SARAH ANN WHEELER, EMMA CARMODY. Was the Government’s irrigation cash splash worth it? (The Advertiser)

Jul 25, 2019

One of us was born on a fifth-generation irrigated dairy farm in NSW; the other in a country town in the Murray-Darling Basin.

Our backgrounds mean that we care passionately about agriculture, farmers, rural communities and sustainable water management in the Basin, and between us have dedicated decades to researching these issues.

As such, we are deeply concerned about certain forms of water recovery, which we believe have a number of unintended, negative consequences.

What does this add up to? In summary, a shortsighted policy for rural communities, many of which need governments to develop and implement schemes that boost services and jobs in the bush and which help farmers adapt to drought and climate change.

We’ll get to the roads, hospitals and schools in a minute. But first, let’s discuss the basics of water recovery, which so far has occurred via two mechanisms that have cost a total of $6.4 billion.

The first is known as ‘buybacks’ and involves buying water licences from willing irrigators. So far, $2.5 billion has been spent to recover 1,227 gigalitres of water in this way.

The second, which was the subject of last week’s Four Corners special, involves subsidising irrigation infrastructure on farms to improve water efficiency. 50 per cent of the water that is assumed to have been saved through improved efficiency is transferred to the government. $3.9 billion has been spent so far on things like lining channels, which has generated 695 gigalitres that is now held on water licences by the government.

You don’t need a PhD in maths to work out that it has therefore cost (on average) $2,000 per million litres to recover water through buybacks, and $5,500 to recover through irrigation infrastructure subsidies (and note: this is actual expenditure to date, not the planned original expenditure — it’s important not to get this confused).

Given these facts and figures, why hasn’t the government just bought water licences directly from farmers?

Because of a widespread belief that buybacks are responsible for large-scale rural economic decline. However, it has been shown that the costs of buyback have been over-estimated and the benefits underestimated.

Reduced employment and prosperity in many country towns is due to a more complex mix of factors, including falling commodity prices, increasing input costs, and climate change.

Research has also shown that money spent on regional development (such as in health, education and other services) could create between 3 to 4 times more jobs than efficiency upgrades, which provide short-term stimulus at best.

However, the belief about the impacts of buyback was (and is) so pervasive, that from 2014 onwards, effectively we stopped the buyback of licences through open tender.

What followed was a smaller number of closed tender negotiations on ‘strategic projects’ (the Tandou purchase being one of these), along with an increase in budget allocated for infrastructure works.

Apart from costing more, recovering water through irrigation infrastructure subsidies has a number of unintended consequences.

First of all, making irrigation infrastructure more water efficient reduces the volume of run-off from farms that would otherwise seep into groundwater and rivers, thereby forming part of the pool of environmental water. Some estimate that this reduction is 16 per cent, while other estimates are much larger.

Second, some subsidies are being given to farmers to increase the size of dams on floodplains — ostensibly because this decreases evaporative loss. However, taking water from floodplains does not, in many instances, require a licence and compliance and enforcement in relation to these diversions has historically been very poor.

This means, for example, that any extra water taken from the floodplain and stored in the augmented dam does not have to be bought on the market (which is subject to an overall limit). In other words, it’s an increase in consumption that cannot be contained by the aforementioned market ‘cap’.

Both of these issues are exacerbated by the absence of accurate ‘water accounting’, which in simple terms means we’re not properly measuring what’s coming in and going out of the river system across time. This means it’s difficult to know when and where net gains (or losses) are happening, including in relation to efficiency projects. It’s a bit like guessing what should go into the profit and loss columns and hoping that you end up in the black by June 30.

Examples one and two, above, also illustrate why transferring a licence to the government in exchange for the subsidy does not necessarily mean that there will be more water in the river (or as much as assumed).

Third, modernising irrigation infrastructure generally increases electricity costs (and often debt levels). Wine, nut and fruit growers named electricity costs as the second largest source of stress in their lives, while debt is the number one factor associated with irrigator mental health issues in the Basin.

Further, while farmers can use buyback proceeds to help them pay down debt, no such option exists with irrigation infrastructure grants.

Fourth, infrastructure upgrades often result in an increase in irrigation area and a change to thirstier crops (e.g. higher value permanent crops) which present a greater risk in drought as they require annual watering to survive. This is also concerning given the likely impacts of climate change on water availability across the Basin.

Research in Australia and other countries also demonstrates that this can lead to an increase — not a reduction — in water use. This is a source of great contention, so bear with us.

Farmers certainly can buy the extra water they need on the market (which as noted above is subject to an overall limit). However, research shows that in many instances, farmers’ increase their water use via (historically under-utilised) licences. While this is perfectly legal, we do not believe these increases are being adequately addressed under the current policy settings, which may in turn mean the government is over-estimating the volume of water that is available for the environment under the Basin Plan.

Furthermore, some farmers acquire additional water by switching to groundwater, which is not well regulated in certain areas due to a number of factors, including the difficulties associated with policing thousands of bores across vast areas in the absence of telemetry.

The end result is less water than would otherwise be the case in rivers and public storages, which in turn means greater uncertainty/risk for all water licence holders, in particular those that are further down the pecking order when it comes to annual water allocations.

Let’s be clear: irrigators who comply with all legal requirements have done nothing wrong by making clever use of the grant scheme.

We also believe irrigators should be free to adopt whatever irrigation infrastructure they want to on their farm (subject to land use and other regulations).

To wit: this is not about stopping irrigation efficiency upgrades by farmers. Nor is it about regulating crop choices. Rather, we are concerned about a government policy that is not being transparently administered; is not always delivering the environmental benefits that it should; and is incentivising agricultural activity that reduces the ability of farmers to deal with climate change. We are also concerned about the systemic failure to properly and objectively evaluate the benefits of alternative spending programs in rural communities.

We are now at a crossroads, where $4 billion is left on the table for water recovery by 2024.

So where to from here?

First and foremost, all government subsidised efficiency projects need to be subject to rigorous cost-benefit analysis before continuing.

A comprehensive water audit — and the use of satellite measurement of current and historical water use — is also urgently required. This is essential if we are to understand how much water is entering and leaving the system, and where. An audit of this nature will in turn make it possible to establish — with the help of project-level auditing and monitoring — which projects are increasing flows in our rivers, and by how much.

Next, proper governance arrangements must be introduced into relevant statutes to ensure that subsidies are only provided for irrigation efficiency works where it can be proven that the project will increase flows, that these increases can be measured and that they are contributing to the objectives and targets set out in the Basin Plan.

Legislative reform is also required to improve transparency in relation to these subsidies and the works undertaken, which would in turn increase community confidence (including in relation to the meeting of basic contractual obligations). It would also serve to protect the reputations of those who are doing the right thing.

Unsurprisingly, we also believe that buybacks should be back on the table. In those small highly dependent irrigation communities where this causes some level of economic hardship, proper structural adjustment packages need implementing, as recommended by the Productivity Commission.

Finally, we believe that government should develop a multi-pronged rural development strategy that addresses both the failings of current water institutions and markets, as well as policies relating to drought, climate change, land/soil management, mental health and rural economic and social development.

The Murray-Darling Basin and its people — irrigators, indigenous habitants, rural communities and businesses — deserve no less.

Professor Sarah Wheeler is the Associate Director of Research ,Centre for Global Food and Resources at the University of Adelaide. Dr Emma Carmody is a senior Solicitor EDO NSW, Legal Adviser, Secretariat of the Ramsay Convention on Wetlands and Visiting Fellow of the UNSW Faculty of Law.

This article was published by The Advertiser on the 15th of July 2019. 

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