3.1
As outlined in chapter 2, Australian Government expenditure on water use efficiency (WUE) programs is substantial, and forms part of the National Water Initiative framework. Given the extent of this expenditure and its concentration in certain regions and to certain segments of the agricultural sector, the Committee sought to assess the overall effectiveness of WUE programs as an approach to drive water agricultural productivity, and so recover adequate water for the environment.
3.2
The Committee received a divergent range of evidence on the effectiveness of WUE programs against these objectives. This chapter summarises the following range of evidence received, including:
increases in on-farm water productivity from WUE programs,
alternative approaches, such as water buybacks,
environmental flow-on effects from WUE measures, and
impacts on cropping decisions.
WUE programs and water productivity
3.3
Submissions from governments, irrigators, irrigation infrastructure operators (IIOs) and agricultural groups were almost uniformly positive when describing the efficacy of WUE programs. Evidence from these groups has focused on the efficiency gains made by irrigators and IIOs as a result of the Australian Government’s programs, and pointed to environmental benefits arising from the water entitlements transferred to governments under the programs.
3.4
The Department of Agriculture and Water Resources (DAWR) argued that WUE programs have wide-ranging positive impacts:
Australian Government policies and programmes to promote improved water use efficiency ... almost invariably lead to improvements in the productivity of water, with consequent improvements to local and regional economic performance. This can range from more reliable crop production in the face of variable water supply, improved management of water resources including through water metering; better land-use planning; better use of information for improving business efficiencies (such as use of medium-term weather forecasts); improved irrigation or industrial process scheduling to account for rainfall variability.
3.5
Similarly, the South Australian government submission argued that:
Case studies of on-farm efficiency projects show that participating agribusinesses are now benefiting from greater productivity, crop diversification and quality. Many agribusinesses now have increased flexibility and resilience, which will enable them to adapt more easily to future climate change and market conditions. Improved irrigation efficiency has also led to land management benefits, such as reduced water logging and improved salinity management.
3.6
The New South Wales Department of Primary Industries (NSW-DPI) highlighted the following benefits of WUE programs:
It has been estimated that increasing the water productivity of NSW rain-fed and irrigated agriculture by 2% by 2020 could contribute up to $226 million annually to the NSW economy. The majority of this increase would be due to productivity gains resulting from improvements in water use efficiency and adoption of best management practices ... Water recovered as a result of infrastructure modernisation is shared between the irrigator and the environment, providing farm scale productivity and profitability outcomes in addition to environmental outcomes sought by the Basin Plan.
3.7
NSW-DPI also drew the Committee’s attention to improvements in WUE which have already been made under the Sustaining the Basin – Irrigated Farm Modernisation program (STBIFM):
Positive local and regional social and economic outcomes have been achieved through investment by STBIFM proponents in irrigation related industries … An analysis of STBIFM’s expected benefits has indicated that:
capacity building activities will result in a $6.3 million per annum increase to productivity across the irrigation industry across the northern valleys,
an increase in productivity on modernised irrigation area by $24.7 million (15 percent per annum) as a result of improved water use efficiency, and
an increase in production of $11.9 million per annum as a result of water savings retained by the participants.
3.8
Farmers and irrigator groups also argued that WUE programs are generally effective in improving farm efficiency and productivity, although some questioned the value of returning water to the environment as part of the programs. The Queensland Farmers Federation, for example, noted simply that:
Financial support provided by the Queensland Government has been effective in encouraging irrigators to invest to make system and practice changes on farm.
3.9
The National Irrigators’ Council (NIC) similarly argued that WUE programs have had a substantially positive impact on productivity:
NIC contends that the on the ground evidence shows conclusively that Australia is gaining the benefit of increasingly efficient use of water for irrigated production, and the sector should be acknowledged as being among the most efficient and productive users of water in the world ... Evidence from industry is that farmers have significantly improved their per hectare product.
3.10
Murray Irrigation, an IIO which provides irrigation water to more than 2 000 farms in southern NSW, was certain that WUE programs have been effective:
There is no doubt that the efficiency programs that Murray Irrigation has been involved in have contributed to greater water use efficiency for both the company itself and our customers.
3.11
The Goulburn-Broken Catchment Management Authority (GBCMA) argued that the programs have helped to modernise irrigation infrastructure and have improved the operation of many farms:
[Irrigators] have been able to take advantage of modernised regional delivery systems to improve technology on their properties, resulting in water savings, increased productivity and labour reduction.
3.12
GBCMA noted irrigators’ view that the improvements made under WUE programs have led directly to improvements in irrigators’ confidence and resilience:
Irrigators reported improved confidence in the future, such as increased farm succession, business expansion, improved farm business resilience and the ability to take advantage of higher service levels from the GMW [Goulburn-Murray Water] Connections Program ... Many farmers have indicated that they would not be able to do the works without the funding assistance.
