Southern Murray-Darling water markets functioning well: report

Irrigators in the southern Murray-Darling Basin have been adapting and with a maturing water market are well positioned to manage future variability, according to new research by the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES).

“In broad terms we find water market reforms are paying off,” said ABARES Executive Director, Dr Steve Hatfield-Dodds.

“The study took into account major changes in water supply and demand within the region since the last major drought.”

“Since 2007 around 2000 GL of water entitlement has been recovered for the environment in the southern basin,” Dr Hatfield-Dodds said.

“At the same time, there have been large changes in the irrigation sector, including expansions in almonds in the Victorian Murray and cotton in southern NSW.

“Despite this, ABARES modelling suggests that under a repeat of the Millennium drought, basin water market prices would be no higher than the peaks observed in the 2006-07 to 2008-09 drought.

“There are a number of reasons for this result. Firstly, while water demand has expanded in some sectors this has been offset by reductions in demand in other sectors, particularly grazing, dairy and rice.

“Secondly, since the Millennium drought there have been significant changes in carryover rules. As a result, much larger volumes of water are now being stored in dams between years, leaving irrigators better placed to withstand future climate variability.”

Dr Hatfield-Dodds said the results suggest water prices could be higher in lower Victorian Murray relative to other regions in future, due to the effects of trade limits particularly in the Murrumbidgee and the Barmah choke.

“These results are consistent with what we have seen in the market in recent years, particularly 2015-16 and 2016-17. While Murrumbidgee trade flows reversed in 2017-18 our results suggest this was largely due to temporary supply side factors”.

Dr Hatfield-Dodds said that while water trading and carryover reforms had been successful overall to date, water markets are not perfect and there may remain scope for further reform.

“While some limits on trade will be necessary due to physical constraints, some changes to trading rules may be warranted given the effect that trade limits are starting to have on the market,” Dr Hatfield-Dodds said.

Future scenarios for the southern Murray-Darling Basin water market is available on the ABARES website.

Last reviewed: 4 November 2019
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