 Prolonged drought throughout much of the Murray-Darling Basin, particularly across the southern portion, has severely reduced inflows to major water storages, resulting in irrigators receiving water allocations significantly lower than licensed entitlements. Water trading is one of the ways irrigators have responded to increased water scarcity.
To better understand the economic characteristics of irrigation industries at a farm level, ABARE undertook a survey of irrigators throughout the Murray-Darling Basin to provide data for the 2006-07 financial year. The objective of the survey was to collect a range of physical and financial data from irrigation farms in selected regions and industries within the Basin.
Results from the survey suggest water trading was effective in reallocating water among users in 2006-07. The ability to trade water appears to have assisted some irrigators in avoiding substantial financial losses in 2006-07, either by obtaining income from water sales or by purchasing water to maintain production.
The water market has grown considerably in the past decade as a consequence of institutional reforms to facilitate trade and changes in relative marginal returns as a result of increasing scarcity of water and strong competing demands. The large majority of trades are for temporary water.
Results from ABARE’s survey of irrigation farms in the Murray-Darling Basin show an estimated 2 per cent of irrigation farms were involved in trading permanent water entitlements, while around one-quarter of irrigation farms traded water on a temporary basis in 2006-07.
An estimated 31 per cent of dairy farms, 20 per cent of broadacre farms and 23 per cent of horticulture farms participated in temporary water trading in 2006-07. By region, the proportion of farms participating in trading was between 40 and 50 per cent in the Murrumbidgee, Murray, Goulburn-Broken and Loddon-Avoca regions. In the Eastern Mount Lofty Ranges region, an estimated 17 per cent of farms participated in temporary water trading in 2006-07. There was a relatively small number of farms participating in water trading in each of the remaining regions of the Murray-Darling Basin.
The most common reasons given for not buying temporary irrigation water across the Murray-Darling Basin were that extra water was not required (primarily horticulture farms) and/or the price was too high. For irrigated broadacre and dairy farms, the most common reason given for not buying temporary water was prices were too high. The most common reason given for not selling temporary water was because farmers had used all the water they had available.
The main buyers and sellers varied by industry. Overall, dairy farmers were prominent buyers of temporary water in 2006-07, as they sought to offset relatively low seasonal allocations. Conversely, horticulture farms, with generally more reliable irrigation water entitlements, tended to be prominent sellers in most regions. In 2007-08 in the southern Basin, perennial horticulture farmers were the most common buyers, with irrigated broadacre farms the most common sellers (Mallawaarachchi and Foster 2009).
A regional comparison of farm performance estimates for net buyers and net sellers shows that net buyers of irrigation water operated larger farms on average, with higher overall irrigation water use than net sellers. The survey results also show that, on average rate of return and equity position, net sellers of water performed slightly better than net buyers of water.
Water traders in the Murrumbidgee region purchased the largest net volume of water and irrigated the largest area in 2006-07. The proportion of water used by net buyers which was obtained from purchases ranged from 33 per cent in the Eastern Mount Lofty Ranges region to slightly less than 50 per cent in the Murray region.
There was little difference in the net volume of water sold per farm among the regions, with around one-third of the water available to net sellers being sold in 2006-07.
The average cost of temporary water purchases for net buyers ranged from around $44 000 a farm in the Goulburn-Broken region (9 per cent of total cash costs) to about $72 000 a farm in the Eastern Mount Lofty Ranges region (6 per cent of total cash costs). Temporary water purchases as a proportion of total cash costs was highest in the Loddon-Avoca region (14 per cent).
In all regions, revenue from water sales provided a substantial boost to farm incomes for many net sellers. The average receipts from temporary water sales for net sellers ranged from $22 400 a farm in the Murray region (8 per cent of total cash receipts) to $90 800 a farm in the Loddon-Avoca region (19 per cent of total cash receipts). |