3.13
Outside the Murray-Darling Basin, Southern Rural Water (SRW) also argued that government programs have improved productivity and reduced the amount of wasted irrigation water:
Off farm WUE programs in the Macallister Irrigation District have generated significant improvements, and when ongoing and planned investments in WUE programs are completed, SRW expects to see total system efficiencies improve from 60 per cent before the works to beyond 85 per cent … In the Weribee and Bacchus Marsh irrigation districts, SRW notes that upgrades are planned to address substantial seepage and leakage problems caused by ageing infrastructure.
3.14
SRW also noted that on-farm water savings in its district have been substantial. Its submission highlighted studies which have found that on-farm irrigation efficiency programs have ‘led to water use savings of up to 30% on farm’.
3.15
SmartRivers, representing irrigators in Queensland’s Condamine-Balonne catchment in the northern Basin, noted that the community expects that irrigators will not waste water, and argued that WUE programs have helped irrigators meet those expectations:
There is private and public benefit gained in the implementation of water saving measures which deliver good value for money for our region and beyond … Irrigators believe the availability of funding and cost share ratio of the program is fair. The initiative offers support for a suite of water use efficiency mechanisms that modernize our irrigation systems, aligning to community standards as being as efficient as possible.
3.16
Growcom, the organisation representing Queensland’s horticulture industry, has been a provider of WUE programs since the late 1990s. It has been funded under programs like the Rural Water Use Efficiency Initiative. Growcom argued that the program has been a success:
The program has been very successful both in delivering measurable water savings but has also greatly improved the output of many of the growers involved in the program. The program has been held up as one of the most successful government and industry partnerships with clear benefits to industry and the broader community.
3.17
Growcom noted that the program has generated $200 million of value in water savings and increased productivity, with very broad uptake and widespread adoption of industry best practice among participants.
3.18
Cotton Australia noted the importance of WUEs in its submission, arguing that:
The success of the Australian cotton industry to date, and its future, is to a large extent dependent on continual improvement of water use efficiency (WUE).
As an industry we are focused on “More Crop Per Drop”, and this is achieved through improved varieties, improved management and the adoption of cutting edge WUE techniques and technology.
3.19
The Ricegrowers’ Association of Australia (RGA) argued that the Australian rice industry ‘leads the world in improving water use efficiency’, including ‘using 50 per cent less water than the global average to produce each kilogram of rice’.
3.20
The RGA noted that the On-Farm Irrigation Efficiency Program has ‘led to the adoption albeit by a relatively small proportion of irrigators of improved management systems. It has incentivised participants to upgrade their water infrastructure, often within a shorter time-frame than would otherwise have been achievable for many participants’.
3.21
Individual farmers in the rice industry have therefore ‘reported either a reduction in average water use (per tonne of crop) and/or an increase to yields and are generally pleased with the outcome of their respective projects’. For those reasons, and noting the aim of recovering water for environmental purposes, the RGA described infrastructure spending programs as ‘a more palatable alternative’ to government water purchases.
Box 3.1: The Murrumbidgee Irrigation Area
On 21-22 February 2017, the Committee visited Griffith, NSW, to conduct site inspections in and around the Murrumbidgee Irrigation Area (MIA) at the invitation of Murrubidgee Irrigation (MI). MI is the irrigation infrastructure operator that supplies farmers in the MIA with water.
The MIA is one of Australia's largest and most diverse irrigation areas. Large amounts of wine grapes, rice and other cereals, and citrus fruits are grown there, and in recent years new industries including cotton and aquaculture have been grown in the region.
The Committee's visit to the MIA highlighted the importance of irrigation modernisation, as well as some of the complications it can cause. MI has been an active participant in the Government's recent water use efficiency programs and the Committee viewed some of its recently upgraded channels and storages. MI explained how, in addition to reducing losses to evaporation and seepage, it has implemented better monitoring, management and automation systems to improve its supply of water to farmers. Although MI must wait 7 days for water it orders to move downriver from the storage at Burrinjuck Dam, its system is sufficiently flexible to supply its farmers on 48 hours’ notice.
During the visit, the Committee also met with broadacre rice and cotton farmers, citrus growers, winemakers and acquaculturists. Committee members were impressed with the improvements irrigators have made to their water productivity. However, the visit also highlighted the difficulty irrigators may face when upgrading to more efficient but more energy intensive irrigation systems. Irrigators explained to the Committee that high energy prices can make more water efficient systems uneconomical to use, particularly in years of constrained water supply. This was to become a common theme at site inspections around the country as the inquiry progressed.
