scope for water use efficiency savings as a source of water ......5.2.1 water savings in...

Scope for Water Use Efficiency Savings as a Source of Water to meet increased Environmental

Flows - Independent Review

A Report to the Murray Darling Basin Commission March 2003

Please note: The contents of this publication do not purport to represent the position of the Murray-Darling Basin Commission. They are presented to inform discussion for the improved management of

the Basin’s natural resources. This publication is an input into the analysis of water recovery mechanisms. It is the result of a rapid, independent summary of many recent publications. The original

publications could be examined for more detailed information.

Prepared by

ACN 102 652 148

CANBERRA OFFICE SYDNEY OFFICE BRISBANE OFFICE MELBOURNE OFFICE

PERTH OFFICE

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© Copyright in this document is and remains the property of ACIL Tasman Pty Ltd. This document must not be reproduced in whole or in part without ACIL Tasman’s prior consent.

Reliance and Disclaimer ACIL Tasman’s professional advice is prepared for the exclusive use of the party or parties specified in the report (the addressee) and for the purposes specified in the report. The report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without ACIL Tasman’s prior written consent. ACIL Tasman accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee.

In conducting the analysis in the report ACIL Tasman has endeavoured to use what its consultants consider is the best information available at the date of publication, including information supplied by the client. ACIL Tasman’s approach is to develop analyses from first principles, on the basis of logic and available knowledge. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts and predictions, factors in the process such as future market behaviour are uncertain and cannot be forecast or predicted reliably.

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SCOPE FOR WATER USE EFFICIENCY SAVINGS AS A SOURCE OF WATER TO MEET INCREASED ENVIRONMENTAL

FLOWS - INDEPENDENT REVIEW

Contents

Key Findings i

Executive summary ii Project Brief ii Economic Efficiency ii Trends in water use iii Recent and Current Studies v

Snowy Water Inquiry vi Reports by Sinclair Knight Merz (SKM) vi ABARE Reports vi Marsden Jacob (2002) vii CapitalAg viii Overview of issues viii

Scope for Water Use Savings ix

Glossary of terms xiii

2. Introduction 1

3. Water Use Efficiency Concepts 1 3.1 An Illustrative Example 2 3.2 Economic efficiency in practice 5

3.2.1 Water use efficiency off-farm 6 3.2.2 On-farm water use efficiency 7 3.2.3 Economic efficiency in general 8

4. Trends in on-farm and off-farm water use 9 4.1 Trends in on-farm water use efficiency 9

4.1.1 Southern NSW Murray System 10 4.1.2 Victoria Murray System 12 4.1.3 South Australia 15

4.2 Trends in off-farm water use efficiency 16

5. Recent and Current Studies 18 5.1 Snowy Water Inquiry 18 5.2 Reports by Sinclair Knight Merz (SKM) 23

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5.2.1 Water savings in distribution systems 23 5.2.2 Water savings in bulk supply in northern Victoria 26

5.3 ABARE (2001) – Benefits of improving water use efficiency – a case study within the Murrumbidgee Irrigation Area. 27

5.4 ABARE (July 2002)– Improving water use efficiency and the implications for targeting public investment. 30

5.5 Marsden Jacob (2002) – ‘Improving irrigation efficiency in irrigation conveyance systems’ 32 5.5.1 Costing information 34

5.6 CapitalAG (2002) – Potential for improving water use efficiency. 36

6. Overview of Issues 39 6.1 Technical issues 39

6.1.1 Whether Water Savings lead to Environmental Flows 39

6.1.2 Interaction between on- and off-farm measures 40 6.1.3 Exchange rates 40

6.2 Environmental issues 40 6.2.1 Understanding environmental values 40 6.2.2 Management of wetlands 41

6.3 Economic and policy issues 41 6.3.1 Water price 41 6.3.2 Market instruments and policy intervention 42 6.3.3 Externalities 43 6.3.4 Dealing with asymmetries in information 43

7. Scope for water use savings 44 7.1 General location issues 44

8. Scope for WUE Savings 45 8.1 Off-farm savings 46 8.2 On-farm savings 52

8.2.1 Economic scope for other on-farm water use efficiency savings 53

8.2.2 Case studies 55 8.3 Water use efficiency in general 59

8.3.1 Levels of water use efficiency likely to be induced through increased scarcity or prices 60

8.3.2 Level of confidence of assessment 61

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8.3.3 Information requirements to improve assessments. 61

9. References 63

Attachment A1. Project Brief A1-1 A1.1 Scope for Water Use Efficiency Savings

as a Source of Water to meet increased Environmental Flows – Independent Review A1-1 A1.1.1 Background A1-1 A1.1.2 Tasks A1-2

Attachment A2. Workshop Attendance A2-1

Attachment A3. Report of ACIL Tasman visit to Tatura A3-1

Tables

Table 1: Application efficiencies of irrigation methods in the Southern NSW Murray system 11

Table 2: Irrigation systems used by stone and pome fruit irrigators (Boland et al, 2001). 14

Table 3 Conveyancing losses in selected irrigation areas 16 Table 4 Selected supply efficiency statistics 17 Table 5 Water investment options – Snowy Water Inquiry 19 Table 6 Water investment options NSW – Bewsher 1999 20 Table 7 SKM Options 25 Table 8 Bulk supply options - SKM 27 Table 9 Economic costs and benefits of 10% water use efficiency

improvements 32 Table 10: Summary of Marsden Jacob information on categories

of water loss 34 Table 11 Scenario results from CapitalAG report 37 Table 12 Water use savings 38 Table 13 Flow recovery levels and river health 44 Table 14 Details of water use savings 51 Table 15 On-farm water use savings from other sources 53 Table 16: Some potential on-farm water savings in the Murray

system 58

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Figures

Figure 1 Schedule of off- farm water use savings x Figure 2 Simplified Example of River Use 2 Figure 3 Value and cost of environmental flows. 4 Figure 4 Value and Cost Curves. 4 Figure 5 Water use efficiency in rice in NSW Murray area 12 Figure 6 ABARE calculated savings of river diversion 29 Figure 7 Reductions in natural flow due to diversions 45 Figure 8 Schedule of off-farm water use savings 52

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Key Findings Economic efficiency is concerned with maximising the net value to

society created as a result of resource allocation decisions.

As there is currently no quantification of the value of environmental flows in the River Murray, the issue at stake is the economic cost of water use efficiency savings verses the economic value of water in consumptive use (particularly in broad acre irrigation).

Permanent water entitlements are currently trading at between $850/ML and $1000/ML.

The information available indicates that there are limited opportunities for water use efficiency savings at a marginal cost of less than $1000/ML, except perhaps for reuse generally and for certain applications in horticulture.

There is insufficient information to be conclusive on the potential for further on-farm savings. It appears that there could be considerable technical scope for improving water application efficiency; it is also likely that those that are currently economic have been (or are being) implemented.

On present information, a significant amount of any savings off-farm will be captured as part of the process of creating environmental flows for the Snowy River.

There are significant externalities associated with investments in water use efficiency. The economic impact of externalities varies according to type and location of water use efficiency investments.

For this reason it is important that investment in water use efficiency be integrated with broader natural resources management in the Murray Darling Basin.

There are information asymmetries between irrigation enterprises, irrigation water authorities and policy makers. There is a strong argument for a market driven approach to implementation of any program promoting investment in water use efficiency savings.



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Executive summary

Project Brief ACIL Tasman Consulting was commissioned by the Murray Darling Basin Commission (MDBC) on 23 September to undertake an independent review of the scope for water use efficiency improvements to provide water for environmental flows in the Murray River System.

The study was based on a rapid collation of information available in various reports and consultancy studies published over the past five years.

The consultancy tasks set out in the project brief include:

Clarify the economic concept of water use efficiency.

Identify trends in on-farm and off-farm water use.

Review recent and current studies.

Overview of key technical, economic, environmental and policy issues.

Participate in a workshop to further explore the issues with stakeholder representatives.

Provide an assessment of the likely scope, cost and location for water use savings.

In accordance with the project brief, ACIL Tasman provided a progress report to the MDBC’s Social and Economic Reference Panel on 8 October and participated in a Workshop with MDBC and Stakeholder representatives on 17 October 2002. The workshop provided valuable feedback to ACIL Tasman on issues for further investigation.

Economic Efficiency Economics is concerned with resource allocation – how efficiently inputs are combined to produce outputs. In a perfectly operating market, an economically efficient outcome is one where the net value created is maximised for society as a whole.

In the case of water use, the maximum net value for society, and hence the most economically efficient outcome, occurs when the marginal value of water is equal across all uses and is equal to the marginal cost or price of water (provided, that is, that the body or system is able to be solvent with prices at that level).

In practice, resource allocation is adjusted more or less continuously as the relative prices of products and inputs change over time. However investment in water use savings can be considered to be economically



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efficient if the additional value created (marginal benefit), whether from environmental flows or from agricultural production, is equal to or greater than the additional cost (marginal opportunity cost) or price of investing in water use savings.

Many of the indicators of water use efficiency are technical rather than economic. They include indicators of conveyancing efficiency between river systems and farms, indicators of application efficiency on-farm, measures of production efficiency in terms of amount of product produced per Megalitre (ML) or even average value of production per ML.

These measures, in isolation, are not sufficient to indicate economic efficiency.

Trends in water use Water use in the Murray Darling Basin has been increasing over the past twenty years. However with the introduction of the Cap on diversions in 1994, water use efficiency has been an increasing focus of concern for irrigated agriculture. This has been reinforced following decisions to restore environmental flows to the Snowy River.

The most recent survey of on-farm water use by crop and by irrigation method in sufficient detail to determine trends at irrigation district level was the 1996/1997 Agricultural Census. The results of the 2000/2001 Agricultural Census are not due to be released until early next year. As a result there is little in the way of a comprehensive overview of recent trends in irrigation methods at the district level with the exception of some regional irrigation surveys that have been used in this report (eg, Boland et al, 2001).

In the southern NSW irrigation areas, there appears to have been a limited uptake of improved water application technologies and management practices at least up until 1997/98:

Flood/furrow irrigation was reported to be the main application method for irrigating broad acre and horticulture farms in the Murrumbidgee irrigation areas.

97 per cent of southern NSW irrigated pasture area and 96 per cent of irrigated barley employed flood irrigation. The remaining irrigated pasture and barley areas were irrigated with travelling irrigators or moving sprays.

Around 74 per cent of horticultural areas were irrigated by flood, with drip irrigation being the next most common application method.

Traditional furrow irrigation was used by 70 per cent of vegetable growers in southern NSW although the tomato industry had made significant improvements with over 50 per cent now under drip irrigation



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Other vegetable industries were reported to have been slow to adopt

more efficient irrigation practices.

Irrigation in the cotton industry is dominated by surface irrigation using either every furrow or alternate (skip row) furrow strategies. This type of irrigation is well suited to the heavy clay soils normally associated with cotton enterprises.

Rice growers are reported to have increased water use productivity by 35 per cent since 1996.

Environmental reports prepared by irrigation authorities and water providers in southern NSW irrigation areas report increased activity in irrigation efficiency improvements on-farm through mechanisms such as whole farm planning and improved management practices.

In Victoria the progress reported varies between dairy and horticulture. It is apparent that the dairy industry has made significant improvements in application efficiency over the last 10 to 20 years but this has tapered off in more recent years.

