An economic evaluation of crop rotation systems under centre pivot irrigation in the Southern Free State sub-area

English: The lack of sufficient and accurate knowledge of the effect of alternative crop rotation systems on economic profitability and financial feasibility for irrigation farming indicates that farmers purchase mechanisation systems and plant successive crops without having determined the effect of these actions on long term farm profitability and feasibility. The importance of the study is reflected by the large numbers of irrigation farmers and the relatively large number of farmers having a high debt to asset ratio. The study is done in the irrigation area below the P.K. le Roux Dam but can also be applied to other irrigation areas without the need for structural changes. The objective of this study is to determine the economic profitability and financial feasibility of alternative crop rotation systems in the research area, taking into consideration price, production and financial risks. The lack of comparable and accurate information on crop yield and gross water requirements over a lengthy period necessitated these values to be simulated. Data on crops, soils and climate are used to validate and calibrate the PUTU crop growth simulation model P9MZAB3 for this area. The BEWAB irrigation scheduling model is .used to determine the irrigation scheduling of the crops. The calibrated PUTU model then is used to generate the crop yields and .gross water requirements for wheat, late maize, cotton, peanuts, dry beans, lucerne and soyabeans for a period of eleven consecutive years . Selected farmers in this area provided the data on crops and crop rotation systems. Based on economic, agronomic and practical principles, fourteen alternative crop rotation systems are developed. For each typical crop rotation system an appropriate mechanisation system, which includes a centre pivot irrigation system, is developed. The crop rotation systems are evaluated to run over a period of ten years. The irrigation systems are used to irrigate an area of sixty hectares with a predominantly sandy soil. Depending on the crop rotation system various land utilisation percentages (degree of double cropping) are considered. The systems are used to irrigate areas with two different pumping heights: +10 m (Sarel Hayward canal) and -15 m (Ramah area). The simulated gross water requirements of the crop rotation systems are calculated and compared for the ten-year period to the available water quota. The results indicate that the maximum water quota of 900 000 m3 is sufficient in satisfying the gross water requirements of the follbwing crop rotation systems: 45W45LM15P (The number refers to the number of hectares while the symbols are explained as W = Wheat, LM = Late Maize, P = Peanuts, L = Lucerne, S =:= Soyabeans and C = Cotton) 30W30S30L, 30W30LM30L 30W30S30LM30L 30W30LM30C30L 30W30S30C30L Price risk is the result of crop prices that change over time. For late maize and wheat price scenarios are determined. By using linear regression analysis on the basis of historical national production levels of these crops, equivalent 1990 adjusted national production levels and prices are calculated. The prices of dry beans and lucerne hay are subject to price variability and determined largely by supply and demand situations. A procedure, is followed to generate a distribution of prices for these two crops that takes the price variability into consideration. For soyabeans, cotton and peanuts no quantifiable price risk is assumed and subsequently predetermined fixed prices are used. By using an irrigation system cost calculation method the fixed, variable and marginal irrigation system costs are calculated for the two systems with different pumping heights. On the basis of the supplied data on crops, mechanisation costs and determined average crop prices and yields, the crop budgets are developed and the net margins calculated. The crop net margins are the basis on which the different crops are analysed for economic profitability. For the consideration of production and price risks the net margins of the crops in the budgets are calculated for each year of. the ten-year period on the basis of randomly selected crop prices and yields from the respecti ve price and yield distributions. This process is repeated twenty times to obtain a distribution of twenty net margins for ten years for each crop. The net present value method is used to calculate the economic profitability of the crop rotation systems. By including in the calculation the distributions of the determined net margins the production and price risks are taken into consideration. On the basis of the net present values and ratios of net present values to investment the economic profitability of the crop rotation systems can be evaluated on an equal basis. The results indicate that crop rotation systems with late maize and/or soyabeans as the main summer crops are the least profitable, while crop rotation systems with lucerne and cotton as the main summer crqps are the most profitable. The results also indicate that crop rotation system irrigated by the systems with higher pumping heights have a considerably lower economic profitability. In the financial feasibility analysis the crop rotation systems are analysed for a hypothetical farm for cash deficits for the ten-year period by comparing basically the cash incomes with the cash costs (financial obligations). On the hypothetical farm two sixty-hectare areas are irrigated and only the associated revenues and costs are considered. In the financial feasibility analysis the financial risks are firstly incorporated by including the distribution of net margins and secondly by using three different debt to asset ratios. The annual cash costs are calculated for each year for the ten-year period and for each debt to asset ratio. The annual cash incomes are calculated from the crop net margins minus the non-cash fixed costs for each year for the ten-year period. A decision rule is implemented to determine. when a crop rotation system is feasible. The results indicate that the debt to asset ratio is the main factor influencing financial feasibility of the crop rotation systems. For a 70/30 debt to asset ratio all crop rotation systems are unfeasible for the irrigation systems with a positive pumping height (+10 m) and unfeasible, except one (30W30S30C30L), for the negative pumping height (-15m). For a 50/50 debt to asset ratio only five crop rotation systems are feasible for irrigation systems with positive and negative pumping heights (30W30S30L; 30W30S30LM30L; 30W30LM30L; 30W30LM30C30L; 30W30S30C30L). For a 20/80 debt to asset ratio all crop rotations systems except one (60W60LM) are feasible for both pumping heights. The conclusion is that the debt to asset ratio is more important in obtaining financial feasibility than the choice of the crop rotation system and the given crops.