Agribusiness Report: When bigger can mean better

Irrigation units working in Crownthorpe, Hawke's Bay. Photo / HBT

Off-farm irrigation infrastructure such as dams, canals and pipe distribution networks is a growing sector, and has an important part to play in the New Zealand economy.

However, the sector is at a crossroads in terms of the nature of that growth. The industry has been characterised by changing national policy settings, inconsistent and at times unclear regional nutrient target setting, lack of co-ordination among schemes and across regions, an inability to balance stakeholder demands equitably - and, understandably, decisions to build infrastructure have focused on short-term immediate demand. If this continues unchecked, the sector will grow slowly, leading to suboptimal regional economic and social growth. The continued development of smaller, localised irrigation solutions will mean less ability to address environmental issues on a region-wide basis where large-scale irrigation schemes have enormous incentive to work with water users to achieve best practice environmental techniques.

For this sector to grow more sustainably and in an organised fashion that makes long term regional sense requires clear consistent policy from regulators, strong national and regional co-ordination, best practice nutrient management and monitoring technology, the correct environmental incentives and penalties, and continuing innovation from suppliers and capital providers.

Large scale pan-regional harvesting, storage and distribution of water has always been a significant industry. However, in the past this was more for power generation and urban/town water supply, than for agricultural purposes. The sector's growth should accelerate, driven by the following macro factors:

• The cost of investment into agricultural land and on-farm infrastructure is considerable and NZ farming is accelerating the shift to corporatised shareholding structures in line with other countries globally. The introduction of increased corporate governance, financial management, and new on-farm management techniques focuses the business more directly on strategic growth and risk management, areas which naturally align to surety of supply of fresh water.

• With many millions of dollars in investment required to implement best practice operations, farm operations simply cannot leave themselves vulnerable to drought or climatic risks which are potentially becoming more frequent due to climate change. This is similarly the case for town and community access to water where investment in harvesting and storage is increasingly being considered to protect regional waterways and ensure supply of fresh water.

• From an environmental perspective (irrespective of agricultural demand), harvesting and storage of water is being considered by regional councils as a solution to ensure flows can be maintained at satisfactory minimum levels to both protect fish and plant species and also to provide a flush within river environments.

• Decades ago, NZ was a country of sheep farms with some dairy and cropping diversification. This was largely due to climate and soil types across regions. Changing demand for food outputs from the markets that we serve is leading farmers to innovate with new produce. The key to achieving this increased level of diversity and potentially higher value output is reliable future proofed irrigation. Contrary to many views, reliable and affordable irrigation should lead to more diversity in land use across many regions, rather than the common misconception of a sole bias towards dairy conversion. Innovation into higher value agricultural outputs flows through the supply chain, leading to new processing techniques and new exporters.

So will this inevitable growth be strategic and long term focused?

From a policy and regional co-ordination perspective there is a long way to go and an enormous number of issues requiring resolution. However our positivity is that the actions and implemented policies are a starting position that can now be refined and improved upon. The work of the Land and Water Forum, the target setting by Regional Councils, and the greater integration of a pan-regional water management strategy (Canterbury Water Management Strategy) are all positive signs.

Why is larger scale pan-regional irrigation infrastructure ultimately going to be the most effective tool to assist in the acceleration of farming best practice for nutrient management? The growth of larger irrigation schemes provides corporate resource that serves individual farms with water supply but ultimately must make critical decisions for the greater good of a wider catchment of farmers across the region. Irrigation companies are able to accelerate environmental management best practice within their districts through;

• Having specialists working with farmers across the catchment to ensure that target-setting, farm management planning, system monitoring and the audit process, is robust and understood.

• Ultimately the irrigation company has a far greater stick than the regional councils with regards to the penalty for non-compliance which is to turn water off to those farms that cannot meet the environmental hurdles to protect the interests of the wider catchment.

• The irrigation companies also facilitate sharing of best practice across their scheme to continue to accelerate the lift in environmental performance.

If the enormity of environmental and policy challenges are able to be overcome then the simple fact is that the nature of this off farm infrastructure should have appeal to capital providers. However, this in itself has challenges that need to be dealt with such as; how the interests of the water user are protected; how the infrastructure can be built to achieve an affordable water price; should the costs of this infrastructure (dams and canals) be an inter-generational payback given the long life and multi-generational benefits; in the future where will the value of a reliable supply of water lie - in the water or in the land; how can we finance the building of assets for future generational demand and not just to meet today's needs?

The direct value of this growing industry, in the short term, will be largely locked within land values. Some value will also continue to be captured within the wider regional social, environmental and economic uplift that investment into water harvesting and storage may bring to communities.

Attributing costs to the relevant beneficial parties can be difficult. In time there is the potential for a de-coupling of the water asset from the land asset, which will enable more realistic and transparent value to be placed on large scale irrigation assets. Being able to clearly view the value of irrigation infrastructure will enable capital providers to better assess long-term investment into this sector. There are considerable challenges to overcome and many stakeholders to continue to engage. However, water remains NZ's single most important asset and the maximisation of this asset for social, environmental and economic performance must be something that we continue to aspire to achieve.

Westpac is committed to supporting the sector and has recently provided capital to support the green field build of the Central Plains Water canals and distribution systems, along with the piped refurbishment of the Valetta Irrigation scheme.

This year Westpac was awarded the title as the World's Most Sustainable Company at the World Economic Forum in Davos.