tag:theconversation.com,2011:/id/topics/abares-67293/articlesABARES – The Conversation2022-07-31T20:05:26Ztag:theconversation.com,2011:article/1871572022-07-31T20:05:26Z2022-07-31T20:05:26ZAfter floods will come droughts (again). Better indicators will help us respond<p>Since late 2020, the <a href="http://www.bom.gov.au/climate/updates/articles/a020.shtml">La Niña</a> climate pattern has led to two years of above-average rainfall across much of Australia, and severe floods in parts of the country.</p>
<p>In areas spared the flooding, this rainfall has been good news for farmers, with improved conditions and high prices driving production and profits to record highs. </p>
<p>But the next drought is rarely too far away. For a reminder, we only need to look overseas, where the same La Niña weather system is combining with climate change to produce severe droughts in the <a href="https://theconversation.com/grim-2022-drought-outlook-for-western-us-offers-warnings-for-the-future-as-climate-change-brings-a-hotter-thirstier-atmosphere-182640">United States</a>, <a href="https://theconversation.com/is-eastern-africas-drought-the-worst-in-recent-history-and-are-worse-yet-to-come-185327">eastern Africa</a> and <a href="https://www.theguardian.com/world/2022/jun/01/chiles-water-crisis-megadrought-reaching-breaking-point">South America</a>.</p>
<p>Unfortunately, drought can be difficult to define and measure. Determining whether a region or farm is “in drought” is a longstanding and complex problem, which remains important to our future drought response. </p>
<h2>Drought is about more than rainfall</h2>
<p>For a long time, Australia’s standard measure of drought has been rainfall. But while rainfall indicators are easy to produce and interpret, they can be a poor measure of a farm’s prospects.</p>
<p>For one thing, the impact of drought depends on the timing of rain. </p>
<p>Even when the year’s total rainfall is okay, if most of it arrives at the wrong time of year (such as outside the crop season) it can have the same impact as a drought.</p>
<p>Temperatures are also increasingly important, with record heat waves having an important effect in recent years.</p>
<p>The story gets more complicated still when droughts affect the prices of inputs to farms. For example, during the 2018-19 drought many dairy farms were impacted by high hay and water prices, even where they received rain.</p>
<h2>Measuring farm impacts</h2>
<p>In response, researchers including myself at the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) have developed a new drought indicator based on <a href="https://www.sciencedirect.com/science/article/pii/S2212096322000274">predictions of farm financial outcomes</a>, with some advantages over measures based on only rain.</p>
<p>In some cases it presents a very different picture. </p>
<p>In the example below, for 2018-19, the indicator shows more severe impacts in parts of New South Wales than the rainfall model (because low rainfall was compounded by high temperatures and input prices), and less severe impacts in Western Australia (partly because of high grain prices resulting from shortages on the east coast).</p>
<hr>
<p><strong>Rain-based indicator:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=563&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=563&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=563&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=707&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=707&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475550/original/file-20220722-18-n82idy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=707&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Colours show percentiles. 90-100 = top 10%</span>
<span class="attribution"><a class="source" href="https://www.sciencedirect.com/science/article/pii/S2212096322000274">ABARES</a></span>
</figcaption>
</figure>
<p><strong>Model-based indicator:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=569&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=569&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=569&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=715&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=715&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475549/original/file-20220722-16-u5n9jn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=715&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Colours show percentiles. 90-100 = top 10%</span>
<span class="attribution"><a class="source" href="https://www.sciencedirect.com/science/article/pii/S2212096322000274">ABARES</a></span>
</figcaption>
</figure>
<hr>
<h2>Drought declarations are mattering less</h2>
<p>Since the early 2000s, drought policy has evolved away from in-drought support of farm businesses to an approach that emphasises preparedness and resilience, making explicit drought “declarations” less common.</p>
<p>While this change has been welcome, it also led to a reduced focus on drought impact measurement (with the exception of some <a href="https://edis.dpi.nsw.gov.au/">state-level systems</a>).</p>
<p>But as recent droughts have shown, information on the extent and severity of drought impacts is still very important.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/helping-farmers-in-drought-distress-doesnt-help-them-be-the-best-105281">Helping farmers in drought distress doesn't help them be the best</a>
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<p>For one, it can help governments anticipate and prepare for increased demand for farm programs such as the Farm Household Allowance or the Rural Financial Counselling Service. </p>
<p>It can also help to better target resources for community, animal welfare or mental health drought impacts.</p>
<p>Better indicators can also support the development of new insurance products such as <a href="https://theconversation.com/better-data-would-help-crack-the-drought-insurance-problem-106154">index-based weather insurance</a>. </p>
<p>Such products are more likely to take off where indexes (and therefore payouts) can closely match real-world outcomes.</p>
<h2>Early warnings are mattering more</h2>
<p>While there is <a href="https://theconversation.com/the-science-of-drought-is-complex-but-the-message-on-climate-change-is-clear-125941">some evidence</a> climate change has exacerbated recent droughts in Australia, there remains much uncertainty over the longer term effects. </p>
<p>Regardless, the potential for more extreme weather events is generally increasing the importance of early warning systems.</p>
<p>ABARES is working with the CSIRO and the Bureau of Meteorology to develop a <a href="https://www.agriculture.gov.au/abares/research-topics/climate/drought-early-warning-system-project">Drought Early Warning System</a> that will use this new indicator and a range of other tools to translate weather data into estimates of likely farm impacts. </p>
<p>Predicting these impacts remains very difficult, with challenges both in weather forecasting (particularly on monthly or longer time scales), and in translating these forecasts into agricultural outcomes. </p>
<p>But any improvements we can make will help us better respond to what the future has in store.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/farms-are-adapting-well-to-climate-change-but-theres-work-ahead-164860">Farms are adapting well to climate change, but there's work ahead</a>
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</p>
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<img src="https://counter.theconversation.com/content/187157/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neal Hughes is a Senior Economist at the Australian Bureau of Agricultural and Resource Economics and Sciences</span></em></p>Determining whether a region or farm is “in drought” is a longstanding and complex problem which remains important to our future drought response.Neal Hughes, Adjunct Associate Professor, Centre for Regional and Rural Futures, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1648602021-07-28T19:56:09Z2021-07-28T19:56:09ZFarms are adapting well to climate change, but there’s work ahead<figure><img src="https://images.theconversation.com/files/413517/original/file-20210728-23-1skq3tq.jpg?ixlib=rb-1.1.0&rect=757%2C101%2C3672%2C2156&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">PETER LORIMER/AAP</span></span></figcaption></figure><p>Australian farmers have proven their resilience, rebounding from drought and withstanding a global pandemic to produce <a href="https://www.agriculture.gov.au/abares/news/media-releases/2021/agricultures-record-year-challenges-remain">record-breaking output</a> in 2020-21. </p>
<p>But while the pain of drought is fading from view for some, the challenge of a changing climate continues to loom large.</p>
<p>Farmers have endured a poor run of conditions over the last 20 years, including a reduction in average rainfall (particularly in southern Australia during the winter cropping season) and general increases in temperature. </p>
<p>While these trends <a href="http://www.bom.gov.au/state-of-the-climate/">relate to climate change</a>, uncertainty remains over how they will develop, particularly over how much rain or drought farmers will face.</p>
<p>Research <a href="https://www.agriculture.gov.au/abares/products/insights/climate-change-impacts-and-adaptation">published today</a> by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) examines the effects of past and potential future changes in climate, and sets out how productivity gains to date have been helping farmers adapt to the drier and hotter conditions.</p>
<h2>Conditions have been tough</h2>
<p>The research examines the effect on farms of climate conditions over the past 20 years, compared to the preceding 50 years. </p>
<p>Holding other factors constant (including commodity prices and technology) ABARES estimates the post-2000 shift in conditions reduced farm profits by an average of 23%, or around A$29,000 per farm per year.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/climate-change-since-2000-has-cut-farm-profits-22-128860">Climate change since 2000 has cut farm profits 22%</a>
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</em>
</p>
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<p>As with <a href="https://theconversation.com/new-study-changes-in-climate-since-2000-have-cut-australian-farm-profits-22-128860">past research</a>, these effects have been strongest among cropping farmers in south-eastern and southern-western Australia, with impacts of over 50% observed in some of the most severely affected areas.</p>
