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Economic effects of water recovery on irrigated agriculture in the Murray‐Darling Basin

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  • Rupert Quentin Grafton
  • Qiang Jiang

Abstract

A key issue facing water planners and policy makers is the cost of reallocating water from extractive uses, such as irrigated agriculture, to environmental flows. To quantify these costs, a framework to analyze the economic trade-offs from water use reductions in irrigated agriculture is developed that has general applications, but is calibrated to Australia’s Murray-Darling Basin. The framework includes an 18-region integrated irrigated agriculture water model of the Murray-Darling Basin that quantifies the impact on irrigated agriculture net profits associated with reductions in surface water extractions. The model shows that substantial reductions in water extractions of up to 40% across the entire Basin impose only a moderate reduction on net profits in irrigated agriculture, Basin-wide. However, the results also indicate that in regions where less profitable irrigation activities dominate, irrigated water use would fall dramatically although net profits would decline by proportionately by much less. The findings suggest that reductions in water diversions in irrigated agriculture at least cost so as to increase environmental flows would: (1) Concentrate the reductions in water extractions by irrigated agriculture in relatively few parts of the Murray-Darling Basin and, principally, on only three less profitable crops; (2) Reduce net profits, both regionally and Basin-wide, but these declines would be proportionally much less than the percentage reductions in water use; and (3) Ensure the present value of foregone net profits in irrigated agriculture is less than the amount currently budgeted by the Australian government to reduce surface water extractions in the Murray-Darling Basin.
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Suggested Citation

  • Rupert Quentin Grafton & Qiang Jiang, 2011. "Economic effects of water recovery on irrigated agriculture in the Murray‐Darling Basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(4), pages 487-499, October.
  • Handle: RePEc:bla:ajarec:v:55:y:2011:i:4:p:487-499
    DOI: j.1467-8489.2011.00545.x
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    References listed on IDEAS

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    1. David Adamson & Thilak Mallawaarachchi & John Quiggin, 2009. "Declining inflows and more frequent droughts in the Murray-Darling Basin: climate change, impacts and adaptation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 345-366, July.
    2. Peter B. Dixon & Maureen T. Rimmer & Glyn Wittwer, 2009. "Modelling the Australian government's buyback scheme with a dynamic multi-regional CGE model," Centre of Policy Studies/IMPACT Centre Working Papers g-186, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. M. Ejaz Qureshi & Jeff Connor & Mac Kirby & Mohammed Mainuddin, 2007. "Economic assessment of acquiring water for environmental flows in the Murray Basin ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(3), pages 283-303, September.
    4. Peter B. Dixon & Maureen T. Rimmer & Glyn Wittwer, 2011. "Saving the Southern Murray‐Darling Basin: The Economic Effects of a Buyback of Irrigation Water," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 153-168, March.
    5. Qureshi, M. Ejaz & Shi, Tian & Qureshi, Sumaira E. & Proctor, Wendy, 2009. "Removing barriers to facilitate efficient water markets in the Murray-Darling Basin of Australia," Agricultural Water Management, Elsevier, vol. 96(11), pages 1641-1651, November.
    6. Jeff Connor & Kurt Schwabe & Darran King & David Kaczan & Mac Kirby, 2009. "Impacts of climate change on lower Murray irrigation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 437-456, July.
    7. Deborah Peterson & Gavan Dwyer & David Appels & Jane Fry, 2005. "Water Trade in the Southern Murray-Darling Basin," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 115-127, August.
    8. Peterson, Deborah C. & Dwyer, Gavan & Appels, David & Fry, Jane, 2004. "Modelling Water Trade in the Southern Murray-Darling Basin," Staff Working Papers 31925, Productivity Commission.
    9. Horridge, Mark & Madden, John & Wittwer, Glyn, 2005. "The impact of the 2002-2003 drought on Australia," Journal of Policy Modeling, Elsevier, vol. 27(3), pages 285-308, April.
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    1. repec:wsi:wepxxx:v:03:y:2017:i:03:n:s2382624x17020015 is not listed on IDEAS
    2. Upali Amarasinghe & Vladimir Smakhtin & Luna Bharati & Ravinder Malik, 2013. "Reallocating water from canal irrigation for environmental flows: benefits forgone in the Upper Ganga Basin in India," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 15(2), pages 385-405, April.
    3. Liam Byrnes, 2014. "The cost of failing to install renewable energy in regional Western Australia," Energy Economics and Management Group Working Papers 9-2014, School of Economics, University of Queensland, Australia.
    4. Jiang, Qiang & Grafton, R. Quentin, 2012. "Economic effects of climate change in the Murray–Darling Basin, Australia," Agricultural Systems, Elsevier, vol. 110(C), pages 10-16.
    5. Kirby, Mac & Mainuddin, Mohammed & Gao, Lei & Connor, Jeffery D. & Ahmad, Mobin-ud-Din, 2012. "Integrated, dynamic economic – hydrology model of the Murray-Darling Basin," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124487, Australian Agricultural and Resource Economics Society.
    6. Morrison, Mark & Wheeler, Sarah Ann & Hatton MacDonald, Darla, 2011. "Towards a more nuanced discussion of the net-benefits of sharing water in the Murray-Darling Basin," AFBM Journal, Australasian Farm Business Management Network, vol. 8(2).
    7. repec:wsi:wepxxx:v:03:y:2017:i:03:n:s2382624x16500429 is not listed on IDEAS
    8. Ejaz Qureshi, M. & Hanjra, Munir A. & Ward, John, 2013. "Impact of water scarcity in Australia on global food security in an era of climate change," Food Policy, Elsevier, vol. 38(C), pages 136-145.
    9. Mushtaq, Shahbaz & Cockfield, Geoff & White, Neil & Jakeman, Guy, 2014. "Modelling interactions between farm-level structural adjustment and a regional economy: A case of the Australian rice industry," Agricultural Systems, Elsevier, vol. 123(C), pages 34-42.
    10. Amanda Lynch & David Griggs & Lee Joachim & Jackie Walker, 2013. "The role of the Yorta Yorta people in clarifying the common interest in sustainable management of the Murray–Darling Basin, Australia," Policy Sciences, Springer;Society of Policy Sciences, vol. 46(2), pages 109-123, June.

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