Splitting Irrigation Cost Between Neighbors

Lyndon KelleyMSU Extension/Purdue University Irrigation Management Agent

St. Joseph County MSU Extension, 612 E. Main St., Centreville, MI 49032kelleyl@msu.edu, 269-467-5511

www.msue.msu.edu - find St. Joseph Co. - then hit the Irrigation button

Irrigation will expand in MichIana

• Over 400,000 irrigated acres within 80 mile radius of South Bend, Indiana.

• Largest pool of irrigated ground East of Mississippi.• Closest pool of irrigated land to the USA major

population centers.• Sustainable - annual recharge is greater than

irrigation use. • Centered on excellent transportation and utility

resources.

Future of Irrigation in MichIana

• Higher transport costs increase interest in moving vegetable/food production back to Midwest

• Higher input cost increase the desire to reduce risk • The irrigated west is running out of water

Expect expansion in vegetable, seed production and other specialty crops.

All about controlling risk - Irrigated land is most often sandy loams that prevent planting and harvest delays.

Summarized from 2007 Agricultural Census

County2007 acre

2007% of total

2002 acre 2002% of total

% change

State total 397100 313000 26.9LaPorte 47,800 12.0 32,400 10.4 47.5

Knox 30,200 7.6 24,600 7.9 22.8Elkhart 22,000 5.5 23,500 7.5 -6.4

LaGrange 24,700 6.2 21,700 6.9 13.8Jasper 22,600 5.7 20,600 6.6 9.7

St. Joseph 25,000 6.3 19,500 6.2 28.2Pulaski 20,000 5.0 19,200 6.1 4.2

Kosciusko 28,000 7.1 19,100 6.1 46.6Fulton 19,600 4.9 16,200 5.2 21.0Starke 17,300 4.4 11,100 3.5 55.9

Bartholomew 10,200 2.6 9,100 2.9 12.1

11 Counties = 71.5 % of total

Indiana Irrigated acres

• Many areas have very few large acreages left.

• Working with neighbors can often lower irrigation cost.

Field #5

1320’

2640’

Field #2

Splitting Irrigation Cost Between Neighbors

• Permanent investments• Early termination agreements• Initial investment• Annual operating cost

Water Supply

Do I have enough

capacity to share

• Maximum water use for most crops is .27 - .32 in./day• 3 gal/minute/acre pump capacity = 1”/week• 5 gal/minute/acre pump capacity = .25 in./day• 7 gal/minute/acre pump capacity =.33 in./day, 1” every 3

days• 500 gal/minute pump can provide 1” every 4 days on 100

acres

Riparian DoctrineEast of Mississippi

- based on Common Law- handed down from British law- legal “doctrines”- interpreted by the courts

• sets precedents- may be modified by legislative

action

Prior AppropriationPrior AppropriationWest of MississippiWest of Mississippi

- first in use, first in right

- allows transfer of water rights

Surface Water Sources- Riparian Doctrine,

Severance Rule

Lakes RiversStreamsDrainage ditchesPrivate ponds

• If challenged water rights may be restricted to Riparian parcels • Once a parcel has been subdivided, the parcels no longer retaining

waters edge loose their Riparian Rights.• Once rights are lost they may not be regained (reattachment of

subdivided parcels dose not re-establish their water rights).• Commonly violated, but one of the easiest ways to get injunction

against a neighbor.

A B C D

GFE

Groundwater Sources

Deep wells

Shallow wells

Shallow suction wells

Horizontal suction wells

• Ground water belongs to State for all land owners to use to the extent their use dose not interfere with neighboring uses.

• Movement of ground water between parcels is legal and common.

Permanently installed

equipment belongs to landowner at

time of installation.

What is Permanent? ………Up to the courts

Anything bolted down and not on skids or wheelsLegal agreement is needed to protect non-owners investments.

Legal agreement is needed to protect non-owners investments.

Example …. •Well , Well starter panel, Electrical discounts, buried pipe and pivot pad will be installed at leasee expense. ($30,000)•Full use of the above stated equipment is that of the leasee for the ten years of this agreement.•If the termination clause (described below) is utilized the leasee will be compensated according to the following chart.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

$27,000 $24,000 $20,000 $18,000 $15,000 $12,000 $9,000 $6,000 $3,000

Annual ownership cost•Determine the benefit to each party –(i.e.. 75% ,25% Split)•Party with greatest benefit purchase equipment.•Estimate the annual cost per acre for the investment.•The owner is compensated annually for the % of benefit * the annual ownership cost per acre by second party.•Annual total of energy bills is divided by total acre inches of water applied . (cost per acre inch of application)

Example – 160 acre system With a Total Annual Ownership Cost of $93.26 / irrigated acre / yearActual irrigated acres of 132, 25% * 132= 33 acres 33 acres * $93.26 = $3,078

Often difficult to owner equipment Jointly - Alternative to joint ownership

http://www.msue.msu.edu/stloseph and navigate to the irrigation button on the left hand side.

