Splitting Irrigation Cost Between
Neighbors
Lyndon Kelley
MSU Extension/Purdue University Irrigation Management Agent
St. Joseph County MSU Extension, 612 E. Main St., Centreville, MI 49032
kelleyl@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.
Indiana Irrigated acres
County
2007 acre
2007%
of total
2002 acre
2002%
of total
%
change
State total
397100
LaPorte
47,800
12.0
32,400
10.4
47.5
Knox
30,200
7.6
24,600
7.9
22.8
Elkhart
22,000
5.5
23,500
7.5
-6.4
LaGrange
24,700
6.2
21,700
6.9
13.8
Jasper
22,600
5.7
20,600
6.6
9.7
St. Joseph
25,000
6.3
19,500
6.2
28.2
Pulaski
20,000
5.0
19,200
6.1
4.2
Kosciusko
28,000
7.1
19,100
6.1
46.6
Fulton
19,600
4.9
16,200
5.2
21.0
Starke
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
313000
26.9
Summarized from 2007
Agricultural Census
• Many areas
have very
few large
acreages left.
• Working with
neighbors
can often
lower
irrigation
cost.
Field #5
1320’
Field #2
2640’
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
Prior Appropriation
West of Mississippi
Riparian Doctrine
East of Mississippi
- first in use, first in right
- based on Common Law
- allows transfer of water rights
- handed down from British law
- legal “doctrines”
- interpreted by the courts
• sets precedents
- may be modified by legislative
action
Surface Water Sources
- Riparian Doctrine,
Severance Rule
A
B
C
E
F
G
D
• 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.
Lakes
Rivers
Streams
Drainage ditches
Private ponds
Groundwater Sources
• 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.
Deep
wells
Horizontal
suction wells
Shallow
wells
Shallow
suction
wells
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 wheels
Legal 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
$27,000 $24,000 $20,000 $18,000 $15,000 $12,000
Year 7
Year 8
Year 9
$9,000
$6,000
$3,000
Often difficult to owner equipment Jointly Alternative to joint ownership
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 / year
Actual irrigated acres of 132, 25% * 132= 33 acres
33 acres * $93.26 = $3,078
Estimate the annual cost per acre for the investment
• Dirti formula = Deprivation, Interest, Repairs, Taxes and Insurance
http://www.msue.msu.edu/stloseph and navigate to the irrigation button on the left hand side.
160 Acre Center Pivot Example
Estimating 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) = $ 63,000
6.5% * $ 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) = $ 63,000
0.5% * ($ 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 cost
These costs are best handled annually calculated using actual costs at the end of
season.
Power: use actual fuel or power bill is recommended
estimated 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 Example
Estimating 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 Cost
Depreciation (well cost - salvage value)/20 years =
($32,000 - 12,000)/20 = $1,000
Interest: 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 = $1,540
Repair: estimated to between 2 to 5% of original cost
well cost * 2% =
$32,000 * 2% = $640
Taxes: 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
Irrigation Water Supply Example -Continued
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) = $110
Total 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 cost
These 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 range
Total 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.
Summery of typical irrigation cost, annualized
standardized to 6” of irrigation
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
From http://www.msue.msu.edu/stjoseph
navigate to the irrigation button on the left hand side
Splitting energy cost
• 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
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