Home News Latest News Assessing the community impacts of the Murray Darling Plan

Assessing the community impacts of the Murray Darling Plan

The ABARE-BRS reports commissioned by the Department of Sustainability, Environment, Water, Population and Communities (DSEWPaC) and by the Murray-Darling Basin Authority (MDBA) assessing the regional impact of the Murray-Darling Basin Plan and the Australian Government's Water for the Future program, were released on the 8th of October, to coincide with the MDBA's release of the Guide to the Basin Plan. These three reports comprise a sample of the socio-economic impact assessment for the Basin Plan. Their findings are summarised here.

The three reports are:

1. Environmentally sustainable diversion limits in the Murray Darling Basin: Socioeconomic analysis
2. Assessing the regional impact of the Murray-Darling Basin Plan and the Australian Government's Water for the Future program
3. Indicators of community vulnerability and adaptive capacity across the Murray Darling Basin - a focus on irrigation in agriculture

These reports should be read in conjunction with the Socio-Economic Context for the Murray-Darling Basin Descriptive Report which was produced for the Authority in November last year.

The first report looks at the economic impacts of the Basin Plan under three reduced entitlement scenarios. The second report examines the impact of the Federal Government's buy-back scheme in mitigating those impacts under the middle scenario. The third report explores the social impacts of the plan on a regional scale by examining the relative vulnerability and capacity for adaptation within the different Basin communities.

Socio-Economic Research Conducted by the MDBA

It is worth noting that these three reports are among a number commissioned by the Authority in the preparation of the guide to the Basin Plan. Additional reports included:

• The Australian Bureau of Statistics (ABS) in conjunction with the Australian Bureau of Agricultural and Resource Economics (ABARE) and the Bureau of Rural Sciences (BRS) undertook a baseline social and economic assessment to provide information on the circumstances of Basin communities prior to the Basin Plan.
  
• A synthesis of current knowledge of the concepts of community resilience was undertaken by BRS and the University of New England's Institute for Rural Futures, with an emphasis on understanding the drivers of change in regional and rural communities, especially regarding reductions in water availability.
• The BDA Group, in conjunction with the Australian National University, undertook a review and synthesis of the results of previous socioeconomic studies conducted in the Murray-Darling Basin, particularly relating to changes in water availability and policy.
• Charles Sturt University and CSIRO undertook an economic valuation of environmental benefits in the Basin, in particular of non-market values likely to be associated with long-term average sustainable diversion limits (SDLs) in the Basin.
• Work to understand the effects of changes in water availability on Aboriginal communities of the Murray-Darling Basin was undertaken by CSIRO, led by Water Planning Tools researcher Sue Jackson.
• Frontier Economics examined structural adjustment pressures on irrigated agriculture and its dependant communities in the Basin. This study reviewed the likely impact of the proposed Basin Plan could be understood in the broader context of ongoing structural change in the Basin.
• Effects of changes to water allocation policy on financing the agricultural sector, small business and individuals in the Murray-Darling Basin were also analysed in a study by an independent consultant. In this analysis the factors affecting the availability and cost of debt and equity capital in agricultural and tertiary industries in the Basin as a result of potential reductions in water availability for consumptive use were considered.
• Marsden Jacob Associates undertook a participatory research project which delivered information at local and regional scales (including 12 irrigation district case studies) to enhance the Authority's understanding of the social and economic circumstances of Basin communities. It assessed the likely impacts of reduced water availability, especially in terms of community vulnerability and adaptive capacity.
• The Centre of Policy Studies (Monash University) is carrying out modelling to assess the short, medium and long-term economic implications, as well as the downstream flow-on effects, of the introduction of SDLs across a range of water availability and adjustment scenarios. The Centre for Policy Studies used a computable general equilibrium model (TERM-H2O) in its study to analyse flow-on effects to regional economies.
  
• The University of Queensland Risk and Sustainable Management Group conducted economic modelling to simulate water allocation for irrigated agriculture in the Basin to estimate the direct impacts on agricultural industries of various scenarios of reductions in water availability.
• The Nous Group undertook an analysis that integrated three of the socioeconomic assessments and synthesised the key findings.

The Authority has also commissioned the Centre for International Economics to carry out a series of social cost-benefit analyses of the effects of scenarios for introducing SDLs on each of the 19 regions in the Murray-Darling Basin and for the Basin as a whole.

The three ABARE-BRS reports are summarised below.

 

Environmentally sustainable diversion limits in the Murray Darling Basin: Socioeconomic analysis

 

The Murray-Darling Basin Authority commissioned this report, amongst a number of consultancy reports, to examine a range of different aspects of the socio-economic implications of reducing current diversion limits. These studies were conducted at specific points in time during the development of the proposed Basin plan and aimed to analyse the likely implications of a range of potential scenarios for reducing long-term average diversion limits in order to inform the MDBA on options for setting Sustainable Diversion Limits and other aspects of the proposed Basin plan.

