Water recovery pushes up prices

By Geoff Adams

Water recovery in the Murray-Darling Basin for the environment has pushed up irrigation water prices by an estimated $47/Ml, according to new research by the Australian Bureau of Agriculture Research.

In a new report, ABARES has found that while seasonal weather conditions are the main driver of water prices, both government buy-backs and on-farm efficiency programs (in which farmers surrender some entitlement) contribute towards higher prices in the southern basin.

Analysis of on-farm infrastructure projects finds participants generate higher returns per megalitre, providing incentives to purchase and use additional water, and so recovering water through these mechanisms has a larger price effect than buybacks.

The report found that off-farm infrastructure projects and rationalisation were more expensive but were more able to avoid increasing water allocation prices, and adverse regional flow-on effects were more easily compensated.

“By purchasing entitlements at market prices, buybacks are the simplest and least expensive method of recovering water for the environment,” the ABARES report said.

“However, buybacks reduce the supply of water available for irrigation so therefore increase allocation prices, unless there is a proportional reduction in the demand for irrigation water. This is more likely to be the case where irrigators participating in the buybacks do not decommission their irrigation infrastructure.

“Also, because buybacks are less expensive, there is potential to pair buybacks with spending on regional development projects to help ease adjustment pressure on affected communities.”

On-farm recovery has been found to result in farms using more water as the businesses improve efficiency and farmers realise they can generate higher returns for each megalitre of water used.

The report concluded: "Given the social, economic, and environmental complexity of the Murray-Darling Basin, water policy will never be simple. While it is clear more water will need to be recovered to put basin industries on a sustainable footing, there are no simple ways to recover water. It is crucial that policy choices are informed by the best available evidence on likely impacts of different recovery options for regional industries and communities.”

The ABARES report can be found at: https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-murray-darling-basin