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

4.8Summing up

Those farmers who participated in the buyback or in the Commonwealth’s investments in on-farm efficiency benefited from that participation.

The key finding in this chapter is however, that Victorian irrigators who sold water entitlements to the Commonwealth but remained in farming, are now more reliant on allocation purchases than they would have been without the Basin Plan. As will be argued in more detail in Chapter 6, for dairy farmers this has increased their reliance on more complex feeding systems. And as has already been demonstrated in Chapter 3, dairy farmers sold more entitlements to the Commonwealth than any other group of farmers. A potential mitigating factor is that these farmers may be in a position to manage the risks associated with these more complex feeding systems where buyback funds were used to retire debt.

Trends in water use per hectare are difficult to interpret because of the pressing needs to improve efficiencies in a range of measures during the drought. The ABARES (2015) data show that water use per hectare trended down during the drought, but it trended up again immediately afterwards. Outside of individual case studies, it will take time before the overall impacts of the Basin Plan on-farm water use efficiency can be fully evaluated.

Although water use efficiency went up for dairy farmers during the drought, as will be shown in Chapter 6, their indebtedness rose during the same period. This is a reminder that the concept of water use efficiency is more complex than the universal good that it is often portrayed to be; it should not be considered in isolation of risk.

5The impacts of the Basin Plan on horticultural industries

5.1Overview

As outlined in Chapter 3 the total water use on horticultural crops is the same for the counterfactual as it is with the Basin Plan. This chapter explains that horticultural plantings are continuing to expand in the southern-connected Basin. Most of that expansion to date has occurred in the Mallee regions of NSW, South Australia and Victoria, but expansion is starting to occur in the Murrumbidgee, and the current rejuvenation of horticulture in the GMID can ultimately be expected to result in an expansion there as well.

This chapter explains that even without further expansion the maturation of existing plantings will result in an increase in horticultural demands for water. It also explains that while total horticultural water use is unaffected by the Basin Plan, because the consumptive pool has been reduced, horticulture now accounts for a greater proportion of the total water available for irrigation. The Basin Plan has therefore increased the risk of horticultural land being dried off in the next drought. This chapter finishes by exploring the implications of the Basin Plan for horticulturalists in different parts of the Basin.

5.2Trends in horticultural expansion

Horticultural plantings in the Mallee regions of NSW, South Australia and Victoria have continued to expand since the Basin Plan commenced, continuing the trend that started with the introduction of entitlement trade in Victoria in 1994. According to the Mallee CMA’s data, the total area irrigable for horticulture in the Victorian Mallee increased from 39,700 to 73,000 ha between 1997 and 2015. In 2015, 70% of this area was devoted to perennial crops, 13% supported seasonal crops including vegetables and 17% was vacant (Argus, 2016).

In contrast, the area of horticultural plantings in the GMID has remained relatively constant since the Basin Plan commenced. In the GMID the value of horticultural production has nonetheless increased as plantings for the declining canning industry have been replaced by pome and stone fruit plantings for the fresh market. This is reflected in the 2013/14 decline in tree plantings for the Goulburn Broken region followed by a return to previous levels in 2014/15. This rejuvenation of horticulture in the GMID is likely to lead to expansion in the future.

As discussed in Chapter 8, horticultural plantings in the Murrumbidgee have remained relatively constant. However, nut crops are currently expanding in the Murrumbidgee.

As discussed in Chapter 2, the irrigation demand for perennial horticultural crops is essentially non-interruptible and, depending on relative commodity prices, in times of low water availability horticulturalists are likely to remain as buyers when the price of water hits the point where dairy farmers start to substitute feed for water.

Nonetheless, as happened during the last drought, when allocations are low and allocation prices are high, marginally profitable and unprofitable horticultural crops will be dried-off, and the crops that can be mothballed will be. This is why the percentage of vacant irrigable land in the Mallee went from 3% in 1997 (about the rate necessary for continual renewal of orchards and vineyards) to 20% in 2009 and back to 17% in 2015. The unprofitability of many wine grape varieties at that time was reflected in a 35% reduction in total wine grape plantings (Argus, 2016). As that land is being gradually replanted, wine grapes are being replaced by crops such as almonds and table grapes, which use more water per hectare.

As horticulture continues to expand and use a larger proportion of the diminished consumptive pool, the scale of horticultural land to be dried-off in the next drought will increase, and as outlined in Chapter 11 it would increase even more in the higher water recovery scenarios. The variability in total water availability in the southern-connected Basin as a whole makes it extremely unlikely that non-interruptible crops could sustainably account for the majority of water use. The sustainable limits to non-interruptible plantings, which will depend on the commodity prices prevailing at the time, will be revealed in times of low allocations and high allocation prices. Given that horticultural investment is subject to waves of optimism and pessimism, it is likely that total plantings will oscillate around those limits. New entrants are likely to assume that they will be the ones best placed to cope with high allocation prices; and, depending on their financial resources and their farming systems, they may be right.

It is important to note that a significant proportion (8%) of the irrigable land in the Victorian Mallee is supporting high value vegetable crops including carrots (accounting for half), potatoes, cucurbits, asparagus and others (Argus, 2016). Although these crops are interruptible, their high value, and their contract-based production systems, makes it unlikely that they will be dried-off during all but the most severe water shortages.

It is also important to note that many of the perennial horticultural plantings in the Victorian Mallee are yet to mature. Therefore their demand for water is likely to continue to increase over the next few years. And redevelopment on the vacant land has hastened in the current financial year, since Argus (2016) completed her assessments of crop areas (pers. com., LMW).

Based on the reported areas of horticultural plantings in the Victorian Mallee (Argus, 2016) and the reported areas in the Lower Murray-Darling (Sunrise, 2015), we were able to calculate the mature irrigation requirements for existing plantings (Appendix 16).

Discussions with Lower Murray Water and the Mallee CMA allowed us to forecast additional demand based on currently approved developments that have not yet been planted, proposed developments currently subject to approval, and potential developments currently being subject to due diligence and the expectations, based on current trends, of how much of the dried off land is likely to be redeveloped. Taking account of the varying levels of certainty surrounding these figures, our initial estimates, as outline in Appendix 16, suggest that irrigation demands for crops in the Victorian Mallee are likely to increase by something between 50 and 200 GL per annum in the medium term.