Economic and Social Impacts of Water Trading on Irrigated Agriculture

Dr Sarah Wheeler's work provides objective guidance to policy-makers on contentious water reforms in the Murray-Darling Basin

image by Flickr user Jeremy Buckingham

The issue

The Murray-Darling Basin (MDB) in Australia experienced its worst drought in recorded history (Millennium drought), resulting in severe cuts to water allocations and the introduction of significant water policy reform to return water from a consumptive to environmental use. Drought and policy reform inflicted significant economic, social and personal stress on the MDB’s rural communities as they also faced falling commodity prices, increasing input costs, continuing population decline, decreasing rural services (such as education and health), and increasing environmental issues.

The reduction in water allocations during the drought led to a large number of farmers exiting irrigation. The major programs that the Commonwealth is has implemented in the MDB include the buying of water entitlements from irrigators to reallocate to the environment, and the subsidies given to irrigation infrastructure upgrades. The buyback of permanent water in the MDB, plus the establishment of water markets in Australia, has been a highly politicised and controversial policy, while the irrigation subsidies less so. Such large-scale government intervention has raised considerable questions about the consequences for farming communities of water sales from the MDB, in particular for farm exit.

The causes

There has been great debate (that is still ongoing) in Australia over the causes of rural community declines and the impact that water buybacks are having on irrigated regions in the MDB. Much of this debate often remains focussed on current government policy such as the Basin Plan that serves as a lightning rod to community distress. Long-term trends in communities decline and changes in regional expenditure and other farm impacts are often placed in the ‘too hard’ basket to understand and disentangle. At the University of Adelaide there is ongoing long-term research that is seeking to evaluate the impacts of water buybacks on farm exit, farmer mental health, farmer transformational behaviour and farmer suicide over time, going back to the early 1990s. This project aims to gain a greater understanding of adaptive capacity as well as the consequences of non-adaptation. A fuller understanding of such behaviour will allow new policies to incorporate such social issues and thereby improve outcomes.

Policy engagement

Sarah’s current research is building on over a decade of other work that has sought to examine the influences on and the impacts from water trading in the Murray-Darling Basin. Sarah has access to, and been involved in, irrigator surveys in the Basin since the late 1980s, and holds highly detailed information on water markets and trends since the early 1990s. This information is used regularly to assess trends and changes in water markets and irrigator behaviour, in a variety of different areas (e.g. water use, water trade attitudes, water trade participation, and irrigation technology use). Sarah has also engaged with a range of local, regional, national and international audiences to highlight key lessons and insights for reform.

Sarah’s work has been instrumental in informing government policy, particularly in regards to the impacts from irrigators selling permanent water entitlements. In 2011, Sarah presented her work to the South Australian State Parliament and subsequently advised a state parliamentary review committee concerning the probability of farm exit across the Murray-Darling Basin. In 2015, her work on the impact of selling water was presented to a federal Senate committee. In 2011 she led an evaluation of the Restoring the Balance program for the federal Department of the Environment, where she supervised the project, designed the methodology, collected the data, undertook case studies and assisted with the report development. The Department of the Environment used the report as a justification to continue the program. Sarah was also an expert advisor on water market issues to the National Water Commission in 2013 and 2014. Finally, Sarah’s research findings and advice have also been used by UNECE in developing a methodology for valuing benefits in reduced transboundary water conflict.

Sarah is an Associate Professor at University of Adelaide and Adjunct Associate Professor at the University of South Australia.

Find out more about Sarah's work and research affiliations:

The Centre for Global Food and Resources, University of Adelaide

The Food Energy Environment Water Network

Read more about the Fellows of the Economics & Science Group

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