<hr>
<p><strong>Effect of 2001 to 2020 climate conditions on average farm profit</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/413475/original/file-20210728-19-1grji7k.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Simulated broadacre farm profit with current (2015–16 to 2018–19) farms and commodity prices and recent (2000–01 to 2019–20) climate conditions. Interpolated farm-level percentage changes relative to 1949–50 to 1999–2000 climate.</span>
<span class="attribution"><span class="source">ABARES farmpredict model (Hughes, Lu et al. 2021)</span></span>
</figcaption>
</figure>
<hr>
<h2>Farmers have been adapting</h2>
<p>While these changes in conditions have been dramatic, farmers’ adaptation has been equally impressive. </p>
<p>After controlling for climate, farm productivity (the output from a given amount of land and other inputs) has climbed around 28% since 1989, with a much larger 68% gain in the cropping sector.</p>
<p>These gains have offset the adverse climate conditions and along with increases in commodity prices have allowed farmers to maintain and even increase average production and profit levels over the last decade.</p>
<p>While productivity growth in agriculture is nothing new, the recent gains have been especially focused on adapting to drier and hotter conditions. </p>
<p>Within the cropping sector, for example, a range of new technologies and practices have emerged to better utilise soil moisture to cope with lower rainfall.</p>
<p>As a result, Australian farmers have produced remarkable harvests making use of limited rain, <a href="https://www.abc.net.au/news/rural/2021-01-08/wa-farmers-reap-huge-%246-billion-crop-as-harvest-surprises/13039572">particularly in Western Australia</a>.</p>
<p>Adaptation has also involved movement of traditional Australian cropping zones, increasing cropping in <a href="https://theconversation.com/australian-farmers-are-adapting-to-climate-change-76939">higher rainfall coastal areas</a>, and reducing cropping in <a href="https://www.agriculture.gov.au/abares/products/insights/climate-change-impacts-and-adaptation">marginal in-land areas</a>.</p>
<h2>Climate change could make conditions tougher</h2>
<p>While climate models generally project a hotter and drier future, a wide range of outcomes are possible, particularly for rainfall. </p>
<p>Climate projections suggest that nationally farmers could experience reductions in average winter season rainfall of 3% to 30% by 2050 (compared to 1950-2000).</p>
<p>The study simulates the effect of future climate change scenarios with current farm technology and no further productivity gains. </p>
<p>As such, these scenarios are not a prediction, but an indication of which regions and sectors might be under the greatest pressure to adapt.</p>
<p>For example, under most scenarios cropping farmers in Western Australia will face more pressure than those in eastern Australia. </p>
<p>Livestock farms will also face more pressure under high emissions scenarios as they are especially impacted by higher temperatures. </p>
<p>Generally, inland low-rainfall farming areas are expected to face greater challenges than regions closer to the coast.</p>
<hr>
<p><strong>Simulated change in farm profits relative to historical (1950 to 2000) climate</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=672&fit=crop&dpr=1 600w, https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=672&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=672&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=845&fit=crop&dpr=1 754w, https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=845&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/413512/original/file-20210728-23-nqga6p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=845&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Change in simulated average farm profit for broadacre farms, assuming current commodity prices (2015–16 to 2018–19), and current farm technology (no adaptation), relative to historical climate conditions (1949–50 to 1999–2000). Bars show minimum, maximum and average across the GCMs for each scenario.</span>
<span class="attribution"><span class="source">Source: ABARES farmpredict model (Hughes, Lu et al. 2021)</span></span>
</figcaption>
</figure>
<hr>
<h2>There is more work ahead</h2>
<p>Recent experience shows that productivity growth can help offset the impact of a changing climate. </p>
<p>However, there remains uncertainty over how far technology can push farm efficiency beyond current levels. </p>
<p>Further, even if technology can offset climate impacts, other exporting nations could still become more competitive relative to Australia, if they are less affected by climate change or can adapt faster.</p>
<p>Here, investment in research and development remains crucial, including efforts to improve the productivity and reduce the carbon footprint of existing crop and livestock systems, along with research into more transformational responses to help diversify farm incomes.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/413485/original/file-20210728-13-23k104.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Farmland can be repurposed.</span>
<span class="attribution"><span class="source">Mick Tsikas</span></span>
</figcaption>
</figure>
<p>This could include for example, carbon and biodiversity farming, plantation forestry and the use of land to produce renewable energy.</p>
<p>Carbon and biodiversity farming schemes are the subject of ongoing research and <a href="https://www.agriculture.gov.au/ag-farm-food/natural-resources/landcare/sustaining-future-australian-farming">policy trials</a>, and already we have seen farmers generate <a href="https://landcareaustralia.org.au/project/erf-brings-benefits-farmers/">significant revenue</a> from carbon farming.</p>
<p>Uncertainty over the future climate, especially rainfall, remains a key constraint on adaptation. Efforts to refine and better communicate climate information through initiatives such as <a href="https://www.agriculture.gov.au/ag-farm-food/drought/future-drought-fund/climate-services">Climate Services for Agriculture</a> could help farmers and governments make more informed decisions.</p>
<p>While the future is still highly uncertain, the challenge of adapting to climate change is here and now. </p>
<p>Significant resources have been committed in this area, including the Australian government’s <a href="https://www.agriculture.gov.au/ag-farm-food/drought/future-drought-fund/climate-services">Future Drought Fund</a>. </p>
<p>We need to make the most of these investments to prepare for whatever the future holds.</p><img src="https://counter.theconversation.com/content/164860/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neal Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New ABARES research examines the climate change challenge facing Australian farmersNeal Hughes, Adjunct Associate Professor, Centre for Regional and Rural Futures, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1558802021-03-01T19:11:02Z2021-03-01T19:11:02ZWater markets are not perfect, but vital to the future of the Murray-Darling Basin<figure><img src="https://images.theconversation.com/files/386822/original/file-20210227-13-1jrvbwx.jpg?ixlib=rb-1.1.0&rect=155%2C257%2C3838%2C2281&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">kaman985shu/Shutterstock</span></span></figcaption></figure><p>Water markets have come in for some bad press lately, fuelled in part by the severe drought of 2019 and resulting <a href="https://theconversation.com/drought-and-climate-change-are-driving-high-water-prices-in-the-murray-darling-basin-119993">high water prices</a>.</p>
<p>They have also been the subject of an Australian Competition and Consumer Commission inquiry, whose <a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/murray-darling-basin-water-markets-inquiry/interim-report">interim report</a> released last year documented a range of problems with the way water markets work in the Murray-Darling Basin. The final report was handed to the treasurer last week.</p>
<p>While water markets are far from perfect, new <a href="https://www.agriculture.gov.au/abares/research-topics/working-papers/model-spatial-inter-temporal-water-trade-southern-mdb">research</a> from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has found they are vital in helping the region cope with drought and climate change, producing benefits in the order of A$117 million per year. </p>
<p>To make the most of water markets, we will need to keep improving the rules and systems which support them. But with few “off-the-shelf” solutions, further reform will require both perseverance and innovation.</p>
<h2>Water markets generate big benefits</h2>
<p>Australia’s biggest and most active water markets are in the southern Murray-Darling Basin, which covers the Murray River and its tributaries in Victoria, NSW and South Australia. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=972&fit=crop&dpr=1 600w, https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=972&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=972&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1221&fit=crop&dpr=1 754w, https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1221&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/386839/original/file-20210228-15-fit7fn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1221&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Murray Darling Basin.</span>
<span class="attribution"><a class="source" href="https://www.mdba.gov.au/water-management/managing-water/water-markets-trade">MDBA</a></span>
</figcaption>
</figure>
<p>Each year water right holders are assigned “allocations”: shares of water in the rivers’ major dams. These allocations can be traded across the river system, helping to get water where it is <a href="http://www.agriculture.gov.au/abares/publications/insights/snapshot-of-australian-water-markets#australian--water-markets-why-where-who-and-how">most needed</a>.</p>
<p>Water markets also allow for “carryover”: where rights holders store rather than use their allocations, holding them in dams for use in future droughts. </p>
