Possible negative feedbacks from ‘gold-plating’ irrigation infrastructure

For an irrigator, investments in on-farm water infrastructure that increase the marginal productivity of water may improve use efficiency. However, increasing on-farm water use efficiency invariably diminishes return flows, compromising the ability to maintain sufficient water flows in streams to support natural environmental values, particularly in dry states of nature. As climate change can increase the probability of dry states, modelling that does not incorporate state-contingent treatments of uncertainty may misrepresent the benefits of public investment on irrigation infrastructure improvements to recover environmental water flows. This paper uses a state-contingent modelling approach to review an extended farm capital investment policy in Australia's Murray–Darling Basin. We examine technical efficiency gain implications for irrigation and environmental water managers under alternative states of inflow variability and the role that increasing climatic uncertainty has on policy objectives. Results suggest that the incentives provided to recover environment water via on-farm capital investments could have two principal negative feedbacks given future uncertainties. First, farm capital investments may encourage inflexible production systems that fail to respond to future water scarcity, exposing that investment to increased risk. Second, technical efficiency gains may reduce return flows, creating perverse policy outcomes aligned with meeting environmental objectives. Highlighting these ulterior policy outcomes provides irrigators and policy makers the capacity to adapt and develop flexible arrangements, robust policy, and management solutions that help negate future uncertainty.