Opinion: Sask. $1.2B irrigation project fails economic test

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Who does the Diefenbaker irrigation project benefit? It’s a question Saskatchewan taxpayers have to be asking this year as the provincial government proceeds with one of the largest public projects in Saskatchewan’s history.

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It is obvious that Saskatchewan taxpayers receive no direct benefits from the project, despite their footing the bill. With development costs of $1.15 billion, and another billion in annual expenses over the project’s 50-year life, tax revenues returned to the province amount to just $592.9 million in the best case scenario.

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In short, the project offers Saskatchewan a massive fiscal loss.

The government may attempt to cover this loss by seeking funding from local producers. Local producers themselves should be wary of attempts by the government to extract funding.

According to the government’s economic analysis, the 90,000-acre region covered by this project has an annual net income of approximately $8 million.

The project is projected to eventually increase that annual income by $40 million, padding the pockets of less than one per cent of Saskatchewan’s grain and oilseed producers to the tune of over $1.5 billion by 2075, at the expense of everyone else.

That figure may sound appealing to local producers on its face, but if the government requires producers to provide even 4.5 per cent of the project’s total lifetime costs, then $1.5 billion over 50 years represents a measly 5.6 per cent return.

This assumes local producers have $100 million kicking around to spend on a project that would give them a return most Canadian equity funds can readily beat. If they don’t have that much cash in reserve, they’d have to borrow those funds, likely at an interest rate with a large risk premium, tanking their already meagre return.

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The S&P 500, an index long regarded as representative of the overall performance of the stock market, consistently averages above 10 per cent annual long-term returns. Such performance on a $100-million investment would yield producers $9.2 billion more than that promised by the Diefenbaker project.

Thus, if producers end up contributing even minimally to the financing of this project, even they will end up shortchanged.

The economic logic behind the project is even more concerning. This regional subsidy, on development costs alone, only yields a 3.5 per cent economic return.

Economist Jack Mintz wrote this year that subsidies are a drag on the economy in two ways: dollars flowing to poor-returning industries directly lower growth, while dollars flowing to lucrative sectors are wasted, as the private sector would have likely made that investment on its own.

A 3.5 per cent economic return means that this project falls squarely in the former category.

Saskatchewan’s agriculture sector is essential, and it feeds the world, but no farmer or rancher will tell you that it’s a lucrative industry. Margins are low and volatility is high. This project is arguably meant to address that problem, but only for less than one per cent of the province’s producers.

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If the goal is growing Saskatchewan’s economy, supporting producers or delivering fiscal returns to the province, a regional subsidy will never be the answer.

Instead of offering billions of taxpayer dollars to produce meagre returns for a handful of farmers, the provincial government could take advantage of the world-class agricultural research expertise at the University of Saskatchewan, establishing an endowment that would provide research grants for technologies that could address water stress, soil health, crop yields, all manner of issues in our agri-food sector that contribute to lower margins and volatility.

At the very least, such an approach has the potential to benefit all farmers and all of Saskatchewan, and it wouldn’t cost over $2 billion in taxpayer funds.

It remains unclear who exactly the government’s preferred approach benefits, which should concern the people of Saskatchewan, since they will be the ones paying for it for generations to come.

Ty Thiessen is a University of Saskatchewan student researching methods of government finance and debt reduction.

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