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

5.8Implications for South Australian horticulture

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 very hard, largely because it was the first time in living memory that they had not received 100% allocations. This was true of Victorian horticulturalists on the Murray as well, but the difference was that irrigators there had seen Goulburn allocations drop to very low levels in 2002/03, and the twice-monthly seasonal allocation announcement procedures were familiar to them. The potential for low allocations was telegraphed to them well in advance.

South Australia had to develop its seasonal allocation announcement procedures during the course of that season and there were some teething problems. For example, on 30 October 2007 the South Australian Government announced that allocations were unlikely to increase above 16%, but on 14 November it unexpectedly announced a 6% increase and on 4 December a further 10% increase. This doubled the amount of water available to SA irrigators and as shown in Figure reduced the market demand and caused allocation prices in Victoria to fall (Watson and Cummins, 2008).

Figure Murray allocation trade 2007/08 prices and volumes

South Australia’s seasonal allocation announcement procedures are now much more mature, and horticulturalists throughout the southern-connected basin are now much more experienced water market participants. Few horticulturalists now try to secure their entire annual needs at the start of the season. They are much more willing to wait and see how the market responds to the potential for allocations to rise during the course of the season.

Figure shows that horticulturalists in South Australia have traditionally been exposed to the same market forces as those in Victoria. Ostensibly, they will therefore be exposed to the same system-scale impacts of the Basin Plan. However, as described 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 effects of this change have not been evaluated for this report, therefore it is not clear what effect the change will have in terms of allocation prices or flows into the Lower Lakes.

5.9Implications for NSW Horticulture

Most existing horticulture in NSW is supported by allocations against high security entitlements. The NSW water allocation framework is such that anyone irrigating with NSW high security entitlements can be very confident that they will receive 95% allocations in all but the most extreme circumstances. Consequently, the changes to the consumptive pool resulting from the Basin Plan will have no negative impacts on them.

5.10Summing up

The recovery of water for the environments through Commonwealth buyback aided structural adjustment for the wine industry and it helped to avoid a disruption to the continued expansion of horticulture that would otherwise have followed the collapse of the large managed investment schemes.

Horticultural plantings in the southern-connected Basin are continuing to increase. Total horticultural water use has to date been unaffected by the Basin Plan. However, before the Basin Plan was introduced most horticulturalists held sufficient entitlement to meet their long-term average annual irrigation requirements. Many horticulturalists sold water to the Commonwealth during the buyback, but continued to irrigate by relying on allocation purchases. They are now more exposed to the risk of low allocations, but as illustrated in Chapter 3, until 2015/16 the full nature of that risk was masked by the extraordinarily high levels of carryover built up just as the buyback was finishing.

Because water recovery under the Basin Plan has reduced the size of the consumptive pool, horticultural demands as a proportion of that pool at full allocation are now at 40%, which is higher than the counterfactual level of 32%. The Basin Plan has therefore increased the risk of horticultural land being dried off in the next drought. As will be explained in Chapter 11, this risk would increase further in the other water recovery scenarios.

The characteristics of NSW High Security entitlements mean that NSW horticulturalists are largely shielded from these risks. By contrast Victorian and South Australian horticulturalists are exposed to a similar degree.

6The impacts of the Basin Plan on the dairy industry

6.1Overview

As explained in Chapter 2, irrigated dairying is a semi-interruptible enterprise in that to some extent purchased feed can be used as a substitute for grazing. In this way, total or partial mixed rations can substitute for irrigation water.

This chapter shows that these alternative feeding strategies are more complex than pasture grazing; they have a different and more complex risk profile, they are more capital-intensive, and they require more active management of risks. Irrigated dairy farmers in the GMID used them as loss minimisation strategies during the drought, but their indebtedness increased. It also shows that when compared with the counterfactual outlined in Chapter 3, the reduction in the consumptive pool under the Basin Plan has resulted in a reduction in the GMID’s milk production. The increasing water demand associated with continued expansion of horticulture is also further reducing milk production. However, it is also important to note that despite high allocation levels and low allocation prices at the time of writing, milk production was being strongly affected by low milk prices with dairy farmers reducing inputs of purchased feed and fertiliser in the short-term.

As also explained in Chapter 2, in simple terms, the volume of NSW allocations that can be traded into Victoria to support the horticultural and dairy industries is limited under current trade management settings. Irrigated dairying therefore is underpinned by allocations against Victorian high reliability entitlements. This chapter explains that horticultural demands for these allocations are relatively fixed, that, in effect, leaves dairying to soak up the variability in allocation levels. With further reductions to the consumptive pool and further horticultural expansion the variability in the dairy industry’s share of available allocations will increase relative to average availability.

The chapter concludes with a discussion of the implications of these changes with regard to the future viability and growth of irrigated dairying.