Trends in water entitlement holdings and trade: Analysis of ABARES survey data

Authors: Rhys Downham and Mihir Gupta

Publication date: 15 July 2021

Summary

This report presents a novel analysis of trends in water entitlement holdings and net water allocation trade of surveyed farms across the southern Murray–Darling Basin (sMDB). The analysis investigates different irrigation activities and farm characteristics (such as farm size) and draws on ABARES data collected over the period from 2007–08 to 2018–19. The dataset created for this report is experimental and key findings should be considered as estimates intended to demonstrate potential applications of the survey data. Population estimates (aggregate industry-level data) are not provided in this report.

The findings provide water market insights that are useful for both policymakers and market participants, including:

1. the distribution of water entitlement ownership for surveyed farms:
   1. horticulture farms (particularly almond growers) held significantly larger volumes of entitlements than other irrigation activities, and the entitlements held were typically more reliable and valuable
   2. dairy farms have reduced their average entitlement holdings since 2007–08 (following the Millennium drought)
   3. large farms (based on total cash receipts) owned more entitlements than small farms and most almond growers were large farms
2. the water allocation trading behaviour of surveyed farms in different irrigation industries:
   1. horticulture farms were typically net buyers in dry years and net sellers in wet years, while broadacre farms were typically the opposite
   2. dairy farms were typically net buyers in all years and have become increasingly engaged in temporary water markets
   3. large farms (based on total cash receipts) were significantly more active in water allocation markets than small farms and were usually net buyers
   4. participation rates in water markets have increased over time, indicating that irrigators have become increasingly reliant on trade.

Beyond the results presented here, the irrigation survey dataset used for this report has many potential applications for future research. A key example is applying the dataset to the ABARES farmpredict model to estimate climate-adjusted crop yields and water productivity (Hughes et al. 2019). The dataset could also be used to estimate farm-level water demand functions, expanding the outputs generated by the ABARES Water Trade Model (Hughes et al. 2021) adding detail to climate change and water policy scenarios. There is also an opportunity for ongoing reporting of trends in entitlement holdings, water trade, farm business profit and characteristics of irrigation farms, by incorporating new irrigation survey data each year.

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