There is a need to redirect government spending away from irrigation subsidies to the buyback of water rights so as to achieve greater environmental benefits at lower cost.

No doubt the Nationals will call for new dams to capture all the rain that is going to fall for the next decade.

Lower cost to whom annnon? The MDB generates over $5 billion dollars of irrigated production annually and as such is effectively meeting the $1 billion/year govt spend cost through tax revenue.

A more intelligent way to go is to save as much water as possible through infrastucture, allowing the water that is available for extraction to be used efficiently.

Jobs - some of the 1000's on the line can be saved and others redirected to infrastructure development. Buyback dollars are flushed out to sea, infrastructure dollars keep on giving.

The competing needs of the irrigation industry and the ecology of Australia's most important river system up to now have been incompatible. Resolving them is going to be difficult.

In the SMH Lenore Taylor says that the Water Minister, Tony Burke, insists Labor will keep its election pledge to :

return to the Murray Darling river system however much water the final Murray Darling Basin plan decrees - according to yesterday's guide about a third of the water currently extracted by farmers. But he is also promising to look after rural communities, some of which are threatening to riot just upon the release of the guide to the draft plan, and to maintain Australia's food security and to keep the budget in surplus after 2012, even though that would cost about $2 billion to $3 billion more than already allocated to buy back the 3000 to 4000 gigalitres of water the guide says is needed. Oh, and he is also saying he will not force anyone to sell him their water.

It looks like Burke is promising to be all things to all people. There's trouble ahead.

rojo,
my comment that there "is a need to redirect government spending away from irrigation subsidies to the buyback of water rights so as to achieve greater environmental benefits at lower cost" refers to the cost to the government.

The background to this claim is the Productivity Commission Report (2010) Market Mechanisms for Recovering Water in the Murray-Darling Basin. It states that

The value people place on environmental outcomes, the opportunity cost of foregone irrigation, and the role of other inputs, such as land management, must also be considered.

And:

Purchasing water from willing sellers (at appropriate prices) is a cost-effective way of meeting the Government’s liability for policy-induced changes in water availability. Subsidising infrastructure is rarely cost effective in obtaining water for the environment, nor is it likely to be the best way of sustaining irrigation communities.

This explicitly rejects your position, which holds that subsidising infrastructure is a cost effective in obtaining water for the environment, and the best way of sustaining irrigation communities.

rojo,
My raising the possibility of "redirecting government spending away from irrigation subsidies to the buyback of water rights to achieve greater environmental benefits at lower cost" was also based on the Productivity Commission's Market Mechanisms for Recovering Water in the Murray-Darling Basin. It states:

The Commission has examined the experience of Australian programs for recovering water through subsidising infrastructure, and concluded that they are generally much less cost effective and efficient than buybacks. For example, infrastructure projects financed under the Living Murray Initiative recovered water at a cost almost 40 per cent greater than the cost of market-based measures. With water becoming increasingly scarce, irrigators and irrigation infrastructure operators have had strong incentives to invest in water-saving projects, meaning most of the ‘low hanging fruit’ has been picked already....Subsidising irrigation infrastructure projects that do not provide benefits additional to those accruing to irrigators is a poor use of taxpayer funds, relative to buybacks.

The Productivity Commission adds that the other drawbacks of subsidising irrigation infrastructure investment include that it:

• is inconsistent with the cost recovery principles agreed to by governments under the NWI [National Water Initiative]
• can lead to ‘gold plating’ assets that may subsequently become stranded
• is inequitable for those who have already made such investments privately at full
cost.

The Commission adds that any attempt to influence the future of regional communities would be better pursued through regional development policy that has regard for all of the drivers of change.

The denial about the causes of the collapse of the Murray-Darling basin is deepseated.

Paul Myers in the SMH says:

The reason the Murray-Darling Basin's river systems got into strife was a decade of record-low rainfall, not farmers' water extractions. The public perception is otherwise: farmers are widely viewed as having been irresponsibly taking water while the rivers dried up; moreover, once they are stopped from pumping water, the rivers will be automatically "fixed".
How wrong can you be? Irrigators are able to access water only when river flows reach prescribed levels. Little or no water flow means no allocation, as rice and cotton producers know so well.

Myers, who is a former editor of The Land and a free lance journalist denies that irrigator entitlements have been over-allocated by state governments for the sake of water development.

In another article defending agriculture Myers backtracks:

The lack of water in rivers is more because of the lack of rain than farmers taking the water, although water has been over-allocated on the Murray.

He doesn't acknowledge the ecological devastation that the over allocation of water on the Murray has caused. His primary position, as stated in this article about fixing the water problem is that:

We can manipulate, spend and talk as much as we like, but nothing can change the fact that rain, and rain alone, is the solution to the 21st century's riddle of the rivers. Mother Nature - not politicians, bureaucrats, or vested interests - is best placed to solve Australia's water dilemma.

Nor does he mention the bad irrigation practices and cheap subsidies. Rains and dams are the solution to Australia's water problems.

annon, well we all know how accurate economists are!
Of course to obtain a specific amount of water buybacks will be cheaper than creating savings. It's no surprise that if entitlement costs $x most of the water savings to that value will already have occured.

What the productivity commission don't appear to factor in is the future value of water and it's production. What will food and fibre be worth in five years, or fifty? It may well be cheaper for the nation to simply buyback water today, but investment is by and large made for the future. Buybacks are purchases not investments of any shape or form, except in the Gwydir Valley where govt has sold some of it's water back to irrigators already for a healthy return.

"is inequitable for those who have already made such investments privately at full
cost."