<p>Our <a href="https://www.agriculture.gov.au/abares/research-topics/working-papers/model-spatial-inter-temporal-water-trade-southern-mdb">research</a> estimates that water trading and carryover generate benefits to water users in the southern Murray-Darling, of A$117 million on average per year (around 12% of the value of water rights) with even larger gains in dry years. Carryover plays a key role, accounting for around half of these benefits. </p>
<p>Together water trading and carryover act to smooth variability in water prices, while also slightly lowering average prices across the basin. </p>
<h2>There’s room for improvement</h2>
<p>One of many issues raised in the Australian Competition and Consumer Commission interim report was the design of the trading rules, including limits on how much water can move between regions. </p>
<p>These rules are intended to reflect the physical limits of the river system, however getting them right is extremely difficult. </p>
<p>The rules we have are <a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/murray-darling-basin-water-markets-inquiry/interim-report">relatively blunt</a>, such that there is potential at different times for either too much water to be traded or too little.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/386836/original/file-20210228-13-1jggh3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">National Electricity Market.</span>
<span class="attribution"><a class="source" href="https://thehub.agl.com.au/articles/2019/05/explainer-the-national-electricity-market">AGL</a></span>
</figcaption>
</figure>
<p>One possible refinement is a shift from a rules-based system to one with more <a href="https://www.accc.gov.au/system/files/ABARES.pdf">central coordination</a>.</p>
<p>For example, in electricity, these problems are addressed via so-called “smart markets”: centralised computer systems which balance demand and supply across the grid in real-time. </p>
<p>Such an approach is <a href="https://www.accc.gov.au/system/files/ABARES.pdf">unlikely to be feasible</a> for water in the foreseeable future. </p>
<p>But a similar outcome could be achieved by establishing a central agency to determine inter-regional trade volumes, taking into account user demands, river constraints, seasonal conditions and environmental objectives. </p>
<p>While novel in Australia, the approach has parallels in the government-operated “<a href="https://www.innovations.harvard.edu/california-drought-water-bank">drought water banks</a>” that have emerged in some parts of the United States.</p>
<h2>Some of the good ideas are our own</h2>
<p>Another possible refinement involves water sharing rules, which specify how water allocations are determined and how they are carried over between years. </p>
<p>At present these rules are often <a href="https://www.accc.gov.au/system/files/ABARES.pdf">complex and lacking in transparency</a>. This can lead to a perceived disconnect between water allocations and physical water supply, creating uncertainty for users and undermining confidence in the market.</p>
<p>Although markets in the northern Murray-Darling Basin are generally less advanced than the south, some sophisticated water sharing systems have evolved in the north to deal with the region’s unique hydrology (highly variable river flows and small dams).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=323&fit=crop&dpr=1 600w, https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=323&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=323&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=406&fit=crop&dpr=1 754w, https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=406&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/386895/original/file-20210301-23-3ixon4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=406&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Beardmore Dam at St George in Southern Queensland, where water markets operate under a capacity sharing system.</span>
<span class="attribution"><span class="source">ABARES</span></span>
</figcaption>
</figure>
<p>There is potential for the southern basin to make use of these northern innovations (known as “<a href="https://daff.ent.sirsidynix.net.au/client/en_AU/search/asset/1027337/1">capacity sharing</a>” or “<a href="https://daff.ent.sirsidynix.net.au/client/en_AU/search/asset/1027337/1">continuous accounting</a>”) to improve transparency and carryover decisions.</p>
<h2>Don’t throw the market out with the river water</h2>
<p><a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/murray-darling-basin-water-markets-inquiry/interim-report">Governance failures</a> in the water market have led to understandable frustration. </p>
<p>But it is important to remember how vital trading and carryover are in smoothing variations in water prices and making sure water gets where it is needed, especially during droughts.</p>
<p>The ACCC’s final report (<a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/murray-darling-basin-water-markets-inquiry/final-report">due soon</a>) will provide an opportunity to take stock and develop a roadmap for the future.</p>
<hr>
<p><em>Water markets will be discussed at Today’s ABARES <a href="https://www.agriculture.gov.au/abares/outlook">Outlook 2021</a> conference in an online panel session at <a href="https://www.agriculture.gov.au/abares/outlook/program">3-4pm AEDT</a>.</em></p><img src="https://counter.theconversation.com/content/155880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The views expressed in this article are those of the author and ABARES and do not necessarily reflect the views of the ACCC.
</span></em></p>New research finds water markets in the southern Murray-Darling produce benefits of around $117 million per year.Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1452892020-08-31T20:01:13Z2020-08-31T20:01:13ZRecovering water for the environment in the Murray-Darling: farm upgrades increase water prices more than buybacks<figure><img src="https://images.theconversation.com/files/355465/original/file-20200831-17-1px0nes.jpg?ixlib=rb-1.1.0&rect=0%2C329%2C4000%2C1940&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Murray Darling Junction, Wentworth NSW.</span> <span class="attribution"><span class="source">Hypervision Creative/Shutterstock</span></span></figcaption></figure><p>It’s been 13 years since the Australian Government set out to develop the <a href="https://www.mdba.gov.au/basin-plan/plan-murray-darling-basin">Murray-Darling Basin Plan</a> with the goal of finding a more sustainable balance between irrigation and the environment.</p>
<p>Like much of the history of water sharing in the Murray-Darling over the last 150 years, the process has been far from smooth. However, significant progress has been achieved, with about 20% of water rights recovered from agricultural users and redirected towards environmental flows.</p>
<p>One of the most difficult debates has been over how the water should be recovered. </p>
<p>Initially most occurred via “buybacks” of water rights from farmers. While relatively fast and inexpensive, opposition to buybacks emerged due to <a href="https://www.abc.net.au/news/2011-06-02/windsor-report-slams-murray-darling-authority/2742822">concerns</a> about their effects on water prices and irrigation farmers and regional communities. </p>
<p>This led to a new emphasis on infrastructure programs including farm upgrades in which farmers received funding to improve their irrigation systems in return for surrendering water rights.</p>
<p>While these farm upgrades are more expensive, it was thought that they would have fewer negative effects on farmers and communities. </p>
<p>However, new research from the <a href="https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-Murray-Darling-Basin">Australian Bureau of Agricultural and Resource Economics and Sciences</a> finds that – while beneficial for their participants – these programs push water prices higher, placing pressure on the wider irrigation sector.</p>
<h2>Two types of water recovery programs</h2>
<p>The Murray-Darling Basin operates under a “cap and trade” system. Each year there is a limit on how much water can be extracted from the basin’s rivers, based on the available supply. </p>
<p>Water users (mostly farmers) hold rights to a share of this limit, and they can trade these rights on a market.</p>
<p>To date 1,230 gigalitres of these water rights have been bought from farmers via buyback programs at a cost of about A$2.6 billion. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/drought-and-climate-change-are-driving-high-water-prices-in-the-murray-darling-basin-119993">Drought and climate change are driving high water prices in the Murray-Darling Basin</a>
</strong>
</em>
</p>
<hr>
<p>The other type of program is farm upgrades which offer farmers funding to improve their irrigation infrastructure in return for a portion of their water rights. </p>
<p>To date 255 gigalitres of water has been recovered through farm upgrades at a cost of about $1 billion. </p>
<hr>
<p><strong>Annual volume of water rights recovered for the environment since 2007-08</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=168&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=168&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=168&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=211&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=211&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355477/original/file-20200831-14-1ic8o79.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=211&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">For infrastructure projects the financial year refers to the contract date. The actual transfer of entitlements may occur in a later financial year. The volume of water recovered is expressed in terms of the long-term average annual yield. The estimates do not include water recovered through state projects (160 gigalitres) or water gifted to the Commonwealth (15 gigalitres). Off-farm infrastructure includes water recovered through projects that are a combination of on-farm, off-farm and land purchases.</span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-Murray-Darling-Basin">Sources: Department of Agriculture Water and Environment, Commonwealth Environmental Water Holder</a></span>
</figcaption>
</figure>
<hr>
<h2>Water recovery has increased prices</h2>
<p>As would be expected, the dominant short-term driver of prices is water availability, with large price increases during droughts. The dominant longer-term drivers include lower average rainfall related to <a href="https://theconversation.com/drought-and-climate-change-are-driving-high-water-prices-in-the-murray-darling-basin-119993">climate change</a> and the emergence of new irrigation crops including almonds.</p>
