auditor General paper detailing local authorities' fortunes lost financing the Opuha Dam Partnership

The return per year for each household is roughly the same as that from the Stalinist plot for one agency to purchase power from generators and wholesale it to retailers.  
This is bad when it is electricity and good when it is water for farmers?

Meet a farmer from down that way a couple of months ago, shit he was depressing, not because of the drought, because of this project. All he could see was the only way to afford the scheme was to go dairy employing phillipinos like others he saw south of him.
As a milker of cows myself I don't see anything good coming from more cows, total false economy. More production of any sort for the sake of it is just idiotic.

More production of any sort for the sake of it is just idiotic.
 
Yep, but that is current government policy.

Yeah, yeah - just like the "small band of believers" down Canty way with respect to the Central Plains Water scheme.
 
They want more of YOUR money (more meaning more than the $10million you good ratepayers in the District have already donated to the cause) --- this time they've got their hand out to national taxpayers;
 
http://www.stuff.co.nz/the-press/business/8692221/Central-Plains-Water-seeks-140m
 
And according to this "small band of believers" down there;
 
"[That funding] will be a mix between farmers, banks or other lenders and possibly a mezzanine fund which could be the Government if they were involved," Crombie said.
"They've [meaning Government, meaning taxpayers] got a big role to play in just making these schemes viable." The company had already secured $10m for the detailed design of the first stage of the irrigation scheme that would cost nearly $150m."
 
Yes, this "small band of believers" want you to believe you've got a "big role to play". 
 
And for your charitable contribution - what will you get? 
 
Guaranteed environmental degradation, of course!

Go back over the past 5 or so years, its been an ugly wrestling match between Synlait and Dairy Holdings... less so the little man...

Here's the Wiki summary - very interesting reading;
 
http://en.wikipedia.org/wiki/Central_Plains_Water

Kate - Thanks for that link.  There seems to be a lot of incestuous relationships in the whole set up.  Regarding the estimated costs of the scheme it seems to be a series of guesses.  However CCC have a history of underestimating the costs of large projects.  It will be the taxpayer who will finish up picking up the lion's share of the costs.  No doubt Bruce Willis will argue that all the ratepayers in Canterbury will be hundreds of dollars richer every year once the project is completed - yeah right.

It will be the taxpayer who will finish up picking up the lion's share of the costs.
 
True. On that issue you may wish to review the audit office report on the Opuha scheme Bruce refers to:
http://www.oag.govt.nz/2001/opuha-dam/docs/opuha.pdf
 
Or the engineering lessons:
http://www.ipenz.org.nz/nzsold/2003symposium/largedams2003pages84-104.pdf

Where are the downsides?
 
Bruce, if you really want to know I am happy to come and explain them to you.
 
Just let me know - here will be fine.
 
By the way - the dead standing trees seem to have been magically removed from your 'picture'.
 
And you forgot to mention that this reservoir will not have any lake at all from the perspective shown even at this time of year after a season like the current one. 

Where are the downsides?
 
Another one for you Bruce.
 
Subsidies.
 
This from the Council's feasibility study where BNZ Advisory is quite explicit:
 
Page 109 (112/144):
Full privatisation (even with perpetual private sector ownership) is not feasible as private sector investors will not take into account the considerable (approximately $10m p.a.*) environmental benefits directly flowing from the Project, or the 4% increase in regional GDP. If the Project was funded with 100% private sector funding from the outset, the distribution price required to derive sufficient internal Project returns would be prohibitive to farmers.
 
*41 million m3 annual flows for environmental flushing and maintenance of minimum flows multiplied by the mid-range price of 25c/m3
 
(39 million for residual flow plus 1.5-2.5 for flushing flows)
 
http://www.hbrc.govt.nz/HBRC-Documents/HBRC%20Document%20Library/Feasibi...

Where are the downsides?
 
Another one for you Bruce.
 
Opuha proves nothing regards Ruataniwha.
 
Opuha costs from the Audit office report on the dam:
http://www.oag.govt.nz/2001/opuha-dam/docs/opuha.pdf
 
The contracted costs for the project (October 1995) were $16 million.
 
Adjusting for CPI takes the 2013 cost per cubic metre of Opuha storage to $0.28.
 
The current cost per cubic metre of water storage for Ruataniwha is $3.11.

I liked this story. It reminds me of progress, a better future for everyone.

