Water What can the irrigation industry learn from

Australia?

31 July 2009

Prof Mike Young Director, The Environment Institute Research Chair, Water Economics and Management The University of Adelaide

Water

• The irrigation industry depends on access to water

• Adapting to change– Urban and industrial demand is drawing

water away from agriculture;and

– Supply may be decreasing• Industry prosperity will depend on its

capacity to rapidly access water in an rapidly changing world.

Some Australian mistakes

• Climate shifts– We forgot to plan for shifts to a dryer

regimes– We still call what’s happening “a

drought”

• Rights, policy and governance– We embraced water reform without

establishing a property right system that was designed for trading

River Murray Inflows (GL)

In 2006/07, we broke the month by month minimum inflow record for 11 months

Inflows have been well below evaporative losses

Managed by running down stocks and reducing evaporation by closing off wetlands and not replenishing lakes

This last year has been the third driest ever!

Robust planning and water entitlement regimes are essential. Communities rarely plan for severe

adversity!

• When dramatically adverse climate change occurred, many management plans has to be suspended!

Last year, high security licences in SA on 18%. This year they start with 2%!

Symptoms - The River Murray

• Over-allocation– Dredges in its

mouth since Oct 2002

– Level below the sea

– Rising salinity– Serious acid-

sulphate soil problems

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14% less 20% less

Rainfall for Jarrahdale

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Str

ea

mfl

ow

(G

L)

N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ri l

48% less

66% less

S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )

PERTH

Insufficient planning for step changes

- 1%

- 3%

With half as much water

Users

Environment

River Flow

Environment

River Flow

Users

Water needed to ensure conveyance

Entitlements Environment

Flood water

Shared WaterEntitlements

Vo

lum

e of w

ater availab

le

Environment with a

fully-specified share

A robust sharing system

Now buying back water for the MDB environment

$3.1 billion

With half as much water

Users

Environment

River Flow

Environment

River Flow

Users

River Flow

Environment

Users

Which future is best?

• One that gets water fundamentals right, now?• A system that can be confidently explained as one that will

enable the irrigation industry to cope -- whatever future arrives

• One that facilitates autonomous adjustment and change• One that creates opportunity

• One that is always behind, always playing catch up?

• No guarantee of resolution of current problems• Lots of impediments to change

• Beyond Triple Bottom Line to system design for autonomous adaptation

Australian water rights & policy

• Share rather than seniority system– In rivers, usually two surface water pools

• High security pool• Low or general security pool

• Formal volumetric allocation systems– All use is metered and use limited to allocation

• Minimal role for courts and lawyers– Allocations and rules decided by government of the

day– Legislative plans that fully specify the rules of the

game– Right to trade held by individual water users not

districts

Water Rights Reform & unbundling

Water

Tradable Right Price

Land

Single Title to

Land with aWater Licence

Entitlement Shares

in PerpetuityBank-like Allocations

Use licences with limits & obligations

Delivery Capacity Shares

Delivery Capacity Allocations

SalinityShares

SalinityAllocations

National CompetitionPolicy 1993/94Plus Cap

National Water Initiative2004

Now trying to fix the problems created by the naive introduction of markets bolted onto an entitlement regimes that lacked hydrological, environmental & economic integrity

Scarcity and Trading

Source: Murray Darling Basin Commission, 2007.

Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04

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Intrastate Permanent (GL)

Interstate Temporary (GL)

Interstate Permanent (GL)

