Social and economic impacts of the Basin Plan in Victoria February 2017

2.5Summing up

Water supplies in the southern-connected Basin are highly variable. Each of the southern Basin states designed its water allocation framework to deal with that variability in ways that favoured the dominant irrigation industries in that state. As water markets developed in each state, and as those markets began to be integrated, irrigation in the southern-connected Basin increasingly began to operate as a single, large, dynamic system.

3Observed water use in Victoria since water recovery commenced – compared with a logically constructed ‘counterfactual’

3.1Overview

Other analyses of the impacts of the Basin Plan have tended to compare what happened before water recovery commenced with what happened after. However, such approaches only describe what happened; they do not explain that other things may also have changed during the same period that also affect the outcome. They are a description of the factual, rather than an analysis of the logically constructed counterfactual.

This chapter describes observed water use in Victoria since water recovery commenced, putting those observations in the context of the other factors influencing water use during that time. It then quantifies the volumes of water recovered through buyback, through on-farm infrastructure savings and through off-farm infrastructure savings, while also putting the timing of those recoveries in the context of what else was happening at the time. It finishes with a transparent, logical construction of the counterfactual to be used as the basis of comparison for the remainder of the report.

3.2Observed water use in Victoria since water recovery commenced

Irrigation water availability and use in northern Victoria has been extraordinarily variable over the past decade, water recovery for the environment commenced in a period punctuated by extreme drought and recording-breaking floods. Figure below presents annual water use by Victorian irrigators for 2004/05 and the period 2008/09 to 2015/16.

Water use for 2004/05 is included for comparison. 2004/05 represents the last year, before water recovery commenced, where both the Goulburn and Murray systems received the equivalent of 100% allocations to high reliability entitlements and 0% to low reliability entitlements.

Figure : Water use by Victorian irrigators

Given the mix of different irrigation industries in Victoria, it is helpful to disaggregate this data to help understand the socio-economic impacts in different geographic centres. The Victorian Water Register, from which much of our data is drawn, can separate out water-usage data for the different “delivery systems” serviced by the two major rural water corporations in northern Victoria, Goulburn Murray Water (GMW) and Lower Murray Water (LMW).

Figure below separates this annual water use between GMW’s irrigation districts, which are mostly dominated by dairying but do include important areas of horticultural plantings, GMW’s river diverters (irrigators who pump their own water directly from rivers without being part of an irrigation district), who irrigate a range of enterprises (including dairying and horticulture), LMW’s river diverters who overwhelmingly grow horticultural crops and LMW irrigation districts who are also mostly horticulturalists.

Figure shows that irrigators in GMW districts account for the largest share of water use and that their water use is highly variable, especially compared to the next largest group being LMW diverters.

Figure : Water use by Victorian irrigation districts and diverters

Within the GMW districts (Figure ), there is a similar pattern of variability in response to seasonal conditions and water availability. The notable exceptions are Nyah, Tresco and Woorinen, which are horticultural districts, and Campaspe, which was closed in 2010 after receiving 0% allocations in four years out of five.

Figure : Water use within GMW districts

3.3Influences on water use at the time water recovery commenced

Significant volumes of water had been recovered for the environment through the Snowy River and the Living Murray initiatives before the Basin Plan commenced. Water recovery for those initiatives continued after 30 June 2007 with 191 GL (long term average annual yield, LTAAY) in NSW and 30 GL (LTAAY) in Victoria being recovered since then.

In 2007, in the midst of extreme drought, Victoria’s water security was a pressing issue and there were concerns that Melbourne would run out of water. The Victorian Government proposed several large water savings projects, including the modernisation of water irrigation infrastructure in Victoria’s Goulburn-Murray Region, a $1 billion project designed to generate water savings for Melbourne, irrigators and the environment.

On 1 July 2007, Victoria unbundled its water entitlements on regulated streams in northern Victoria. Water rights and diversion licences on those systems were ‘unbundled’ to become high reliability water shares, water-use licences and delivery shares. In return for 20% of the total modelled volume being returned to the environment, the previously ill-defined ‘sales’ water was converted to become entitlements known as low reliability water shares.

The Victorian Water Register went live at the same time. It improved the accounting arrangements for water usage, and it provided secure electronic titles for water shares, making it possible for them to be subject to mortgages.

The National Water Initiative of 2004 specified requirements for national metering standards and a nationally consistent framework for water metering and measurement. Consequently, The Victorian State Implementation Plan for Non-urban Water Metering was competed in 2010. It required all non-urban meters to perform within the maximum permissible limits of error of ±5%.

The extreme drought was reflected in extraordinarily low allocation levels when water recovery commenced, and record-breaking floods were recorded immediately after the buyback of entitlements stopped. The extraordinary levels of carryover built up during the La Nina years meant that the total combined volume of allocations and carryover against Victorian water shares were greater than the volume of use by irrigators in Victoria for four years after buyback was complete (Figure ). This served to mask the impacts of the Basin Plan water recovery until early 2015/16.

Figure : Private water availability, use and allocation price, Murray and Goulburn systems (DELWP, 2016a)

Note: The bars for 2015/16 are hatched to indicate that the season was not complete at the time the report (DELWP, 2016a) was being prepared. DELWP was unable to update this figure in time for this report. An updated version would provide insight into high levels of concern about allocation prices in 2015/16.

The collapse of the wine boom, and the collapse of two large managed investment companies (Timbercorp and Great Southern), which had been investing in Victoria’s horticultural expansion, coincided with low allocation levels and the start of water recovery. Buyback helped with the necessary structural adjustment. Wine grape growers were able to exit the industry, and many large almond orchards were salvaged by buyers who subsequently sold the entitlements associated with them to the Commonwealth while sustaining the orchards through allocation purchases. Despite these disruptions, as is discussed in Chapter 5, horticultural plantings continued to expand before, during and after water recovery.