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

Impacts in the GMID

Dairying is the main form of farming in the GMID. Dairying can be outcompeted by irrigated industries that can pay more for water, and it can be outlasted by industries better adapted to variable water availability. Concerns about the future of dairy are a major contributor to doubts about the business model in the GMID. By contrast, there is growing confidence in the future of LMW’s irrigation districts – based on recent horticultural rejuvenation.

Since 2007, a total of 539 GL of entitlements has been traded out of the GMID as a result of horticultural expansion and the Basin Plan. As discussed in Chapter 9, this represents a 33% decrease in the volume of entitlement held in the GMID since 2001. The volume of the reduction is greater than the volume of all high reliability entitlements held in the Murray Valley and Loddon Valley Irrigation Districts in 2001. The key difference in this comparison is that rather than being concentrated in a small number of locations, the purchases have been scattered throughout the GMID (Figure ). Because the changes in GMW customers’ water demands are spread throughout the network, opportunities to rationalise the network are much harder to identify and realise than they would have been had the transfers been concentrated in discrete areas.

Average deliveries in the GMID are likely to be around 1,200 GL in the future, 41% lower than long-term average modelled for Stage 1 of the Connections Project. In effect the Commonwealth’s buybacks and its on-farm infrastructure investments have worked at cross-purposes with its off-farm infrastructure projects.

Reduced deliveries are a major challenge to GMW because its extensive asset base requires routine annual maintenance, operations and renewal. Therefore, its costs are largely fixed. Consequently, the marginal cost of delivering water goes up as the volumes being delivered go down.

The effective costs of delivering water will increase significantly unless up to 40% of the delivery system infrastructure in place before the GMW Connections Project began can be rationalised (GMW 2009). The spatially random nature of Commonwealth water purchases has contributed to the difficulty of rationalising infrastructure.

The effect of lower deliveries is difficult to see on GMW’s bottom line as the business is protected by largely fixed tariffs against their delivery shares. But more and more irrigators are paying for delivery share they do not use, and they are either unable or unwilling to pay to terminate them. The Victorian Government has committed to reviewing this issue.

Figure – Spatial distribution of water entitlements traded to the Commonwealth from farms in the GMID

Impacts in NSW

Annual water use in southern NSW has declined by a volume similar to the extra allocations that would have been available in the absence of the buyback. This indicates that net trade from Victoria and South Australia has not changed.

The changes there have driven structural adjustment at the farm, industry and regional scales. Irrigators have shifted water away from rice towards other summer crops and winter crops. Corn and cotton plantings have increased, and NSW irrigators are increasingly using forward markets to reduce season-to-season business variability.

Annual water use is evolving in southern NSW as irrigators consider how best to respond to the changed business environment. Irrigators and industries will seek to increase the returns per ML through improved management and through research and development. Recent developments in the rice industry are an example. Such structural adjustment may result in less water being traded into Victoria in the future especially if the marginal returns per ML approach those for dairying and horticulture.

In the short to medium term water is likely to trade into Victoria in low allocation years when allocation prices exceed $200 per ML. In medium to high availability years there will be greater demand for allocation trade within NSW valleys as demonstrated in 2013/14, 2014/15 and 2016/17. The future demand for allocations in NSW will be determined by the relative profitability of the enterprises adopted by irrigators, irrespective of regional boundaries. As an example, the expansion of horticulture in the Murrumbidgee valley is likely to compete for water currently traded from the Murrumbidgee valley to the horticultural sector in northern Victoria, in years of low water availability.

Impacts in South Australia

South Australia’s irrigated horticultural centres, especially those in the Mallee region have much in common with both the pumped districts and LMW diverters; there is much shared history. The low allocations in 2007/08 hit South Australian irrigators every bit as hard as it did Victoria’s horticulturalists.

Based on the experience of 2007/08, the Basin Plan would seem to expose South Australia’s horticulturalists to the same risks as those described above for Victoria. However, as noted in Chapter 2, South Australia has changed its water allocation framework, at least temporarily, to ensure that its irrigators receive 100% allocations until actual flows into South Australia fall 16% below entitlement flows. The effect of this change has not been evaluated for this report.

Socio-economic impacts

Evidence on social impacts is obtained primarily from the ABS Population Census. Although a census was conducted in 2016, the latest available census data is from the 2011 census. This means that much of the available social data is useful for understanding the context of potential social change, rather than providing evidence that the water recovery under the Basin Plan has resulted in particular types of change in particular localities. To provide additional socio-economic context for the regions of northern Victoria, summary charts are provided in Appendix 1. A common trend is the declining role of agricultural jobs in total employment, over the period to 1991 to 2011.

The 2015 Regional Wellbeing Survey collected the responses of 285 Victorian irrigators in north-west and north central Victoria on the expected impact of the Basin Plan. The results are presented in Appendix 1. A high proportion of responses considered that the Basin Plan would have a ‘very negative’ impact on the economy and communities of the MDB and the household/business/community that the respondent worked in.