Food Bowl or Folly? The economics of irrigating Northern Australia

Australia’s northern area has vast but largely undeveloped land that would be arable if irrigated. The prospect of a northern ‘food bowl’ has drawn political support for irrigation schemes from both major parties in the 2013 federal election. In this study we consider the net economic benefits of allocating northern Australia’s divertible surface water to irrigation, a scheme that would require significant infrastructure costs in dam and canal construction. We estimate the benefits to northern Australia, using a Ricardian hedonic approach to forecast the economic value of constructing major new irrigation schemes that would be capitalised into agricultural land values. We use publicly available information from existing and potential Australian irrigation schemes to define the cost of constructing large water storages and distribution infrastructure, as well as on-farm irrigation infrastructure. We find that the costs of turning northern Australia into an irrigated food bowl are likely to exceed any benefits that would be capitalised into land prices by a multiple of between 1.1 and 3.2.