The overall trend in application efficiency in dairy has been in better use of existing application technology (flood) through improved farm planning, laser grading, the installation of on-farm storage/re-use systems and groundwater pumps.

The industry has also been going through some adjustment with a trend towards increased allocation of water to permanent pasture over annual pasture during the periods of low water availability in recent years.

Almost all the irrigated pasture for dairy in Victoria was irrigated by flood in 1996/97 – 96 per cent of this was watered using border check or furrow irrigation.

Application efficiency in horticulture in Northern Victoria improved significantly with the introduction of pressurised systems including overhead sprinklers.

In the Kerang irrigation district, furrow irrigation has traditionally been the dominant method of surface irrigation used on horticultural crops, accounting for 60 per cent of all irrigation in the area. Drip irrigation made up 30 per cent.

In the Swan Hill irrigation district, there has been an increasing rate of conversion to pressurised irrigation methods over the last ten years, particularly trickle or drip irrigation, better suited to the lighter, sandier soils.

In the Riverland district, overhead and under-tree sprinklers are reported to be used by about 75 per cent of horticultural irrigators.

According to ABARE the majority of irrigators in Sunraysia use overhead sprinklers, with drip irrigation being the second most popular method of application.



v

The differences in water use in horticulture between regions are largely due to different soil types, higher average rainfall and temperature. The ability of growers to improve application efficiency is often limited by off-farm irrigation systems that cannot provide continuous and preferably pressurised supplies.

The predominant method of irrigation from the River Murray in South Australia is by sprinkler irrigation. There is also increasing adoption of environmental management systems and improved irrigation scheduling and reported reductions in drainage water losses.

Conveyancing losses off- farm amount to some 29 per cent of water diverted per year in the southern Murray Darling Basin (around 2,900 GL) and have been the subject of considerable evaluation and investment in recent years.

Recent data produced by the Australian National Committee of Irrigation and Drainage (ANCID) does not indicate a significant reduction in conveyancing losses in recent years. Information for the Murrumbidgee and NSW Murray areas suggests that there has been no significant change in conveyancing efficiency over at least the past five years– although year on year variations and measurement problems may mask underlying trends.

Nevertheless in recent years in both NSW and Victoria, reports suggest that there has been an active program of lining or pipelining channels in areas of high seepage, some rehabilitation of channel banks and structures, increased use of flow optimisation in some spur channels and pipelining of domestic and stock water supplies. Headworks have been rehabilitated in South Australia.

Follow up to the Snowy environmental flows decision and programs sponsored by government agencies and the Murray Darling Basin are developing momentum in improving water use efficiency in irrigation systems.

In Victoria agreement has now been reached on a program that may make 25 GL available for a total cost of $25 million as part of implementation of the Snowy environmental flow decisions. The principal project areas are pipelining domestic and stock supplies. Only one project has reached the construction phase. It is expected that the first 3,600 ML of saving will be available by 1 January 2004.

Recent and Current Studies Four recent and/or current studies were referred to ACIL Tasman for consideration.



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Snowy Water Inquiry

The Snowy Water Inquiry was undertaken as part of the corporatisation process that created Snowy Hydro. The report identified 140 GL per year in water savings that were estimated to have a unit cost of less than $425/ML. These projects are itemised in Section 5.1 of the report.

In 1999 the NSW Treasury commissioned a further report on water use efficiency savings. This report identified 154 GL per year of potential savings in NSW at a cost of around $1300/ML – some of which were included in the Snowy Inquiry projects.

In December 2000 governments announced agreement on Snowy River environmental flows, including:

Target levels of water flows adopted by Governments to be progressively achieved over 10 years as follows:

– Total flows of up to 212 GL/year in the Snowy River

– Dedicated environmental flows allocated to the River Murray of 70 GL/year.

All increased flows to be offset with water acquired primarily through prior verified water savings in diversions from the River Murray and in the Murrumbidgee and Goulburn-Murray river systems.

Additional flows of up to 80 GL/year may be achieved following implementation of an additional capital works program to achieve water savings in the southern Murray-Darling Basin.

Reports by Sinclair Knight Merz (SKM)

Over the period 2000 to 2002, SKM was commissioned to undertake two reports on water use in conveyancing and bulk water systems.

The SKM reports include detailed analyses of water losses in conveyancing systems and systematic costing of investments to reduce net losses in the system. Projects identified for further consideration included projects previously discussed in the Snowy Water Inquiry. They are discussed in Section 5.2 of this report.

The SKM work refined costing of options for immediate consideration and identified options for further investigation.

ABARE Reports

In 2001 ABARE published the results of its modelling of improved water use in the Murrumbidgee irrigation area. Two areas, Yanco and Mirrool, were studied.

The ABARE modelling suggested that river diversions of up to 123 GL/year were achievable from a combination of twin furrow, reuse and canal refurbishment in the areas studied.



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The report records the opportunity cost for savings of 123 GL at around $60/ML or around $1000/ML to $1500/ML in terms of a permanent water entitlement.

In a subsequent report produced in July 2002, ABARE researched the economic and biophysical benefits of a 10 per cent improvement in water use efficiency in the lower Murray-Darling Basin. The research showed that there were internal and external benefits accruing to improvements in on-farm efficiency.

Internal benefits were found to be higher where the value of production was higher – in horticultural areas for example. External benefits were found to vary according to the location of the efficiency improvements. They could be negative in some areas where improved water use efficiency reduced losses that otherwise returned to the river. They could be positive in other areas for example where improved water use efficiencies led to reductions in saline inflows to the river.

The ABARE research suggests that careful consideration will need to be given to the mix of public and private investment in water use efficiency savings both on and off farm. Policy interventions will need to take into account the spatial variation of both internal and external benefits.

Marsden Jacob (2002)

Marsden Jacob has been commissioned by Land and Water Australia to investigate improving irrigation efficiency in irrigation conveyance systems.

The report, which was in preparation at the time of writing, extends the work undertaken by SKM to NSW and Victoria but also addresses the options from an investment strategy perspective.

Important conclusions include:

Despite the apparent large conveyancing losses the scope for improving water use efficiency at low cost is limited. Many of the more cost-effective options have been or are being implemented.

When considering water use efficiency on a system scale the conveyance system and the on-farm system should be considered as part of the same system.

Not all savings will result in increased environmental flows

Externalities can be significant.

There is potential interest in private investment in water use efficiency projects but these projects could not be profitably undertaken by private firms on a stand alone basis.



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CapitalAg

CapitalAg was commissioned to examine the scope for improved water use efficiency in the Murray-Darling Basin in a technical sense and to explore the policy formulation framework.

The report established five scenarios covering differing approaches to investment on- farm, water use efficiency off-farm and fundamental paradigm shifts in policies and practices.

The scenarios identify potential additional quantities from water use savings ranging from 920 GL to 3094 GL.

The consultants point out however that they did not consider the economics of the water use efficiency.

In the light of the Marsden Jacob findings the opportunities to achieve such water use savings at low cost are likely to be limited.

Overview of issues

The reports raise a number of issues that will either require further consideration or will constrain policy options:

Not all water savings will lead to increased environmental flows. Savings made on-farm may be used in increasing production on farm or traded to other productive irrigated enterprises. Losses, run off, seepage or outfalls may have a beneficial use downstream or may flow back to the river to add to environmental flows.

The interaction between conveyancing systems and on-farm irrigation systems means that water use efficiency savings may need to take the overall system into account. For example some irrigation techniques such as micro irrigation require continuous and preferably pressurised supplies. Irrigation area rationalisation may also have implications for under utilisation and possibly stranding of conveyancing assets.

Exchange or conversion rates between the Murray and Snowy environmental flows will affect the level of saving required in the Murray valley.

A clearer understanding of the value of environmental flows would assist in prioritising and evaluating investment options.

Changes in the regulation of wetlands to reduce evaporation and other losses may have other environmental consequences.

The calculation of the cost of water use efficiency savings needs to be consistent in comparison between off-farm and on-farm. In the reports reviewed, the former is generally calculated as the capitalised value of a ML saved in perpetuity. To be comparable on- farm saving should be calculated in the same way noting that supply security and risk factors may differ.



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The existence of significant externalities means it is imperative that

public investment in water use efficiency measures should be carefully targeted and integrated with overall natural resource management in the Murray Darling Basin.

Approaches to dealing with information asymmetries will be important. Policy makers will not have access to detailed information about on-farm economics. There is therefore a strong argument for a market driven approach to implementation of any program promoting investment in water use efficiency savings.

Scope for Water Use Savings A range of investments in water use savings off-farm was assembled from the reports provided to ACIL Tasman and supporting documentation. The projects are described in Section 8.1 of the report. They include:

Darling Anabranch Pipeline.

Regulating storages in distribution system in Victoria and NSW.

Weir upgrades – Victoria.

Metering stock and domestic water supplies.

Upgrade Channel Structures – Victoria.

Regulating storages on river wetlands.

Partitioning Barren Box Swamp.

Improvements in metering.

Hydraulic Improvements to Mulwala Canal.

Menindee Lakes Hydraulic Structures.

Decommission Hepburns Lagoon.

Implementation of SCADA in Victoria.

Works at Lake Mokoan.

Pipelining supply channels.

Pyramid Creek ground water interception scheme.

Decommissioning Laanecoorie Reservoir.

Channel lining in Victoria.

The volumes and marginal costs of water use savings from off-farm investment are summarised in . Figure 1



x

Figure 1 Schedule of off- farm water use savings

0

1000

2000

3000

4000

5000

6000

0 100 200 300 400 500 600

Water savings - GL

Mar

gina

l cos

t - $

/ML

Darling Anabranch Pipeline.Regulating storages. Weir upgrades.Metering stock and domestic supplies.Upgrading channel structures.

Barren Box Swamp.Improvements in metering.Mulwala Canal hydraulics.

Menindee Lakeshydraulics.Decommision Hepburns Lagoon

SCADALake Mokoan

Channel lining

Pyramid Creek groundwater interception Decommission Laancoorie reservoir

Pipelining supply channels and other stock and domestic water supplies

The information indicates that there could be up to 365 GL of potential savings at a marginal cost of around $1000/ML to $1500/ML. Costs then rise reaching $4500/ML at around 420 GL reflecting the higher cost of SCADA systems, works at Lake Mokoan and the cost of pipelining channels and some stock and domestic water supplies.

Above 488 GL marginal costs rise sharply reflecting the cost of projects such as Pyramid Creek groundwater interception and lining channels in NSW and Victoria. The Pyramid Creek groundwater scheme is likely to exhibit significant positive externalities although the quantity of water use savings is small.

There was less information readily available on the economics of on-farm water use savings. However documents examined identified potential for an additional 200 GL from predominantly on-farm savings at a cost of between $500/ML and $3000/ML. These included:

Water use savings in the Murrumbidgee Irrigation areas of 123 GL from a combination of savings on-farm, reuse and canal refurbishment at a marginal opportunity cost of around $1000/ML to $1500/ML according to the ABARE report.

Water use savings of up to 40 GL on-farm in South Australia at a marginal cost of $3000/ML and 20 GL from improved farm management practices at $500/ML.