An alternative approach: water buybacks
3.22
The evidence from irrigators and groups representing them argued that WUE programs represent the better approach to providing that sufficient water is allocated towards environmental purposes, rather than the policy of ‘buybacks’ where governments purchase water rights off irrigators. They argue that investing in irrigation infrastructure offers a more comprehensive approach than buybacks, with flow-on effects such as positive socio-economic consequences for regional Australia.
3.23
The NIC, for instance, pointed to research which has found that buybacks have negative economic and social results for the broader community:
Independent studies conducted to inform the development of the Basin Plan showed that buybacks have greater localised negative social and economic impacts on irrigation dependent communities than investment in water efficiency projects. Past Governments’ ‘no regrets’ water buyback regime was ill- considered and is leaving a social and economic legacy that will need to be addressed.
3.24
The Murray-Darling Basin Authority (MDBA) also noted research, via the Northern Basin Review, which found that ‘environmental water recovery through investments in more efficient water use can lead to very different social and economic outcomes compared with buybacks’.
3.25
This Review, the MDBA said:
… has served to reinforce the MDBA’s view that water recovery from improvements to water use efficiency – both off-farm and on-farm – should be prioritised over buybacks. A water recovery strategy built around this position will allow for the re-balancing of water use in the Murray-Darling Basin and deliver the best outcome for communities by keeping the social and economic impacts to a minimum.
3.26
DAWR explained that Australian Government spending has been developed in line with the approach that infrastructure spending is a superior way of recovering water for the environment:
… prioritised investment in productivity-enhancing water infrastructure rather than purchase of water entitlements, with more than $8 billion being invested in infrastructure and water efficiency measures. This policy aims to minimise any adverse impact of water recovery as a result of the Basin Plan, as well as increasing the sustainability of irrigated agriculture across the Basin.
3.27
The MDBA, while in favour of investment in infrastructure and other WUE programs rather than buybacks, noted that the former is considerably more expensive:
… water recovery through investment in infrastructure will generally be preferable to purchasing entitlements from a perspective of maintaining productive capacity in a given region. However, the cost to taxpayers of this method of water recovery is high – in the order of 2 to 3 times as much per gigalitre – so governments need to strike a balance as to the overall mix of recovery methods.
3.28
Likewise, the NIC acknowledged that water purchases are cheaper in dollar terms than infrastructure investment, but argued that the direct price is only one factor in the equation:
If you consider the simplistic litre for dollar equation, then Government would just go ahead and purchase water on the water market, thereby removing it from the productive pool. To do that on the basis of ‘value for money’ however, would be to completely ignore the responsibility of Government to the people it serves.
Investment in infrastructure is in the short term more expensive, but if well targeted and designed, it will avoid the massive negative impacts on communities and can produce long term gains for a region’s productive capacity and product.
3.29
The National Farmers’ Federation also argued that criticism of infrastructure spending is based on a too-narrow recognition of the impacts of the programs:
This narrow view fails to acknowledge that in addition to just water recovery, other benefits are “purchased” or other costs avoided by investing in infrastructure rather than straight buyback. These additional benefits include a more productive and efficient irrigation business, maintained productivity with associated benefits for input suppliers and downstream processing, and the social and economic flow on benefits associated with the spending stimulus.
3.30
Other witnesses, however, argued that buybacks, in addition to costing substantially less than investments in infrastructure, are a more reliable way of ensuring that water is allocated for environmental use. They argue that the environmental benefits of WUEs have tended to be overstated and in any event are difficult to accurately quantify.
3.31
The Inland Rivers Network also pointed to the comparative costs of buybacks and WUE programs to argue that the latter essentially represents a transfer of wealth from governments to private irrigators:
… current expenditure, while providing significant private benefit, is a very expensive method of returning water for environmental and broader public benefit. The cost per ML returned to the Macquarie River system through water efficiency measures was more than three times the market value.
3.32
DAWR was asked by the Committee to explain the rationale for preferring infrastructure investment programs over buybacks. Their response argued that infrastructure investment serves to fill three policy aims: increasing agricultural productivity, supporting the socio-economic viability of regional communities, and allocating water to environmental purposes:
Since 2014, the government has prioritised investment in efficient water infrastructure as a means to return water to the environment over the purchase of water entitlements (or ‘buyback’). In part, this is because community and industry stakeholders have expressed clear and strong concerns with the potential adverse social and economic impacts of non-strategic water purchasing undertaken through broad public tender processes. For example, stakeholders have raised concerns that purchasing creates a 'Swiss cheese effect' in irrigation communities, potentially putting cost pressures on remaining water holders because of gaps in water delivery in the surrounding regions. We note that the government legislated a 1 500 GL cap on surface water purchasing in response to such concerns in 2015.
