AGRICULTURE: by Patrick J. ByrneNews Weekly
Murray Darling farmers could lose 30% of water allocations
, May 3, 2003
A CSIRO report has revealed that farmers in the Murray Darling Basin could lose as much as 30% of their water entitlements over 20 years, twice what the Murray Darling Basin Commission has suggested in The Living Murray discussion paper. Conservatively, the cost to governments of buying water to make up the volumes proposed would be $1.7 billion, which is probably more than it would cost to line the irrigation channels and save huge water losses to seepage. Pat Byrne reports.When the Murray Darling Basin Commission (MDBC) recently started consulting farmers along the NSW side of the Murray River over proposals in their Living Murray paper to remove 5%, 10% or 15% of farmers water rights over the next decade, between 250 and 500 farmers, business people and community leaders turned out at each centre to voice their concerns.
The meetings were repeatedly cut short as the MDBC had scheduled two and three meetings per day at centres 200-300km apart.
Local communities have called for the delaying of any decision on the water issue beyond next October, when the Council of Australian Governments is due to deliberate on the issue.
While the MDBC's Living Murray
paper says that a further review of farmers water rights will be made after ten years, it does not reveal that there is a further plan to remove another 15% of farmers water allocations over years 11-20. This means farmers could lose up to 30% of their water allocations over twenty years.
This is revealed in a preliminary CSIRO Land and Water report, A preliminary assessment of the economic and social implications of environmental flow scenarios for the Murray River System
, prepared for the MDBC last year. This report can be downloaded from http://econpapers.hhs.se/paper/csireport/02_5F009.htm
The CSIRO report says that it "is a preliminary one designed to scope issues and quickly explore opportunities. At best, we offer rough order of magnitude estimates" ... because it uses economic models that "have been stretched beyond the purposes for which they were designed".
The report stresses that the economic impact of reducing farm irrigation allocations depends on many factors which are difficult to assess or will depend on a number of future complementary government policies.
For example, the report says that if there were no technological changes to farming and water use practices, the net cost to farmers of the removal of water allocations would be $100-300 million annually.
Further, "Because of the complexity of the nature of return flows, technical opportunities to improve water-use efficiency and the way water trading rules and licence conditions interact, some investments may cause a decline rather than an improvement in river health.
"Depending upon the implementation strategy chosen, significant changes to water licences will be necessary to avoid negative outcomes. The current ways by which water rights are defined is not conducive to the low cost enhancement of environmental flows. In fact, under current arrangements and under certain approaches to acquisition, significant arbitrage opportunities may emerge.
"In summary, if the benefits of securing water for the environment are not to be undone significantly, either the rules and conditions by which water allocations are defined and traded will need to be improved or significant restrictions on both temporary and permanent trades will need to be introduced."
The report also cautions governments that the method of removing water allocations "may shift water prices by factors as large as 60%. The implications of this for government budgets and the welfare of the people affected are significant. People's livelihoods and visions are at stake and, as yet, there has been limited assessment of the likely social impacts of commencing to explore such a process."
Perhaps most significant of all, the CSIRO report warns governments that, to achieve their desired increase in water flows for environmental purposes, they may have to purchases secure water rights from farmers.
It says that at $800 per megalitre, it would cost governments $1.7 billion.
However, water in northern Victoria is currently selling at up to $1,200 per megalitre, which means it would cost governments up to $2.55 billion.
The total cost could go higher, given that government intervention to buy water would push up water prices.
This begs the questions that governments have not even yet asked: why not look at other proposals to increase water flows, like lining the irrigation channels to stop large losses through seepage in sandy channel areas? This is likely to be a cheaper option than buying up water rights and reducing farmers' water allocations.
The CSIRO report also admits that the proposal to remove water rights will involve substantial structural adjustment costs such as devaluation of farm prices and changes from livestock to horticulture. Who is to bear the brunt of these structural adjustment costs? What happens to farmers unable to sell their property at a reasonable price? Who will help young farmers needing to buy equipment to enter the more capital intensive horticulture industries?
The Report glosses over the deficiencies in its economic model for how changing water allocations could impact on water use. Reducing allocations may have the reverse of its intention and increase water usage in dry seasons. In dry times, the price of tradeable water will be high, but so will the prices paid to primary producers due to reduced production on dryland farms, thus stressing the river environment more in drought conditions.