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Other on-farm efficiency savings in the Murray and Murrumbidgee

areas totalling 30 GL at around $1000/ML

ACIL Tasman also undertook additional research into the potential for improvements in application efficiencies in selected irrigation enterprises in NSW and Victoria. This revealed the area specific nature of the economics of different water use efficiency savings.

The research suggested that there might be further potential for savings on- farm in horticulture at marginal costs of up to $2000/ML with some costs below $1000/ML (such as in reuse and micro irrigation in horticulture and vineyards). However there is a reasonable possibility that a significant proportion of the economic options have already been realised.

The estimates for on-farm would require further confirmation.

Conclusion

On the basis of the information available it is concluded that that there are limited opportunities for water use efficiency savings at a marginal cost of less than $1000/ML except perhaps for reuse generally and for certain applications in horticulture.

There is insufficient information to be conclusive on the potential for further on-farm savings. While it appears that there could be considerable technical scope for improving water application efficiency; it is also likely that those that are currently economic have been (or are being) implemented.

Apart from one or two exceptions, most of the options identified have a marginal cost that is higher than the price at which water is currently trading in the market. Without an increase in the price of water and in the absence of other policy interventions, it is unlikely that irrigators would have an economic incentive to invest in the higher cost efficiency savings.

It does not automatically follow that these savings will translate into increased environmental flows, as some of the water may be used on-farm or traded.

ACIL Tasman considers that a margin of at least 30 per cent would be prudent when considering the likely marginal cost of water savings both on-farm and off-farm.

Assessment of off-farm investments is relatively well advanced. In some cases however, further investigation is required into the relationship between economics and hydrogeology to determine the impact of the savings on net diversions from the river and other externalities.



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The existence of significant externalities suggests that investments in water use efficiency should be carefully targeted and integrated with natural resource management in the Murray Darling Basin.

Improving the information for on-farm potential would require further work at the regional level to clarify the costs and application efficiencies of the irrigation technologies that are often location specific. The forthcoming release of the Agricultural Census for 2001/2002 will provide updated information on irrigation methods to district level.

With the asymmetries in information between the irrigation industry and policy makers, there is a strong argument for the use of a market driven approach to implementation of any policy to promote investment in water savings on farm and off-farm.



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Glossary of terms

ANCID Australian National Committee on Irrigation and Drainage.

Conveyancing losses The difference between water flowing into a distribution system and the volume received by irrigation farmers.

FMIT First Mildura Irrigation Trust

GL Gigalitre

MDBC Murray Darling Basin Commission

MIA Murrumbidgee Irrigation Area

MIL Murray Irrigation Limited

ML Megalitre

Outfall A point normally downstream in a supply channel system to allow safe discharge of surplus flows

Regulating storage Water storage located close to channel system or wetland to regulate fluctuations in flows.

SCADA Supervisory Control and Data Acquisition

Seepage Distributed loss of water from channels through permeable soil

WUE Water use efficiency



1

2. Introduction

ACIL Tasman was commissioned by the Murray Darling Basin Commission (MDBC) on 23 September to undertake an independent review of the scope for water use efficiency savings to provide water for environmental flows in the Murray River System.

The consultancy tasks set out in the project brief are included at Attachment A1. In summary the tasks include:

Clarify the economic concept of water use efficiency

Identify trends in on-farm and off-farm water use

Review recent and current studies

Overview of key technical, economic, environmental and policy issues

Participate in a workshop to discuss the issues

Provide an assessment of the likely scope, cost and location for water use savings

In accordance with the project brief, ACIL Tasman provided a progress report to the MDBC’s Social and Economic Reference Panel on 8 October and participated in a Workshop with MDBC and Stakeholder representatives on 17 October 2002. Attendance at the workshop is provided at Attachment A2.

3. Water Use Efficiency Concepts

There has been considerable public debate over the criteria for investment in water use efficiency. On the one hand the water reform process focuses on economic efficiency. On the other hand planners and managers seek benchmarks to assess and target operational planning. There has perhaps been some confusion between the concepts of economic and technical efficiency in the public debate. This section has been written to address the issue from first principles.

The object of an irrigation system is to satisfy the water requirements of crops and pastures. Most of the efficiency measures discussed in the reports examined by ACIL Tasman address the effectiveness with which irrigation systems maximise the proportion of water consumed by crops and pastures as a proportion of water diverted from the river.

Such measures are important in designing efficiency improvements – they provide important information on the water losses that potentially could be recovered for environmental flows. They are however technical measures of efficiency and are not sufficient on their own to establish an economic level of water use efficiency.



2

Economics is concerned with resource allocation – how efficiently inputs are combined to produce outputs. In a perfectly operating market, an economically efficient outcome is one where the net value created is maximised for society as a whole.

To explain this in the context of the issues of concern in this report – creating environmental flows from water use efficiency savings – it is helpful to start with a simplified example.

3.1 An Illustrative Example A simplified model of a river economy is illustrated in . It is assumed that:

Figure 2

Figure 2 Simplified Example of River Use

The current users of the water from the river are a large number of irrigation districts as symbolised in the diagram.

The irrigators own the property rights to the water diverted from the river.

Water is delivered from the river to irrigators along open channels owned and operated by an irrigation authority.

The water in the river is insufficient to maintain environmental flows.

Water created from irrigation efficiency savings created by farmers or the irrigation authority can be purchased by government.

Irrigation districts

Environmental andother river users

River System

Irrigation districts

Environmental andother river users

River System



3

It is now assumed that the government decides to create environmental flows by facilitating investment in water use efficiency savings both on-farm and off-farm. It might do this in a number of ways. For example it might offer to buy water produced from such savings at an agreed price or it might offer to subsidise investments. From an economic point of view a key issue for government is determining the economically efficient level of investment in water use efficiency savings.

To address this issue government would need to have some idea of the economic impacts.

Economic impacts relate in this example to the additional value to society of changes in environmental flows and the additional cost to create them. They are not restricted to tangible concepts of money income or traded goods and services – they include changes to environmental and social outcomes held by the community to be valuable.

In the case of the River Murray, additional environmental flows potentially create a range of economic, social and environmental values. These can arise from any combination of improvements in water quality, water temperature, timing of flows, river health, biodiversity, etc.

They also have value in consumptive use downstream including supporting the sustainable irrigated agriculture. Some of these benefits will be tangible, such as in consumptive use or in the tourist industry, while others will be intangible, such as for improved river health and environmental quality.

Whether tangible or intangible, the benefits of environmental flows will include those with public good characteristics – access to the benefits by one user does not exclude access by another user1.

It is not possible to determine the value of public goods through normal market mechanisms. However, the absence of a market does not imply an absence of value. The essence of value is a willingness to reveal a preference for one outcome over another and an associated willingness to make sacrifices or trade-offs in order to achieve that outcome.

There are techniques employed to estimate the value of public goods – one such exercise was undertaken for the Snowy Inquiry.

If the government decided to derive a total value curve for environmental flows it could survey river users to assess the total value they would attribute to a range of increased environmental flows. Assuming that the additional value was accessible to all users at the same time, the general shape of the total value curve would be similar to the curve shown on the left of . It would rise quickly initially and flatten at higher flows. Figure 3

1 In the real world increased environmental flows also include benefits with private good characteristics – consumptive use downstream for

example. However in the example used in this discussion it is assumed that only public goods are being valued by the government.



4

This reflects the fact that additional value to users of each additional ML decreases as the users needs are increasingly satisfied.

Figure 3 Value and cost of environmental flows.

ML

Total valueof additional

ML$

Total valueconomiccialironmental

Additional FlowML

Total valueof additional

ML$

Total valueconomiccialironmental

Additional FlowML

Total costof additional

ML fromWUE$

Additional Flow

Low cost measures

Mediumcost measures

High cost measures

ML

Total costof additional

ML fromWUE$

Additional Flow

Low cost measures

Mediumcost measures

High cost measures

ESoEnv

ESoEnv

The other side of the argument is the total cost of investment in water use efficiency savings by irrigators and/or the water authorities to supply additional environmental flows.

The shape of the total cost curve would be the reverse of the total value curve. At low flows the curve would be relatively flat as extra flow came from low cost investments such as stock and domestic piping or water reuse. However once the lower cost options were exhausted more expensive investments would be necessary and the curve would steepen as flows increased.

These curves are compared in the diagram on the left in . Figure 4

Figure 4 Value and Cost Curves.

Flow E Flow

ML

Marginal valueMarginal cost

$/ML MV MC

P EMaximum value added

ML

Total valueTotal cost

$

FlowFlow E

Total value addedincreases

Total value addeddecreases

Flow E Flow

ML

Marginal valueMarginal cost

$/ML MV MC

P EMaximum value added

ML


$

FlowFlow E



Maximum value added

ML


$

FlowFlow E





5

At any point along the flow curve the difference between the total value and the total cost is the net benefit or surplus that is created by the additional environmental flow.

At low environmental flows the total value created by an additional ML exceeds the total cost. Up to FlowE the surplus or total value net of total costs increases as environmental flows are increased.

Beyond a FlowE however the surplus decreases as environmental flows are increased. The level of environmental flow at FlowE where the surplus (or total net value) is maximised corresponds to the economically efficient level of water use efficiency savings.

Investments in water use efficiency savings beyond this level are not economically efficient despite the fact that they might produce higher levels of technical efficiency. This is because the additional cost of recovering water lost to the system above this point is higher than the additional value created.

Another way of saying this is that the efficient level of water use efficiency savings occurs when the marginal value (benefit) created by the savings is equal to the marginal cost.

The changes in marginal cost and marginal benefit are illustrated in the diagram on the right of (it can be shown that the slopes of the total cost and total value curves in the left diagram are the marginal cost and marginal benefits respectively).

Figure 4

The marginal cost corresponding to FlowE represents the price of water for environmental flows (PE) at the most efficient level of investment in water use efficiency savings.

From this analysis it can be seen that investments that produce additional environmental flows with a marginal cost less than PE improve economic efficiency.

3.2 Economic efficiency in practice In practice it is difficult for policy makers to gain more than a general idea of the marginal value of water provided for intangible public goods. This does not mean however that economic efficiency concepts cannot be applied to prioritise such investments in practice.

Cost-benefit analysis was devised as a means of ensuring that the additional benefits accruing from public investment equalled or exceeded the additional costs incurred. From an economic efficiency perspective it is desirable that investments in water use efficiency be subject to such analysis to ensure that net additional value is being increased and not reduced as a result of public investment.

In the case of private investment, such as investment in water use efficiency by irrigators, it is important that the cost of water saved from



6

investment in water use efficiency measures is not higher than the additional value of water whether this is for environmental flows or for use on-farm.

For these reasons, technical efficiency benchmarks on their own are not sufficient to indicate an economically efficient level of investment in water use efficiency.

3.2.1 Water use efficiency off-farm

The reports reviewed later in this report canvass a broad range of technical water use efficiency measures. They generally use measures related to conveyancing losses in the river and delivery systems to farms arising from:

Seepage

Leakage

Evaporation

Outfalls

Meter error

Theft

System operations such as filling and draining.

They are generally reported in terms of the water delivered to the farm as a proportion of water diverted from the river system– the higher the conveyancing efficiency the lower the conveyancing losses.

The Australian National Committee on Irrigation and Drainage (ANCID) reports that the weighted average conveyancing losses in irrigation schemes in Australia in 2000/2001 was 18 per cent – corresponding figures for Goulburn Murray, Murray Irrigation and Murrumbidgee Irrigation were 20 per cent, 11 per cent and 19 per cent respectively2. These statistics have been the focus of public debate on water use efficiency in Australia.

