Irrigation in the Murray-Darling Basin:
Input costs, receipts and net returns in 2006-07

Summary

In this report, data from ABARE’s 2006-07 survey of irrigation farms in the Murray-Darling Basin were used to examine the net returns for various agricultural enterprises (i.e. land use activities), for example rice, cotton, wheat, horticultural crops and livestock. The analysis of average returns contained in this report provides a baseline from which changes in irrigation industries over time can be monitored.

The financial performance of irrigators was severely affected by drought and historical low water allocations in 2006-07. It is likely that the prevailing seasonal conditions and water allocation situation may have inflated costs and lowered receipts on some farms. Also, there are likely to have been other factors which may have affected farm costs, and hence returns, during the survey year.

Using farm survey data to estimate costs of production for individual enterprises is difficult when there is more than one enterprise on a farm. As a consequence, a quantile regression technique was used in this analysis to allocate farm costs among individual enterprises for each farm. A detailed discussion of the quantile regression technique is provided in appendix A.

The resulting estimated net returns (unit receipts minus unit cash costs) provide a measure of the short-term cash return to each activity, excluding capital costs, fixed operating costs and non-cash items such as depreciation.

Overall, the results of the analysis show there was wide variation in unit costs, unit receipts and net returns across enterprises and farms. The analysis showed that vegetables and pome fruit generated the highest average net returns per hectare in 2006-07. At the same time, there were average net losses for cotton and rice. Care should be taken when interpreting these results as the single year on which they were based reflected the significant effect of drought and historically low water allocations.

The analytical technique used did not perform well for several enterprises, including beef cattle, sheep and dryland crops. Alternative techniques also produced poor results for these enterprises. Generally, the analysis performed well for those farms with relatively few enterprises and where the sample size was relatively large. As a consequence, results are not shown for beef cattle, sheep or dryland crops.