Effects of Water Markets on Irrigation Technology Some

Effects of Water Markets on Irrigation Technology: Some Australian experience Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide "Irrigation Technology to Achieve Water Conservation, ” Zaragoza, Spain, 12 -15 th May 2008

Water Use-Efficiency in Australia §Australian irrigators have increased water use efficiency significantly § 1991 -2001 water use per hectare down by 50% § Area under irrigation only reduced by 6% §This has been driven by § Low rates of agricultural protection § Water reform - since 1994 § Improved entitlement and risk specification § Water trading § Separation of policy from delivery § Impact of prolonged drought since 2001 2

Producer Subsidy Equivalents Source: Producer and Consumer Support Estimates, OECD Database 1986 -2004, Minimal Protection from competition adds an imperative to technology adoption 3

Changes in water use efficiency in Australia Year Change 2002 -03 2003 -04 2004 -5 Agricultural establishments irrigating (no. ) 43, 774 40, 400 35, 244 -19. 5% Area irrigated ('000 ha) 2, 378 2, 402 2, 405 1. 1% 10, 403, 759 10, 441, 515 10, 084, 596 -3. 1% 4. 2 -4. 5% Volume applied (ML) Application rate (ML/ha) 4. 4 4. 3 Improved technology means population decrease 4

Trends in Rice productivity, MIA Over last 25 years rice yields have risen from 5 to 10 tonnes per hectare Source: Modified from Humphreys and Robinson (2003). 5

National Water Reform Competition policy followed by a National Water Initiative 1. Recognition of Scarcity – freeze on new licences 2. Separation of water title from land trading 3. Administrative separation 4. Full cost pricing (Lower Bound) 5. Formal Planning 6. Reduced allocations per entitlement 6

Competition payments to MDB states (A$millions) Year State 97 -98 98 -99 99 -00 00 -01 01 -02 02 -03 03 -04 04 -05 05 -06 NSW 126. 5 138. 7 148. 6 155. 9 242. 5 251. 8 203. 5 233. 6 292. 5 Vic 92. 8 102. 0 109. 2 114. 7 179. 6 182. 4 178. 7 201. 6 197. 9 Qld 74. 2 81. 6 81. 5 73. 0 147. 9 138. 9 87. 9 143. 3 178. 7 SA 34. 3 38. 4 34. 5 35. 9 55. 7 57. 1 40. 7 50. 4 54. 3 NSW fined A$26 million for non-delivery of water reform milestones Source: NCC. 13 th January 2008. 7

Progressive unbundling of system Land Title with Water Licence attached Water Land Tradeable Rights Entitlement Shares in Perpetuity Bank-like Allocations Price National Competition Policy 1993/94 Use licences with limits & obligations Markets rather than governments as the integrator National Water Initiative 2004

Scarcity and Trading has enabled adoption of new technology and “greenfield” development Source: Murray Darling Basin Commission, 2007. 9

Internet-based seasonal water trading Water markets are growing in sophistication Source: www. waterfind. com. au 10

Water price and productivity Water entitlements are rising in value ~ 15 -20% pa Source: Psi-Delta, 2008. 11

Administrative separation - Murrumbidgee Separation of policy from water supply has lowed costs. §Source: After systems Allow irrigators to own and run their supply Young et al. 2006. 12

Supply system technology Competition reform has driven efficiency in delivery § Forced most supply systems to move closer to lower bound pricing § § Automated control systems § Leakage reduction § § Management benchmarking Total channel control systems (Rubicon) System rationalisation now under consideration 13

Annualised delivery costs, Pyramid Boort Irrigation Area Move away from postage stamp pricing or. Irrigation, pers. com. Source: Goulburn Murray 14 transfer pod management to local farmers

Water Sharing Plans Have a statutory legal basis Assign climate change risk to irrigators Forced community engagement in planning process But rarely plan for adverse climate change § River Murray Plans reduce env. allocations 83% & users 17% Have not succeeded in restoring river health as fast as now seems necessary 15

Drought or adverse climate change Is driving a national rethink about the pace and nature of water reform § Define entitlements as shares not volumes § Allow irrigators to carry forward water § First priority to covering system losses § Accounting for all un-metered forms of use § Reducing barriers to trade National Plan for Water Security § Contrary to National Water Reform principles § Protection for inefficient irrigators and those in inefficient supply systems § In a drier world, will impede technology and progress 16

Implementation sequence (Will take a decade) 1. Vest ownership of water in national as whole 2. Issue “unbundled” access rights to defined parts of each system 3. Install meters 4. Convert area entitlements to volumetric entitlements as basis for determining shares 5. Establish credible accounting and enforcement systems 6. Develop protocols and trial trading 7. Validate registers 8. Separate water shares from land titles 9. Develop trading systems and separate environmental control systems 17

Conclusions and recommendations 1. Develop a principled reform agenda and start the sequence 2. Water trading will drive technology 3. Pricing will drive technology adoption 4. Policy separation and transfer of control to irrigators works (This is not conventional privatisation) 5. Need to get planning and allocation processes right 6. Need to attend to sequencing of reforms 7. Don’t start trading without getting the property right and administrative foundations right 18

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