Investment in improving conveyancing efficiency would only be economically efficient if the marginal benefit of additional environmental flows equalled or exceeded the marginal cost of reducing conveyancing losses. As discussed above this can be determined in broad terms by resorting to cost-benefit analysis.

However overall economic efficiency must take into account total water system use including on-farm.

2 Australian Irrigation Provider Benchmarking Report for 2000/2001, ANCID



7

3.2.2 On-farm water use efficiency

Reports reviewed for this report identify a range of technical water use efficiency measures on- farm. These generally measure the net amount water used by crops and pastures as a result of evapotranspiration less rainfall as a proportion of total water delivered, or pumped from groundwater. They also can include measures of water reused. Other measures record the physical production in Kg or tonnes of product per ML and value of production per ML of water used.

These measures are not sufficient in themselves to indicate economic levels of water use efficiency. This is because water is used in conjunction with a whole host of other inputs to produce crops and pastures — fertiliser, land, labour, equipment, management and so on.

Because it is the combination of resources that produces the output, simply singling out any one input such as water to determine efficiency is not helpful and more often than not misleading.

In the case of an irrigation-farm, the most economically efficient amount of water use will depend on the relative price of water and other inputs, the marginal product of the inputs, the price of outputs and any external costs and benefits that might be incurred.

If one holds other inputs constant and increases the amount of water applied in production, each additional ML creates additional production value – in economics this is called the marginal value product. In irrigation water use the marginal value product decreases as the quantity of water increases.

Economically, the most efficient level of water use on the farm is that where the marginal value product is equal to the marginal cost, or price, of the water. At this point, the use of water is at the most economically efficient.

Anything that causes the marginal value product for water to change will alter the most efficient level of water use on the farm. The factors that could cause this include:

Changes in relative prices of inputs;

Changes in the amounts of other fixed inputs – including natural rainfall;

Changes in productivity; and

Changes in product prices.

Thus if the price of water rises relative to the price of other inputs, it may be more profitable for the irrigator to reduce the amount of water used possibly by substituting other inputs such as fertiliser or water saving measures.



8

If the price of the product produced increases on the other hand, it may be more profitable for the farmer to increase production and accordingly increase water use along with other inputs.

The aggregate demand for water for irrigation will be the sum of the individual demands of irrigation farms. It is fairly obvious that each individual demand will be subject to the specific circumstances of relative prices, productivity, rainfall etc.

In general terms the most economically efficient use of water occurs when the marginal value product of that water is equal between different irrigation-farms and different uses. If water were traded efficiently this would equal the price (marginal cost) of water.

It is not therefore possible to define a generalised technical water use efficiency measure that would specify an economically efficient level of water use for each irrigation enterprise. In this case, one size does not fit all.

It is also important not to evaluate economic levels of on-farm water use efficiency in isolation of the wider water market. In some cases, for example, it may be more economically efficient for an irrigation farm to purchase water from the market rather than to invest in water use efficiency measures.

It is difficult to generalise these observations to the broader economy without careful consideration of the nature of the water market. However in economic terms there is an important link between the marginal value of water in irrigation, the marginal value of water for environmental flows and the price of water in the market.

For an economically efficient outcome in this example, the marginal value of water used in irrigation should equal the marginal value for environmental flows – and this should reflect the price of water (PE )

3.2.3 Economic efficiency in general

Generalising the simplified model described above to circumstances that apply in the Murray River would require considerably more discussion than possible in this report. In reality the market is influenced by institutional constraints, market failures and externalities that are not included in the above model.

Nevertheless, in practice it is important to be able to distinguish between investments that improve economic efficiency (create net value) and those that decrease economic efficiency (destroy net value).

Where public expenditure is involved, cost-benefit analysis can assist.

On irrigation farms, adjustments that improve economic efficiency can be made by the irrigator in the context of the relative prices and marginal values of different factors of production.



9

To draw on the concepts of the above simplified model, any investment that produces water use efficiency savings whether on-farm or off-farm at a marginal cost less than PE improves economic efficiency.

In practical terms policy makers and irrigation managers alike should concentrate on investments that produce water at a price lower than that being offered in the market for environmental flows.

4. Trends in on-farm and off-farm water

use With the implementation of the Cap on water diversions from the Murray Darling Basin, ongoing water policy reform at the Commonwealth and State level and the Snowy Water Inquiry, water use efficiency has been an increasing focus of concern in the irrigation industry. The efficiency of water use both on-farm and off-farm has been the subject of examination by governments in recent years.

In addition, since the introduction of water trading it might reasonably be expected that farmers would have had sufficient incentive to make water savings to take advantage of the higher value of water on the market.

ACIL Tasman reviewed the reports provided as a first step in preparing an overview of trends. They contained considerable information and analysis for off-farm water use efficiency but in less detail for on-farm water use efficiency.

ACIL Tasman undertook additional research in the light of comments provided at the workshop and in consultation with the Department of Natural Resources and Environment in Victoria, NSW Agriculture, the Department of Primary Industries and Resources in South Australia and the Murray Darling Basin Commission.

ACIL Tasman did not discuss these issues with the irrigation authorities in NSW or with irrigators.

The information that was reviewed is discussed below.

4.1 Trends in on-farm water use efficiency There is little in the way of a comprehensive analysis of overall trends in on-farm water use efficiency in the Murray River system for the last two or three years. The last collection of statistics by the Australian Bureau of Statistics (ABS) that documents irrigation methods to sufficient detail to analyse trends at the district level was the Agricultural Census for 1996/1997. This details crop type and irrigation method to the level of Statistical Local Area. The annual agricultural surveys do not go beyond state level statistics. The 2000/2001 Agricultural Census is not due for publication for several months. Some regional surveys have been done for individual cropping industries that provide useful information (eg, Boland



10

et al, 2001; ABARE, 1999; Hickey et al, 2002 and Armstrong et al, 1998, 2000).

ACIL Tasman examined information provided by the MDBC and state departments for an initial overview. This was followed up by examination of environmental reports prepared by irrigation authorities in NSW and by the state agriculture departments and various other sources. This information mainly pertains to the application efficiencies (ML/ha) of the various irrigation application technologies utilised across the system.

It is important to note that the ability of growers to improve water use efficiency is often limited by off-farm irrigation systems. For example the delivery system in the MIA is designed to provide water to farms every few weeks as required by flood irrigation. Drip irrigation on the other hand requires water to be delivered on a continual basis and preferably under a pressurised system.

4.1.1 Southern NSW Murray System

Overall, for the southern NSW Murray, there appears to have been a limited uptake of more effective water application technologies and management practices, with flood/furrow irrigation reported to be the main application method for irrigating broad acre and horticulture farms in the MIA. This method of application is reported to be inefficient for all except the heavier soil types, but this is offset by its relative low cost (ABARE, 2001).

In 1996/97, 97 per cent of southern NSW irrigated pasture area and 96 per cent of irrigated barley was reported to be watered by flood irrigation. The remaining irrigated pasture and barley areas were irrigated by travelling irrigators or moving sprays. Around 74 per cent of horticultural areas were irrigated by flood, with drip irrigation being the next most common application method (ABARE, 1999).

In the same year, under half of the farms in the MIA used some form of irrigation scheduling tool, and only 35 per cent of the irrigated areas utilised on-farm storage and re-use. It has been suggested that most of the recent WUE improvements – more efficient application technologies and crop water management practices – have occurred in horticulture areas (ABARE, 2001).

Traditional furrow irrigation is used by 70 per cent of vegetable growers in southern NSW (Muldoon, 1998). However, the tomato industry has achieved substantial improvements in application efficiency, with more than 50 per cent of the crop area now grown under drip irrigation, a method which is shown to be more efficient than furrow irrigation for this particular crop (Hickey et al, 2002 – see ). Table 1

Other vegetable industries are reported to have been slow to adopt more improved irrigation practices. The major impediments to adoption were identified as high capital costs, and the relative scarcity of technical



11

information on how to maximise crop performance with such systems (Hickey et al, 2002).

Table 1

Table 1: Application efficiencies of irrigation methods in the Southern NSW Murray system

below summarises results from recent a NSW Agriculture survey of vegetable growers in the NSW Murray system (Hickey et al, 2002).

Irrigation system Crop

Drip Furrow Spray

Processing tomatoes

6.1 ML/ha 8.1 ML/ha

Onions 4.5 ML/ha 4 ML/ha

Carrots 3.8 ML/ha 3 ML/ha

Melons 3.2 ML/ha 4.2 ML/ha

The table above shows how the application efficiencies of the irrigation technologies differ between crop type and area. However, furrow irrigation is shown to be the most technically inefficient application method, in terms of ML/ha, surveyed for all the crop types

Irrigation in the cotton industry is dominated by surface irrigation using either every furrow or alternate (skip row) furrow strategies. This type of irrigation is well suited to the heavy clay soils normally associated with cotton enterprises.

Raine and Foley (2001) concluded that the performance of many existing surface irrigation systems in the cotton industry is highly variable and may not be as efficient as commonly perceived in the industry. The same study observed that cotton farmers have been more active in improving the performance of existing practices rather than adopting new irrigation application technologies.

Rice is the main crop grown in the Coleambally and Murrumbidgee Irrigation Areas and the NSW Murray Valley. Murray Irrigation Limited (MIL) observed in its environmental report for 2001/2002 that water use efficiency of rice crop had increased by 38 per cent since 1996. Growers are reported to have increased their yields from 0.52 tonnes of rice per ML in 1995/96 to 0.86 tonnes/ ML in 2000/2001. However cool and windy conditions during the 2001/2002 season saw yields fall to below 0.7 tonnes/ML (see ). The environmental report suggests that most of the gains arose from improved farm practices including approved drainage, recycling and storage systems.

Figure 5

The Murrumbidgee and Coleambally environmental reports also refer to increased focus on on-farm water use efficiency through improved farm planning.



12

Figure 5 Water use efficiency in rice in NSW Murray area

00.10.20.30.40.50.60.70.80.9

1

1995/96 1996/97 1997/98 1998/99 1999/200 2000/2001 2001/2002

Year

Tonn

es ri

ce p

er M

L

Source: Murray Irrigation Limited, Environmental Report 2001/2002

4.1.2 Victoria Murray System

The main enterprises in Victorian irrigated areas are dairy and horticulture (stone and pome fruit, vegetables and vines).

Dairy

Australia’s irrigated dairy industry is predominantly concentrated in Northern Victoria and Southern NSW. At present, almost all the pasture for dairy in these areas is irrigated by flood. Recent data collected in a survey of the major irrigation regions of northern Victoria under the jurisdiction of Goulburn-Murray Water, found that 96 per cent of the irrigated dairy area in 1996/97 was watered using border check or furrow irrigation. This was a slight increase over the figure of 90 per cent observed in 1990 by Thomas (1999).

Reasons for the preference in development of flood systems include their suitability to the region, the provision of incentives for improvements to existing systems and the availability of information on design and management and familiarity.