Environmental flow-on effects
3.33
The evidence from irrigators, IIOs and governments demonstrated a strong view that WUE programs are effective in recovering water for the environment while assisting irrigators to reduce water wastage and improve water productivity.
3.34
However, evidence provided by economists, environmentalists and academics questioned the overall benefit of WUE programs and whether gains were limited to the agricultural sector with the environment effectively receiving less water.
Unintended consequences of WUE programs
3.35
While acknowledging that increased productivity and less wasted water were desirable outcomes, the evidence focused primarily on the effect WUE programs have had on water flows at the Basin scale, and on whether they are meeting the government’s environmental policy objectives. Viewed through this lens, it was suggested that the outcomes being generated by WUE programs are much less uniformly positive.
3.36
Professors Quentin Grafton and John Williams argued that WUE programs are not typically associated with reduced water use or increased environmental flows:
There are many myths related to irrigation efficiency. One of the greatest myths is that increased irrigation efficiency associated with more capital intensive irrigation methods always results in: (1) farmers either applying or consuming less water and(2) water ‘savings’ that flow back to the environment in the form of increased stream flows.
3.37
In their submission, Grafton and Williams distinguished between beneficial consumptive water use (water used by the plant to grow, or transpiration), non-beneficial consumptive use (water lost to evaporation), and runoff or stream flows, which they characterise as beneficial non-consumptive use since the water is 'relocated to another part of the basin system (for potential re-use)'. They also characterised seepage as a beneficial non-consumptive use, since it recharges groundwater systems.
3.38
According to Grafton and Williams, the problem with WUE programs is that they tend to reduce ‘beneficial’ losses:
Higher irrigation efficiency is, typically, associated with reduced runoff and seepage to groundwater, especially in stressed river basins. This is because water that previously was able to infiltrate soils and seep past crop root zone to replenish groundwater and base flow of stream flows after being applied to farmers’ fields (such as through flood irrigation) is diminished with more capital-intensive methods of irrigation, such as drip irrigation.
3.39
Professors Grafton and Williams argued that the academic evidence strongly suggests that WUE programs do not help to achieve environmental outcomes:
The overwhelming evidence from Australia and many other places in the world is that providing subsidies to increase irrigation efficiency does not, by itself, result in water ‘savings’ at a basin scale ... Indeed, if maintaining stream flow is an important goal then such subsidies, by themselves, can result in unintended consequences and actually reduce stream flows and groundwater recharge.
3.40
The Professors argued that the 2016 Australian State of the Environment report supports this proposition. The report found ‘poor or deteriorating’ trends in Australia’s inland water ecological processes and ‘widespread loss of ecosystem function’ in the Murray-Darling Basin.
3.41
Along similar lines, the Australian Academy of Technological Sciences and Engineering (ATSE) submission provided a thorough argument indicating that WUE programs may be having counterproductive effects on environmental flows:
Water conservation technologies have been promoted as a practical means of improving WUE and maintaining environmental flows in river systems. However, there is increasing evidence that, somewhat paradoxically, WUE gains often contribute to intensification of water use by irrigators and a reduction in return flows to streams and groundwater. This occurs when one or more of the following outcomes transpire:
increased crop yields coupled with increased consumptive water use (transpiration);
improved efficiency, productivity, and profitability encourages farmers to increase the area cropped, or adopt multiple crop cycles per year or dual cropping systems.
In both cases, the net effect is an increase in annual evapotranspiration that, particularly in areas of increasing water scarcity, can reduce environmental flows.
3.42
ATSE noted that unless these increases in evapotranspiration are taken into account in the design of WUE programs, the programs may have detrimental effects on river ecosystems:
An increase in beneficial water consumption in crop transpiration is usually associated with reductions in deep-drainage that recharges groundwater and in return flows to streams. Unless WUE savings are reflected in an equivalent or greater reduction in extraction from the water resource, downstream flows will actually be reduced.
3.43
ATSE further argued that WUE programs are unlikely to provide solutions to the over-allocation of water:
Due to the complex interactions between agricultural and water systems it is essential that the Committee considers the broader impacts of WUE programs at system/basin-wide scales. WUE can help to reconcile trade-offs between tensions in the food-water nexus. However, it is unlikely to resolve the overuse of water and maintain, or more importantly, improve environmental flows.
3.44
Consequently, ATSE recommended research into WUE programs so that we gain a better understanding of their effect on river and groundwater ecosystems:
It is essential to establish the hydrological impacts of WUE on surface and groundwater systems, and to ensure that policy development is informed by sound hydrological research.