<p>While water recovery has played less of a role, buybacks and farm upgrades have still reduced the supply of water to farmers and increased prices to some extent. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/climate-change-since-2000-has-cut-farm-profits-22-128860">Climate change since 2000 has cut farm profits 22%</a>
</strong>
</em>
</p>
<hr>
<p>Our <a href="https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-Murray-Darling-Basin">modelling</a> suggests water prices in the southern basin are around $72 per megalitre higher on average as a result of water recovery measures, with the effects varying year-to-year depending on conditions.</p>
<hr>
<p><strong>Modelled water allocation prices with and without water recovery</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=449&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=449&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355521/original/file-20200831-20-1yj4i1b.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=449&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Price refers to volume weighted average annual water allocation prices across the southern Murray Darling Basin. Water recovery reflects the cumulative volume of buybacks and farm upgrades at each year. Water recovery began in 2007-08.</span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-Murray-Darling-Basin">ABARES modelling</a></span>
</figcaption>
</figure>
<hr>
<h2>Farm upgrades increase prices more than buybacks</h2>
<p>Farm upgrades are often viewed as an opportunity to save water and produce “more crop per drop”. </p>
<p>But they can also encourage farmers to increase their water use as they seek to make the most of their new infrastructure: sometimes referred to as a “rebound effect”. </p>
<p>While there have been concerns about rebound effects for some time, there has been limited evidence until recently.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355489/original/file-20200831-18-1y91g9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Less-wasteful irrigation can save water, as long as there’s no ‘rebound’</span>
</figcaption>
</figure>
<p>As would be expected, <a href="https://www.agriculture.gov.au/abares/publications/insights/economic-effects-of-water-recovery-in-Murray-Darling-Basin">our study</a> finds that upgraded farms have benefited in terms of profits and productivity. However, we also find large rebound effects, with upgraded farms increasing their water use by between 10% and 50%.</p>
<p>To get the extra water they need to buy it from other farmers, putting pressure on prices. We find the resulting price impact to be much more than the impact of buying back water. Per unit of water recovered, it is about double that of buybacks.</p>
<p>These higher water prices increase the risk that irrigation assets – including some newly upgraded systems – could become stranded as price sensitive irrigation activities become less profitable.</p>
<h2>No easy answers</h2>
<p>Recovering water through off-farm infrastructure is one alternative, however the most effective projects have already been developed, leaving cost-effective water saving schemes harder to find.</p>
<p>This brings us back to buybacks. Because buybacks are cheaper than farm infrastructure programs, there is more scope to combine them with regional development investments to help offset negative impacts on communities. </p>
<p>The challenge is that in a connected water market the flow-on effects on water prices and farmers can be complex and difficult to predict, making it hard to know where to direct development investments.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/billions-spent-on-murray-darling-water-infrastructure-heres-the-result-119985">Billions spent on Murray-Darling water infrastructure: here's the result</a>
</strong>
</em>
</p>
<hr>
<p>A potential middle ground is rationalisation, where parts of the water supply network are decommissioned, and affected farmers are compensated both for their water rights and for being disconnected from water supply. This approach has less effect on water prices and allows regional development initiatives to be targeted to the affected areas. </p>
<p>However, rationalisation can be hard to implement given it requires negotiating with all affected farmers and all levels of government.</p>
<p>Given the complexity of the Murray-Darling Basin, water policy is far from simple. While it is clear more water will be needed to put the basin on a sustainable footing, there are no easy options. </p>
<p>Further progress will require careful policy design to help ease adjustment pressure on farmers and regional communities.</p><img src="https://counter.theconversation.com/content/145289/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Marking farms more water-efficient pushes up prices twice as much as buying water back.Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)David Galeano, Assistant Secretary, Natural Resources, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1364052020-04-16T19:38:51Z2020-04-16T19:38:51ZDon’t panic: Australia has truly excellent food security<figure><img src="https://images.theconversation.com/files/328240/original/file-20200416-140706-1g1h5es.jpg?ixlib=rb-1.1.0&rect=263%2C604%2C3323%2C2053&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>COVID-19 has taken Australia and the world by surprise. Coming after severe droughts in eastern Australia, concerns have been raised about Australian food security. </p>
<p>The concerns are understandable, but they are misplaced.</p>
<p>Despite temporary shortages of some food items in supermarkets caused by an unexpected surge in demand, Australia does not have a food security problem.</p>
<p>An Australian Bureau of Agricultural and Resource Economics and Sciences <a href="https://www.agriculture.gov.au/abares/publications/insights/australian-food-security-and-COVID-19">study</a> released today outlines why Australia is one of the most food-secure countries in the world.</p>
<h2>Supermarket shelves reflect a surge in demand</h2>
<p>Uncertainties around the impacts of COVID-19 have triggered a rapid increase in purchasing by consumers seeking to stockpile a range of items, resulting in disruption to stocks of some basic food items. </p>
<p>This disruption is temporary and not an indication of food shortages. </p>
<p>Rather, it is a result of <a href="https://www.investopedia.com/terms/l/logistics.asp">logistics</a> taking time to adapt to an unexpected surge in purchasing.</p>
<h2>We are highly food-secure</h2>
<p>Food security refers to the physical availability of food, and to whether people have the resources and opportunity to get reliable economic access to it.</p>
<p>Australia ranks among the most food secure nations in the world, and is in the <a href="https://foodsecurityindex.eiu.com/Country/Details#Australia">top 10 countries</a> for food affordability and availability. </p>
<p>Australians are wealthy by global standards and can choose from diverse and high-quality foods from all over the world at affordable prices.</p>
<p>Most Australians can afford to purchase healthy food that meets their nutritional needs, and as a result, Australia has the world’s equal-lowest level of undernourishment.</p>
<h2>We import only 11% of our food</h2>
<p>Most food and beverages consumed in Australia are produced in Australia.</p>
<p>But not everything that Australians like to eat is produced here. So we import about 11% of the food and beverages we consume by value. </p>
<p>The imports are mainly processed products (including coffee beans, frozen vegetables, seafood products, and beverages), along with small amounts of out-of-season fresh food.</p>
<hr>
<p><strong>Imported products account for 11% of expenditure on food and beverages</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=262&fit=crop&dpr=1 600w, https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=262&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=262&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=329&fit=crop&dpr=1 754w, https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=329&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/328253/original/file-20200416-140750-u599x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=329&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Imports of processed and fresh (primary) food and beverages, as a share of total food and beverage consumption (including tobacco and alcohol) by value, three year average 2016-17 to 2018-19. Does not include takeaway and restaurant meals.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5368.0">ABS 5368.0, 5204.0</a></span>
</figcaption>
</figure>
<hr>
<p>It is possible that disruptions to food imports from COVID-19 (or something else) could result in temporary shortages of some products, restricting consumer choice in the same way as cyclones have restricted access to Australian bananas. </p>
<p>It would be unlikely to have a material impact on food security – in terms of ensuring a sufficient supply of healthy and nutritious food, even if higher prices for or limited availability of specific products disappoints or inconveniences some consumers.</p>
<h2>Australia produces more food than it consumes</h2>
<p>Australia typically exports about 70% of agricultural production. </p>
<p>The level of exports varies across sectors. Some of our largest industries, such as beef and wheat, are heavily export-focused. Others, like horticulture, pork and poultry, sell most of their products in Australia, with an emphasis on supplying fresh produce.</p>
<hr>
<p><strong>Most Australian agricultural production is export oriented</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=286&fit=crop&dpr=1 600w, https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=286&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=286&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=359&fit=crop&dpr=1 754w, https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=359&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/331890/original/file-20200501-42929-1jcpx7p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=359&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Share of agricultural production exported by sector, 3 year average, 2015-16 to 2017-18.</span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/australian-food-security-and-COVID-19">ABARES, corrected from earlier version published on April 17</a></span>