The 1997 Goulburn-Murray Water survey found that 2,195 dairy farms had re-use systems – approximately 53 per cent of dairy properties in that region. The rate of adoption was estimated at 5 per cent per annum – if accurate this would mean that 100 per cent adoption could be expected by 2006. O’Neill (2000) also observed that there has been a steady uptake of on-farm reuse/storage measures and of groundwater pumping to reduce annual diversions from surface water sources.

Douglass and Poulton (1998) found that in the year 96-97:



13

The number of dairy properties with whole farm plans increased by 4

per cent;

5 per cent of flood irrigated dairy properties had added reuse systems; and

The proportion of total irrigated area laser graded in the region had increased by 3 per cent.

Linehan et al (2002) reported on the results of surveys conducted on irrigated dairy farms in North Victoria to understand the factors associated with increases and decreases in water use efficiency. A major conclusion was that the most efficient water users had made improvements in WUE, but these gains were partly offset by decreases in WUE by the most inefficient users. Armstrong et al (1998, 2000) observed a fourfold difference between the least and most efficient dairy irrigators in Northern Victoria.

The limited uptake of more efficient irrigation technologies and management practices since the mid 1990s by the industry as a whole would serve to indicate that these options are not cheaply available or that their adoption is not considered a priority, the latter as suggested by Kaine and Bewsell (2000).

Ground water pumping has been promoted as an economic and efficient means of controlling water tables in irrigation areas. Under the Shepparton Land and Water Management Plan, a financial incentive of 65 per cent of the cost of installing private ground water pumps is available. Since implementation of the plan began, 200 private pumps have been installed, pumping on average 100 to 150 ML/pa. The 1997 G-MW survey reported 779 groundwater pumps less than 25 meters deep, (64 per cent of all groundwater pumps), pumping 37,832 ML per year within the Northern Victoria dairy sector.

A further 179 groundwater pumps greater than 25 metres deep are also operated by the dairy sector (55 per cent of all pumps) and pump 19,946 ML per year. The majority of these deep pumps (91 per cent) are located in the Murray Valley and the Rochester/Campaspe irrigation districts. According to O’Neill (2000), the deeper groundwater systems of the Murray Valley and Rochester/Campaspe areas are over committed and there are limited prospects for increasing pumping in these areas.

It is apparent that the dairy industry has made significant improvements in water application methods over the last 10 to 20 years with laser levelling etc but that these have tapered off in more recent years. The reason why improvements are now slowing is perhaps because the more accessible gains have been made and the options now open for farmers are limited primarily by regional infrastructure and/or capital costs. It is suggested that even with adoption of the available options only small amounts of water would be saved across the industry (F. Johnson, NRE Tatura pers comm.). This is because there are only a relatively small number of farms



14

where the technology makes economic sense to the farmers at current water prices and would lead to water savings. This doesn't mean those options wouldn't be valuable from a salinity, nutrient or biodiversity perspective.

The overall trend in water application developments in dairy has therefore not been a change of irrigation application technologies, but rather more efficient use of existing application technology (flood/furrow) through the institution of on-farm plans, laser grading, the installation of on-farm storage/re-use systems and groundwater pumps (Brown and Rendell, 2000). The industry has also been going through some adjustment with a trend towards increased allocation of water to permanent pasture over perennial pasture during the periods of low water availability in recent years (MIL Environmental Report, 2002). According to Douglass and Poulton (2001), significant water savings are still possible through altering flood irrigation management practices further.

Horticulture

In the 1950s and 1960s horticultural water application efficiency in Northern Victoria improved significantly with the advent of electric power and electric pumps that enabled the widespread introduction of pressurised systems, overhead sprinklers in particular. Cummins et al (2001) observed that the adoption of efficient irrigation practices has been high in ‘greenfield’ developments, less rapid in ‘brownfield’ developments and hardly at all in established orchards and vineyards. In terms of irrigation management, a process of adjustment to more efficient practices, such as regulated deficit irrigation (RDI) and partial rootzone drying (PRD), began in the 1980’s and 90’s and is still unfolding (Cummins et al, 2001). Boland et al, (2001) produced the following table from a survey of 200 stone and pome fruit irrigators from four irrigation districts in Northern Victoria.

Table 2: Irrigation systems used by stone and pome fruit irrigators (Boland et al, 2001).

Irrigation system/area

Cobram (%) Swan Hill (%)

Shepparton East (%)

Ardmona (%)

Total (%)

Flood O 32 44 19 30

Overhead sprinkler

45 0 51 29 11

Micro-irrigation

55 6 2 49 36

Drip 0 62 3 3 23

As shown in the table above, the adoption of the various irrigation technologies is different between the four irrigation areas. Whether or not the adoption of different irrigation technologies is a proxy for



15

performance depends on factors specific to each area (soils, landforms, rainfall etc).

In the Kerang irrigation district, furrow irrigation has traditionally been the dominant method of surface irrigation used on horticultural crops, accounting for 60 per cent of all irrigation in the area. The pressurised irrigation methods account for significantly less (overhead sprinklers 5 per cent, under-tree sprinklers <1 per cent, drip (trickle) 33 per cent and micro-jets/mini-sprinklers 2 per cent).

In the Swan Hill irrigation district, Cook (2001) noted that, despite significant variation in irrigation practices between farms, there has been an overall trend towards pressurised irrigation methods in the last ten years, particularly trickle or drip irrigation, that are believed to be well suited to the lighter, sandier soils of the region.

In the Riverland district, overhead and under-tree sprinklers are used by about 75 per cent of horticultural irrigators. In the Sunraysia region, Meissner et al (1998) found a large range in the irrigation performance among horticultural properties, with overall higher WUE observed for citrus and stonefruit over vegetables.

Hopkins (2001) observed that furrow irrigation still accounts for over half of all irrigation in Sunraysia vineyards. ABARE (1999) report that the uptake of sprinklers and drip irrigation has been rapid in recent years.

The differences in water use between regions are largely due to different soil types, higher average rainfall and lower temperatures. For example, it is widely held that flood irrigation is suitable for heavy clay soils that hold moisture well, whereas drip or sprinkler irrigation will be more efficient on a lighter, less dense soil with poor moisture holding capacity.

4.1.3 South Australia

The South Australian Department of Primary Industries and Resources advise that have been ongoing improvements in irrigation systems in South Australia. The predominant method of irrigation from the River Murray is by Sprinkler irrigation. There is also increasing adoption of environmental management systems and improved irrigation scheduling and reported reductions in drainage water losses.

The South Australian government has mandated efficiency levels for irrigation farmers in their water licences. Under these arrangements, irrigators are required to achieve 85 per cent efficiencies in highland areas and 65 per cent efficiencies in lowland reclaimed swamp areas by 2005.

The government also records a high level of sleeper licences. However it is thought that the majority of the water under sleeper licences are left in the river and their recovery may not add to environmental flows.



16

4.2 Trends in off-farm water use efficiency

ANCID compiles data on conveyancing efficiency in irrigation delivery systems from a survey of irrigation water providers across Australia. Additional information is available from environmental reports prepared by irrigation authorities in NSW and from state government departments.

ANCID reported conveyancing losses for the irrigation areas under consideration as summarised in . Table 3

Table 3 Conveyancing losses in selected irrigation areas

Irrigation scheme Supply method Irrigation deliveries from supply system

(ML)1998/99 1999/00 2000/2001 2000/2001

NSWColleambally 18.8 32.5 14.3 channel 413,469

Jemalong 29.1 29.3 25.0 channel 64,600 Murray Irrigation 20.5 18.7 11.4 channel 1,295,795

Murrumbidgee 20.3 22.3 19.3 channel 839,553 West Corugan 2.5 0.0 9.4 channel 65,896

Western-Murray no data 5.8 No data pipeVictoria

First Mildura 19.0 0.0 19.5 pipe 48,030 G-MW Murray Valley 30.5 33.7 30.5 channel 345,644

G-MW Shepparton 33.5 35.8 22.7 channel 159,615 G-MW Central Goulburn 30.4 27.5 29.9 channel 402,339

G-MW Rochester 18.7 12.7 11.2 channel 258,072 G-MW Pyramid-Boort 18.7 11.9 6.6 channel 237,099

G-MW Torrumbarry 27.1 53.6 21.1 channel 526,800 G-MW Swan Hill no data 14.7 12.2 pipe 11,003

Sunraysia 18.9 0.0 5.3 pipe 77,736 South Australia

Central Irrigation 0.0 1.9 0.0 pipe 97,544 Lower-Murray no data 0.0 0.0 channel no data

Weighted average all Australia 22.7 27.8 18.1

Losses %

Source: ANCID Benchmarking Reports

It is difficult to determine meaningful trends from the three years of data contained in this compilation.

The proportion of water deliveries or water sales to water diverted for the Murray Irrigation Limited (MIL) area and for the Murrumbidgee Irrigation area respectively is shown in . The efficiency figures are subject to the level of accuracy of measurement and the quantities delivered each year. Bearing in mind that variations in these factors may

Table 4



17

influence the results, the figures taken at face value suggest no significant trend in simple delivery efficiency in these areas over the period reported.

Table 4 Selected supply efficiency statistics

Year 1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

2001/2002

MIA N/a N/a N/a N/a N/a N/a 82 79.7 79.4 79 81.8 80.3

MIL 83.2 81.1 75.5 80 82.9 85.4 83.5 75.7 79.5 75.8 82.3 82.1 Note: Efficiency is water delivered or water sales to water diverted.

Source: Murrumbidgee Irrigation Environmental Performance Report,2001/2002; Murray Irrigation Limited, Environmental Report 2001/2002

The reports examined for this study indicated some acceleration in actions to improve off-farm water use efficiencies in NSW, Victoria and South Australia in recent years.

The Marsden Jacob report observed a range of activities underway to manage conveyancing losses. Ongoing operations and maintenance include:

Lining channels or pipelining in areas of high seepage

Rehabilitating channel banks and structures

Improving meter accuracy on-farm irrigation outlets (Colleambally)

Automation of gates and outfall structures, offsite monitoring and computerised water ordering (Colleambally, Murrumbidgee)

Metering or privately operated irrigation pumping installations

Automation and flow optimisation in spur channels (Goulburn- Murray)

Changes to water ordering procedures and rules (Murray NSW).

Additional works include:

Pipelining of complete domestic and stock channel systems (Goulburn-Murray, Northern-Mallee)

Pipelining channel supply high density horticultural areas (Central Irrigation Trust SA, Euston NSW).

The South Australian Government advised that rehabilitation of headworks and water supply systems in the Riverland, Highlands and Loxton irrigation areas aimed at eliminating seepage had been completed.

A number of additional options are under consideration by Governments and irrigation authorities in follow up to the Snowy Water Inquiry.

As part of a Memorandum of Understanding which exits between Goulburn-Murray Water and the Victorian Government there is an in principle agreement to carry out three projects including two Domestic



18

and Stock (D&S) pipeline projects and the improved measurement of supply through small pipe outlets (D&S metering) which may make 25 GL available for $25 million. Only one project has reached the construction phase. It is expected that the first 3,600 ML of water savings will be available in January 2004.

In April 2002 the MDBC initiated the WaterMark project as part of the Landscapes and Industry Program. The project aims to develop a policy framework for water use efficiency improvement and accountability. It will determine benchmark targets, reporting systems and change management strategies for water use in the Basin.

5. Recent and Current Studies

This section reviews the findings of current studies into water use efficiency savings.

