Water allocation in Australia’s Murray-Darling Basin: managing change under heightened uncertainty

Abstract

Historically, water resource policy in the Murray–Darling Basin (Basin) has taken a pro-production orientation leaving the environment to become the residual claimant. Initially, the attention was focused on minimizing overuse that led to on-farm productivity losses, and developing a market for water to help define opportunity costs of water in irrigation. More recently, the scope has been extended to include explicit allocations for the environment. However, the failure to agree on policies for recovering water for the environment has opened up avenues for rent seeking and cost shifting, thereby raising the total costs of reform. Market based approaches have been sidelined in preference for investment in water use efficiency, recovery of system losses and mitigating community impacts of an overstated irrigation contraction. Recurring droughts and resultant scarcity of water has made negotiations further complicated and controversial, broadening the gulf between environmentalists seeking public good outcomes and irrigators seeking private profit. The stage has been set for rural lobbyists to demand the reintroduction of subsidies for irrigation. It was once popular to argue that irrigation is a social asset deserving protection at any cost. Declining farm numbers, a changing demography and accelerating climate change have made dents in those arguments, pointing to general failure risks if the reform process were to halt and governments disregarded the gains through a rebalancing of consumption possibilities from the full complement of Basin’s resources – not just irrigation. This paper, examines the sources of social costs in water resource allocation. The aim is to canvass possible reform alternatives which might help governments to become a catalyst in fostering collaboration.