</figcaption>
</figure>
<hr>
<p>Australia’s large exports, even in severe drought years, act as a shock absorber for domestic supply. </p>
<p>They allow domestic consumption to remain stable while exports vary, absorbing the ups and downs associated with Australia’s variable climate and seasonal conditions.</p>
<hr>
<p><strong>Domestic food consumption is stable, while agricultural exports vary</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/328258/original/file-20200416-140719-vgnppn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Domestic consumption and export estimates for wheat, beef, rice, fruit and nuts, 2006-07 to 2020-21. Fruit and nuts covers table grapes, apples, pears, oranges, mandarins, peaches, mangoes, bananas, almonds and macadamias. f = forecast.</span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/australian-food-security-and-COVID-19">Source: ABARES 2020</a></span>
</figcaption>
</figure>
<hr>
<h2>The outlook for rain is good</h2>
<p>After a hot and dry 2019 and widespread drought conditions in NSW and Queensland, above-average recent rains and <a href="http://www.bom.gov.au/climate/ahead/outlooks/archive/20200409-outlook.shtml">positive forecasts</a> provide the basis for the best start to Australia’s agricultural production season in years.</p>
<p>While current prospects for winter crops are good, more rain is required for these to be realised. </p>
<p>The Bureau is forecasting that grain production is likely to return to close to average levels, with a significant chance of higher production given the good start to the winter cropping season. </p>
<hr>
<p><strong>Wetter than average conditions are likely across agricultural areas from May to July 2020</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=299&fit=crop&dpr=1 600w, https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=299&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=299&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=376&fit=crop&dpr=1 754w, https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=376&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/328262/original/file-20200416-140735-k8f042.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=376&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Map shows chance of exceeding median rainfall for the period May to July 2020, showing above average rainfall is likely or very likely across all inland areas of Australia, including the wheat sheep zone.</span>
<span class="attribution"><a class="source" href="http://www.bom.gov.au/clim_data/IDCK000078/latest/rain.forecast.median.national.season1.latest.hr.png?1587011884455">Source: BOM, April 9, 2020</a></span>
</figcaption>
</figure>
<hr>
<p>For livestock producers, better seasonal conditions provide the opportunity to rebuild herds and flocks following a relatively long period of destocking.</p>
<h2>Our access to food is secure</h2>
<p>Australia is one of the most food-secure countries in the world, with ample supplies of safe, healthy food. The vast majority of it is produced here in Australia, and domestic production more than meets our needs, even in drought years. </p>
<p>While we import about 11% of our food and beverages, disruptions to these imports would not threaten the food security of most Australians.</p>
<p>The Bureau of Agricultural and Resource Economics and Sciences is forecasting a return to close to average levels of grain production, with a significant chance of higher production, given the good start to the winter cropping season. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/helping-farmers-in-drought-distress-doesnt-help-them-be-the-best-105281">Helping farmers in drought distress doesn't help them be the best</a>
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</em>
</p>
<hr>
<p>The <a href="https://www.agriculture.gov.au/abares/publications/insights/australian-food-security-and-COVID-19">analysis released today</a> explores related issues in more depth, including the contribution of irrigated agriculture to Australian food security, levels of global grain stocks, and the contributions of international trade and Australian exports to food security in other countries.</p>
<p>Australia’s agricultural producers do rely on global supply chains and imported inputs. Shortages or disruptions to these inputs have not yet been significant or widespread, but could reduce productivity and profitability. </p>
<p>While action is already in train to address key issues, it will be important for business and government to continue actively monitoring and managing these risks.</p><img src="https://counter.theconversation.com/content/136405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Hatfield-Dodds is the Executive Director of ABARES and an adjunct professor of public policy at the Crawford School at ANU. He does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond these appointments.</span></em></p><p class="fine-print"><em><span>Peter Gooday does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond his ABARES appointment.</span></em></p>Almost all of the food we consume in Australia is made in Australia. We export far more than we import.Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Peter Gooday, Acting Executive Director Agriculture, Water, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1288602019-12-17T19:04:12Z2019-12-17T19:04:12ZClimate change since 2000 has cut farm profits 22%<figure><img src="https://images.theconversation.com/files/307091/original/file-20191216-124041-v169by.jpg?ixlib=rb-1.1.0&rect=418%2C126%2C1292%2C655&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Australian Bureau of Agricultural and Resource Economics and Sciences farmpredict model finds that changes in climate conditions since 2000 have cut farm profits by 22% overall, and by 35% for cropping farms..</span> <span class="attribution"><span class="source">ABARES/Shutterstock</span></span></figcaption></figure><p>The current drought across much of eastern Australia has demonstrated the dramatic effects climate variability can have on farm businesses and households. </p>
<p>The drought has also renewed longstanding discussions around the emerging effects of climate change on agriculture, and how governments can best help farmers to manage drought risk.</p>
<p>A new <a href="https://www.agriculture.gov.au/abares/publications/insights/effects-of-drought-and-climate-variability-on-Australian-farms">study</a> released this morning by the Australian Bureau of Agricultural and Resource Economics and Sciences offers fresh insight on these issues by quantifying the impacts of recent climate variability on the profits of Australian broadacre farms. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/droughts-extreme-weather-and-empowered-consumers-mean-tough-choices-for-farmers-112857">Droughts, extreme weather and empowered consumers mean tough choices for farmers</a>
</strong>
</em>
</p>
<hr>
<p>The results show that changes in temperature and rainfall over the past 20 years have had a negative effect on average farm profits while also increasing risk. </p>
<p>The findings demonstrate the importance of adaptation, innovation and adjustment to the agriculture sector, and the need for policy responses which promote – and don’t unnecessarily inhibit – such progress.</p>
<h2>Measuring the effects of climate on farms</h2>
<p>Measuring the effects of climate on farms is difficult given the many other factors that also influence farm performance, including commodity prices. </p>
<p>Further, the effects of rainfall and temperature on farm production and profit can be complex and highly location and farm specific.</p>
<p>To address this complexity, ABARES has developed a model based on more than 30 years of historical farm and climate data—<a href="https://www.agriculture.gov.au/abares/research-topics/working-papers/farmpredict">farmpredict</a> — which can identify effects of climate variability, input and output prices, and other factors on different types of farms.</p>
<h2>Cropping farms most exposed</h2>
<p>The model finds that cropping farms generally face greater climate risk than beef farms, but also generate higher average returns.</p>
<p>Cropping farm revenue and profits are lower in dry years, with large reductions in crop yields and only small savings in input costs. </p>
<hr>
<p><strong>Effect of climate variability on rate of return</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=348&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=348&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=348&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=438&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=438&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307011/original/file-20191216-123998-16ibp5s.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=438&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/effects-of-drought-and-climate-variability-on-Australian-farms">Based on historical climate conditions (1950 to 2019), holding non-climate factors constant. See report for more detail. ABARES FarmPredict</a></span>
</figcaption>
</figure>
<hr>
<p>In contrast, drought has a smaller immediate effect on beef farm revenue, because in dry years farmers can increase the quantity of livestock sold.</p>
<p>However, drought also <a href="https://www.mla.com.au/globalassets/mla-corporate/prices--markets/documents/trends--analysis/cattle-projections/august-update-australian-cattle-industry-projections-2019.pdf">lowers herd numbers</a>, which lowers farm profit when herd value is accounted for.</p>
<h2>Higher temperatures, lower winter rainfall</h2>
<p>Australian average temperatures have <a href="http://www.bom.gov.au/state-of-the-climate/">increased by about 1°C since 1950</a>.</p>
<p>Recent decades have also seen a trend towards lower <a href="http://www.bom.gov.au/state-of-the-climate/">average winter rainfall</a> in the southwest and southeast. </p>
<p>This drying trend has been linked to <a href="http://www.bom.gov.au/state-of-the-climate/">atmospheric changes associated with global warming</a>. </p>
<p>However, while global climate models <a href="http://www.bom.gov.au/state-of-the-climate/">generally predict</a> a decline in winter season rainfall across southern Australia and more time spent in drought, there is still much uncertainty about what will happen in the long term, particularly to rainfall.</p>