The project brief refers to five reports either completed or in preparation. ACIL Tasman was able to review four of these reports; the fifth was not available prior to the completion of this project.

In the course of analysis and review ACIL Tasman also drew on a wider range of reports and on input from the workshop.

5.1 Snowy Water Inquiry As part of the corporatisation of the Snowy Mountains Hydroelectric Authority an inquiry into the return of environmental flows to the Snowy and Murray Rivers was commissioned by the NSW and Victorian Governments in April 1998. The final report of the Snowy Water Inquiry was completed in October 1998.

The report identified 140 GL per year in water savings at a total cost of $42 million and which it calculated would have a unit cost of less than $425/ML3. The report noted considerable uncertainty associated with the estimates and that a detailed review of the projects would be necessary. The projects identified in the report are summarised in . Table 5

3 Snowy Water Inquiry 1998, page 71.



19

Table 5 Water investment options – Snowy Water Inquiry

Water Source Volume

GL

Cost of Recovery

$m

Reduced Irrigation System Losses

Government proportion of savings from MIL 30

Escape Controls on Coleambally 12 2.3

Channel flow control software GMID 10 2.1

Replace and rehabilitate private diversion meters in Sunraysia district

8 2.5

Menindee lakes 22 15.5

Remote control regulator GMID 15 6.2

On-farm drainage recycling 21.5 6.9

Escape loss control MIA 8.5 3.6

Murray River wetland regulators 8.0 3.1

Sub-total 135.0 42.2

Purchase of entitlements/other savings projects and or combination or reduction in diversions

5 2.2

Total 140 44.4

Source: Snowy Water Inquiry

In 1999, the NSW Treasury commissioned Bewsher Consulting Pty Ltd to undertake a review of the potential water use efficiency savings in the Murrumbidgee, NSW Murray and other NSW river systems including on-farm efficiency savings. The Bewsher report identified 154 GL of potential savings in NSW at around $1300/ML, significantly higher than in the Snowy Water Inquiry estimates.

Some of the savings identified in the Snowy Water Inquiry, such as escape controls in the Coleambally Irrigation Area, were not regarded as available for environmental flows because the savings would be offset by additional diversions to supply irrigators downstream.

The report also includes potential savings that were not included in the Snowy Water Inquiry including on- farm efficiency savings and piping projects for stock and domestic water supplies.

The savings identified in the Bewsher report and relationship to the earlier Snowy Water Inquiry estimates are summarised in . The report notes a considerable level of uncertainty in the estimates – suggesting a potential accuracy range of 30 per cent.

Table 6



20

Table 6 Water investment options NSW – Bewsher 1999

Potential NSW Savings Part of Snowy Water Inquiry

Assessment Potential Yield

Cost

Murray NSW

Seepage control by Murray Irrigation Limited

Yes 30 GL to be handed back to NSW Government

30 GL N/A

Construction of regulators on Murray River wetlands

Yes NSW wetlands where works could be constructed limited to Euston Lakes (3.1GL) and Moira Lakes (2.2GL). No detailed studies are available and cost savings are very approximate.

4 GL $2 million

On-farm efficiency savings within MIL No There are some existing irrigators not using the most water efficient equipment mainly in pastures or dairying. MIL considers that there could be some farmers interested in a technology swap to centre pivot or lateral move.

There is little opportunity in rice.

10 GL $10 million

On-farm efficiency savings for private diverters

No Murray River private diverters have an allocation of about 500 GL/year. Typically only about 55% is used with the remainder traded.

20 GL $20 million

Reregulation of storage at the drop along Mulwala Canal to store additional rain rejection flows.

No While potential savings apparent, further studies to quantify magnitude are required.

10 GL $ 10 million

Various small re-regulation storages within the MIL distribution system to store rain rejection flows. Could reduce evaporation and seepage losses in the Barmah-Millewa forests.

No Further studies required 10 GL $10 million

Increase airspace in Lake Mulwala in summer to capture rain rejection flows.

No Operating Lake Mulwala at 0.5 meter lower would increase airspace by up to 20 GL. Potential to create savings depends on frequency and magnitude of rain rejection flows.

Not known pending further study.

Sub total for NSW Murray Valley 54 GL $52 million.

Murrumbidgee

On-farm efficiency savings within MIA Yes MIA LWMP identifies on-farm reductions in drainage flows at 22.4 GL at a cost of $15 million.

Further savings of 12 GL may be available from improved technology on-farm.

Savings of around 24 GL from reduced on-farm seepage and channel losses.

Further studies necessary

Savings likely to be retained within the MIA

Escape loss control in MIA. Some escapes return to the river and some are utilised in drainage re-use.

Yes Savings will not produce additional savings for environmental flow in the river..

Nil



21

Potential NSW Savings Part of Snowy

Water Inquiry Assessment Potential

Yield Cost

Murray NSW

Partitioning Barren Box Swamp, MIA enroute storages, Piping Wah-Wah stock and domestic water supplies.

No Reduced evaporation losses from Barren Box Swamp 20 GL at a cost of $10 million.

Reduced water lost as flow down Mirrool Creek floodway 20 GL at a cost of $18 million

Saving of 18 GL from Wah-Wah stock and domestic system at a cost of $25 million.

30 GL $45 million

Seepage control Coleambally Irrigation Area

No Seepage from CIA supply water users on Billabong and Yanco Creeks.

Nil

Escape controls in Coleambally Irrigation Area

Yes Any savings would need to be compensated by additional diversions to downstream users.

Nil

Re-regulation of storages in Coleambally Irrigation Area system

No While potential savings of 10 GL may be apparent they may be at the expense of downstream users. Further investigations required.

Nil

On-farm efficiency savings in MIA No Further savings from this source considered unlikely to be available for environmental flows given the shortage of water in the CIA and the desire to recover any savings for irrigators.

Nil

On-farm efficiency savings by private diverters

No Murrumbidgee private diverters have an allocation of about 680 GL/year. Typically only about half is used with the remainder being traded.

20 GL $20 million

Piping stock and domestic water supply along Forrest Creek

No No costing information available 10 GL $10 million

Deep groundwater pumping No In view of embargo on further groundwater pumping this option is not available

Nil

Sub total for Murrumbidgee Valley 70 GL $85 million

Other river valleys in NSW

Reduce evaporation from Menindee Lakes through construction of an embankment to separate Lake Menindee and Lake Cawndilla and provide works to maintain the latter dry when Menindee is only partially full..

Yes There are considerable uncertainties with this option and further studies are reported as necessary. The savings estimated in the Snowy Water Inquiry were reduced from 22 GL to 10 GL on the basis of further investigation.

10 GL $20 million

Darling Anabranch pipeline to supply stock and domestic users.

No Significant changes to the local environment as a result of the termination of replenishment flows.

20 GL $42 million

Efficiency savings with irrigation or headworks systems in other river valleys.

No Savings north of Menindee Lakes subject to transmission and evaporation losses.

Nil

Sub totals for other river valleys 30 GL $62 million

Total for all river valleys 154 GL $199 million

Source: Bewsher Consulting September 1999.



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A Heads of Government Agreement between the NSW, Victorian and Commonwealth Governments on target levels of environmental flows for the Snowy and Murray Rivers was announced on 6 December 2000.

Key aspects of the Heads of Government Agreement included the following:

Target levels of water flows adopted by Governments to be achieved progressively over 10 years as follows:

– Total flows of up to 212 GL/year in the Snowy River (21 per cent of average natural flow)

– Increased flows equivalent to 150 gigawatt-hours per annum of foregone electricity generation in the Snowy Mountain rivers including the upper Murrumbidgee River

– Dedicated environmental flows allocated to the River Murray of 70 GL/year.

Additional flows of up to 80 GL/year (7 per cent of average natural flow) may be achieved following implementation of an additional capital works program to achieve water savings in the southern Murray-Darling Basin:

– To be undertaken through public/private partnerships in which the water saved is shared between the governments and the private partners.

– Water savings allocated to the governments to be used to offset increased flows in the Snowy River and to provide further dedicated environmental flows in the River Murray.

All increased flows to be offset with water acquired primarily through prior-verified water savings in diversions from the River Murray and in the Murrumbidgee and Goulburn-Murray river systems.

Creation of a joint government enterprise by the three governments with a charter to acquire water at least cost irrespective of whether it is sourced in NSW or Victoria:

– The water is to be acquired primarily thorough investing in water saving projects and if necessary through purchasing water entitlements and water rights.

– The enterprise to be funded as follows

– $150 million from the NSW Government

– $150 million from the Victorian Government

– $75 million from the Commonwealth Government.

In the process of acquiring the additional environmental flows there are to be no impacts on:



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– Water entitlements for irrigation in diversions from the River

Murray and in the Murrumbidgee and Goulburn-Murray river systems.

– Water flows for environmental purposes in the River Murray in the Murrumbidgee and Goulburn-Murray river systems.

– South Australian water security or water quality consistent in the water sharing arrangements in the Murray-Darling Basin Agreement.

These arrangements have now been formalised in the Snowy Water Licence that was issued to Snowy Hydro in May 2002 as part of the corporatisation process.

5.2 Reports by Sinclair Knight Merz (SKM) SKM was commissioned to undertake two reports on water use efficiency savings over the period 2000 to 2002 that address the potential for water use savings in Victoria.

Goulburn-Murray Water commissioned the report ‘Water Savings in Irrigation Distribution Systems’ published in 2000.

The Victorian Government commissioned the report “Water Savings in Bulk Water Systems in Northern Victoria” which was published in 2002.

5.2.1 Water savings in distribution systems

The SKM report into savings in distribution systems provides a conceptual framework for analysing water losses and comprehensive analysis and research into the economics of a range of options to reduce water losses in the irrigation areas managed by Goulburn- Murray Water, First Mildura Irrigation Trust and Sunraysia Rural Water Authority.

The report records that on the basis of ten years data (1989/1990-1998/1999, unaccounted for water in the Victorian irrigation delivery systems under study is estimated to be about 29 per cent of total inflows or around 980 GL per year. Unaccounted for water is made up of the following percentages:

Seepage – 5.6 per cent.

Evaporation losses – 9.7 per cent.

Outfalls – 37 per cent.

Metering errors – 12 per cent.

Leakage, system filling, theft and un-metered domestic and stock supplies account for 20 per cent of unaccounted for water.

The options examined fell into the following categories:

Outfalls reductions.



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Seepage, evaporation and leakage.

Measurement accuracy

Theft.

Pipelining.

The analysis of options is undertaken in two stages. Stage 1 addresses whether the options are quantifiable and whether they provide real and sustainable savings over the longer term.

Stage 2 addresses environmental and water quality impacts, impacts on downstream users, impacts on customer service levels and on the security of supply to other users.

The report identifies a list of costed options in two categories – those for immediate consideration and those requiring further studies.

Further work has been undertaken on some of the options and, as mentioned earlier, it has been agreed that an initial group of options will be developed in the context of implementation of Snowy environmental flows.

The preferred options presented at the Workshop are shown in . The incremental present value of the cost per ML saved relates to the marginal cost of a permanent water entitlement. Some of the projects identified were subject to further investigation.

Table 7



25

Table 7 SKM Options

le 7

Annual saving

GL

Incremental PV cost

$/ML

Outfall Reduction

Supervisory Control and Data Acquisition (SCADA)

4.6 2,859

Regulating Storages (one site only) 0.7 1,020

Pyramid Creek Groundwater Scheme 1.0 5,800

Reducing seepage, leakage and evaporation.