Bottom line, if the scheme cannot keep a running cost of less than $650 per hectare on 90% reliability then it won't stack up short term. Underlying land values are too high, when costs of conversion etc are added it implies no development margin and it remains to be seen how the regional council will deal with increased nitrogen loading in the catchment going foward. No free lunch on these schemes, that goes for CPW too.
 'If underlying land values were to change in a downward direction maybe, unlikely to happen though

Who does Bruce work for? Because it does not look like he is looking after his members, who don't want the scheme. The costs are prohibitive before we even get to cost over runs.
 The only people pro it are a few dairy farmers who get preferential water allocation for eight years super cheap. Even then, one dairy farmer told us,\ that it was a joke if they thought he was going to pay for water, as he simply couldn't afford more than the five cents a cube he's paying now for electricity on his pumps.
 I talked to a farmer who told me his farm would have a charge of $330,000 a year for water whether he uses it or not, good years or bad and thats before he puts in the infrastructure. He already has enough debt and thinks this will break him, he has about 800 acres.
Bruce says what he likes because someone likes what he says.  Just got to find out who the someone is.

Bruce says what he likes because someone likes what he says.  Just got to find out who the someone is.
 
Check this out;
 
http://www.baybuzz.co.nz/archives/6713/

Andy Pearce, Hmm name rings a bell, couldn't be the same guy that stuffed up Wool equities and lost all our money could it?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10457735
 
http://www.radionz.co.nz/news/rural/1120/wool-equities-signals-sale-of-keratec-subsidiary
 
 If it is then he bounces back like a rubber ball,  from memory that was was a giant cock up.

Andrew, I believe the man has form in shrinking the equity of companies he chairs.
 
But he is a director of the BNZ.

Howdid he get to be a director of the BNZ? his role in the wool industry was ---------, attach word of choice, in case Chaston is watching :-)
 
Wait a minute are not BNZ financing the scheme, Mother, they are all one big happy family.

Bruce says what he likes because someone likes what he says.  Just got to find out who the someone is.
 
I think you just fingered who the someone is.

Here's the guff from the BNZ website;
 

Dr Andrew Pearse
BSc (Hons), MSc, PhD, FNZIM

Dr Andy Pearce joined the BNZ Board as an independent non-executive director in April 2008. He is Chairman of the BNZ Board People and Remuneration Committee.
His other directorships include Christchurch City Holdings Ltd and Seon Pearce & Associates Ltd. He is Chairman of Focus Genetics Ltd and the Hawke's Bay Regional Investment Company Limited.
Dr Pearce is a member of the Advisory Group on Green Growth Initiatives and the Hawkes Bay Regional Council.
Past directorships include Wool Equities Ltd, Keratec Ltd, Canesis Networks Ltd, Ngai Tahu Group, Migco Pharmaceuticals Ld and the Wool Research Organisation of NZ Inc.
Dr Pearce was the founding Chief Executive of Landcare Research New Zealand Ltd.
 
Bold is mine. How can one be a "member" of the HBRC? He's certainly not an elected member;
 
http://www.hbrc.govt.nz/About-your-Council/Who-we-are/Pages/Councillors.aspx
 
Very odd.

The BNZ has either been very sloppy or HBRIC's listed director's interests are incorrect. That has A Pearce with interests including:
 
Chairman - Environment Canterbury Regional Water Management Committee
Chairman - Energy Efficiency and Conservation Authority
Chairman - Terranova Charitable Trust
 
He is not described as a councillor as the three HBR councillors on the HBRIC board are. 

As is often the case - the individual Board member provides the text for the summary posted regards their quals and affiliations.  So, Andy likely provided that text.
 
Betcha it will be changed el pronto. The above para accurately reflects his role in HBRIC - so no idea why the following para would state "..member .. HBRC." as it surely implies elected member.
 
Here's the link;
 
http://www.bnz.co.nz/about-us/governance/bnz-board

I suspect in Andy's mind he is effectively a member of HBRC as he will almost certainly be directing Council officers actions as Chair of HBRIC.
 
The Baybuzz link you provided suggests HBRC and HBRIC have confused roles and accountability.

Betcha it will be changed el pronto.
 
I would have thought so, but no. BNZ is still claiming:
Dr Pearce is a member of the Advisory Group on Green Growth Initiatives and the Hawkes Bay Regional Council.

heehee - perhaps they don't read interest.co.nz?
 
PS if you correspond directly with an elected member on that council who is opposed to the dam - you should point this out to them.  They would perhaps want to get in touch with the BNZ to correct the record.
 
 

haha - but, most of the big banks have dedicated teams trawling through the social media looking for damaging issues

Check this out;
 
Surely it's time the Auditor General did some checking.

We looked at hb web site and all the reports re project.

We were taken aback in seeing there be two sets of assumptions used to determine the financial benefits - ex bnz report..

Why are farmers sold equity participation at $6.50 per kg ms, while the bank values debt at $6.00 per kg ms (including share div.).