Estimate the annual cost per acre for the investment•Dirti formula = Deprivation, Interest, Repairs, Taxes and Insurance

160 Acre Center Pivot ExampleEstimating Annual Irrigation Operation Costs -3-10

Standard 160 acre system and end gun with actual irrigated area of 132 acres installed at a cost of $62,000 with a power and water source and connecting equipment cost of $32,000. Ownership Cost

Depreciation: (original cost salvage value)/years of use‑(pivot cost + installation cost salvage value)/10 years=‑($62,000 18,000)/10 = $4,400‑ (well cost salvage value) / 20 years =‑($32,000 12,000)/20 = $1,000‑ Interest: interest rate * average investment value

6.5% * (original cost + salvage value/2) =6.5% * ($94,000 + $32,000/2) = $ 63,0006.5% * $ 63,000 = $4,095

160 Acre Center Pivot Example - continued Repair: estimated to between 2 to 5% of original cost

well cost * 2% =$32,000 * 2% = $640

pivot cost * 3% =$62,000 * 3% = $1,860

Taxes: no personal property tax in Michigan

the addition irrigation equipment should not increase property taxes. Indiana personal property tax estimated at 1%. $94,000 * 1% = $940 not shown in calculation Insurance: estimated at 0.5% * Average Investment Value

0.5% * (original cost + salvage value/2)0.5% * ($94,000 + $32,000/2) = $ 63,0000.5% * ($ 63,000) = $315

Total Ownership Cost = $4,400 + $1,000+ $4,095 +$640+ $1,860+ $315 = $12,310$12,310/132 acres = $93.26 / irrigated acre / year

160 Acre Center Pivot Example, Continued

Operating Cost (per acre) or total actual annual costThese costs are best handled annually calculated using actual costs at the end of season.Power: use actual fuel or power bill is recommendedestimated power cost:$3.50/ acre in. * 7 in.* 132 acres = $3,234 annually

$2 to $7.50/acre in. range Labor cost: recommend use of actual labor bills

Range of $1 to $3.50/acre in.$1 * 6 acre in. * 132 acres = $792 annually

Total Operating cost annually = $ 4,026

Grand Total Estimated Annual Cost = $4,026+ $12,310 + = $16,336$16,336 / 132 acres = $123.76 /acre at 6"

Irrigation Water Supply ExampleEstimating Annual Irrigation Operation Costs

Calculated for a theoretical irrigation water supply with an estimated original total cost of $32,000. Cost may be a combination of well, pump, underground piping and electrical panel. Costs were spread over a 132 irrigated acre for the example.Ownership CostDepreciation (well cost ‑ salvage value)/20 years =($32,000 ‑ 12,000)/20 = $1,000Interest: interest rate * average investment value

7.0% * (original cost + salvage value/2) =

7.0% * ($32,000 + $12,000/2) = $ 22,000

7.0% * $ 21,000 = $1,540Repair: estimated to between 2 to 5% of original cost

well cost * 2% =

$32,000 * 2% = $640Taxes: no personal property tax in Michigan

the additional irrigation equipment should not increase property taxes. Indiana personal property tax estimated at 1%. $21,000 * 1% = $210 not shown in calculation

Insurance: estimated at 0.5% * Average Investment Value

0.5% * (original cost + salvage value/2)

0.5% * ($32,000 + $12,000/2) = $ 22,000

0.5% * ($ 21,000) = $110Total Ownership Cost = $1,000+ $1,540 + $640+ $110 = $3,290$3,290/132 acres = $24.92/irrigated acre/year

Operating Cost (per acre) or total actual annual costThese costs are best handled annually calculated using actual costs at the end of season.Power cost:$3.50/acre inch * 7 inches* 132 acres = $3,234 annually

$2 to $7.50/acre inch rangeTotal Operating cost annually = $ 3,234 annually

Grand Total Estimated Annual Cost = $3,290 + $3,234 = $6,524

$6,524/132 acres = $49.42/acre at 7"The example water supply has a $3,290 total ownership cost and a $3,234 operating cost annually. The per acre value are $24.92/irrigated acre/year and $49.42/acre at 7" assuming 132 acres of irrigation coverage.

Irrigation Water Supply Example -Continued

Summery of typical irrigation cost, annualizedstandardized to 6” of irrigation

From http://www.msue.msu.edu/stjosephnavigate to the irrigation button on the left hand side

Type of System Cost / Acre

160 Acre Center Pivot $123.76

Traveler System $126.08

Single Tower Towable, 5 circles $144.71

Corner Arm System $ 146.09

160 Acre Drag Pod $149.84

Two Circle Tow-able System $174.09

40 Acre Center Pivot $263.47

Water supply only $49.42

• Annual total of energy bills is divided by total acre inches of water applied . (cost per acre inch of application)

• Payment is made by % of water applied to each parcel.

Example.• John adds up the bills from the power company for the past

year for a total of $8,000.• John applied 5 “ of water to his 99 acres portion of the system

for a total of 495 acre inches.• His partner applied 10” of water to his 99 acres portion of the

system for a total of 330 acre inches.• 495 acre inches + 330 acre inches= 825 acre inches • 330 / 825 = partners share, 40% * $8,000 = $3,200

Splitting energy cost

Who pays for repairs?Make sure it is agreed upon before hand.•Major disasters•Deductibles•Minor repairs•Maintained items•Winter drainage

Who pays for Insurance?Make sure it is agreed upon before hand.You must own it, to insure it•Deductibles•Total replacement value•Crop damage•Liability