This report was commissioned to assist the Victorian Government in undertaking its own socio-economic analysis into the impacts in Victoria of water recovery through the Basin Plan. It will inform discussions with the Commonwealth Government and help to make sure that all future water recovery from Victoria is based on robust evidence that it can be done with neutral or positive social and economic impacts.
1.3Structure of this report
This report is essentially in four parts:
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Orientation: The first part of the report provides the context for its development and the methodology used in preparing the report. It then explains why it is important to view water use in northern Victoria as part of a greater whole – the southern-connected Murray-Darling Basin. Changes in water use in any part of the southern-connected Basin can, through the mediation of one large water market, translate into changes in other parts of the system as a whole.
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Analysis: The second part considers data on actual water use by irrigators since the Commonwealth began to recover water under the Basin Plan. Having determined what happened with the Plan, it then sets out the ‘counterfactual’, a logical construction of what could reasonably have been expected to happen without the Basin Plan. The MDBA’s preferred approach for analysing the expected outcomes of the Basin Plan is then used to compare expected with actual outcomes. The outcomes are considered at the farm scale, the industry scale and the system scale.
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Interpretation: The analysis is carried further to consider the socio-economic outcomes of the Basin Plan in the context of human landscapes, the geographic centres of the major irrigated industries in the southern-connected Basin. Particular attention is paid to the Basin Plan’s implications for the future viability of the Goulburn-Murray Irrigation District. The environmental outcomes of the Basin Plan are also considered.
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Conclusion: The report finishes with a series of conclusions about the socio-economic impacts of the Basin Plan in Victoria.
1.4Methodology
The approach taken in assessing the impacts of the Basin Plan is intended to be systematic, methodical and repeatable. It is not a comparison of irrigation before and after the Basin Plan. Rather it is a comparison of what happened after the Basin Plan was implemented with what could reasonably have been expected to happen if the Basin Plan had not been implemented. Such comparisons with the ‘counterfactual’ are standard practice in economics.
The complexity of the socio-economic systems in the southern-connected Basin mitigate against the use of a computable general equilibrium modelling approach to assessing the impacts because communities are subject to a range of localised and broad scale changes and not just the ‘shock’ imposed by the Basin Plan. Similarly, it is not possible to assess the impacts by simply referring to a range of socio-economic indicators, for one thing, as discussed in Chapter 10, that approach would depend on access to 2016 census data and ideally would involve 2021 census data also.
In recognition of those issues, we have instead constructed a systematic organising framework for our analysis, with a logic grounded in a deep understanding of the way the different irrigated industries have responded to variable water availability. Building from this we have considered the implications for different geographic centres, in the context of the vagaries in commodity prices and production levels.
There are of course limitations to our analysis. For example, we have not factored the human capacity to adapt to difficult circumstances, we do however make clear our assumptions about current trends in development and current rates of water use. Similarly, because this is not a modelling exercise we have assumed constant commodity prices – a future collapse in almond prices or jump in milk prices would result in outcomes different to those we describe. Conversely, a jump in almond prices and a further deterioration in milk prices would also result in different outcomes.
Our approach rests on a series of steps:
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In Chapter 2 we establish the need to understand irrigation in northern Victoria in the context of irrigation in the southern-connected Murray-Darling Basin as a whole.
We show that by trade or by substitution, there is one large water market operating in the southern-connected Basin. We illustrate that between the three states in the southern Basin there are five water entitlement types used by irrigators and that the probability of receiving allocations against each of the entitlements varies considerably. We demonstrate that an understanding of the socio-economic impacts of the Basin plan rests on an understanding of the interactions between the variability of water supply and the relative constancy of demand for water by different irrigation industries.
The northern Basin is not considered in this analysis because the highly variable stream flows and relatively small storages there mean that the northern Basin embraces several small water markets that are not integrated and do not have a material bearing on water use in Victoria.
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In Chapter 3 we analyse the data on actual water use in Victoria from when the Commonwealth began to recover water for the environment in 2007/08 until the end of 2015/16. We deliberately take a different approach to that used by RMCG (2016) in their recent analysis. We do this for two reasons. One is to help in triangulating their forensic analysis of ABARES data. The other is to make use of more accurate data made available to us from the Victorian Water Register.
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Having established the pattern of water use with the Basin Plan, we then set out, in Section 3.5, our logic for constructing the ‘counterfactual’ – what could reasonably have been expected to happen if the Basin Plan had not been implemented. We do this in explicit recognition of the underlying trend in Australia for population declines and job contractions in small towns (Chapter 10). We also explicitly account for the vagaries of commodity prices, climate variability and the underlying trends for structural adjustment in various irrigated industries (Chapters 4, 5, 6 and 8).
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We analyse the different elements of socio-economic risk — vulnerability, exposure and impact — at the different scales of the region, the farm enterprise and the community, using the metrics outlined in Appendix 1 to inform that analysis.
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We are transparent, careful and judicious in our efforts to establish causal links because we are aware that a range of other contributing factors may affect the same metric thereby complicating the link between water recovery and a given metric. Much of the detailed quantitative analysis to support our conclusions is provided in the Appendices.
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In Chapter 4 we review the MDBA’s preferred approach to explaining the expected outcomes of the Basin Plan and over several chapters we compare the actual outcomes with the expected outcomes. We do this at a range of scales:
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the farm scale
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the industry scale
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horticultural industries
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the dairy industry
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cropping industries in NSW – including their implications for Victoria
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the regional scale – with a particular focus on the Goulburn-Murray Irrigation District
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the system scale.
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In Chapter 11 we then use the approach outlined in Step 6 to analyse the likely impacts of three different future water recovery scenarios. As explained previously, the different recovery volumes for these scenarios are:
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2100 GL if offsetting measures were to account for the full volume allowable
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2750 GL if no offsetting measures were to be taken into account
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3200 GL if no offsetting measures were taken into account and an additional 450 GL were recovered through on-farm efficiency measures having neutral or positive socio-economic impacts.
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Finally, in Chapter 2, even though this is not a review of the environmental impacts of the Basin Plan, for the sake of putting the socio-economic impacts in context, we review the available information about the environmental outcomes and benefits of the Basin Plan.
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