Trading has been good for the Australia’s irrigation industry

Water Reform Trading opened up

Reform Outcomes

• Positive– Facilitated considerable greenfield development

• Grapes• Almonds

– Massive innovation– Massive wealth creation– Many more irrigators survived the current long

dry– Movement of water out of areas with salinity

environmental problems

• Negative– Over-allocation still not solved

Water reform created Wealth

400

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900

1000

1100

1200

2000 2001 2002 2003 2004 2005 2006

Year

Cotton Index

Sugar Index

Total crops sector Index

Total Livestock sectorIndexMilk Index

Total prices received Index

Total Grains Index

Waterdex

Psi-Delta 2007

Bjornlund and Rossini 2007

Water reform

• Driven by political realization about the importance of getting water right

• States have referred MDB planning powers to Federal Government– New independent Authority of 6 people to

produce a new Basin Plan

• Buying water entitlements for the Environment

• Investing in water efficiency• Trying to remove remaining barriers to

trade• Taking climate change risk seriously

CSIRO Sustainable Yield Project, 2008

Advice from the lessons Aust has learned

Regime arrangements1. System connectivity – manage GW and SW as one2. Capping use – cap entitlement potential not use3. Return flows – account for them4. Unmetered uses – include them in the entitlement

system5. Climate change – plan for an adverse shift6. The environment’s share – define it and allocate to it

Individual license arrangements1. Registers – validate them early2. Entitlements - define entitlements as shares of defined

pools3. Trading – Get costs and settlement time down & keep

lawyers out 4. Control – Unbundle so you can manage at correct

scales5. Inter-seasonal risk management – allow markets to

optimize carry forward (don’t worry about beneficial use)

6. Exit fees – Allocate water to individuals or them to trade out of districts – communities will be OK

7. Trading risk – develop tagged trading

Water reform and your industry1. Encourage discussion of and planning for very long

drys – build system to manage with very little water before the big dry comes

2. Encourage transfer of ownership to individuals

3. Encourage replacement of seniority system with a share system designed for adverse climate change

4. Encourage connected management of ground and surface water as a single system

5. Encourage preparedness for a different water future and need to trade water on a daily basis

Embrace water reform – trial itWithout reform you do not have a secure future!

South Australia’s new water security plan

South Australia’s new water security plan

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

Download our reports and subscribe to Jim McColl and my droplets at

www.myoung.net.au

24

Water Use-Efficiency in Australia

Australian irrigators have increased water use efficiency significantly– 1991 -2001 water use per hectare down by 50% – Area under irrigation only reduced by 6%

This has been driven by – Low rates of agricultural protection– Water reform - since 1994

• Improved entitlement and risk specification• Water trading• Separation of policy from delivery

– Impact of prolonged drought since 2001

25

Trends in Rice productivity, MIA

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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

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er u

se (

ML

/ha)

or

Yie

ld (

t/h

a)

0.0

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Water p

rod

uctivity (g

/L)

Measured field water use (ML/ha)Grain yield (t/ha)Water productivity (g/L)Linear (Measured field water use (ML/ha))

Source: Modified from Humphreys and Robinson (2003).

Over last 25 years rice yields have risen from 5 to 10 tonnes per hectare

26

National Water Reform

• Competition policy followed by a National Water Initiative

1. Recognition of Scarcity – freeze on new licences

2. Separation of water title from land and trading

3. Administrative separation4. Full cost pricing (Lower Bound)5. Formal Planning6. Reduced allocations per entitlement

27

Competition payments to MDB states (A$millions)

State Year

97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06

NSW 126.5 138.7 148.6 155.9 242.5 251.8 203.5 233.6 292.5

Vic 92.8 102.0 109.2 114.7 179.6 182.4 178.7 201.6 197.9

Qld 74.2 81.6 81.5 73.0 147.9 138.9 87.9 143.3 178.7

SA 34.3 38.4 34.5 35.9 55.7 57.1 40.7 50.4 54.3

Source: NCC. 13th January 2008.

NSW fined A$26 million for non-delivery of water reform milestones

28

Administrative separation - Murrumbidgee

Source: After Young et al. 2006.

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1999 2000 2001 2002 2003 2004 2005

Year

Ind

ex

of

co

sts

Bulk Water Costs

Overheads and environment

Water distribution & maintenance

Total costs

Separation of policy from water supply has lowed costs. Allow irrigators to own and run their supply systems