Limits to Government Water Buy-Backs in the Murray-Darling Basin, Australia

73 Pages Posted: 4 Jun 2008 Last revised: 9 Feb 2009

Date Written: September 26, 2008

Abstract

As the global food crisis took hold in 2008, the United Nations Department of Economic and Social Affairs raised concerns about the lack of global investment in agriculture. While increased global investment in crops for bio-fuels has been highlighted as a key cause of the crisis, in Australia prolonged drought and environmental degradation of river systems has also subdued food production for export. The Murray Darling Basin (MDB) is often referred to as the food bowl of Australia, producing fifty three percent of cereals grown for grain which include one hundred percent of Australian rice, ninety five percent of all oranges and fifty four percent of all apples The basin also holds a significant proportion of Australian livestock.

Water extraction in Australia, grew by sixty-five percent between 1983-84 and 1996-97, the majority of which was attributed to agriculture. Over-allocation of water resources across the four states of the MDB has been recognized as the major cause for the deterioration of the quality and quantity of water flows in the MDB. Climate change is expected to intensify the adverse impacts of over-allocation.

This paper explores the limits of the market-based governance strategy employed by successive Australian governments to address the problem of over-allocation, with a focus on government water buy-backs. Qualitative interviews with irrigators in the MDB indicate that the endowment effect is a key limit on the willingness to sell water to government. The interviews with irrigators also reveal a preference to sell water to other irrigators over government buyers when the purchase price offered is similar, in order to protect the rural economy. The Federal government's 2007-08 pricing strategy demonstrates that while government is willing to pay current market prices and it is unlike to pay significantly more in the immediate term. Given irrigator preferences, the government's current purchasing strategy increases the likelihood of water continuing to move between irrigators rather than toward the environment.

The paper demonstrates that overcoming the endowment effect and irrigator concerns for the future of rural economies in order to stimulate willingness to sell water to government, requires facilitation of alternative private sector activity in regions currently heavily dependent on irrigation. There is also an urgent need to establish within Australian water law, transparent and timely processes to assess the costs and benefits of government water decisions in a consistent manner. This will require a significant focus on building institutional capacity to undertake and critically analyze such assessments within government institutions and the judicial system.

Keywords: environmental flows, Murray Darling Basin, government water buy-backs, willingness to sell, endowment effect.

Suggested Citation

Thampapillai, Vinoli, Limits to Government Water Buy-Backs in the Murray-Darling Basin, Australia (September 26, 2008). CLEA 2008 Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1139670 or http://dx.doi.org/10.2139/ssrn.1139670

Vinoli Thampapillai (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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