3.45
In the same vein, the submission by Dr David Adamson, Dr Adam Loch, Associate Professor Sarah Wheeler and Professor Jeff Conner argued that WUE programs like the Sustainable Rural Water-use Investment Program (SRWUIP) can have unintended impacts on environmental flows:
The SRWUIP is a process where submissions are made to upgrade water infrastructure (new or existing). Funded submissions will eventually share efficiency savings 50-50 between farmers and the government. Where nothing is known about prior losses, the true quantity of water recovered will be unknown. When combined with the rebound effect (i.e. where total irrigated area increases) and reductions in return flows, total river system flows decrease. This net reduction in flows means:
The Plan goals are placed under increased risk; and/or
There is downward pressure on the reliability of all water entitlements.
3.46
At a public hearing in Adelaide, Dr Adamson noted that in the past inefficient irrigation systems have effectively returned some of their water to the environment through ‘beneficial’ losses, and that WUE programs might be disrupting that process:
We don't always use all the water we apply for irrigation. This has a benefit to the non-farmers, to the soil profile, to the groundwater, to the return flows back into the system. As we encourage people to become more efficient, we are actually drying up the system. This is not just our issue; it happens around the world. We've done plenty of studies on this sort of stuff. We can see it in Europe and we can see it in America. To become more efficient, we stop those flows going back into the river, which other people will be using.
3.47
Dr Adam Loch noted that the DAWR submission, while listing WUE programs’ benefits in terms of agricultural productivity and rural socio-economic factors, does not advance a strong argument that the programs are actually beneficial to the environment:
I look with great interest at the Department of Agriculture and Water Resources' submission to the inquiry. It's full of wonderful examples of how we've invested a great deal of money and recovered a great quantum of water, but I see all of that, funnily enough, talking about productive gains—irrigators, socioeconomic value et cetera. There is not a lot of any detail in here about the environmental gain. In fact, there are no details, that I was able to find through a reread of it today, suggesting how this has been demonstrably beneficial for the environment.
3.48
Dr Adamson noted that in time Governments will be asked to justify the amounts of money they are spending on WUE programs:
The Murray-Darling Basin Plan is what was in the national interest. The national interest is wider than irrigators—it is the community, the society and the environment. As Adam [Loch] has alluded to, we are not 100 per cent sure what benefit we have gained from water use efficiency, but sooner or later someone is going to ask what we got and if there is a better way of getting it.
3.49
In order to address this issue, Dr Loch argued that the Government should conduct a cost-benefit analysis to ‘get at the heart of what was being lost before we begin to assess whether we have made genuine savings through these programs’:
I don't say that these [programs] are not returning savings, but we have no idea of what was being lost. If as our literature would suggest it is around 30 per cent on average across different production systems et cetera, the environment would have been getting a good healthy slug of that.
3.50
Professor Lin Crase also raised concerns about the benefits of WUE programs. He noted that because policymakers are not informed by a detailed hydrological picture, investments in WUE can have unintended consequences:
The published literature in this area shows that investments in water use efficiency in most parts of the world usually lead to an expansion of irrigation, not a contraction. That's usually because we don't fully understand where the water goes when we start to invest in efficiency.
3.51
Further, Professor Crase argued that WUE programs in Australia have not been built on a firm empirical foundation:
[I]f you look at what we've done with water accounting in this country, you see we've done a very poor job of counting where it goes. Even though we've invested very large sums of money through the Bureau of Meteorology to improve our accounting systems, largely we don't account for a lot of water that leaks.
3.52
Professor Crase argued that the Government’s lack of data on the extent of beneficial losses is a consequence of conscious policy decisions made by past governments:
[In Australia] the focus is very much just on observing consumptive use, whereas, if you look at the US system, you see that, if the person on the end of the table sells water to the person at the other end of the table, there are all sorts of investigations that have to occur around that trade to understand any other impacted parties between those trades. In Australia, largely we don't do that, and that's largely because we took a view that increasing the volume of trade would be better ... I think overwhelmingly it's more efficient, but what we haven't done is build sufficiently robust instruments around those trades to account for where the water is moving.
3.53
Professor Crase also noted that while the trade in water has been of great benefit to irrigators, enabling many to survive drought or other shocks, it is fundamentally undermined by the lack of accurate water measurements:
[M]arkets only work well to the extent that governments are able to validate the resources that are exchanged. What I'm suggesting to you is we're not doing as good a job as we might in measuring some of those resources.
3.54
The submission provided by the NIC pointed out that the study used to provide baseline data and justify the need for the Murray-Darling Basin plan (the sustainable Rivers audit) was one of the first activities cut by the Murray-Darling Basin Authority when faced with budget cuts.