<h2>Climate shifts have cut farm profits</h2>
<p>ABARES has assessed the effect of climate variability on farm profits over the period 1950 to 2019, holding all other factors constant including commodity prices and farm management practices.</p>
<p>We find that the shift in climate conditions since 2000 (from conditions in the period 1950-1999 to conditions in the period 2000-2019) has had a negative effect on the profits of both cropping and livestock farms.</p>
<hr>
<p><strong>Effect of 2000 - 2019 climate conditions on average farm profit</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=282&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=282&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=282&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=354&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=354&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307013/original/file-20191216-124031-15wtqlo.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=354&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/effects-of-drought-and-climate-variability-on-Australian-farms">"Farm profit percentiles for the period 2000-2019 relative to 1950-1999, holding non-climate factors constant. See report for more detail. ABARES</a></span>
</figcaption>
</figure>
<hr>
<p>We estimate that the shift in climate has cut average annual broadacre farm profits by around 22%, which is an average of $18,600 per farm per year, controlling for all other factors.</p>
<p>The effects have been most pronounced in the cropping sector, reducing average profits by 35%, or $70,900 a year for a typical cropping farm. </p>
<p>At a national level this amounts to an average loss in production of broadacre crops of around $1.1 billion a year. </p>
<p>Although beef farms have been less affected than cropping farms overall, some beef farming regions have been affected more than others, especially south-western Queensland.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/drought-is-inevitable-mr-joyce-101444">Drought is inevitable, Mr Joyce</a>
</strong>
</em>
</p>
<hr>
<p>Like <a href="https://www.agriculture.gov.au/abares/research-topics/climate/farm-performance-climate">previous ABARES research</a> this study finds evidence of adaptation, with farmers reducing their sensitivity to dry conditions over time.</p>
<p>Our results suggest that without this adaptation the effects of the post-2000 climate shift <a href="https://agriculture.gov.au/effects-of-drought-and-climate-variability-on-Australian-farms">would have been considerably larger, particularly for cropping farms</a>.</p>
<hr>
<p><strong>Effect of post-2000 climate on average annual farm profits</strong> </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307022/original/file-20191216-124027-s6o7s0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/effects-of-drought-and-climate-variability-on-Australian-farms">Per cent change relative to 1950-1999 climate, holding non-climate factors constant. See report for more detail. ABARES FarmPredict</a></span>
</figcaption>
</figure>
<hr>
<h2>Risk and income volatility have also increased</h2>
<p>The changed climate conditions since 2000 have also increased risk and income volatility. </p>
<p>This is particularly so for cropping farms, where we find the chance of low-profit years has more than doubled as a result of the change in climate conditions.</p>
<hr>
<p><strong>Effect of climate variability on typical cropping farm</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=314&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=314&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=314&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=395&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=395&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307023/original/file-20191216-124036-6vmj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=395&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.agriculture.gov.au/abares/publications/insights/effects-of-drought-and-climate-variability-on-Australian-farms">Distribution of farm profits for 1950-1999 climate and 2000-2019 climate. See report for more detail. ABARES FarmPredict</a></span>
</figcaption>
</figure>
<hr>
<h2>Handle with care – the drought policy dilemma</h2>
<p>Drought policy faces an almost unavoidable dilemma, that providing relief to farm businesses and households in times of drought risks slowing industry structural adjustment and innovation.</p>
<p>Adjustment, change and innovation are fundamental to improving agricultural productivity; maintaining Australia’s competitiveness in world markets; and providing attractive and financially sustainable opportunities for farm households.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/helping-farmers-in-drought-distress-doesnt-help-them-be-the-best-105281">Helping farmers in drought distress doesn't help them be the best</a>
</strong>
</em>
</p>
<hr>
<p>For these reasons, the strategic intent of drought policy has shifted away from seeking to protect and insulate farmers towards the promotion of drought <a href="https://www.agriculture.gov.au/ag-farm-food/drought/drought-policy/history">preparedness and self‑reliance</a>.</p>
<p>The best options for reconciling the drought policy dilemma focus on boosting the resilience of farm businesses and households to future droughts and climate variability, including through action and investment when farmers are not in drought. </p>
<p>The government’s <a href="https://www.agriculture.gov.au/ag-farm-food/drought/future-drought-fund">Future Drought Fund</a>, which will support research and innovation, is a good example of this approach.</p>
<p>Developing new insurance options is one worthwhile avenue of research which could provide farmers a way to self-manage risk. It would require investments in data and knowledge to support viable weather insurance markets: where farmers pay premiums sufficient to cover costs over time.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/better-data-would-help-crack-the-drought-insurance-problem-106154">Better data would help crack the drought insurance problem</a>
</strong>
</em>
</p>
<hr>
<p>Supporting farm households experiencing hardship is legitimate and important, but for the long term health of the farm sector this needs to be done in ways that promote resilience and improved productivity and allow for long term adjustment to change.</p><img src="https://counter.theconversation.com/content/128860/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Hatfield-Dodds is an adjunct professor of public policy at the Crawford School at ANU. </span></em></p><p class="fine-print"><em><span>Neal Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For crop farmers, the risk of low profit years has doubled.Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1199932019-07-18T03:03:17Z2019-07-18T03:03:17ZDrought and climate change are driving high water prices in the Murray-Darling Basin<p>Water prices in the southern Murray-Darling Basin have reached their highest levels since the worst of the <a href="http://www.bom.gov.au/climate/updates/articles/a010-southern-rainfall-decline.shtml#toc1">Millennium drought</a> more than a decade ago. These high water prices are causing much anxiety in the region, and have led the federal government to call on the Australian Competition and Consumer Commission to hold <a href="https://www.abc.net.au/news/rural/2019-05-30/new-water-minister-ready-for-accc-inquiry/11161730">an inquiry</a> into the water market. </p>
<p>Inevitably, whenever an important good becomes more expensive – be it housing, electricity or water – there is a rush to identify potential causes and culprits. In the past few years high water prices have been blamed on <a href="https://www.abc.net.au/news/rural/2019-03-25/foreign-owned-water-entitlement-register-reveals-key-countries/10923384">foreign investors</a>, <a href="https://www.theguardian.com/australia-news/2019/may/29/water-investment-companies-score-bumper-year-as-farmers-hit-by-drought">corporate speculators</a>, <a href="https://www.abc.net.au/news/rural/2019-03-09/irrigators-signal-electoral-challenge-in-safe-liberal-farrer/10852828">state government water-sharing rules</a>, <a href="https://www.afr.com/real-estate/commercial/development/murraydarling-water-scarcity-bites-almond-citrus-grape-growers-20190301-h1bw1n">new almond plantings</a> and the <a href="https://amp.abc.net.au/article/10931366">Murray-Darling Basin Plan</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-murray-darling-basin-scandal-economists-have-seen-it-coming-for-decades-119989">The Murray-Darling Basin scandal: economists have seen it coming for decades</a>
</strong>
</em>
</p>
<hr>
<p>While some of these factors have had an effect on the market, they are in many ways a distraction from the simpler truth: that high water prices have mostly been caused by a lack of rain.</p>
<h2>Supply drives the market</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=839&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=839&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=839&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1054&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1054&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283224/original/file-20190709-51312-1bmd1r9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1054&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The waters of the northern basin run to the Darling River and the waters of the southern basin run to the Murray River.</span>
<span class="attribution"><a class="source" href="https://www.mdba.gov.au/discover-basin/landscape/geography">MDBA</a></span>
</figcaption>
</figure>
<p>Market reforms <a href="http://www.agriculture.gov.au/abares/publications/insights/snapshot-of-australian-water-markets#australian--water-markets-why-where-who-and-how">in the 1980s and 1990s</a> enabled water trading in many parts of Australia. By far the most active market exists in the southern Murray-Darling basin, which covers the Murray River and its tributaries in northern Victoria, southern New South Wales and eastern South Australia. </p>
<p>The market allows users – mostly irrigation farmers – to trade their water allocations (effectively shares of water in the rivers’ major dams). This trading helps ensure limited water supplies go to the farmers who value them the most, which can be crucial in times of drought.</p>
