Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets*

Abstract We develop a theoretical model that describes risk-averse farmers’ decisions when facing production risk due to uncertain weather conditions and when irrigation water can be traded on a market. We focus on the role of initial water allocations granted to irrigated farms at the start of the season. The presence of water markets makes the future water price uncertain and hence the value of initial water allocations uncertain. We analyse the properties of this background risk and study how initial water allocations impact farmers’ land allocation decisions between an irrigated crop and a non-irrigated crop, both characterised by random expected net returns. We then extend the model by permitting irrigation water to be traded ex-ante at a known price (forward market). Finally, we illustrate our main theoretical findings using simulations. We calibrate distributions of the random variables based on observed data from the Murray–Darling Basin in Australia where a water market has been in place for several decades.

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Water policy responses to drought in the MDB, Australia

Water Policy ◽

10.2166/wp.2016.012 ◽

2016 ◽

Vol 18 (S2) ◽

pp. 28-51 ◽

Cited By ~ 4

Author(s):

James Horne

Keyword(s):

Water Policy ◽

Resource Planning ◽

Environmental Water ◽

Short Term ◽

National Budget ◽

Policy Responses ◽

Murray Darling Basin ◽

Millennium Drought ◽

Basin Water ◽

Market Infrastructure

This paper reviews water policy responses to drought in Australia, focusing on the Murray-Darling Basin (MDB) during the two decades from 1997. This period, which includes the decade long Millennium drought, brought a much sharper focus to discussions of scarcity and value of water. The drought initially focused attention on rising salinity and environmental water availability, as action on both was supported by strong science, and resonated politically. The drought became a crisis in 2006. Short-term planning focused on ensuring communities did not run out of water. For the longer term, the national government responded by announcing a major package of reform measures addressing sustainability and underlying scarcity, and recognising climate change. The package strengthened MDB water market infrastructure, upgraded water resource planning and the ability of irrigators to manage their water assets more flexibly, established new sustainable diversion limits and provided funding to ensure the environment received a larger share of basin water resources. But its completeness as a package can be attributed not only to the severity of drought, but also to political leadership, a disrupting strategy in the form of national legislation and a strong national budget that provided financial resources. The drought provided a crisis, but other ingredients were necessary to ensure effective action.

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Murray-Darling Basin Commission: a case study in integrated catchment management

Water Science & Technology ◽

10.2166/wst.1995.0548 ◽

1995 ◽

Vol 32 (5-6) ◽

pp. 15-25 ◽

Cited By ~ 6

Author(s):

D. J. Blackmore

Keyword(s):

Natural Resources ◽

Community Action ◽

Catchment Management ◽

State Governments ◽

Integrated Catchment Management ◽

Murray Darling Basin ◽

Murray River ◽

Common Interests ◽

Basin Water

This paper describes the Australian Murray-Darling basin experience in integrated catchment management, what has been achieved and what remains to be done. The basin water is shared by three states, but falls under the jurisdiction of four governments, that of the Commonwealth as well as the State governments. The critical development in recent years at the political and bureaucratic level was the establishment of a three-tier management structure that allows common interests to be developed, discussed, resolved and implemented. Two main problems had to be resolved before significant co-operative action could take place, namely the issues of water sharing between the states and the sharing of costs associated with Murray River salinity. A framework Salinity and Drainage Strategy was developed to address this, and is described. This paper also describes the Natural Resources Management Strategy, the cornerstone of efforts to sustain the natural resources of the basin. The strategy emphasises community participation and empowerment. The problems identified, strategic aims to address these problems and the role of community action are detailed.

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