3.55
Given the amount of money being spent on WUE programs, Professor Crase suggested that a better understanding of the effects WUE programs are having should be a priority:
These are non-trivial sums of money that we're spending on this. To do so without actually measuring where the water's going and where we're taking it from seems to me bizarre, particularly at a time when governments simply don't have a lot of money at their disposal to waste.
3.56
At a public hearing in Canberra, Professor Grafton also concluded that in implementing WUE programs as it is, the Government may not be achieving the environmental outcomes which are their primary purpose:
[W]ith water policy we are in danger of carrying on with business as usual, spending billions more dollars for no public purpose and no result. Sadly, the challenges and past mistakes made in water policy and water use efficiency are not isolated. They represent a bigger problem and malaise in Australia, where bold statements are poorly implemented and the public good is captured by special interests.
Arguing benefits of efficiencies
3.57
Governments and irrigators responded to these arguments of diminished returns and reduced environmental benefits in a number of ways. The Committee asked DAWR to provide a detailed response to the claim that WUE programs are not meeting their primary goal – that is, that they are not functioning to increase the amount of water available to the environment. DAWR responded:
The department is aware of recent claims that the Australian Government’s water use efficiency programs are not returning water to the environment because they are reducing ‘return flows’ to rivers. The department does not agree with these claims and does not consider that the evidence supports the conclusion. Return flows are when excess water from irrigation runs off the surface and back into the river system or leaks into the ground. The claim made is that more efficient water infrastructure means there are less excess water and therefore there is less return flows available for the environment.
While return flows can be reduced by more efficient irrigation infrastructure, this is usually a good thing. Return flows can cause environmental damage, particularly where irrigation surface run-off contains high levels of nutrients, salt or other pollutants; or seepage due to inefficient watering causes rising water tables and salinisation of our rivers and landscape.
The Australian Government’s irrigation efficiency programs in the Murray-Darling Basin recover at least 50 per cent of water savings as water entitlement held by the Commonwealth Environmental Water Holder (CEWH). The CEWH is able to use this water when and where it can have the most benefit to the environment. This represents a much better environmental outcome than ‘return flows’, which are typically of poor quality and by their nature are not able to be directed to best environmental effect.
As we have seen over time, irrigators who strive to improve their efficiency have less wastage and reduced salinity and water quality issues. Irrigators could fund these efficiency improvements themselves and retain all of the water savings. Instead, through Australian Government-funded programs, we are ensuring that water savings are shared between farmers and the environment.
3.58
At the Committee’s public hearing in Narrabri, Dr David Mitchell from NSW-DPI argued that it is difficult to know whether the criticisms of WUE spending have merit:
[WUE] might not give you any more water in the system, but it will probably give you more product. It is a multifaceted concept which is probably a bit nuanced in that respect. From a global situation or that whole basin approach, you have a certain amount of water going in and a certain amount of water coming out and then the transpiration and the product produced … The trick there is really trying to figure out where the losses are occurring within a spatial system. Water cuts across lots of spatial layers, from a basin level through to a farm and field level. Trying to account for losses between those spatial scales can be quite a difficult concept. You can improve water efficiency at a field scale, but that may not increase water use efficiency at a farm scale. It is just the way the system works—a series of nested spatial scales. It can be quite complex to measure those different particular water balances at those particular spatial scales.
3.59
Dr Mitchell also noted that, although it is complicated, the concept of ‘beneficial’ losses is not helpful in a practical sense, since the water referred to is officially allocated to productive use and should not therefore be counted on for environmental outcomes:
Real water savings are when you can actually recover water and reuse it. An unreal water saving would be if there is a return flow. So, if you extract water from a river and you irrigate and there is a return flow somehow, through groundwater or some sort of irrigation offtake, and you save that water, then that is not a real water saving, because you are double dipping, or there is an accounting error there.
3.60
Similarly, the NIC argued that farmers using their water more efficiently is just good business practice, and that farmers should not be expected to pay for water which they are not using:
Where critics of WUE programs suggest that 'reducing run off has negative consequences': Irrigators would suggest that was in fact an indicator of good economic management from farmers and that given the high prices they now pay for water, they cannot be expected to pay for water that is excess to their productive requirement.
3.61
The GBCMA submission was the only submission which suggested that it is doing the necessary work to understand the catchment-level impacts of WUE measures:
An important part of this planning process has been to assist irrigators to understand their place in their local catchment, the region and the Murray-Darling Basin. Planning helped them appreciate the potential impact of their actions on their own properties, the local catchment and the wider region (particularly downstream).