I agree, however buybacks lower the value of farm irrigation infrastructure when there is less water, and they lose that way too.

Nan, could you elaborate on the cheap subsidies, I don't seem to be getting mine and would like to remedy the situation.

rojo
I don't get downturn relief when the sales drop off in the shop!

Farmers talk about natural cycles of rain and drought but they still cry out for drought relief. Drought relief is a public subsidy. So is cheap water.

Philip Coorey in his Rivers will die of thirst as the arguments get wetter" at The National Times makes two good points. First,

Over-allocation to irrigators by parochial state governments trying to hold on to rural seats, combined with wanton land clearing, robbed it of water and increased the salinity. And that was before the drought.

Secondly,

When the Nationals squeal today about impending cuts to irrigators, they should at least acknowledge their own past role in promoting unsustainable allocations just to shore up their political base. As a result, communities and industries such as rice and cotton were allowed to grow on a false economy.

The Nationals will resist bu they are no longer in charge of water policy. and federal Labor Labor has no seats along the basin so its exposure is not immediate.

rojo,
the Productivity Commission does good work. It actually does economic analysis. Its point about ensuring regional communities have a viable economic base through regional development is a good one.

Luke Walladge poses the problem succinctly on the ABC's The Drum:

If you depended, for your survival, on a river, and if you were taking nearly 8,000 gigalitres a year more out of the river than it could afford to supply, and if those extra gigalitres were killing the very river you depended on to survive... what would you do?

We cannot go on as we are--business -as-usual--- because good policy requires that you cannot allow people to take more water than a river has water to give.

Walladge points out that the irrigation communities have been protected from reality for too long, making the inevitable crunch that much more painful. That's the reality --not the the unions, the greenies and the Canberra policy elite running the show in Canberra for the inner city professional class.

Nan, what was the stimulus package? $300 billion or something like that to prop shops up.

I'm no fan of farm subsidies, mainly as I haven't qualified for any.
Climate change is primarily caused by cities, and as such they should be happy to compensate farmers who have been disadvantaged by their excesses.

Cheap water? At the $2500/ML I paid for my last licences the cost is near $200/ML in interest alone, and at 8% allocation $2500/Ml. I don't think that is cheap water, but feel free to believe what you like.

annon, yes they are a productivity commision and its all well and good to explain the present but what is their vision for the future?

rojo
point taken about the Rudd government stimulus package. That was a one off and it was money in consumer's pockets. Drought relief is regular and money in farmers pockets.

When I spoke about cheap water I wasn't referring to the capital investment in buying water licences. I was referring to the charge or cost for water (ie. megalitre of allocation water) delivered to an irrigator by an irrigation trust/ corporation/authority. That is what is low.

Another form of subsidy is that irrigators who, due to their location, are responsible for adding to river salinity do not generally bear the costs associated with reducing salinity in the river. The government and taxpayer bears the coast for this kind of pollution.

rojo,
the dire state of many rivers in the Murray Darling Basin region should have been addressed a decade ago. The future of irrigation is the Murray Darling Basin is making do with less and more expensive water.

For instance many of the surviving irrigators in Victoria have learnt to survive as irrigators on allocations of 30% or even less . Those who did not survive have left the industry by either selling up or going dry land farming.The good old days of 100% allocation are gone for good. 50% is the new 100%.

Technology will help--eg., many irrigators are still using decades-old aerial spraying to grow crops that could use water conserving, but more expensive, drip-irrigation systems. I presume that many irrigators do not want, or cannot afford, to invest capital in that kind of conversion.

rojo,
Nan is right about cheap water. I understand that there is typically a two part tariff: the fixed charge an irrigator faces that reflects the fixed cost of infrastructure provision to that irrigator, and the variable charge faced by that irrigator that reflects the marginal cost of delivering water to that irrigator.

I also understand that the National Water Initiatives principles are ones of user pays, transparency of pricing for storage and delivery, and cost recovery for water planning and management.

That means this--ie., cost reflective pricing--- wasn't the case across the basin prior to 2007-9.

The massive over-allocation of water in the Murray-Darling Basin has been a de facto regional development policy. Over-allocation has supported regional communities and lower food and fibre prices for all of us.

The costs have been externalities, borne by the environment, and downstream communities, particularly in South Australia. Upstream irrigators do not pay for these externalities.

Gary, low delivery costs do not change the fact that the water is immensely valuable, and those that claim water is too cheap are infering that it is thus wasted. Water is not cheap. Yes we pay about $20 a ML for fixed and usage charges- the cost of maintainence delivery and a designated return on investment to govt bodies. This does not alter the cost of investment in water to the farmer, and it's real value.

How much do you pay for the actual water you use? I don't mean the charge for mains pipes, treatment, and delivery but the actual water.

"100% allocations gone for good" I guess we'll wait and see when dams fill. Quite a few irrigators with 95%+ at present.

Re:drip irrigation, it depends on soil types as to economic returns of drip. And when there is no water, due to the seriousness of this drought, it doesn't matter how efficient your application system is, it won't pay its way. there are a few studies suggesting that the ultimate impact on the environment due to the energy costs of cleaning and pressurising drip irrigation system water may actually be worse.

I don't know why you would criticise aerial spraying, it has saved a lot of chickpea and cereal crops this year as fields have been to wet to drive on. They may use a little more fuel per ha, is that your complaint?

Nan, you'll find changes are proposed to drought relief packages.
Irrigators (well 17% of them) were entitled to get interest rate subsidies for the first time during this last drought. The inference that all farmers are on some kind of gravy train is just not correct.