Use this calculator to do a quick check on the annual $ returns from operating an irrigation system.

If you use both columns, you can compare the costs and returns from any two irrigation systems. For example, if you are thinking of changing your irrigation system, you can enter values for your current system in the 'system 1' column, and estimated costs for a proposed system in the 'system 2' column, and find out whether your proposed system warrants further investigation.

[More about how the calculator works, including its limitations and the base calculations used.]

Irrigation system cost calculator

Instructions for data entry	System 1	System 2	Range
[a] Irrigated area (ha) Enter the area to be irrigated. If water is limited, the total area to be irrigated may be determined by the available water. [more ...]			5 to 100 ha
[b] Pumping cost ($/ML) If you are unsure of your pumping cost, click 'Work out pump cost' and use the mini-calculator.
[c] Water use (ML/ha/y) A new system may actually apply more water, but the extra costs can be more than offset by improved gross margins [k].			2 to 10 ML
[d] Capital cost ($) For an old system, use the present market value of the equipment—what it could be sold for now. (This may be very little.) For a new system, use its installed cost.
[e] Interest rate (%) If you would be borrowing to get the system, use the bank-lending rate. If you have the cash, use the rate you would otherwise get if this was invested.			Average
[f] Years of working life How many years will you keep the irrigation equipment? Old systems may be at the end of their useful life. For new equipment, the life expectancy is at least 12 years.			1 to 25 years
[g] Resale value of irrigator What do you think the irrigation equipment would sell for at the end of its working life?
[h] Yearly labour (h) How many hours of labour a year are needed to operate and maintain the irrigation system? [more ...]
[i] Labour cost ($/h) Use the full cost of paid labour, or at least $15/h [more ...]			$10 to $30 an hour
[j] Yearly repair costs Say 5% of its cost for an old system, and 2% for a new system. [more ...].
[k] Gross margin ($ income/ha) A gross margin is the gross income (yield × price) less the variable costs of producing the crop. [More details below.]

Results of the calculator appear in the table below:

Costs per year ($/y)	System 1	System 2		Calculations used
Pumping costs:				Pumping costs = [a] × [b] × [c] that is, irrigated area [a] × pumping cost/ML [b] × water used [c]
Labour costs:				Labour costs = [h] × [i] that is, yearly labour in hours [h] × labour cost in $/h [i])
Depreciation:				Depreciation = ( [d] – [g] ) ÷ [f] that is, ( capital cost [d] – resale value [g] ) ÷ years of working life [f]
Interest:				Average capital value = ( capital cost [d] + resale value [g] ) ÷ 2 Interest = average capital value × interest rate [e] ÷ 100
Repairs:				Repairs = yearly repair cost [j]
Cost:				Costs per year = pumping cost + labour cost + depreciation + interest + repairs
Net margin:				Net margin per year = gross margin income/ha [k] × irrigated area [a] – costs per year + pumping costs

Reading the results

The net margin per year can be compared with the initial capital outlay to consider the return on investment. The result from this calculator indicates which systems are worth more detailed analysis:

• a return on investment of less than 10% suggests this system does not produce a sufficient return on investment
• a return on investment of between 10% and 15% is a marginal return. You should research this system further, and examine alternative investments.
• a return on investment of more than 15%: this return on investment indicates the system is definitely worth further research.

Further comments on reading the sample results

Details on the data entered

[a] Area to be irrigated:

Enter the area to be irrigated in hectares.

If water is limited and you expect to apply different rates per hectare with the existing and proposed system, then the total area to be irrigated may be determined by the available water. Say you have a system capable of watering 40 ha, and usually apply 6 ML per hectare with it. If the new system applies 6.5 ML per hectare, and you still have only 240 ML of water available, then you will need to reduce the area to 36.9 ha (= 240 ML ÷ 6.5).

If you are considering a centre pivot system, remember the corners may not be irrigated. Only count the area irrigated.

[back to data entry]

[h] Yearly labour (h)

How many hours labour is needed to set up, operate and maintain the irrigation system? Take care not to double-count these values. If labour costs are allowed in the gross margin calculations in [k], they should not be included here, and vice-versa.

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[i] Labour cost ($/h)

• If paid labour is used, ensure that labour costs cover all costs including wages, workers compensation and superannuation.
• If the labour used is family labour, a labour cost should still be included because there is usually something else that could be done to earn income or reduce costs. If there is nothing else that needs doing, then there is still value in leisure time. A rate of at least $15 per hour is suggested, and this should be more if irrigation labour requirements are competing with other priority jobs on the farm.

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[j] Yearly repair costs ($)

This is always difficult to estimate. Repairs vary from year to year. A rate of 2% of the new value of the equipment is suggested as a rate to use for new equipment, but for old equipment a rate of 5% is suggested. Repair costs often vary considerably between one operator and the next. Adequate care and attention to maintenance can minimise the costs considerably.

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[k]Gross margin income ($/ha)

Variable costs are those costs that vary directly with the area grown, including seed, fertiliser, fuel, sprays for crop protection, water pumping costs, repairs and contracting.

Different irrigation systems can result in different crop gross margins. This can happen when:

• One system results in higher yields than another. Water may be applied more efficiently and crop yields may be improved.

• Different systems allow different crops to be grown.

• Quality premiums or discounts apply.

• Irrigation costs differ.

A different system may reduce water wastage and enable more hectares to be irrigated. It may increase water usage but may also increase the tonnes produced per ML of water. Per hectare yields may increase proportionally more than the increase in water use.

• Note that the gross margin already includes an amount for pumping costs, so the calculator will adjust the net margin figure by adding the calculated pumping costs back in.

• Note also that the other gross margins we provide do not include labour costs, except where it is part of a contractor charge. Do not include irrigation labour costs in the gross margin estimations, because irrigation labour costs are estimated and included separately.

[back to data entry]

Document details

Created/Updated:	5 December 2002
Series:	Agfact P1.5.3	Edition:	first edition
Authors:	Lloyd Davies, Economist
	Alan Richards, Irrigation Officer
	Also by these authors