Irrigators have been encouraged and supported to develop Whole Farm Plans for their properties which include the natural features of the property together with details of the improvements planned for their irrigation systems. This ensures the efficient application and movement of water across the land, meeting the required crop water use.
Planning for these changes provides an opportunity for irrigators to take advantage of advice and recommendations from irrigation designers and Government extension officers through incentive programs to encourage the adoption of planning and best practice.
3.62
By way of response to Professors Grafton and Williams, the Cotton Australia submission argued that their contention that WUE had not resulted in reduced total water use or a reduction in water applied per hectare were ‘two very flawed metrics’:
[T]he amount of water applied per hectare is irrelevant. The measure must be: what production is being achieved per megalitre of water? … [T]he Australian cotton industry can show a 40% improvement in WUE over the past decade.
Secondly, the amount of total water applied in any one year is largely driven by climatic conditions. When water is plentiful, normally more will be used, either in that year or in the years following, similarly a dry sequence will reduce total water use. The Professor’s short-term snapshot was insufficient to overcome these variations. What is completely and undeniably true is that the Commonwealth purchased and WUE programs have as of now collectively reduced the amount of water available to agriculture on average by 2000GL.
Crop production
3.63
While water use efficiency is generally regarded as a positive, some witnesses highlighted that increased efficiency of irrigation can also have potentially negative outcomes, including intensification and a shift to high water-use, high-value perennial crops.
3.64
Intensification refers to irrigators taking advantage of improved infrastructure and efficiency of water to increase the size or frequency of their crop. While this process improves the productivity of both land and water, some witnesses argued that there is evidence of it consequently reducing beneficial environmental run-off.
3.65
The National Farmers’ Federation noted that, while it may seem counter-intuitive, WUE programs can lead to an intensification of agriculture as farmers seek to grow their business using their new infrastructure;
The implicit assumption behind programs that invest in on-farm water use efficiency is that demand for water decreases as the farmer can produce the same with less water. Straight buybacks were often associated with people either exiting the industry or scaling back operations – thus demand for water was equally offset by the reduction in supply. Participants in on-farm programs however tend to be those farmers that are in the industry for the long haul, and keen to make capital improvements and to grow their businesses. So demand for allocation may actually be unchanged by the program, adding pressure to an already tight market as supply falls without a change in demand. Furthermore, to ensure a return on the capital investment made in on-farm improvements means that many growers are now willing to pay more for water.
3.66
Along the same lines, the Chair of Murrumbidgee Irrigation Mr Frank Sergi told the Committee that investment in WUE programs has led to intensification and therefore higher demand for water:
Without a doubt, the investment has enabled a quantum change in how water is delivered and utilised in the area. With increased efficiency has come increased production and, ironically, a greater demand for high flow rates and water for further production. What this means is that we are seeing less water per tonne of product and, as we had expected—or as we had not expected—more demand for water and production.
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Environment Victoria also noted this trend, arguing that ‘Efficiency upgrades can also have the perverse impact of driving up water use even as it is used more efficiently’.
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As the Committee also heard, there is a concern that increased water use efficiency will change the nature of the Australian agriculture sector as more irrigators turn from annual crops to higher value perennial crops. As perennial crops tend to be less flexible and more water-intensive, this may put upward pressure on water prices and could reduce resilience or heighten the risk of a shock during the next extended dry period.
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The problem was outlined by Dr Adamson et al:
As efficiency increases, an irrigator’s ability to adapt to future ‘bad’ (e.g. drought) shocks decreases, particularly if they invest in or already irrigate higher-valued perennial crops. Perennial crops require water every year to maintain capital investments.
Growing global demand for high value perennial crops has been driving a structural change in the Basin at the same time as irrigation efficiency investment by the Commonwealth.
If entitlement reliabilities decrease in response to prolonged drought shocks, but the total area of perennials in the MDB has increased in response to growing demand and commodity returns, demand for water from high value perennials could be higher than in previous droughts; where loss to perennial capital stock in the Millennium drought (2000-2010) was already high.
[…]
If farmers transition towards perennial production systems that require water in all years and states of nature (i.e. dry, wet or average conditions):
Constant water requirements will reduce irrigator capacity to adapt to adverse climatic conditions (drought) through access to water trade supporting yield preservation;
Below yield preservation, if there is insufficient water to maintain the root stock, capital investments in perennial crops will rapidly become exposed to loss; and
If perennial crops are lost across an increased total area coverage, there is the potential for rural debt to significantly increase in a relatively short period.
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At the Committee’s hearing in Adelaide, Dr Adamson further explained the consequences of a shift from annual to perennial crops, noting that the increased costs of the latter are subsidised by irrigation infrastructure programs:
A perennial producer requires a volume of water every year just to keep the rootstock alive. As we increase the number of hectares associated with perennials, so does our fixed water supply increase. We need that water. Without that water, the capital invested in that rootstock dies. We can't replace that overnight. It leads to irreversible losses in a community.
