Economic, Social and Environmental
Sustainability of the Murray-Darling
Basin
Kevin A Parton
Institute for Land, Water and Society
Charles Sturt University
Acknowlegements
Chris Hardy
Mark Morrison, CSU
Quentin Grafton, ANU
David Pannell, UWA
John Quiggin, UQ
Thilak Mallawaarachchi, UQ
Glyn Wittwer, UMelb
Murray-Daring Basin Authority
Australian Bureau of Agricultural & Resource Economics
(ABARE)
Bureau of Rural Sciences (BRS)
MDB
Total GDP $54b (2006)
Agriculture 15% of Basin GDP
(of which irrigated agriculture about one-third)
Total number of farms 61,000
(40% of Australian farms)
(of which farms with irrigation 18,000)
MDB produces 35-40% of Australia’s gross value of
agricultural production
Policy
Without
development
Proposed
Current
2,740
8,190
2,740
10,940
19,280
15,800
14,000
12,500
6,050
Diversions 0
Environment 31,780
Diversions 10,930
Environment 21,850
5,100
Diversions 13,680
Environment 19,100
Indicative salt load exported through the Murray Mouth, 1904-2030 (rolling 10-year
average). For the period 2009-2030, the forecast assumes a gradual return to longterm average conditions and then a decline due to the anticipated effects of
climate change
Marginal Benefits and Marginal Costs
Social marginal benefits of extra
environmental flows
Benefits
And
Costs ($)
Social marginal costs
of reduced
interceptions
0
E0
Environmental
flows (GL/year)
The Key Questions
What do we know about the benefit and cost
situation?
Or:
What does the research done so far tell us about
the benefits of larger environmental flows?
And
What does the research done so far tell us about
the costs to industry and the community of
reduced diversions of water?
The Key Questions
What are the costs and benefits of reducing
water allocations by 2,750 GL/year?
Or:
Where is 2,750GL on the marginal
benefit/marginal cost diagram?
Initial General Comments on Benefits
1. In any sub-catchment, a threshold level of
water is required before any environmental
benefits accrue.
2. As environmental flows increase the benefits
of further increases tend to decline. We cross
successive minimum thresholds – eg avoiding
algal blooms.
Marginal Benefits
There are now several significant studies of the
ecosystem benefits of increase environmental
flows along the Murray-Darling system; still
more work needs to be done.
The work will need to use non-market valuation
studies (eg choice modelling).
Marginal Benefits
Morrison and Hatton-MacDonald (2010):
The benefits from an improvement in the quality
of the Coorong from poor to good is worth
$4.3 billion, and that a moderate
improvement in the quality of the Murray is
worth over $3.2 billion, totalling $7.5 billion
Missing Link
Little assessment of how much extra water
needs to be released to get an improvement
from poor to good.
Initial General Comments on Costs
1. Initial reductions in interceptions of water
have only a small effect on economic activity.
Activities that have low net returns are
eliminated first.
2. As more water is transferred to the
environment the extra cost to economic
activity increases.
Economic Impacts of a 3,500GL Reduction in
Diversions (Source: Wittwer)
Impacts
Profits in irrigated agriculture
Gross value of irrigated
agriculture
Basin employment
-4.6%
-10.1%
small increase or
small reduction
“If farmers are compensated at the market price
for water removed from production under
SDLs (3,500GL), the impact on real GDP across
the MDB will be negative but small, while the
impact on aggregate household consumption
relative to forecast will be weakly positive.”
(Wittwer, 2010)
Why a drought has more impact
Impact of Drought
Between 2000-01 and 2007-08 amount of water
to irrigation fell by about 70%; the value of
irrigated agricultural production fell about 1%
(ABS, 2010)
Summary of the Economic Costs
Impacts generally small, but may be high in a few
local areas highly dependent on broad-acre
irrigated agriculture (eg Murrumbidgee and
Goulburn-Broken)
Impacts will be more severe for those individuals
and businesses dependent on irrigated
agriculture who do not own water rights
Also, some farms may be severely affected if they
want to continue irrigation, but their neighbours
do not
Current Median Perception of Marginal Benefits and
Marginal Costs
SMB
Benefits
And
Costs ($)
SMC1
SMC0
0
2,750
3,500-4,500
Environmental
flows (GL/year)
Perception of Marginal Benefits and Marginal Costs in
1969
Benefits
And
Costs ($)
Marginal costs of reduced
interceptions
Marginal benefits of extra
environmental flows
0
4,000
Environmental flows
Change in Perception of Marginal Benefits and Marginal
Costs since 1969
SMC1960
Benefits
And
Costs ($)
C
SMC2012
B
A
SMB2012
SMB1960
0
3,5004,500
Environmental
Flows (GL/year)
Current Median Perception of Marginal Benefits and
Marginal Costs
Marginal benefits of extra
environmental flows
Benefits
And
Costs ($)
Marginal costs of reduced
interceptions
0
4,000
Environmental flows
Current Perception of Marginal Benefits and Marginal
Costs
Marginal benefits of extra
environmental flows
Benefits
And
Costs ($)
Marginal costs of reduced
interceptions
0
2,750
4,000
Environmental flows
Wittwer (2011)
Lobbyists who have sought to exaggerate the
impacts of buybacks do not reflect the
behaviour of farmers who have voluntarily
sold water to the Commonwealth. ……
The lobbyists in effect are underestimating the
ability of farmers to adapt.
Dixon, Rimmer and Wittwer (2011)
The simulated long-run reduction in GDP caused
by a 1500 GL (buyback) scheme is 0.0059 per
cent. This represents about 17 hours of
economic growth. If in the absence of the
scheme GDP was going to reach a certain level
at midnight on 31 December 2018, then with
the scheme we would reach that level by
about 5pm on 1 January, 2019.
Risk Analysis
Extra environmental Risk summary
flow (GL)
MDBA
0
High risk of failing to
achieve desired
environmental goals
MDBA
Jones et al (2002)
2750
3350
Wentworth Group
(2010)
4400
MDBA
6300
---High probability of
restoring healthy
working river
Minimum threshold
for six major rivers in
MBD to achieve a
healthy state
Low risk of failing to
achieve desired
environmental goals
Water quality should not be overlooked
Thank you
MDB System
1. Amount of water in the system at locations A – N
2. Rain that has already been recorded at locations 1 –
16
3. Rainfall forecasts for locations 1 – 16
4. Speed of flow and distribution of flow between
locations A – N (including accounting for evaporation)
5. Economic return from diversions at locations
downstream from A – N
6. Environmental benefits from flows downstream from
A – N, measured in physical terms
7. Value of these environmental benefits
Thank you
Choice Modelling
Petrol Station 1
Petrol Station 2
$1.20 a litre
$1.25
On your daily route
15 minutes away
No shop
With a supermarket
Petrol Station 3
$1.15 a litre
5 minutes out of your way
With a small shop