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Water buybacks and drought in the Murray-Darling Basin of Australia: confusing policy and catastrophe

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  • Wittwer, Glyn

Abstract

TERM-H2O is a dynamic, multi-regional model of the Australian economy including water accounts, water trading possibilities and a bottom-up representation of Murray Darling Basin regions. In modelling water buybacks (i.e., purchases of water for environmental flows by the government from farmers) with TERM-H2O, we assume that the voluntary process proceeds over 12 years, eventually totalling 3500 GL. This gives farmers time to utilize water saving technologies as they emerge. This is in contrast to the relatively rapid sales of over 900 GL that had already occurred by the end of 2010. Drought modelling has been important in the policy context. TERM-H2O results indicate that 6,000 jobs were lost due to drought in the Murray Darling Basin. In the long run, years after a rainfall recovery, jobs remain 1,500 below forecast due to lost years of investment during prolonged drought. This contrasts with 500 jobs lost across the basin due to buybacks. Moreover, we are able to compare modelled results with actual outcomes. TERM-H2O includes a fixed water requirement per hectare of irrigated land for a given crop. If water availability falls, farmers must choose another crop or move some irrigable land to dry-land production. TERM-H2O includes regions and activities in which there is substantial mobility between irrigated and dry-land production, and other regions without such mobility. Such differences, embedded in base year data, explain differences across regions arising from buyback. By including mobility of farm factors between dry-land and irrigated activities, TERM-H2O captures alternative uses for farm factors as water availability changes. Some lobbyists and politicians have asserted that buybacks will result in rural catastrophe. Not only does this underestimate the adaptability of farmers in response to a voluntary and fully compensated process. It also confuses the impacts of drought and buybacks, underlining the importance of modelling both.

Suggested Citation

  • Wittwer, Glyn, 2011. "Water buybacks and drought in the Murray-Darling Basin of Australia: confusing policy and catastrophe," Conference papers 332169, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332169
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