WATER IN AUSTRALIA
Water has always been a defining issue in Australia's prosperity. And in recent decades irrigation has grown rapidly. Even so, only two per cent of Australia is irrigated, one of the lowest proportions amongst among OECD countries.
In Australia's first century of European settlement, agricultural productivity came to equal that of anywhere in the world. Gains continue to be made -- output has doubled over the past fifty years, a growth that could not have taken place without a similar expansion of irrigation. The Murray-Darling, which comprises 14 per cent of Australia's land mass including half of Victoria, is our most important agricultural province. Its irrigated and non-irrigated output, each at $5 billion, comprise a third of Australian agricultural output.
Most of the uses of water involve choices or compromises -- drinking water versus irrigation versus industrial and so on. Some, however, involve complementarities, particularly flood mitigation and certain recreational uses, like water sports, that are facilitated by storage and consistent availability.
In many cases, water will perform sequential functions -- the same water can be used and re-used for irrigation, used for industrial cooling and finish as drinking water.
Two conditions are required if water with different, sometimes competing, benefits is be optimally used. First, its ownership must be clearly specified and the owners' obligations to other users (or claims from other beneficiaries) must be well understood. Secondly, each property right must be tradable to enable acquisition by those who can extract more value from it.
People acquire rights to property initially through a variety of routes. One of these is seizure of something that was originally of little value until it was acquired and improved. Squatters assume rights in this way. No matter how they are first acquired, the rights need to be safe from theft and government seizure. This provides the incentive for property owners and others to search out ways to increase its value or other benefits.
An owner's diminished security in a property right means it will be used less productively. For example, if property is to revert to someone else or to the government, owners will milk it for its current use value rather than invest; in other words they will sacrifice future gain for present benefits.
As a result, when title to property depends on continuing governmental assent, the lack of certainty brings lower incomes. One outcome of this can be observed in the Murray-Darling system. Water rights on the Victorian side of the Murray are secure, while those on the NSW side have been over-allocated and are subject to administrative discretion, including having a secure duration of only 10 years. The result is that farmers on the Victorian side plant more valuable perennial crops while those in NSW tend to focus on annual crops, especially rice.
Some claim that Victoria's more robust property rights mean that the State Government has lost "capability" to manage compared with NSW. The corollary of this is the increased risk and associated lower value of production north of the Murray. Governments that give themselves increased capacity to direct production or take individuals properties need to accept lower levels of income and output.
IRRIGATION AND SALINITY
Issues stemming from irrigation comprise two types: those impacting on the environment and those impacting on private uses.
Increased salinity is the main concern about the Murray-Darling. This is fundamentally a conflict of interest between productive users -- the complaint of "damaged goods" by downsteam users against those upstream.
The Murray-Darling Basin Salinity Strategy 2001-2015 estimated that increased salinity will mean costs of $294 million per annum to the basin. Yet data on the salinity of the Murray-Darling shows levels upstream of South Australia are lower than they were in the early 1980s. This indicates the solutions lie in South Australia.
In any event, full and secure specification of rights and obligations of commercial parties will allow any dispute to be resolved as long as the impacts are measurable and their causes identifiable. In this respect, technology to measure salt in water and trace increases to particular locations is readily available.
There has been over a century of agreements regarding the allocation of water rights between jurisdictions and to individual irrigators. Nonetheless, there is likely to be constant bickering over water rights. This will intensify if State Governments seek to sanctify proposals for changing the carve-up by claiming to promote an improved environment.
Identifying individual ownership rights to water and allowing trade will maximise the value of water. But if the impending salinity problem is as great as some claim, other solutions might well include buying out some allocated irrigators' rights. However, alternatives may be to remove salt from the water by engineering solutions or simply to live with higher salt levels.
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