May 1, 2009

Q1. How do you set a “fair” price for irrigation, given the following scenario? A quarter section is split into two 80-acre parcels, each owned by a different party. One of the owners has installed a center pivot sprinkler with the pivot point nearly on the boundary between the two parcels with the intention of irrigating a half circle covering about 62.5 acres. The other landowner is has inquired about what the pivot owner would charge to run a full circle instead of a half-circle in a "windshield wiper" fashion.

A1. Sometimes growers have suggested splitting the energy (fuel) cost, since each has essentially the same number of acres irrigated by the pivot. This option wouldn’t help cover all the costs of owning and operating an irrigation system. A large share of the total cost of irrigation results from ownership costs and a large percentage of ownership costs are not annual out-of-pocket costs but rather “sunk” costs. Sunk costs include a fair return on capital investment and depreciation costs. Out-of-pocket ownership costs include taxes and insurance.

Much of the ownership cost is essentially the same whether the pivot makes a full circle or a half circle. This means the annual ownership cost component of the total cost, expressed on a dollar per acre basis, will be double if the pivot only irrigates a half circle. Therefore, if the neighbor is willing to pay his/her full share of all the operating costs plus a full share of  the ownership costs, the owner will definitely reduce the total cost per acre and per acre-inch of  water applied as compared to using the system on only a half circle.

IRRIGCOST

I’ve developed a Microsoft Excel® (.xls) worksheet (Irrigcost.xls) to help estimate irrigation system ownership and operating costs. The energy cost is based on the acre inches of water pumped, pumping water level (lift component), and system pressure. It also provides ball park estimates of the average annual repair cost and labor cost for operation and management.

The worksheet presents 8 scenarios, each on a separate tab. Four scenarios assume the irrigation system is a center pivot powered by one of 4 energy sources (diesel, natural gas (either $/mcf or $/therm), propane, or electricity) and 4 scenarios use a gated pipe irrigation system with the same energy choices. The underlying programming is the same on each worksheet, but the different scenarios facilitate comparisons between alternatives.

To prevent corruption of the programming code, the entire workbook has been protected except for the cells requiring user input. (Cells that can be changed by the user have blue type.)

Alternate irrigation system types and alternate energy sources may be selected from drop down menus. The workbook can be used online as an interactive Web page or it can be downloaded from the Web site by right clicking on the link. Use the "save target as" option (Internet Explorer) to save the file to your computer, and then access it with Excel.

Tom Dorn
Extension Education, Lancaster County