The impact of water ownership and water market trade strategy on Australian irrigators farm viability

Uni of SA and ABARES - "Sarah Ann Wheeler Alec Zuo  Neal Hughes "

Type: Research Paper
Knowledge level: Advanced

Farm Table says:

"Good insight into the relationship between water trading and farm viability."

What is the problem?

Irrigators now use a diversity of water trade and ownership approaches.

1. owning relatively large amounts of water entitlements relative to their annual demand
2. selling when they have excess water
3. owning smaller amounts (or less secure) water entitlements
4. relying heavily on water allocation markets to meet annual demands
5. Some irrigators do not trade at all

What did the research involve?

This study uses irrigation industry survey data collected over a five year period from 2006/2007 to 2010/2011 across the Murray-Darling Basin to investigate the relationship that water trade strategy and water ownership have with farm viability (namely farm net income and rate of return).

Note:  this was a period of extreme water scarcity and high water prices; hence any interpretation of results must take this into account.

What were the key findings?

• Water reliability is not as important in the broadacre industry as other industries, ie horticulture, dairy.
• Selling water allocations was a significant and positive influence on farm net income and rate of return.
• Buying water entitlements was sometimes associated negatively with farm net income and rate of return

This suggests that the debt impact of water entitlement purchase is greater than any possible production increase for that current year overall.

Farmers who adopted trading earlier are more likely to be the innovative, highly skilled leaders in their industry.
The water market has now matured to the point where the majority of irrigators in the SMDB have traded water
• as one of several strategies to keep the farm viable
• because they are more productive and water efficient
• as a retirement strategy or
• to buy water in desperate times

Final comment

This study has indicated the variability in influences on irrigated farm net income and rate of return across the MDB from 2006/2007 to 2010/2011. These results support the argument that there is a positive (reduction in debt) and a negative (reduction in farm production) farm level impact from selling water entitlements.

2014 - Australia - Uni of SA and ABARES - "Sarah Ann Wheeler Alec Zuo  Neal Hughes "
Read ArticleSave For Later

Related Resources