Pipelining channels less than 25 ML/day 52.2 4,400

Membrane lining channels (not necessarily independent of pipelining)

10.8 21,200

Storage evaporation reduction at Kow Swamp

4.3 Not costed

Upgrade drop bar structures on channels (no water in channels during winter)

27.5 1,100

Upgrade drop bar structures on channels (water in channels during winter)

41.5 720

Weir upgrades (Cohuna and Little Murray Weirs)

25 410

Measurement accuracy

Improved metering 135.6 1,350

Metering un-metered domestic and stock supplies

38.0 670

Source: SKM

At the workshop it was suggested that the cost of metering stock and domestic supplies was closer to $1000/ML (PWE). Goulburn-Murray Water has since advised ACIL Tasman that preliminary investigation indicated costs in the vicinity of $1400/ML

The figures in Tab adjusted for later information have been used to develop the supply schedule provided in Section 7 of this report.

The SKM report identified priority strategies including:

Increasing measurement accuracy.

Upgrading structures and weirs - offers low cost savings but may require offsets downstream.

Pipelining - valid but expensive – a program is recommended to identify priority channels for pipelining.



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Channel lining - may be too expensive to pursue on a broad scale but

may be viable in specific circumstances.

Savings from SCADA - difficult to quantify and may require offsets.

The report noted that in some of the proposed measures further work would be required to validate savings. In particular the report suggested monitoring of outfalls would be necessary for proper management of the supply system.

An important point in the conclusions of the report relates to the importance of future trends in irrigation areas and districts that may affect the viability of off-farm measures.

The SKM report refined and extended the analysis of potential water savings options for Victoria and provided a useful costing table. It also explored in more detail the uncertainties that are associated with some of the options. It does not address on-farm distribution savings.

5.2.2 Water savings in bulk supply in northern Victoria

The second report addressed savings in bulk supply from reducing evaporation from storages or reducing transmission losses through operational changes.

The report examined twenty one options of which five were selected for detailed study. The latter were reviewed and costed in terms of their water use efficiency savings potential, the offsets that might be necessary to compensate some users for shortfalls resulting from their implementation and the likely incremental present value of costs. The five options are summarised in . Table 8



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Table 8 Bulk supply options - SKM

Saving option Netsaving

(GL/year)

Offsets considered Saving plus offset costper ML of saving

($)Saving 1 – takeLake Mokoanoffline (revert toWinton Swamp)

41.8 Tungamah supplied fromYarrawonga, Tungamah suppliedfrom Broken Creek, Lake MokoanPrivate Diverters supplied fromCasey’s Weir, Lake Mokoan PrivateDiverters supplied from Ovens, LakeNillahcootie raised 1.0m, LakeNillahcootie linked to Eildon

$134/ML with 1,200 MLadditional shortfall to$3,520/ML if additionalshortfall is fully eliminated

Saving 2 –partition LakeMokoan

23.2 Tungamah supplied from BrokenCreek, Lake Nillahcootie raised1.0m, , Lake Nillahcootie linked toLake Eildon

$505/ML with 819 MLadditional shortfall to$6610/ML if additionalshortfall reduced to 187ML

Saving 2A –partition LakeMokoan and runas an annualstorage

33.5 Tungamah supplied from BrokenCreek, Lake Nillahcootie raised1.0m, , Lake Nillahcootie linked toLake Eildon

$365/ML with 1,150MLadditional shortfall to$4,750/ML if additionalshortfall reduced to 77 ML

Saving 5 –DecommissionLaanecoorieReservoir

2.5 Several offsets investigated –offstream storage at Boort appearsthe only feasible one

$6,520/ML with 360 MLadditional shortfallremaining up to$178,000/ML with 64 MLshortfall remaining

Saving 6 –decommissionHepburns Lagoon

0.7 Can fully eliminate shortfalls byeither winter fill storages or linking toNewlyn via Birch Creek

$733/ML up to $2,020/MLwith no shortfallsremaining

Source: SKM

These findings have been included in the costing and supply schedule provided in Section 7.

5.3 ABARE (2001) – Benefits of improving water use efficiency – a case study within the Murrumbidgee Irrigation Area. The ABARE report publishes the results of modelling the benefits of on- and off-farm options for increased irrigation and water use efficiency in the Yanco and Mirrool areas of the Murrumbidgee Irrigation Area (MIA). The report concludes that the volumes of water drained to the Murrumbidgee River and released to the floodway can be reduced by more efficient irrigation practices on-farm, investment in additional storage capacity for re-use both on- and off-farm, and canal refurbishment.

According to the report water is currently being ‘lost’ in the following ways:

On-farm water losses through surface run-off and sub surface drainage;

Delivery network losses such as leakage, evaporation from storage dams/swamps, escape and seepage from earthen and dilapidated concrete-lined canals;



28

Water is also lost in the MIA through increased releases from the

local storage swamp which causes the floodway to be overwhelmed and the overflow drains into surrounding land.

According to the ABARE report, certain practices to improve water use efficiency on-farm are application specific. Accordingly the report divides the irrigated land use into horticulture and broadacre for the purpose of analysis.

The main options examined for increasing water use efficiency for horticulture farms in MIA is changing the irrigation application technology from broad furrow to twin furrow or a micro jet/drip irrigation system, provided that investments in on-farm pumps are made. In the ABARE modelling, the twin furrow irrigation system is considered for wine grapes and drip irrigation is considered for Navel oranges, in addition to broad furrow irrigation for all other horticultural crops. Drip irrigation is chosen for Navel only, not Valencia oranges, as the former are higher price fruits and the quality of produce can be enhanced by the adoption of the drip irrigation method which is conducive to the application of a process known as partial root zone drying (PRD). It is reasoned that horticulture farms in MIA are too small with relatively little runoff water to necessitate the introduction of on-farm storage. ABARE therefore incorporate off-farm storage of runoff water from a number of horticultural farms in the modelling.

ABARE considers that broadacre farms are open to the options of more efficient soil moisture management, installation of on-farm storage and reuse systems and land forming. In terms of canal refurbishment, ABARE also suggests that major investments in this option are unlikely to be cost effective and that relining of earthen and concrete canals in poor condition is the most viable option.

The ABARE analysis consists of the individual scenarios discussed above and various combinations of, including the adoption of all the water saving options deemed appropriate in the study.

In terms of investment in water reuse systems, ABARE assume that in each division, a storage capacity large enough to store up to a third of the runoff produced in the division would be built, incorporating both on- and off-farm projects.

Results of the ABARE modelling

ABARE observed that all of the more efficient water use options resulted in some increase in the availability of water within the system and a decrease in water losses to the system.

ABARE found that river diversions of up to 123 GL/year are achievable from a combination of twin furrow, reuse and canal refurbishment in the areas studied.



29

The ABARE results show that synergies are available from a combination of on-farm and off-farm measures. The savings available from a combination of the options are greater than the individual savings of each option. In part this is a result of the contribution that canal lining makes to the removal of constraints in the delivery system under certain scenarios.

It is not possible to calculate a price of the water saved. However a chart provided in the report suggests the marginal value product of water at 123 GL saved is approximately $70/GL which is equivalent to a price for a permanent entitlement of between $1000/ML and $1500/ML. The ABARE chart is repeated in . Figure 6

Figure 6 ABARE calculated savings of river diversion

Source: ABARE

The conclusions from this work elaborated at the Workshop were:

Water uses efficiency savings were not a final solution to increasing environmental flows.

Private actions can be expected to deliver water use efficiency savings at below market prices.

Governments should not pay more for water use savings than they can obtain in the market.

Public investment in water use savings should be carefully targeted.



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5.4 ABARE (July 2002)– Improving water use efficiency

and the implications for targeting public investment. In July 2002 ABARE released the results of research into the benefits of investment in water use efficiency measures in the lower Murray-Darling Basin. The research was undertaken using ABARE’s Salinity and Land-use Simulation Analysis Model developed in conjunction with CSIRO and the MDBC.

The model evaluates the economic and biophysical implications of investment in water use efficiency at various points along the river. It calculates the internal and external benefits that accrue over a 50 year period as a result of a 10 per cent improvement in irrigation water use efficiency.

Internal and external benefits were calculated as present values at a 3 per cent discount rate.

Internal benefits were those accruing to irrigators that could be used to increase agricultural income, sell in the water market or leave in the river as environmental flows.

External benefits included reduction in saline discharge, improved productivity for downstream irrigators, improved water quality for industrial and domestic consumption, lower infrastructure damage costs and improved environment conditions downstream.

External benefits were calculated between the irrigation area and Morgan and downstream of Morgan.

The results of the modelling provide important insights for targeting public investment in water use efficiency. They are summarised in

. Table

9

These results illustrate important considerations for public investment, including:

Internal benefits are higher when irrigators retain the benefits.

Internal benefits are highest where the value of production is higher such as in the horticultural areas between Lock 2 and Lock 3.

External benefits vary depending on the site of the efficiency improvement and the allocation of the saved water.

External benefits can be negative in some areas where for example improved water use efficiency leads to less runoff and returns to the river

– Such as in the Goulburn-Broken irrigation area.

Positive external benefits can be generated in areas where water tables are saline as a result of reduced returns of saline water to the river

– Such as at Barr Creek, Mildura and between Locks 2 and 3.



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There are several important policy implications that arise out of this analysis:

Location of investment in water use efficiency is important in the magnitude and distribution of benefits.

– This has important consequences for the mix of public and private investment.

Reliance on decisions by private investors alone may not result in the most economically efficient outcomes.

– Policy interventions, whether regulatory, tax incentives or subsidies, will need to take into account the external costs and benefits if economically efficient outcomes are to be achieved.

– Information asymmetries will need to be addressed.

Distribution of the rights to savings are important

– If the rights to savings are retained by governments the downstream benefits are higher but the costs are also higher.

– If irrigators purchase the water used in production, the benefits from increased water use efficiency on- farm will be redistributed to all those who have rights to a share in the water.



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Table 9 Economic costs and benefits of 10% water use efficiency improvements

Irrigation area and saved water retained by irrigators

Internal benefits

$/ML

External benefits above Morgan

$/ML

External benefits below Morgan

$/ML

Total benefits

$/ML

Goulburn-Broken

100% 1228 -90 -121 1017

50% 995 -9 -22 964

0% 289 46 95 430

Barr Creek

100% 484 176 243 903

50% 381 226 336 943

0% 271 276 429 976

Murrumbidgee

100% 1446 -27 -61 1358

50% 1072 10 45 1127

0% 687 47 149 847

Mildura 964

100% 4802 522 1458 6782

50% 2770 577 1648 4995

0% 687 632 1837 3156

Lock3 to Lock2 964

100% 4629 172 2985 7786

50% 2691 176 3118 5985

0% 703 180 3245 4128

Source: ABARE

The ABARE research suggests that careful consideration will need to be given to the mix of public and private investment in water use efficiency savings both on- and off-farm. In terms of economic efficiency, policy interventions will need to take into account the spatial variation in both internal and external benefits.

