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

2 Water Use-Efficiency in Australia  Australian irrigators have increased water use efficiency significantly  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

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

4 Changes in water use efficiency in Australia Year Change Agricultural establishments irrigating (no.) 43,77440,40035, % Area irrigated ('000 ha) 2,3782,4022,4051.1% Volume applied (ML) 10,403,75910,441,51510,084, % Application rate (ML/ha) % Improved technology means population decrease

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

6 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 and trading 3.Administrative separation 4.Full cost pricing (Lower Bound) 5.Formal Planning 6.Reduced allocations per entitlement

7 Competition payments to MDB states (A$millions) State Year NSW Vic Qld SA Source: NCC. 13th January NSW fined A$26 million for non-delivery of water reform milestones

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

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

10 Internet-based seasonal water trading Source: Water markets are growing in sophistication

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

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

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

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

15 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

16 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

17 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

18 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

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