Annuals, on the other hands, provide great flexibility within the system. We can rip them in; we can rip them out. When water supply is plentiful, we can expand our irrigation area up north overnight. We respond to those conditions. Irrigation efficiency, however, can leave us in a situation where we overinvest in perennials, especially when we are subsidising the capital investments.
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A further consequence is that, having taken advantage of subsidised infrastructure to invest in higher-value perennial crops, irrigators will be willing to spend more to secure water rights during droughts, thus driving up the price of water in the region.
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Mr John Robertson of DAWR commented on this issue too, noting that the inflexibility of perennial crops means that irrigators will be forced into purchasing water at whatever price the market has decided:
The other factor is that, in a drier period, if you are growing annual crops you can decide not to put the crop in this year—you lose a year's profit but that's about it. But if you have permanent plantings of fruit trees, citrus or stone fruit, you need to keep them alive because of the investment. Therefore, when water is short, they are willing to pay premiums; it is the market working.
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DAWR was asked about whether WUE programs have encouraged irrigator investment in perennial over annual crops. The Department responded:
The government’s investments in water use efficiency have benefited both annual and perennial production systems. For example, co-investments with rice growers under the government’s On-Farm Irrigation Efficiency Program have helped to improve rice production and cropping flexibility. Cotton growers have also benefitted from investments on on-farm infrastructure, allowing them to more efficiently store and apply water for annual cotton crops.
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Further, DAWR argued that the market result of increased water for high-value (including perennial) crops was to the benefit of both high and low value crop irrigators: the former were able to keep irrigating their crops, the latter to sell their water entitlements for greater profit that their crops would have brought:
The increase in prices experienced in dry years did allow a shift in the allocation of water resources from low to higher value producers. This shift occurred as the opportunity cost/benefit from selling allocations became greater than on-farm revenue, typically for lower value, labour intensive operations.
For example, annual crop producers and pasture irrigators who retained permanent water rights were able to sell their annual water allocations, allowing them an income stream during the drought. Conversely, higher value, capital-intensive operations with a greater capacity and willingness to pay, acquired allocations and entitlements for crops, such as permanent tree nut plantings, that needed the water to survive.
Water markets are fulfilling their intended role to allocate scarce water resources to higher value uses, as intended in the National Water Initiative (NWI) and as recommended in the Productivity Commission’s recent draft report on the NWI, refer to Question 1. As water moves economically, it also moves between industries and regions, and some industries and regions experience adjustment impacts.
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However, noting that there has been a shift in crop types, DAWR recognised that longer term effects should be monitored:
While the current policy arrangements provide considerable flexibility for water users to respond to climate, market and other events, we recognise that some recent expansions of perennial production may impact on the system. Relevant jurisdictions and Basin officials have commenced consideration of issues that may arise.
Committee comment
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The Committee notes that there are divergent views on the effectiveness of WUE programs, and particularly whether water efficiencies are providing a benefit to environmental water levels.
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Increasing water productivity is a necessity – we must value water as a resource that sustains our environment and our agricultural sector. However, whether increasing water productivity and reducing water wastage should be taken to mean ‘increasing yields from current water allocations’, or whether it should be ‘producing using less water’ has divided much of the evidence received to this inquiry.
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It is the Committee’s view that national water objectives should not subscribe to this simplistic dichotomy. The long-term objective must be to both ‘produce more’ and ‘reduce water use’ if we are to have a thriving agricultural sector into the future, and a thriving water environment surrounding it.
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In pursuit of these long-term objectives, the Committee concludes that WUE programs are an effective approach to drive change in irrigation practices and implement efficiencies. While this may reduce water run-off and returns in some instances, this brings with it both positive and negative impacts, and monitoring these impacts should be a key element of the holistic management of the NWI.
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Similarly, intensification or changes to perennial crops must be monitored to ensure short-term cropping gains are not sought at the expense of long-term water efficiency gains. While acknowledging and in many instances agreeing with some of the concerns raised, the Committee considers that the current approach of funding WUE programs is effective in driving water efficiencies and productivities. However, there are a number of environmental impacts which must be closely monitored, and a number of complementary measures which should be in place to improve environmental outcomes. These are discussed in Chapter 5. A focus of this inquiry is that the design and administration of WUE programs are well aligned with long term objectives of environmental water flows and agricultural productivity, and do not give rise to unintended consequences.
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Issues of WUE program design, delivery and monitoring to ensure sustainability of long term objectives are considered in the following chapter.