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

2.3The main irrigated industries and their geographic centres

For the purposes of this report, it is helpful to think about water in the southern-connected Basin being used for three main types of irrigated enterprise. These are:

• 
  horticulture
  
• 
  dairying and mixed farming
  
• 
  rice-based and cotton-based annual cropping systems.
  

It is common for these different groups to be referred to as different irrigation industries. At one level this is a useful abstraction because it helps to think about the broad movements of water in what is effectively a single water market operating throughout the southern-connected Basin.

At another level however, it is unhelpful to think about each type of irrigated enterprise as a monolith; to do so is to risk ignoring the reality that there are thousands of different men and women involved in irrigation in the Basin, and they are farming at a range of scales, with widely different levels of profitability. Their financial successes and failures depend on a range of things including the weather, commodity prices, their indebtedness, their exposure to personal crises, their costs of doing business, as well as water availability and water prices. The variations between irrigators within industries are often much greater than the variations between industries.

For the purposes of this report, irrigation industries are discussed in the context of their patterns of water demand and how these might interact with the impacts of water supply under the Basin Plan. Since each of these industries is to some extent focused in different parts of the Basin, those interactions also influence the socio-economic impacts of the Basin Plan in different parts of the Basin.

Irrigated horticulture in the southern-connected Basin is concentrated in the Mallee regions of NSW, South Australia and Victoria, around Griffith in NSW and around Shepparton in Victoria. Perennial crops such as almonds, grapevines, citrus, pome fruits and stone fruits are non-interruptible in the sense that in the absence of irrigation, these crops may die and they will be expensive and time-consuming to replace. Annual vegetable crops are interruptible, but their high value of production means that vegetable growers will typically remain in the water market at very high prices. While they are concentrated in the Mallee, there are very important horticultural plantings in the Murrumbidgee and the Goulburn-Murray Irrigation District (GMID) of Victoria.

Irrigated dairying and mixed farming is concentrated in the GMID, with smaller levels of production in southern NSW and a low level of production in the Lower Lakes region of South Australia. Dairying is semi-interruptible in the sense that there are substitutes for water in the form of purchased feed. Moreover, parts of the herd can be ‘parked’ on dryland farms in other areas if necessary. However, dairy nutrition requires a balance between dry feed and pastures, and in the long run, the ‘perennial’ nature of herds, and the genetics on which they are based, will be expensive and time-consuming to replace if they cannot be maintained. Mixed farming systems, which involve a mix of cropping and grazing for meat and fibre, now accounts for around 10% of the total value of production in the GMID (RMCG, 2016), is interruptible, but increasingly it helps to provide feed to the dairy industry.

Rice-based annual cropping systems are concentrated in the Murrumbidgee and Murray regions of NSW. These are interruptible in the sense that while income is foregone if they cannot be grown in a given year, they can be planted in another year in the hope of earning enough to offset those foregone revenues. In years of high water availability, rice accounts for more water use than any other industry.

Cotton-based annual cropping systems are now common in the Murrumbidgee region, where they now account for approximately 15% of total water use. At this stage they account for a small proportion of the total water use in the Murray region of NSW. Like rice-based systems, cotton-based systems are interruptible, but the higher value of their produce, coupled with the tendency for growers to have forward contracts for their production, means that they are likely to be still buying allocations at prices where rice farmers begin to sell.

Figure : Estimated water use by different irrigated industries in the southern-connected Basin since water recovery commenced.

Source: Data from figure 8, and relative water use estimates from RMCG 2016.

2.4System dynamics

The presence of these three main industries in the southern-connected Basin, and the variations within them, provides the heterogeneity necessary to drive the water market. When allocations are abundant and water prices are low, rice farmers will typically (subject to the relativities in commodity prices) buy allocations from other irrigators in order to expand their plantings. When allocations are scarce and prices are high irrigators with non-interruptible enterprises will (subject to commodity prices) endeavour to protect their productive base by buying allocations and maintaining their production.

The scenarios outlined in the text box below, which were developed by RMCG, throw light on how different sorts of enterprises behave in the allocation market, and how the market is evolving.

Potential water availability scenarios developed by RMCG (personal communication, 2015) Scenario Allocation Probability (years in 20) Water available (GL) Price Year similar to scenario Enterprise behaviour Long-term Last 20 years Very wet Some low-reliability 7 3 6,500 $20 2011/12 Water carried over Medium-wet 95% general security 4 5 6,100 $45 2012/13 Rice farmers buy Medium 55% general security 4 5 4,800 $120 2014/15 Rice farmers sit Medium-dry 20% general security 4 5 3,600 $165 2009/10 Rice farmers sell Drought 50% high-reliability 1 2 1,800 $400 2007/08 Dairy farmers sell, horticulturalists compete Note: These scenarios are based on water availability, not climatic conditions. The allocation level shown produces the water available. But a year chosen as typifying a scenario had its actual water allocated adjusted for water carried over into the year minus water carried over into the following year, with the resultant water available then matched with that in a scenario. Prices are actual weighted average prices in the Goulburn in the year chosen as typical of the scenario.

RMCG’s scenarios are necessarily simplified. For example, each farmer’s prognosis for the next season will be a factor in their decisions to buy or sell allocations, as will what they have already planted, the stage of the season, commodity prices, contracts in place with the purchasers of produce, farm systems and capabilities, and the availability of alternatives like hay, silage and cut fodder crops. These scenarios should therefore be treated as indicative only.

The scenarios nevertheless underline the significance to the market of what is happening in NSW. And they are useful in highlighting important trends.