<p>Historical data shows the main driver of water market prices in the southern basin is <a href="http://www.agriculture.gov.au/abares/Documents/SnapshotOfAustralianWaterMarkets_v1.0.0.pdf">change in water supply</a>. </p>
<p>The following chart shows storage volumes (in orange) and water prices (in red) in the southern basin since 2006. Prices peaked at the height of the Millennium drought in 2007. During the floods of 2011, they fell near zero. Prices have increased again during the latest drought, and are now at their highest levels in a decade. </p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=338&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=338&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283617/original/file-20190711-44497-ddror9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=338&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Water allocation prices and storage volumes in the southern Murray-Darling Basin.</span>
<span class="attribution"><span class="source">State government trade registers, BOM, Ruralco Water, ABARES estimates.</span></span>
</figcaption>
</figure>
<hr>
<h2>Lower rainfall, higher temperatures</h2>
<p>While water prices have always been higher in dry years and lower in wet, we’ve been getting a lot more dry years in recent decades. </p>
<p>Over the past 20 years, rainfall, run-off and stream flow in the southern basin has been far less than historical conditions. </p>
<p>The below chart shows modelled flow data for the Murray River, assuming historical weather conditions and no water extraction, over the past century. It shows that average water flows this century are about 40% below the average of the 20th century.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=338&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=338&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283618/original/file-20190711-44497-1uafl1g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=338&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Modelled ‘without-development’ annual Murray River flow, 1900 to 2018.</span>
<span class="attribution"><span class="source">Murray-Darling Basin Authority.</span></span>
</figcaption>
</figure>
<hr>
<p>We know these reductions are at least partly <a href="http://www.seaci.org/publications/documents/SEACI-2Reports/SEACI_Phase2_SynthesisReport.pdf">related to climate change</a>, driven by both <a href="http://www.mssanz.org.au/modsim09/G5/cowan.pdf">reduced winter rainfall and higher temperatures</a>.</p>
<p>Lower rainfall and higher temperatures also make crops thirstier, increasing demand for irrigation water. This was evident in January, when temperatures <a href="https://www.weeklytimesnow.com.au/news/national/irrigation-demand-lower-murray-river-nearly-parched/news-story/4e1368e376e270c57ac58e09f4bc5c3a">exceeded 35°C for 14 days</a> and irrigators’ demand for water spiked from about 4.5 gigalitres to 7 gigalitres a day.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/droughts-extreme-weather-and-empowered-consumers-mean-tough-choices-for-farmers-112857">Droughts, extreme weather and empowered consumers mean tough choices for farmers</a>
</strong>
</em>
</p>
<hr>
<h2>The basin plan in perspective</h2>
<p>The Murray-Darling Basin Plan seeks to improve the environmental health of the river system by recovering water rights from irrigation farmers. To date, more than <a href="http://www.agriculture.gov.au/water/mdb/progress-recovery/progress-of-water-recovery">1,700 gigalitres </a> of water rights – about 20% of annual water supply – have been recovered in the southern basin. </p>
<p>By reducing supply, water recovery was <a href="http://data.daff.gov.au/data/warehouse/pe_abarebrs99014438/waterbuyback.pdf">always expected</a> to increase water prices. However, the effects of water recovery on supply – while significant – are still small relative to the effects of climate over the same period, as shown in the below chart. </p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=338&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=338&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283619/original/file-20190711-44432-12kxnau.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=338&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Water allocation use in the southern basin with and without water recovery.</span>
<span class="attribution"><span class="source">State government agencies, Department of Agriculture, ABARES estimates.</span></span>
</figcaption>
</figure>
<hr>
<p>Measuring the precise effect of water recovery on prices is difficult. Water buybacks are straightforward and have been modelled by <a href="http://data.daff.gov.au/data/warehouse/9aaw/2016/smdwm_d9aawr20161202/smdbWaterAllocMarket_v1.1.0.pdf">ABARES</a> and <a href="http://www.agriculture.gov.au/water/markets/supply-side-drivers">others</a>. But the effects of infrastructure programs – where farmers return a portion of their water rights in exchange for funding to upgrade infrastructure – <a href="http://data.daff.gov.au/data/warehouse/9aaw/2016/smdwm_d9aawr20161202/smdbWaterAllocMarket_v1.1.0.pdf">are harder to estimate</a>.</p>
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Read more:
<a href="https://theconversation.com/billions-spent-on-murray-darling-water-infrastructure-heres-the-result-119985">Billions spent on Murray-Darling water infrastructure: here's the result</a>
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<h2>‘Carryover’ rule changes</h2>
<p>Historically farmers had to use water allocations within a 12-month window. The introduction of “<a href="http://data.daff.gov.au/data/warehouse/9aan/9aanw/2013/StrgRtsWtrAllocMDB/StrgRtsWtrAllocMDB20131212_v1.0.0.pdf">carryover</a>” – most recently in Victoria in 2008 – means users can now hold their unused water in dams. This rule change was a good thing, as it encourages farmers to conserve water and build up a buffer against drought. </p>
<p>But it might also have contributed to anxiety about the water market’s operations.</p>
<p>Since water allocations can be bought and held for multiple years, information about future conditions can have a big effect on prices now. For example, we see large jumps in price following news of worse-than-expected <a href="https://www.weeklytimesnow.com.au/news/national/murray-darling-basin-water-prices-surge-to-550-a-megalitre/news-story/89b12d32d2136d11f48cbbf0f9c8ed0c">supply forecasts</a>. This may have helped fuel concern about “speculators”. </p>
<p>Over the longer-term, the ability to store water helps to <a href="http://www.agriculture.gov.au/abares/Documents/SnapshotOfAustralianWaterMarkets_v1.0.0.pdf">“smooth” water prices</a>, with slightly higher prices in most years offset by much lower prices in drought years. Again this is a good thing, but it may have added to the perception of higher prices in the market. </p>
<h2>Water demand is rising</h2>
<p>When a profitable new irrigation activity is willing to pay more for water – as is the case with <a href="https://www.theguardian.com/australia-news/2019/may/26/tough-nut-to-crack-the-almond-boom-and-its-drain-on-the-murray-darling">almond farms in the southern basin</a> – competition for limited supplies can potentially drive up prices. </p>
<p>ABARES’ research shows that <a href="http://www.agriculture.gov.au/abares/research-topics/water/future-scenarios-smdb">between 2003 and 2016</a> there was little change in irrigation demand (aside from that linked to rainfall). Growth in demand from expanding activities such as almonds and cotton was offset by reductions in others including dairy, rice and wine grapes. However, there is evidence since 2016 that demand for water has started to increase, <a href="http://www.agriculture.gov.au/abares/research-topics/water/water-market-outlook">contributing to higher water prices</a>. Longer-term projections suggest this trend <a href="https://waterregister.vic.gov.au/images/documents/Water_availability_fact_sheet.pdf">may continue</a>.</p>
<p>With drought and climate change reducing water supply, and demand for both environmental and irrigation water increasing, high water prices are only likely to become more common in the basin in future.</p><img src="https://counter.theconversation.com/content/119993/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neal Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>High water prices in the Murray-Darling Basin are blamed on foreign investors and corporate speculators. The simple truth is they are caused mostly by lack of rain.Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1128572019-03-04T19:01:40Z2019-03-04T19:01:40ZDroughts, extreme weather and empowered consumers mean tough choices for farmers<p><em>This is an edited version of Steve Hatfield-Dodds’ opening address to the Bureau of Agricultural and Resource Economics <a href="http://www.agriculture.gov.au/abares/outlook">National Outlook Conference</a> to be delivered on 5 March 2019.</em></p>
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<p>The National Farmers Federation wants to lift the value of Australian agricultural production to <a href="https://www.talking2030.com/">$100 billion by 2030</a>. </p>
<p>While that might be possible – on the current trajectory it is forecast to reach $84 billion by 2030 – we should be mindful of the substantial, and sometimes painful, reforms that have been needed to achieve the growth we have in recent decades; and that <a href="http://www.agriculture.gov.au/abares/Documents/snapshot-australian-agriculture.pdf">price increases accounted for 90% of that past growth</a>. </p>
<p>Furthermore, the rate of productivity growth has been slowing. Key reasons include adverse shifts in climate and seasonal conditions, reduced investment in research relative to the value of production, and that fact that the easiest productivity gains have already been made.</p>
<p>This suggests nothing can be taken for granted. </p>
<p>Instead, we should recognise that achieving the best for agriculture, our rural communities and the national economy will require tough choices.</p>
<h2>Making farming attractive to workers and investors</h2>
<p>The sector is well aware of the need to attract workers with the right mix of skills, and is taking steps to do it. The <a href="http://www.agriculture.gov.au/about/reporting/budget/seasonal">2018 Budget</a> provided funds to improve our evidence base about labour force issues. </p>