This report provides an economic analysis of the effects of the proposed sustainable diversion limits (SDLs) in the guide to the proposed Basin plan prepared by the Murray-Darling Basin Authority (MDBA).

The analysis involves using an internally consistent modelling framework to estimate the effect on irrigators' incomes and the value of irrigated activities of restricting access to irrigation water, and flow-on effects on regional economies. The analysis involved the use of a number of economic models, including ABARE-BRS's Water Trade Model (WTM), representing irrigated agricultural industries in the Murray-Darling Basin, and AusRegion, a national computable
general equilibrium model.

This report considers three Basin plan scenarios developed by the MDBA: 3000 GL (gigalitres), 3500 GL and 4000 GL. The scenario names reflect the total volume of consumptive surface water diversions returned to environmental use. For each of the three scenarios, the estimated percentage reductions in surface water diversions, relative to historical long-run average levels, were provided to ABARE-BRS by the MDBA. The MDBA also provided estimated percentage changes in groundwater extractions. For ease of communication, the report focuses primarily on the 3500 GL scenario.

The modelled 3500 GL scenario involves a reduction in surface water use of 32 per cent relative to the baseline and a reduction in groundwater use of 11 per cent. Under this scenario, the following economic impacts were anticipated:

• For the MDB as a whole, the 3500 GL Basin plan scenario was estimated to lead to a 1.3 per cent reduction in gross regional product. At a national level, the SDL scenario is estimated to lead to a 0.1 per cent reduction in gross domestic product compared with the baseline scenario. These small percentage changes are to be expected given the baseline size of the MDB ($59 billion) and Australian ($760 billion) economies relative to the change in the projected value of agricultural production (around $870 million).
• In terms of the impact on irrigated agriculture at an aggregate level, it is estimated that the 3500 GL Basin plan scenario will reduce average annual value of irrigated agricultural production in the Basin by around 15 per cent (approximately $940 million) relative to the baseline scenario, with interregional water trade.
• Average annual irrigation profits are estimated to fall by 7.8 per cent under this scenario.
• At a regional level, with interregional trade, it is estimated that the largest absolute reductions in average annual value of irrigated agricultural production occur in the Murrumbidgee, Gwydir, Goulburn-Broken and Murray NSW regions.
  
• Annual irrigated broadacre activities generally incur the largest reductions in annual value, whereas the decline in the value of horticultural activities is relatively modest.
  
• Under the interregional water trade scenario, the most significant trade flows include trade of water out of the Murrumbidgee region and trade into the Murray Victoria and Murray South Australia regions.
• Relatively smaller percentage reductions in employment are estimated by AusRegion, with a 0.10 per cent reduction in employment across the MDB as a result of the Basin plan. This equates to around 920 jobs. This small change in employment largely reflects the long-run nature of the AusRegion model, in which labour markets are able to adjust and displaced agricultural labouris able to gain employment in other regions and/or industries.
• An analysis of irrigation survey data and irrigation farm expenditure was used to identify towns that may be particularly reliant on irrigation activity. The survey data identified 88 towns across the Basin reliant on expenditure by irrigation farmers during the survey year (2007-08). The towns identified as reliant on irrigation expenditure were evaluated in the context of the WTM results, which estimated the Murrumbidgee, Gwydir, Goulburn-Broken and Murray NSW regions to be among the most affected by the basin plan.
  
• The introduction of SDLs was estimated to result in greater reductions in annual cropping activities over the short to medium term than perennial activities such as horticulture. Therefore, it is expected that towns in areas dependent on annual cropping may be more affected.
• Any decline in irrigated output as a result of the Basin plan may have implications for the amount of downstream processing undertaken in some regions. The WTM results suggest that annual activities such as irrigated rice, cotton and dairy will experience more significant declines in GVIAP than perennial activities. Significant downstream processing of rice occurs in southern NSW, cotton processing occurs in a number of northern Basin regions, while dairy processing is concentrated mostly in northern Victoria. Predicting the likely effects on processing facilities is difficult given the uncertainties involved.

 

Assessing the regional impact of the Murray-Darling Basin Plan and the Australian Government's Water for the Future program

 

This report was commissioned by the Department of Sustainability, Environment, Water, Population and Communities (DSEWPaC).
It presents the results from an economic analysis of the effect on agriculture and regional economies of the following government water policies relating to the Murray-Darling Basin:

• the Basin plan / 3500 GL (gigalitre) sustainable diversion limit (SDL) option
• the $3.1 billion Water for the Future entitlement purchase program
• the $4.4 billion Water for the Future infrastructure programs in the Murray-Darling Basin
• the government commitment to address any remaining ‘gap' between the volumes of water purchased through the WftF program and the volume required to meet the SDLs through additional entitlement purchases.

