October 18th 2003

  Buy Issue 2668

Articles from this issue:

COVER STORY: ENVIRONMENT: Don't spoil a good story with the facts ...

CANBERRA OBSERVED: Reshuffling the decks

AGRICULTURE: Unrestricted water trading a danger to farmers

FEDERAL ELECTION: Deregulation, drought, the dollar and the $7.5 billion surplus

FAMILY: AFA Conference calls for strengthening of marriage law

COMMENT: Poor always the losers in a middle class game

LETTERS: WA capitulates on Competition Policy (letter)

LETTERS: Taiwan and the UN (letter)

LETTERS: First Mildura Irrigation Trust (letter)

LETTERS: Rural economy (letter)

LETTERS: The future of rail (letter)

TAIWAN: Making strides in biotech

STRAWS IN THE WIND: Flying down to Rio / Shooting stars and black holes / Digging holes and filling them up again

RELIGIOUS AFFAIRS: Dr Pell's new appointment welcomed

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Unrestricted water trading a danger to farmers

by Patrick J. Byrne

News Weekly, October 18, 2003
Trading of irrigation water is being proposed as a means to shift water from low value farming to high value farming. The reasoning behind this proposal is fundamentally flawed, as Pat Byrne explains.

The Council of Australian Governments (COAG) - encompassing the Federal and State governments - announced in August its intention to examine the possibility of a widened water trading market "to ensure that water is put to higher value and more efficient use".

To this end, COAG issued a communiqué saying that the objective of its National Water Trading Initiative was to "expand [water] markets to their widest practical geographical scope, enabling increased returns from water use."

Currently irrigation farming provides most of Australia's food and fibre products. Attached to a farmer's property title is a water right. That water right gives value to the land.

Without water, the productivity and value of farmland is greatly reduced. A water right allows banks to assess future farm production values, to lend for farm investment.

In recent years, a limited amount of water trading has been allowed in most states. A small percentage of water in one water catchment area can be traded to another catchment, either on a temporary or permanent basis.

Of great concern is the in-principle COAG proposal to open up water trading. The driving idea behind this proposal is the belief that the value of farm production can be increased by transferring water from low value agriculture to high value agriculture.

This simplistic economic concept is seriously flawed.

First, it is economically and socially desirable to keep farm input costs low (like the cost of irrigation water) to provide low cost food to Australian families. What is wrong with low value agriculture? Australians need high quality, low cost food.

Second, some groups like the Wentworth Group are claiming benefits of hundreds of millions of dollars to the Murray Darling Basin from open water trading.

Their "guesstimates" are based on the assumption that the value of farm production for high valued crops will increase in the same proportion as the additional water allocated to those crops.

But farmers understand what many environmentalists clearly don't understand - rural industries are prone to booms and busts. Shifting water to high value crops can lead to over production, cause a collapse of prices and turn what are high valued crops today into low valued crops tomorrow.

Only five per cent of irrigation water goes to high value crops, mainly horticulture. If that doubled to ten per cent, today's high value horticulture would be tomorrow's lower value agriculture.

Third, shifting water over long distances in the Murray Darling Basin is unnecessary. By and large, soils almost anywhere in the Basin will produce either low valued crops or high valued crops. This means there is no need to shift water from one region to another. It is far more practical to shift the crops rather than the water.

Fourth, there are practical impediments to trading and transferring water long distances.

  • The further water is shifted, the more that is lost in evaporation and seepage.
  • Only a limited amount of water can physically be traded between regions because of local needs, channel flow restraints, etc., and not much more can be traded than is being traded now.
  • There are geographical restraints on water trading. Darling River water that enters the Murray at Wentworth will not flow "back up" the Murray to Cobram and down to Shepparton.

Fifth, there are good environmental reasons to restrict water trading between catchments. Over the past 80 years of irrigation in the Murray Darling Basin, farmers, scientists and catchment management authorities have developed strict rules on how much water can be put on land in the various regions without creating problems like higher water tables and salinity.

Open water trading would put at risk the environmentally complex array of irrigation rules across many catchments.

Sixth, banks lend for 10-year farm investments, with the farmer's land title and water right as security. If water rights are detached from property titles allowing farmers to sell off their water, then banks are likely to stop lending for farm investment; or they will insist on holding the water title as security.

Seventh, if a substantial amount of water is traded out of a region, then property values will fall, the value of regional farm output will fall, local employment will fall and the regional economy will suffer. In recent years, about 10% of irrigation water has been sold out of the Kerang area of northern Victoria, and the economy has declined about 20%.

In many areas, if the water title has been sold and the farms are then abandoned, the land becomes degraded. Without land management, abandoned farms are soon over taken over by weeds, feral animals, and in some areas suffer from salinity problems.

Eighth, if too much water is traded out of an irrigation region, some farmers can be left stranded. For example, if there are 30 farmers on one irrigation channel, those at the end of the channel will suffer if say 28 farmers sell off their water right. The local water authority may then refuse to deliver to the few remaining farmers, arguing that too much will be lost in the delivery process. The losses will be too costly.

Ninth, if the water market is opened much further, there is a risk that city-based speculators will "play" on it, forcing up the price of water with crippling effects on farmers.

Tenth, water is currently allocated between cities and farms (where it is attached to farmers property titles), in recognition of very different water markets with very different water valuations. Farmers will typically pay $30-$50 per megalitre, allowing them to provide low cost, high valued food to Australian and to compete on world markets.

City water is valued at $800 to $1,200 per megalitre. Most of the cost is in infrastructure, delivery and quality assurance.

If these very different markets are opened up such that cities come to compete with farmers for water, the cities will easily outprice farmers. Then the economics of farming will be drastically altered for the worse.

That is the logic of the COAG proposal to "expand [water] markets to their widest practical geographical scope, enabling increased returns from water use."

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