Five years. In our experience, that is the payback period many people expect from a new irrigation development, and many settle on it before anyone has tested it.
A feasibility study can make almost any project look good on paper. The result depends on the assumptions, and assumptions bend easily toward the answer everyone hopes to see. The value of an irrigation feasibility study lies in how rigorously it tests the project before anyone commits capital. This article explains what a study covers, why lenders ask for one, how long a study stays valid, and what we do differently when we carry one out.
Key takeaways
- A feasibility study answers whether a development should go ahead before anyone commits capital.
- Starting from a preferred concept and then proving it financially introduces confirmation bias and inflates the assumptions.
- A study that compares several options can show where the preferred concept loses to an alternative.
- Lenders ask for a study to see whether the project can repay its debt, and they look closely at the projections behind the return.
- A study has a shelf life that depends on various factors that change with time, such as tariffs, prices, interest rates, and water availability.
What does an irrigation feasibility study cover?
An irrigation feasibility study is a study that tests whether a proposed irrigation development is technically workable and financially sound. It joins the physical facts of a site to the financial case and says whether a development should go ahead, in what form, and at what cost over its working life. It sits at the start of a development, ahead of the masterplan and the detailed design.
On the physical side, a study establishes the following.
- The water source, with a reliable figure for what it delivers
- The crop and planting plan
- Soil information
- Topographical survey or contour data
- The development area and any existing infrastructure
- The development phases
- Operational requirements, such as labour and power
On the financial side, the irrigation project financial analysis brings together capital cost, operating cost including energy and maintenance, revenue, the funding structure, and the ROI.
Why can a feasibility study overstate the return?
People often begin with a preferred development concept and then attempt to prove that it works financially. This confirmation bias can lead to overly optimistic assumptions.
It shows up in small choices. Yield sits at the top of the achievable range. Price follows the strongest seasons. Ramp-up reaches full production sooner than the crop allows. Each choice looks defensible on its own, and together they produce the positive five year return everyone hoped to see. Perennial crops need several years to reach full production, which leaves little room inside a five year window.
Every site offers more than one way to develop. Water sources, storage, pipe routes, irrigation methods, and system layouts combine into very different projects, each with its own costs. A study that tests only the preferred concept cannot establish whether it is the best option. A study that compares options can show where the preferred concept loses to an alternative, or where none of the options pays.
Which assumptions matter most in a feasibility study?
A handful of assumptions usually move the answer more than the rest, and the list below covers the usual candidates. Finding them, and showing what happens when each one moves against you, gives the decision maker something to work with.
- Yield and quality
- Price and market access
- Water availability across a dry season
- Energy cost
- Capital cost and construction timing
- Interest rate and funding terms
Energy shows how quickly an input can change. A study that carried older tariffs would show an operating cost well below what the same system pays today. We cover that shift in our article on rising electricity costs and irrigation budgets.
Why do banks ask for a feasibility study?
Banks and other lenders ask for a feasibility study to see whether the project can earn enough to repay the loan. A study gives that answer before the money moves. Nedbank has described a feasibility study as part of its due diligence process for agribusiness credit applications.1
Lenders also look closely at the projections. Nedbank says its feasibility study, which an agri-economist conducts, outlines the various scenarios, with their strengths and weaknesses.1 The Western Cape Department of Agriculture lists projected balance sheets, income statements, and cash flow among the documents financial institutions require from farmers.2
A study built on a single optimistic case gives a lender little to check. However, if it states its assumptions and shows how the return responds when they move, it gives a lender something to rely on. An independent assessment also helps keep the analysis focused on the project's requirements and away from the sale of particular equipment.
How long does a feasibility study stay valid?
A feasibility study has no fixed expiry date. It stays reliable only while the inputs behind it hold, because a study describes a project on one particular date.
The inputs keep moving after that date. Electricity tariffs rise. Commodity prices, exchange rates, and even interest rates shift, and the prices of pipes, pumps, and civil works move with them. A borehole that delivered a certain figure when someone tested it can deliver less several seasons later.
The scope moves as well. A change in phasing or in planted area means the study describes a project that no longer exists.
An outdated study can still look authoritative, which is why it needs checking. Before you release capital, ask which inputs carry a date and whether the scope has changed since. A study that predates a tariff increase or a change in funding terms deserves a second look.
How do we carry out an irrigation feasibility study?
Our feasibility studies follow four stages, from site assessment through technical and financial feasibility to a decision point.
- Site assessment. An engineer walks the site and assesses topography, soils, water availability, power supply, and the crop you intend to grow.
- Technical feasibility. We compare realistic development options and prepare a feasibility-level design for each, showing the likely system layout that we use to estimate costs. We test each one against the site constraints, your operational needs, and a twenty year outlook.
- Financial feasibility. We quantify the capital cost, operating cost, and projected return for each option.
- Decision point. If the numbers work, the project proceeds. If they do not, you can rethink the project before significant capital moves.
Across those stages, we do the following.
- We compare viable development options and test the preferred concept against them.
- We evaluate capital expenditure alongside ongoing operating costs.
- We test the assumptions that materially influence the investment decision.
- We establish a clear basis for deciding whether to proceed, revise the scope, or reconsider the project.
We also sell no equipment and take no supplier commissions, which keeps the analysis independent of any product.
The result is a bankable feasibility report with IRR, NPV, and ROI figures that supports the investment decision. Evaluating capital expenditure alongside operating costs is the same lifecycle approach behind how we calculate the true cost of an irrigation system.
What should you expect when you commission a feasibility study?
Expect an engineer on your site before any concept hardens, and expect us to test the concept you favour against the alternatives. We will also ask questions about the site information listed earlier. If several of those items are still open, that is normal, and the study can investigate them where the agreed scope includes it.
If the numbers support the project, it moves on to the masterplan and the detailed design. If they do not, you will know before significant capital has moved.
These questions are worth asking any consultant before you commission a study.
- Who benefits financially if the project goes ahead?
- Does the study compare more than one option?
- Which assumptions move the result most, and what happens to the return when each one moves against you?
- What date are the inputs from, and when should you revisit the study?
Frequently asked questions
What should I have ready before a feasibility study starts?
Existing information on water availability, land surveys, crop plans, infrastructure, and expected production helps the study get underway. The list earlier in this article covers the full range of information a study draws on.
What happens if some of the information is missing?
Missing information can be identified and investigated as part of the study, where the work is included in the agreed scope. Agree the scope at the start to confirm which gaps the study will investigate.
What are the limits of a feasibility study?
A positive feasibility result is not a guarantee of crop yields, market prices, lender approval, or project success. The report evaluates viability using documented assumptions and available evidence. Because the assumptions are documented, you can see what the result depends on and revisit it when conditions change.
Want to test your project before you commit capital?
If you are considering a feasibility study for farm development, whether a new project or an expansion, we can tell you which questions to settle first. Let's talk.
References
- Nedbank, Nedbank Farming Feasibility Study (PDF).
- Western Cape Department of Agriculture, Finance for farmers, see the Sources of finance for farmers booklet.