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Buying a Farm – a Valuer’s perspective | Valuing irrigation lands on a farm

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Dec 7, 2021

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WATER (Continued)

IRRIGATION FARM TERMINOLOGY

To be clear on what is referred to when valuing the irrigation component of a farm, it is important to explain or define the terminology to be used. The following definitions distinguish between different types of so-called “irrigable land”:

  • WATER-USE ENTITLEMENT

It refers to the lawful use of water for irrigation purposes. It is represented by a water-use registration that will eventually be replaced by a water-use license.

  • IRRIGATION LAND

Land that is debushed, cultivated, equipped with mainlines and for which there IS enough lawful irrigation water available to be irrigated annually. It has the highest value of all the irrigable land components.

  • EQUIPPED LAND

Land that is debushed, cultivated, equipped with mainlines and for which there IS NOT enough lawful irrigation water available to be irrigated annually, but that can be utilised in crop rotation. It has a lower value than irrigation land, but higher than irrigable land.

  • POTENTIALLY IRRIGABLE DRYLAND

Land that is debushed, cultivated, NOT equipped with mainlines, but that can be equipped and for which there IS sufficient irrigation water to be irrigated annually if it is equipped. It has a lower value than equipped land, but higher than dryland and potentially irrigable veld.

  • POTENTIALLY IRRIGABLE VELD

Land that is currently veld, not debushed, not cultivated, not equipped, but that can be irrigated if prepared and equipped and for which there IS enough irrigation water to be cultivated annually. It has a lower value than potentially irrigable land, but a higher value than veld.

THE TRANSFER OF WATER-USE ALLOCATIONS

Transfers of water allocations are allowed by law (the Water Act). This usually happens when a farm is transferred from one owner to the next, but it can also be sold to be used for other purposes or for use on another property. This is possible because the water adheres to the person or user and not to the land anymore. The entitlement was originally granted to be used on a specific portion of land though. These transfers are highly controlled and regulated by the Department of Water Affairs.

A transaction of water-use allocation or water surrendering may take place under the following circumstances (South Africa, Act 36, 1998):

  1. The transfer must be in respect of water-use entitlements from the same water source (irrigation scheme, river etc).
  2. It must be physically possible.
  3. The water-use entitlement must be lawful in respect of the Act.

THE VALUE OF IRRIGATION LAND

The value of irrigation land is largely influenced by:

  • Irrigation type:

The cost of preparing lands for different types of irrigation differs and influences the value a buyer attaches to such land. Examples of irrigation (not exhaustive) are flood-, centre-pivot-, drip-, sprinkler-, micro-jet, swivel boom-, canon sprayer-, wheel-move-, dragline irrigation etc.

  • Soil potential:

Soil potential influences not only the value of dryland, it does the same for irrigation land. Better dryland soils always make better irrigation lands. Well-drained soils allow for optimum irrigation whereas poorly drained soils make irrigation scheduling difficult. Tree crops, orchards and vineyards should never be planted on poorly drained soils. Nutrient levels always play a role in the value of soils because it is costly to rectify. It is common sense to pay less for soils with a low pH level, provided it is what the specific plants need.

  • Climate:

The influence of climate lies in the restrictions it places on what can be planted and when.

  • North or south-facing:

The temperature of soils on the north-facing slope of a hill or mountain is always higher than on the southern slope. This becomes important for the production of especially vegetables for fresh markets early in the season. The rows in most orchards run north-south and lands that can be planted in this direction are better suited to orchards than lands that are elongated in an east-west direction, and accordingly they have higher values.

  • Distance from water source:

Not all lands close to a water source are suitable for irrigation. This is often the case on different sides of a river. It sometimes happens that soils on one side of a river are not suitable for irrigation, which results in lands being made and irrigated further away from the river, where the soil is better. It costs more to equip these lands, but of course it does not mean that the values are higher. Cost does not equal value, and in this case the value should be lower due to additional pumping and mainline costs.

*This article was originally published on the Farmer’s Weekly website

Rumpff Kruger
Rumpff KrugerProfessional Valuer

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