The Productivity Commission has released its interim report as part of the Murray-Darling Basin Plan: Implementation review 2023. The report assesses and makes findings about the progress made toward implementing the Murray-Darling Basin Plan since 2018, and makes interim recommendations about the actions needed to strengthen and simplify the framework and achieve full implementation of the Basin Plan.
The Commission is seeking feedback via submissions and comments by Monday 20 November 2023.
The report release coincides with the release of a large-scale survey by The Australia Institute showing that most Australians in urban and rural areas support water buybacks as a mechanism for restoring the balance in the Murray-Darling Basin. It also follows the Australian Minister for the Environment and Water Tanya Plibersek‘s announcement that 250 irrigators have registered to sell more than 88GL with the Federal Government’s buyback tender.
Key points from the interim Productivity Commission review include:
- The Basin Plan will not be fully implemented on time or on budget. Key supply measures (infrastructure works and rule changes that offset water recovery) will not be delivered, and projects to ease constraints on river operations are progressing slowly (a shortfall of ~315 GL/y is possible). The program to recover an additional 450 GL/y of water via efficiency measures will also fall well short of the target (only 26 GL/y has been recovered). In addition to this, 13 water resource plans in New South Wales, which were due in 2019, are still not in place (page 2).
- If legislated, a new agreement to deliver the Basin Plan will provide more time and allow new supply measures and voluntary water purchases. However, this will not be enough to implement the Basin Plan in full. Weak accountability and other underlying risks to Basin Plan implementation remain. Existing funding is also insufficient (page 2).
- The Minister for Water should report to the Australian Parliament by June 2024, and annually after that, on the cost-effectiveness and feasibility of existing and new Commonwealth-funded supply projects (page 2).
- The Australian Government should develop a renewed approach to water recovery, including staged voluntary purchases. Delaying or not clarifying the recovery approach will perpetuate uncertainty for Basin communities and risk further increasing the cost of water recovery (page 2).
- Future water recovery should occur alongside a commitment from Basin governments to assist communities, where warranted, to transition to a future with less available water. Adjustment assistance should build on the evidence about what programs work and the regional economic context (page 2).
- A new government-owned corporate entity that operates at arm’s length from governments is an option for undertaking water recovery and implementing some supply projects. The report says that such an entity may be able to engage with the market more nimbly and quickly than a government department; undertake water purchases and other water recovery projects that do not fit neatly into Commonwealth procurement and grant rules; and help ‘de-politicise’ water recovery (page 2, 16).
- Recognising First Nations’ values and delivering on First Nations’ interests requires Basin governments to improve how they partner and share decision-making with Aboriginal and Torres Strait Islander people. Basin governments should publicly report on how water resource plans deliver on First Nations’ objectives and outcomes, and strengthen the capacity of Aboriginal and Torres Strait Islander people to engage in Basin Plan activities (page 2).
- The commission said there had been progress since 2018, with water resource plans in place in Victoria, Queensland, South Australia, and the ACT (page 2).
Marsden Jacob anticipates significant commentary around the recommendations, particularly for staged voluntary buybacks. We encourage a considered and evidence-based discussion around these issues.
There is a strong evidence base looking at the impacts of water recovery in Basin communities, built up over the past decade of recovery. Much of this is well summarised in the 2020 independent assessment of the social and economic conditions in the Basin, (the Seftons Review) and our 2020 work for the Murray-Darling Basin Plan review.
This and other evidence-based evaluations show:
- The combined overall water reduction in the Basin, and some specific types of water recovery, have put upward pressure on water prices. This pressure benefits people who own water rights and trade in the market but creates additional costs for irrigators and others who purchase temporary water.
- On-farm infrastructure programs have improved the productivity and viability of most farms that participated, and left non-participants (irrigators who didn’t participate in on-farm upgrades or participated in buybacks) at a competitive disadvantage as a result. This outcome has occurred because on-farm infrastructure upgrades typically paid multiples higher than the market value of the water recovered, whereas buybacks were at, or slightly above, market rates. Therefore, irrigation regions participating in upgrades received a larger economic stimulus than communities where buybacks dominated. It also occurred because water demand on Basin farms receiving on-farm upgrades generally increases farm productivity and efficiency, and the upgrades allowed irrigators to reconfigure farm operations in beneficial ways, including increasing irrigated area. All this results in farmers increasing water demand and use after they’ve received on-farm upgrades – this in turn increases water demand for water in markets, which can lead to increasing water market prices.
- Off-farm programs to date have included more than 1,000km of irrigation network delivery channels being upgraded. Off-farm programs preceded on- farm programs in some systems such as the Goulburn Murray Irrigation District. In other systems, off-farm and on-farm programs ran in parallel. Off-farm recovery measures are supported by many because they do not take water from the consumptive pool. However, these programs are significantly more expensive per megalitre and more complex than on-farm works. These programs will become increasingly costly to the Australian taxpayer in future, given that much of the ‘low hanging’ off-farm recovery has already happened. Off-farm upgrades can also create hidden long-term costs for irrigators – for example, when they increase operating costs (such as when gravity channel systems are converted to pumped delivery) and create future depreciation and maintenance liabilities that need to be funded (and paid for by future irrigators) through infrastructure fees and charges.
- Buybacks have mixed impacts on communities, and impacts may be less than the flow-on impacts of large-scale on-farm irrigation upgrades discussed above. The few studies that have looked at the delayed impacts on irrigators and their communities of selling water entitlements have found no to very weak evidence of delayed negative impacts from selling water entitlements on net farm income. In cases this occurred because irrigators who participated in buybacks subsequently went back into the market and repurchased water at lower prices. In other cases it occurs because irrigators sold so-called ‘surplus’ water, or because they used the proceeds from the water sale to improve farm performance by reinvesting. Previous work and experience show that large ‘strategic’ purchases can have significant negative impacts on communities around the irrigation area, especially when these communities have smaller in size and have a heavy reliance on irrigated agriculture for employment. The Productivity Commission (2019) cited Collarenebri as an example of where this happened: the largest employer sold all its water holdings and moved to dryland farming, which contributed to falling agricultural employment in the community and other negative social impacts.
Contact Jeremy Cheesman if you’d like to discuss further
Published November 3, 2023