<p>It is encouraging to see sector leaders <a href="https://www.farmonline.com.au/story/4412951/nff-urges-certification-scheme-to-watch-over-farm-labour-contractors/">acknowledging</a> the need to eliminate exploitation of workers, particularly seasonal workers and other vulnerable groups, but actions are always going to speak louder than words in ensuring a positive experience for farm workers.</p>
<p>Investment is crucial to lifting productivity and strengthening supply chains. Unfortunately agriculture faces some headwinds in attracting investment, including high seasonal variability relative to other nations and some persistent policy uncertainty. </p>
<p>This makes it crucial that Australia’s foreign investment rules are applied transparently and predictably, respecting <a href="https://archive.lowyinstitute.org/publications/lowy-institute-poll-2012-public-opinion-and-foreign-policy">community caution</a> that investment should deliver social and economic benefits, while maintaining Australia’s reputation as a <a href="https://cdn.tspace.gov.au/uploads/sites/79/2018/05/FIRB-16-17-Annual-Report.pdf">stable and attractive investment destination</a>.</p>
<h2>Harnessing innovation</h2>
<p>Australia is not immune to global shifts in research and development.</p>
<p>This includes <a href="http://www.agriculture.gov.au/abares/research-topics/productivity/related-research/rural-rde-investment">slower growth</a> in public R&D, which in the past has provided the foundation for growth in private R&D.</p>
<p>Our distinctive use of government and levy funded <a href="http://www.ruralrdc.com.au/about/">Research and Development Corporations</a> has served us well in the past, but needs some adjustment to ensure that the resources available deliver the best possible outcomes for agriculture and the nation as a whole. </p>
<p>Priorities should include reducing fragmentation and improving collaboration on “whole of sector” challenges, greater clarity and consistency around contributions and benefit sharing, and achieving faster adoption and commercialisation of successful research.</p>
<h2>Promoting resilience</h2>
<p>Australian farmers manage very significant variability, including variability in climate and prices. <a href="http://www.bom.gov.au/state-of-the-climate/">Climate variability is increasing</a> and extreme events, such as droughts and floods, are becoming more frequent and severe, impacting on output and incomes. Increased variability is also likely to contribute to more volatile global prices.</p>
<p>It is a good bet in these circumstances that future droughts and weather events will continue to trigger calls for government to do more to help famers. But policy makers should continue to be careful in how they respond, as poorly designed polices have the potential to slow farm adaption and structural adjustment, <a href="https://theconversation.com/helping-farmers-in-distress-doesnt-help-them-be-the-best-the-drought-relief-dilemma-105281">hurting productivity</a>.</p>
<p>Australia’s <a href="http://www.agriculture.gov.au/ag-farm-food/drought/drought-policy">national drought policy</a> rightly establishes a clear separation between promoting proper risk management by farm businesses and providing support to farm households and communities in need. </p>
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Read more:
<a href="https://theconversation.com/helping-farmers-in-drought-distress-doesnt-help-them-be-the-best-105281">Helping farmers in drought distress doesn't help them be the best</a>
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<p>Eligibility criteria for the Farm Household Allowance are more generous than those that apply to income support available to other groups.</p>
<p>Programs such as the Farm Household Allowance, the Farm Management Deposit Scheme and tax concessions provide important relief for farm households and are consistent with Australian community values. </p>
<p>Overall, their current settings are unlikely to undermine resilience and drought preparedness or to have substantial adverse impact on agricultural productivity.</p>
<p>This is an achievement worth defending against well meaning – or occasionally self-interested – calls to blur the lines between household support and business assistance.</p>
<p>And we should always seek further improvements. Here the remaining policies that provide business assistance, such as concessional finance, need careful assessment. </p>
<p>Over time, the perceived need for such policies could be reduced by further development and uptake of market-based risk management tools, such as multi-peril crop insurance, and index-based insurance for cropping and livestock.</p>
<h2>Persisting with water reforms</h2>
<p>The Murray-Darling Basin Plan was inspired, in part, by the 2003 <a href="https://www.mdba.gov.au/sites/default/files/pubs/The-Living-Murray-story.pdf">Living Murray Initiative</a> and its vision of a “healthy working river” and in part by a reaction to the realities graphically exposed by the Millennium drought. </p>
<p>It was predicated on the conviction that healthy communities and regional economies required a healthy river, and that achieving it required substantial changes to water management. </p>
<p><a href="https://ewater.org.au/archive/crcch/archive/pubs/pdfs/technical200205.pdf">These changes were twofold</a>: promoting water trading across the basin, which allows water to move to higher value uses and altering the balance between consumptive and environmental uses to achieve healthy river ecosystems.</p>
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Read more:
<a href="https://theconversation.com/its-time-to-restore-public-trust-in-the-governing-of-the-murray-darling-basin-109797">It's time to restore public trust in the governing of the Murray Darling Basin</a>
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<p>This view that healthy industries require healthy catchments has not always been visible in recent debate and finger pointing, which is often framed in terms of trade-offs between “industry” or “development” versus the “environment”.</p>
<p>It is self evident that achieving the National Farmers Federation aspiration for agriculture will require sustainable management of scarce water resources.</p>
<p>Irrigated crops are one of the strongest growing agricultural sectors, with excellent future prospects. Realising the full potential of the irrigation sector will require clear and confident water policy settings which support the sector’s social licence, and avoid the uncertainty associated with acrimonious ongoing debate.</p>
<h2>Respecting evolving consumer expectations</h2>
<p>Staying ahead of the curve on consumer expectations sits at the heart of agriculture’s value proposition, reputation, and future growth – and can only be effectively led by industry.</p>
<p>Shifts in social expectations may well be both the greatest opportunity, and the greatest threat, facing Australian agriculture.</p>
<p>Rising real incomes allow consumers and citizens to care about issues they have previously ignored, and to express this care through their purchasing decisions and networks. These issues might be personal – such as health – or more general – such as concern for the environment or animal welfare.</p>
<p>Shifts in consumer sentiment can occur rapidly, and be difficult to predict. In 2016, for example, around 15% of milk consumers voted unexpectedly with their wallets by <a href="https://www.choice.com.au/food-and-drink/dairy/milk/articles/consumers-buying-more-branded-milk-to-support-farmers">shifting from cut price $1 milk to more expensive branded milk</a>, delivering an additional $100 million in sales revenue, in response to <a href="https://www.abc.net.au/news/rural/2017-01-27/understanding-the-dairy-crisis/8184510">concerns about the plight of dairy farmers</a>.</p>
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Read more:
<a href="https://theconversation.com/low-milk-prices-unearth-the-supply-chains-dirty-secrets-45205">Low milk prices unearth the supply chain's dirty secrets</a>
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<p>But capitalising on consumer concerns over the long term involves risks and hard work. </p>
<p>Back in 2003, Perth-based <a href="https://www.news.com.au/national/patagonian-toothfish-launched-on-australian-market/news-story/2b6215e724cc8a71c8cf3cffde50ee4c">Austral Fisheries caused some waves</a> when it set out to secure independent Marine Stewardship Council sustainability certification for Patagonian toothfish, as a first step in a sophisticated customer engagement strategy. </p>
<p>Their persistence paid off: today more than half the global catch is certified, its <a href="http://patagonian-toothfish-story.msc.org/">premium market position</a> has been restored and prices increased by around 300%.</p>
<p>Some shifts will involve more threats than opportunities, at least in the absence of stronger engagement by industry. Producers are particularly exposed on environmental and animal welfare issues, where real or perceived poor behaviour by a few players can tarnish the reputation or market access of an entire sector.</p>
<p>Assessing these risks and opportunities requires industry to understand how consumers think and feel, even when this is confronting.</p>
<p>As an example, debates about land clearing can be polarising, generating more heat than light. To be hard nosed about this, however, it is in industry’s interest to consider how the economic rewards of land clearing for some graziers stack-up against the potential risks to the reputation, social licence and market position of the industry nationally, and the various ways these risks could be managed.</p>
<h2>Focusing on the main game</h2>
<p>Australian agriculture has many advantages, and a track record of good performance, underpinned by tough choices.</p>
<p>If we continue in this tradition Australian agriculture will prosper, enhancing the well-being of producers, consumers, regions, and the nation.</p><img src="https://counter.theconversation.com/content/112857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Hatfield-Dodds does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s farming industry will need to take full account of its obligations to its workers, its customers, society and the environment if it is to prosper in the years to 2030.Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Licensed as Creative Commons – attribution, no derivatives.