Grapes, Wine and Water: Modelling Water Policy Reforms in Australia

Abstract

The policies, incentives and management practices shaping the future availability, access, use and quality of water have enormous implications for Australia's wine industry. While grapes are a relatively high value, low volume irrigation activity, growers do depend on reliable supplies of good quality water at specific times throughout the year. This paper explores the key factors motivating change in national, regional and local water institutions and examines how the resulting policy reforms effect water markets, water use, and the profitability of grape growers. FEDSA-WATER, a national level CGE model of Australian is used to examine the removal of implicit subsidies on water usage in irrigation industries in New South Wales and Victoria, and the removal of small implicit taxes on usage in South Australia, for the various irrigation industries. A second scenario taxes producers for salinity. In the water pricing reform scenario, there is a redistribution of irrigation activity to South Australia with pricing reforms. There is an overall decline in agricultural output but this is outweighed by the benefit in terms of reduced salinity damage. Similarly, in the case of taxing producers for the full cost of salinity damage, the benefit of reduced salinity outweighs the reduction in national income.

Keywords: Water markets, CGE, wine, policy reforms