According to the ABARE-BRS Deputy Executive Director Paul Morris, this report examined the regional impacts of the Murray-Darling Basin Plan taking into account other government policies such as infrastructure investments and water entitlement purchases. According to Mr Morris:

This report found water savings generated through investments in irrigation infrastructure under the Australian Government's Water for the Future program are expected to reduce some of the adverse impacts of the proposed sustainable diversion limits (SDL) in the Guide.

The report found that Gross Regional Product at the Basin level in the year 2018-19 could fall by around $570 million (0.7 per cent) once the mitigating impacts of the Water for the Future program and additional water purchases were taken into account, compared to a fall of around $1 billion (1.3 per cent) without incorporating mitigation measures.

By location, the effects range from 0.4 per cent reduction in GRP for Northern NSW to 1.2 per cent reduction for Western NSW and the Qld MDB regions. These estimates of relatively small percentage change effects at a regional level are to be expected given the size of the MDB economy (GRP of $59 billion in 2000-01) relative to the estimated reduction in agricultural activity (around $590 million).

Changes in employment are estimated to be much smaller than changes in GRP under each scenario because in the longer term labour can move from agriculture to other sectors. The Basin plan scenario is expected to decrease Basin-level employment by 0.1 per cent. Once the effects of the WftF and additional water purchases to bridge the gap to the SDLs are accounted for, the economic stimulus in the Basin results in a marginal increase of 0.1 per cent. However there is a small net reduction in national employment.

The report noted that small rural towns that are more dependent on irrigation could be significantly affected, especially if they are surrounded by annual irrigation activities like rice and cotton.

In contrast, the other studies were prepared by ABARE-BRS, and commissioned and released separately by the MDBA. These two reports did not take into account the government's infrastructure investments or water entitlement purchases.

 

Indicators of community vulnerability and adaptive capacity across the Murray Darling Basin

 

This project was commissioned by the Murray-Darling Basin Authority (MDBA) to measure the vulnerability, resilience and adaptive capacity of Basin communities to changes in water availability - due to a range of factors - in order to inform MDBA planning and decisionmaking. The aim of the project was to increase understanding of community socio-economic circumstances in the Murray-Darling Basin and to provide a readily accessible metric with which to compare the vulnerability of the many communities across the Basin.

A set of measures of community vulnerability to changes in water availability was developed. The analysis then developed the composite index of community vulnerability by overlaying the sensitivity of a community to changes in water availability with a measure of the adaptive capacity of communities to manage or cope with change.

• Community vulnerability: The results show that community vulnerability to changes in water availability varies widely across the Basin depending on the different adaptive capacities and sensitivities of particular communities. There are two large regions in the Basin with high to very high community vulnerability: in the Border Rivers, Gwydir, Namoi and Macquarie-Castlereagh Basin Plan Regions in the northeast of the Basin and in the Lachlan, Murrumbidgee and Murray Basin Plan Regions in the southern Basin. Communities in these areas have a combination of higher sensitivity to changes in water availability (that is very high dependence on water for agriculture and high agri-industry employment) and limited levels of adaptive capacity (that is low levels of human capital, social capital and economic diversity) in comparison to other areas in the Basin. This means that communities in these areas are more likely to be impacted by changes in water availability.
• Sensitivity: This reflects the degree of dependence of communities on water for agriculture and on employment in downstream agricultural processing industries. Sensitivity is highest for communities in the northeast of the Basin within the Basin Plan Regions of Condamine-Balonne, Moonie, Border Rivers, and Gwydir and in the southern Basin communities within the Basin Plan regions of Lachlan, Murrumbidgee, Murray, Wimmera-Avoca and Loddon-Campaspe. This means that these areas have a combination of a higher dependence on water for agriculture at the farm level and a higher proportion of people in the community who are employed in agriculture and downstream agri-industries, such as food processing plants, abattoirs, canneries and so forth compared with other areas. These areas have a very direct connection with irrigated agriculture.
• Adaptive Capacity: Adaptive capacity is defined as the  resources and abilities that communities can draw upon to adapt to changes in circumstances. Varying levels of community adaptive capacity are dispersed across the Basin and there does not appear to be a general pattern. Adaptive capacity is lowest for communities in the northeast of the Basin within the Basin Plan regions of Border-Rivers and Condamine-Balonne, central west of the Basin within the Basin Plan regions of Barwon-Darling and the western and south western areas of the Basin within the Basin Plan regions of Paroo, Lower Darling, Murray and Eastern Mt Lofty Ranges.These communities have lower adaptive capacity, meaning that they are likely to have fewer resources and a lower ability to respond to changes in their circumstances. On its own, adaptive capacity is not directly connected with a dependence on irrigation water or agriculture. Therefore, areas which come up with low adaptive capacity are those that show signs of general social and economic disadvantage.