To the equity holder the last 50 cents is between 25% to 33% of ebitda. By measure of project returns ebit, the proportion is higher...

......
In the mac report they expect 70% of properties/businesses to change ownership in 5 yrs. And pasture production at levels locals do not agree with..

They assume all farms within scheme to be in top 20% of production...

The bnz as noted before say damn finance will not work without local govt. Subsidy and smear value on environmental flows.

Plus no comment about production off take other than assume mkt can...

I can tell you are already way ahead of Bruce on the economics of the Ruataniwha Water Supply Scheme. And he has been working on the subject for months - but probably writing articles rather than actually reading any of the documentation.
 
The joys of FF presidency - you get to lead opinion without first having to do any work to understand the subject matter. Come to think of it, the same applies to HB Regional Councillors.

And if you feel like reading the "easily accessible" 14.9 MB download March 2013 report of Overseer nutrient modelling you will see Appx 1 Tables 10 11 and 12 ; pages 30 and 31 that the N leach figures on soil types such as Tuki Tuki to be irrigated will change from 9 kgN/ha/yr under sheep to 134.8 (!!) kgN /ha /yr for irrigated dairy under the citeria used.
Nitrate in water "will not be a problem" they say.
I'll just relax with my can of cool Tui then..........

All of the posters above make sense from the traditional business modelling for the dam, especially from farmers points of view, assuming they have to pay for it all. It's fairly clear from reading the posts, that the dam will never make sense from that approach.
To look at it another way; will New Zealand as a whole be better off with this dam, even after allowing for some financing time cost of money; or from the opportunity cost spending resources on this rather than something else?
The equation to test whether NZ would be better off would seem to be, on the cost side.
Capital cost of buying land and building the dam- most of this though would be locally spent using local labour and resources you would expect. So, an opportunity cost of not doing something else, but not much leakage offshore.
Financing margin cost going offshore.
Presumably relatively minimal operating costs; again mostly spent locally.
Some environmental cost. ( A potential biggy, I accept. I don't know the details)
So in total, some costs, but not much leakage.
On the benefits side:
Overall production, and profits increase by increasing capacity; and by insuring against droughts- and significantly helping production in those years.
A reasonable proportion of this increase benefits NZ in total, by either selling more offshore, and improving our own consumption.
If all of this says the positives outweigh the costs; and I suspect they would, then the next step seems best to determine who benefits, and who can and should pay.
Clearly some or all farmers directly affected would be significant beneficiaries if the above hypothesis is true; and so they should pay a fair bit- preferably for useage, but potentially as taxes. 
Meat, dairy, fruit? companies would benefit. Should they pay; or are the farmers their proxy?
The local area would benefit from trade and extra rates, assuming land values increased as a result. So the local council should pay some. And central government would benefit from extra taxes, and lower welfare and other payments. So they should pay some.
I don't know the numbers in this particular dam case (or any for that matter), and it could be that the case just doesn't pass any reasonable test.
But it seems fairly likely that in fact they would; and the real issue is sorting out a fair means of paying for it.
There may be options, if we look at the big picture.
 

I don't know the numbers in this particular dam case (or any for that matter), and it could be that the case just doesn't pass any reasonable test.
 
Stephen, this is one dam that doesn't pass any reasonable test. There are dams that are very good value for money (Benmore), dams that are viable (Opuha) and others that are just stupid (Makaroro).
 
Overall production, and profits increase by increasing capacity; and by insuring against droughts- and significantly helping production in those years.
 
Not at all. Yes you can increase production but the marginal return on that increased production on the Ruataniwha Plains under the Ruataniwha Water Supply Scheme is negative. Partly because a stupid dam has very high water costs, and partly because the Ruataniwha Plains normally has high rainfall so irrigation provides much less benefit than in areas with low rainfall. The high rainfall is already built into land prices.
 
And no, the modest amount of dam storage does not 'drought proof' anything. It helps in drier than average years, but sets up farmers to be even more unprepared for droughts than if they weren't relying on water storage.

Colin,
You've answered the question, thanks very much. I thought the debate could just be about who should pay. From what you have said, and you've clearly had a good look at it, this dam shouldn't get past the drawing board. 
Regards,

Thanks Stephen.
 
You are right - this dam shouldn't have got past the drawing board - but it has.
 
The dam may proceed not because it has economic merit but because the dam has political momentum.
 
You may have noticed that Henry Tull gets the economics within a couple of hours, but Bruce Wills chooses not to despite many months involvement.

