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

8.4Possible future trends

The market price for water at any point is a function of supply and demand. The supply side at any point depends on current allocation levels and the outlook for future allocations. In average to wet years in the southern-connected Basin, demand is driven at the margins by the relative profitability of different interruptible irrigation crops, most of which are grown in NSW.

Water market prices and the directions of trade are therefore strongly influenced by the relative profitability of different interruptible enterprises in NSW. In that context, it is important to understand what the future might hold for irrigation in NSW.

Historically round 60-70% of the water available in southern NSW was used for rice production. The relative proportion used for rice has now declined to 35-45%. This change has been driven by the adoption of higher value enterprises, or in the case of winter crop production, improved management, and investments in improved irrigation systems and layouts.

The way water is used in southern NSW will continue to improve, and the enterprises making most use of water will continue to change. Three likely future changes in NSW will have implications for Victorian irrigators, and it is important to note that they will become more important in relative terms as water continues to be recovered for the environment and the consumptive pool shrinks further. Those future changes include the adoption of:

1. 
   Higher value annual cropping systems
   
2. 
   Lower water-use, higher value rice farming systems
   
3. 
   Larger-scale horticultural production systems
   

The area of higher value winter and summer annual cropping systems in southern NSW is expected to increase. The diversification already seen in parts of the Murrumbidgee is expected to extend further and to spread into the NSW Murray (properties in the Victorian Murray are generally too small to take advantage of these systems) as irrigators become more familiar and more confident with these systems. The area sown to cotton and corn in particular will continue to increase, and the management of winter crops will continue to improve, leading to a higher proportion of the consumptive pool being used on these crops. Automated irrigation systems and improved layouts are also leading to increased crop yields, improved application efficiency and diversified cropping systems in both valleys.

Lower water use rice farming systems will assist NSW irrigators to adjust to the effects of the Basin Plan. For example, the rice industry recently released shorter growing season varieties with twofold benefits; they will enable double cropping in rotation with higher producing winter crops, and the rice crop itself will use around 15-20% less water. While this could lead to more water being available for other enterprises, it is more likely the water will be used for rice production, due to the increased return per unit of water, and the existing grower skills and industry infrastructure. This may make it easier for rice growers to compete on the water market in years of average to below average allocations.

The next priority is to breed varieties and develop agronomic packages for cold-tolerant rice varieties that do not need the heat bank effects of ponded irrigation systems. This is expected to reduce water use per hectare, increase grain yields and encourage the use of irrigation layouts more compatible with the best practice for high yields for the other crops grown in rice-based cropping systems.

Large-scale horticultural production systems, particularly nut crops, have increased significantly in the Murrumbidgee valley in recent years. Developments are also occurring in the NSW Murray around Kyalite. Continued expansion of these plantings will increase the demand for water, particularly in years of low water availability.

8.5Implications for Victoria and the potential for further industry shifts

NSW Murray irrigators have actively traded allocations in most years over the past two decades. Most of these allocations were sourced from either the NSW Murray Valley or the Murrumbidgee. In both 2012/13 and 2013/14 in excess of 210 GL was traded on Murray Irrigation’s Water exchange. The NSW Office of Water reported that only 20 GL of water was traded into the valley in 2014/15.

In 2015/16, the Inter Valley Trade of allocations from the Murrumbidgee to the Murray was confined to a shorter period than in earlier years. This reflected increasing demand from NSW Murray Valley water users but also from Victorian and SA (horticultural) water users during a period of low water availability. Because Murrumbidgee water can be traded to the NSW and Victorian Murray below the Barmah choke, it is attractive for horticulturalists in the Mallee regions of Victoria, NSW and South Australia – especially during years of low allocations in Victoria and South Australia.

NSW Murray irrigators have also established arrangements to source water in years of low allocations against general security entitlements. This has included borrowing water from the Barmah Millewa Environmental water account when the General Security annual allocation is less than 30% and establishing an ‘allocation’ advance or forward release of water from the Snowy Mountains Corporation. Both these instruments have reduced the demand for annual trade of water into the region at these times.

Apart from 2011/12 and 2012/13 when high allocation levels and vast stores of carryover meant that water was abundant in Victoria, there has been limited annual trade from Victoria to NSW in recent years. One reason is that Murray Irrigation’s Water exchange was traditionally seen as enabling faster transfers with irrigators being able to buy allocations from within Murray Irrigation and to use them on the same day. The introduction of Victoria’s online trading system, and the increased activity of water brokers have helped to further integrate the water market.

More importantly, the returns generated by Victorian water users in the horticulture and dairy industries have generally exceeded those generated by NSW users growing annual crops. Victorian irrigators’ relatively fixed demands for water mean however, that in wet years some of their allocations are surplus to their requirements and they sell the surplus at low prices to annual croppers in NSW.