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| Summary |
| Since around 2002, prolonged and severe drought throughout much of the Murray-Darling Basin has reduced inflows into river systems to record lows and, subsequently, the volume of water held in many major water storages has also fallen to record lows. As a consequence, allocations of irrigation water were significantly lower than licensed entitlements in most regulated river valleys in 2006-07 (Ashton and Oliver 2008). The timing of inflows and water allocations is critical for irrigated crops and pasture and greatly influences the business decisions made by farmers. To better understand the economic characteristics of irrigation industries at a farm level, ABARE undertook a survey of irrigators throughout the Basin to provide data for the 2006-07 financial year. The objective of the survey was to collect a range of financial and physical data from irrigation farms in selected regions and industries within the Murray-Darling Basin. In addition, the analysis contained in this report drew on data on dryland broadacre farms collected in ABARE’s Australian agricultural and grazing industries survey. The purpose of this study was to identify the regions and industries within the Murray-Darling that faced the greatest pressures based on irrigators’ financial situation in 2006-07. A summary of the results of the ABARE irrigation survey can be found in Ashton and Oliver (2008). Overall, the survey results show there is considerable diversity in financial returns across the Murray-Darling Basin such that there were no industries or regions with significantly better or worse financial results than the others. |
| Farm performance |
| The financial performance of Australian farms (including both dryland and irrigated farms) fell sharply in 2006-07 as severe drought across most of southern Australia led to a significant reduction in farm production and incomes. The effect of reduced incomes varied across the regions and industries of the Murray-Darling Basin. Overall, dryland broadacre farms had the lowest financial performance (measured by rate of return on capital investment excluding capital appreciation). Dryland broadacre farms in the Murrumbidgee, Macquarie-Castlereagh, Lachlan, Goulburn-Broken and Condamine-Balonne regions had the lowest average rates of return in 2006-07 (figure a). Among the irrigated industries, horticulture farms in the Macquarie-Castlereagh region, and dairy and broadacre farms in the Goulburn-Broken region had the lowest average rates of return in 2006-07. In contrast, irrigated horticulture farms in the Condamine-Balonne, Murray and Eastern Mount Lofty Ranges regions had the highest average rates of return (excluding capital appreciation) in 2006-07. Although financial data for the 2007-08 financial year were not available at the time of preparing this report, it is likely that overall farm financial performance for irrigators in the Murray-Darling Basin would have been weaker in 2007-08 than in 2006-07. Irrigation water allocations were generally lower in 2007-08, with some licence holders in many regions receiving record low allocations depending on the source of water supply and type of licence. The responses of individual irrigators to this situation will have been varied. Overall, farmers will have based their management decisions on the availability of irrigation water allocations, prevailing prices and availability of water on the temporary water market (for both buyers and sellers), and expected returns for various farm enterprises. |
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population |
low income /low equity |
low income /high equity |
high income /low equity |
high income /high equity |
|||
no. |
% |
% |
% |
% |
|||
|
|||||||
| Region | |||||||
| Goulburn–Broken | 1 720 |
33 |
42 |
12 |
13 |
||
| Namoi | 777 |
33 |
42 |
14 |
12 |
||
| Murray | 5 218 |
32 |
33 |
15 |
21 |
||
| Border Rivers | 585 |
28 |
18 |
20 |
34 |
||
| Lachlan | 834 |
26 |
22 |
37 |
15 |
||
| Murrumbidgee | 1 926 |
24 |
28 |
21 |
26 |
||
| Macquarie–Castlereagh | 658 |
23 |
27 |
18 |
32 |
||
| Loddon–Avoca | 912 |
22 |
34 |
15 |
30 |
||
| Condamine–Balonne | 1 135 |
17 |
37 |
11 |
35 |
||
| Eastern Mt Lofty Ranges | 445 |
16 |
30 |
12 |
41 |
||
| Murray–Darling Basin | 14 210 |
30 |
35 |
15 |
20 |
||
| Source: ABARE survey of irrigation farms in the Murray-Darling Basin. | |||||||
| Performance by income and equity |
| To gain greater insight into the financial performance of irrigation farms in each region, farms were allocated to one of four groups based on income (farm cash income above or below $50 000) and equity (farm business equity above or below 80 per cent): high income/high equity, high income/low equity, low income/high equity, and low income/low equity. The Namoi, Goulburn-Broken and Murray regions had the highest proportion of irrigation farms classified in the low income/low equity group with around one-third of farms in each region in this group (table 1). The Condamine-Balonne and Eastern Mount Lofty Ranges regions had the lowest proportions of farms classified in the low income/low equity group. Generally, farms in the low income/low equity group are likely to be facing the greatest financial pressures, often because of large farm business debts and poor debt servicing ability. Farms in the high income/high equity group had strong cash flows and relatively high profits and rates of return in 2006-07. Many producers in each group made significant investments in new capital, including both land purchases and new irrigation infrastructure, during 2006-07. |