Stephen L; Colin Riden has given the basis for countering all the points you struggle to make in finding some beneift from this dam.
In reality, almost all the farming benefits that are attributed to irrigation in this scheme can be achieved at far less cost as in a "normal " year in this area (1000-1200mm rainfall bands) there is minimal or no need for additional water. 
There are some good operators under irrigation but add a further fixed $1000/hayear cost of water to their business and they too would be struggling.
Some areas respond to water as it is the limiting resource and money is made because of this. The Ruataniwha with its higher rainfall and longer cold winters and springs is not such an area as the increased production gained from water alone is much smaller.
The fact that the scheme uses the current "slack" in the system as a means to justify water is wrong. A better use of much smaller sums of money would be to implement a focussed extenson programme such as has been used in areas of the Waikato with experienced advisors working closely with small groups of farmers.
Then the production benefits that are possible currently in this area would become reality, production and opportunities would increase. No need for expensive water, subsidies, more debt and "leakage" to banks. In fact many of the current water users would reduce their take and the rivers would flow as they should with improvement to water quality as well.
In this area all this is possible. In other less water favoured areas it is not. Do not confuse the two as they are quite different.

What an interesting thread, thank you to the above contributors. It would be interesting to get opinion in Enviro Waikatos 'Variation 6', and the irrigation schemes of Wairapa Moana Trust and Wairakie Pastoral, and their water allowance relative to other farmers ( farm operators maybe a better term).
Personally I would like to investigate the feasability of being able to irrigate forage crops to help manage climatic constraints of the central NI. Is the best use of Waikatos water resource served by allocation to MRP and the aforementioned operations?

The need to question irrigation's effects on the wider population seems to be on the rise in Canterbury where a billboard campaign has gone up this week. There is a website listed on the board I saw - www.askstevenjoyce.org.nz that is having a pretty good go at pointing out these effects.

''This shows how local solutions fix local issues.''
 
http://www.odt.co.nz/news/farming/258615/irrigated-area-expand-1200ha
 
More than an extra 1200ha is expected to be opened to irrigation in North Otago, after work began to expand the the Maerewhenua District Resource Company (MDWRC) irrigation scheme.
Last week work started on a $600,000 project to install a piped extension to the scheme, which irrigates land around Duntroon.
Irrigation company chairman Kelvin Weir said the project would increase the area of irrigated land on the scheme from 800ha to more than 2000ha. It would also result in improved flows in the Maerewhenua River.
 
 

Now that is cost effective - 1,200 ha supplied with irrigation from a project of $600,000 - only $500 per ha.
 
Compared to Ruataniwha at a cost of at least $15,000 per ha.

Comparing apples with apples, Colin?  Otago is a lot cheaper, but it is an extension of an existing scheme whereas I understand Ruataniwha is a start from almost scratch scheme. Happy to be corrected.

I am attempting to emphasize the vast differences in viability between irrigation schemes. They are certainly not comparisons of apples to apples.
 
Parts of Otago probably get less than 500 mm of rain per annum. The Ruataniwha Plains between 800 and 1200 mm. Irrigation is a lot more valuable in the former than on the latter.
 
The Otago scheme appears to be small, effective and viable. It seems to be demand driven by farmers. An increase from 800 ha to 2,000 is probably more than I would describe as an extension but I am not concerned if it is described as such.
 
Ruataniwha on the other hand is more an oversized pumpkin than an apple. It is a supply driven, politically motivated project from a regional council. It will have a very high cost of water, bankrupt irrigators, requires rate and tax payer subsidies to get off the ground, and even then still not be viable.
 
At the Hawkes Bay Regional Investment Company field day for irrigated dairy held at Kevin Davidson's property one speaker was a dairy farmer from within the Opuha scheme. He didn't use water from the Opuha dam and wasn't that happy he still had administrative charges to pay to that scheme.
 
His water take was 155 litres per second, and he took that 24 hours a day 365 days of the year buffering his irrigation needs using storage.
 
Now if he was farming within the Ruataniwha scheme he would be paying 25+ cents per cubic metre for his water (HBRIC currently has a medium to high risk of the water cost exceeding 25 cents).
 
That 155 l/s equals 558 m3/hr or at Ruataniwh's cost of 25 cents per m3, $139.50 per hour, $3,348 per day or $1.223 million per annum. All under a 35 year contract to pay whether you use the water or not. Those costs to escalate in line with the PPI index or something similar.

Thanks for that Colin.  Your last paragraph shows the insanity of the Ruataniwha scheme.

Thanks C O. I am pleased with the conclusion you have drawn regards the Ruataniwha Water Supply Scheme.
 
Bruce Wills though is still promoting the scheme despite the evidence. Yesterday in an extended version of his article on Stuff he claims:
Having run a calculation on my sheep and beef farm, using the costs above, it seemingly stacks up.
 
http://www.stuff.co.nz/business/farming/advice/8757494/Irrigation-benefi...

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