5.5 Marsden Jacob (2002) – ‘Improving irrigation efficiency in irrigation conveyance systems’ This report was commissioned by Land and Water Australia and was still in preparation at the time of writing this report. Its terms of reference



33

included identifying measures to reduce conveyancing losses, assess the scale and capacity to reduce conveyancing losses, to review policy instruments for providing investment incentives and identify conditions required to stimulate private sector investment in improving conveyancing losses.

The report draws on information in the SKM report and includes other off-farm options in NSW as well and the financing options for realising the water savings – including private and public partnerships (PPP) and policy tools to create investment incentives.

The report notes industry statistics that report total transmission losses in the southern Murray- Darling Basin amount to 29 per cent or 2,900 GL. Outfalls are potentially the largest source of losses, accounting for about 45 per cent of total losses. Meter inaccuracy is another major source of losses accounting for around 25 per cent of measured losses however any understatement on-farm is offset by overstatement in conveyancing flows, and improved metering would not necessarily create savings. Evaporation and seepage are reported to account for 10 per cent and 5 per cent respectively.

The report observes that the scope for improving water use efficiency to address the above losses at low cost is limited.

The report also notes that some conveyancing losses are associated with positive externalities and may not result in net reductions in overall river diversions. In those cases the net benefits associated with loss reduction may be reduced significantly.

The report reviews the activities or measures to reduce conveyance losses, and provides a review of the policy instruments for providing the investment incentives and the conditions required to stimulate private sector investment in off-farm water use efficiency.



34

Table 10: Summary of Marsden Jacob information on categories of water loss

Category Definition/comments Magnitude of losses

Percentage of total Conveyancing Losses

Options for alleviating

Outfalls Water flowing out at downstream end of delivery system – available for downstream users and/or environmental flows

1305 GL 45% SCADA

Physical inspection

Incentives for minimising outfalls

Meter inaccuracy Operation of channels outside of meter calibration limits leads to understatement the volume of system water flow and thus overstates conveyance losses

Measurement accuracy throughout the entire distribution system needs to be improved

On farm meters under record on-farm deliveries( More water going to land than recorded) this in turn overstates distribution conveyance losses

725 GL 25% Fitting of more accurate meters or rehabilitation of existing meters

Evaporation Evaporation from storages and channels – ‘real’ water loss

290 GL 10% Raise water levels and reduce surface area of storages

Seepage Seepage can cause both positive (fresh lens of groundwater or river recharge)and negative effects (mobilisation of salt or loss to saline sinks)

145 GL 5% Channel sealing or pipelining

System filling 145 GL 5%

Un-metered/theft Water received through un-metered outlets is recorded as conveyance loss

145 GL 5%

Other Leakage 145 GL 5%

Source: Marsden Jacob

5.5.1 Costing information

The report notes that it is typically economic to control seepage where channels cross sandy soils and where seepage is damaging adjacent private property. Concrete lining is effective but is expensive in terms of cost per unit of water saved. In most open channel irrigation systems the soil is heavy clay and seepage losses are minimal.

Broad estimates of recovering losses in these channels is between $20,000/ML and 50,000/ML per ML of water saved. The report suggests that pipelining open irrigation systems is only cost effective where there is demand for pressurised water supplies such as with drip irrigation.



35

Pipelining is attractive for saving water losses in domestic and stock (D&S) systems – the cost is estimated at $3,000-$7,000 per ML.

Marsden Jacob estimate that in the southern Murray-Darling the costs of reducing seepage and evaporation losses range between $650-$30,000 per ML, whereas water is traded between irrigators for about $1,000 per ML

The report contains a useful discussion (Section 4) of the positive and negative externalities of conveyancing losses and whether or not there is a benefit to reducing these losses.

The report identifies a short-list of options:

Reduce surface area of Menindee Lakes;

Partition Lake Mokoan;

Pipeline Darling Anabranch domestic and stock supplies;

Partition Barren Box Swamp;

Domestic and Stock metering in Goulburn- Murray;

– Now under development

Domestic and Stock pipeline systems in the Goulburn-Murray;

The reports main conclusions are:

The 29 per cent estimate of conveyancing losses should not be regarded as completely recoverable for environmental flows – there are few options whose costs are low;

Externalities from returns to the river from outfalls and other losses in some cases are positive;

Many of the lower cost water savings options have been considered and implemented and the supply curve rises sharply; and

Involvement of the private sector in investing in water use savings raises complex questions and with the cost of WUE efficiency options it is unlikely that investments could be undertaken by private firms on a stand-alone basis;

The report makes a number of helpful recommendations to progress investment in WUE savings in the Murray River region including:

Clarifying terminology;

Development of robust measurement systems;

Clarification of property rights;

Development of market based instruments;

Extending tax benefits for WUE investments to irrigation water provider; and

Additional R& D support.



36

The report also concludes that while there could be interest from the private sector in providing investment in water use efficiency savings, the economics of the options are such that there is likely to be little interest at current water prices.

The report extends the previous work on options to NSW and explores policy issues relevant to developing investment plans that involve both public and private sector involvement. Its most important point however is that there are few easy options available. In the words of the consultants there is ‘no silver bullet or pot of gold’ in this case.

Policy makers would need to target implementation on beneficial water use savings not water use savings in general.

In a subsequent presentation at the workshop, the consultants noted that the response of farmers to increased water scarcity was important and little was known of their current position and likely future response. Most importantly, farmers might be expected to respond differently to different incentives. The policy options addressing market incentives in particular were therefore very important.

5.6 CapitalAG (2002) – Potential for improving water use efficiency. CapitalAG was commissioned by the MDBC to undertake a study into

The scope for improved water use efficiency in the Murray Darling Basin in a technical sense.

Whether a policy framework for WUE might improve policy formulation and delivery and the uptake of technology and management systems.

The study was not required to consider whether WUE savings could be freed for environmental flows.

The report is a scoping study and a component of a longer-term project. It notes the lack of adequate data on land use and application rates to make informed assessments of the potential for WUE savings on-farm.

In order to make an assessment of total potential savings the report develops scenarios regarding levels of uptake and policy changes.

These scenarios included:

Low investment on-farm with 50 per cent adoption rate.

High investment on- farm with 50 per cent adoption rate.

Water use efficiency gains off farm.

Paradigm shift in policies and practices on- and off-farm.

The scenarios do not consider the costs of achieving them.



37

The consultants started with the ABS Agricultural Census statistics for 1996/97 that provided information on crop areas and irrigation methods. Water usage levels were entered based on information from farm surveys and field experiments combined with other information gained from interviews with departments and agencies.

As noted earlier in this report estimates of potential water use efficiency improvements vary and there is a scarcity of location specific data. The consultants used reviews of research and consultations to draw up assumptions on potential improvements.

Low investment assumed no new technology but improvements in management practices. High investment involved the utilisation of new technologies without radical changes in institutional or policy settings.

The issue of improvements in off-farm efficiency was approached by assuming that conveyancing losses could be reduced to 15 per cent.

The paradigm shift included a range of policy changes, some of which involved direct intervention in irrigator’s management decision processes.

Using these assumptions the report estimated levels of water use efficiency improvements in terms of water saved. These are summarised in . Table 11

Table 11 Scenario results from CapitalAG report

18232,500Paradigm Shift in Policy

22283,094Paradigm Policy Shift + Off-farm

13171,834High Investment + Off-farm

11141,514Low Investment + Off-farm

45594Off-farm

9111,240High Investment On-farm (50%)

78920Low Investment On-farm (50%)

% of Diversions +

Groundwater*

% of DiversionsGL

Combinations of Actions to Improve WUE

18232,500Paradigm Shift in Policy

22283,094Paradigm Policy Shift + Off-farm

13171,834High Investment + Off-farm

11141,514Low Investment + Off-farm

45594Off-farm

9111,240High Investment On-farm (50%)

78920Low Investment On-farm (50%)

% of Diversions +

Groundwater*

% of DiversionsGL

Combinations of Actions to Improve WUE

Source: CapitalAG

The consultants related these scenarios to the benchmark levels for the Murray-Darling Basin in . Table 12



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Table 12 Water use savings

√x√xx1500GL

√√√√x750GL

√√√√√350GL

80%50%100%50%20%Adoption

Rate

Paradigm Shift

High Investment

Low InvestmentReference

Points

√x√xx1500GL

√√√√x750GL

√√√√√350GL

80%50%100%50%20%Adoption

Rate

Paradigm Shift

High Investment

Low InvestmentReference

Points

Source: CapitalAG

The calculations in the report are based on assumed technical efficiency achievements and do not address, and were not required to address, the economic efficiency aspects in detail. The potential on-farm savings do not for example take into account costs and benefits associated with their implementation. Similarly the assumption that conveyancing efficiency is increased to 85 per cent does not take into account the issues such as cost raised in the Marsden Jacob report or the externality issues highlighted most clearly in the ABARE modelling.

The scenarios therefore represent possible outcomes, without delving into exactly how they might come about, in the absence of detailed consideration of the economic efficiency and externality effects of various measures.

A useful discussion in the report relates to the interaction between policy changes and public and private investment decisions. The report explores increasing levels of policy options ranging from technical assistance and benchmarking programs, to taxation incentives, research and development, water trading, changes to property rights and bulk water trading regimes.

The report highlights the need for clear policy direction and implicitly raises the question of how public policy interventions might be structured and how market mechanisms might play a role in policy implementation. The report does not attempt to analyse the economic investment in detail. It notes for example that many of the identified gains could be cost effective.

Although the report does not make any judgement about the achievability of the possible savings it is clear from the other reports reviewed as part of this project that the potential savings need to be regarded for what they



39

are – scenarios of possible outcomes rather than potential water use efficiency savings that will be available at a reasonable cost for if the right policies can be implemented.

In the light of the Marsden Jacob comments the opportunities to achieve overall water use efficiency gains between 920 GL and 3000 GL at low cost are likely to be limited.

6. Overview of Issues

The reports discussed above and other reports examined provide an extensive portfolio of information on issues concerning the potential for water use efficiency savings to provide environmental flows.

While the reports provide complementary information and there is a convergence of views, they nevertheless raise a number of issues that need to be considered carefully in relation to the realisation of the water use efficiencies they collectively identify. These are discussed below.

6.1 Technical issues

6.1.1 Whether Water Savings lead to Environmental Flows

As indicated above water use savings both on- and off-farm may not necessarily result in additional environmental flows in the river system. Environmental flows result from reducing diversions from the river. Not all water use efficiency savings will reduce net diversions. Such an outcome may occur where:

Seepage and leakage losses flow back to the river downstream. In this case the reduction in net diversion may be very small despite reduced conveyancing losses;

Outfalls flow back to the river – reducing outfalls will reduce flows back to the river;

Where water use efficiency savings on-farm are retained by irrigators to increase irrigated production; and

Where sleeper licences are reactivated for use either on-farm or traded for irrigation use elsewhere – increased focus on water use efficiency may raise the awareness of the value of sleeper licences.

It will be important for evaluations of public investment in WUE to be selectively targeted to ensure that downstream implications of returns to the river are taken into account.

On-farm investment in WUE in response to price or policy induced incentives may result in autonomous reductions in environmental flows.



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6.1.2 Interaction between on- and off-farm measures

The ABARE report illustrated the synergy between on- and off-farm measures in the Murrumbidgee irrigation study.

Different on-farm irrigation systems require different supply characteristics. As noted earlier, drip irrigation requires permanent and preferably pressurised supply. Much of the distribution infrastructure in the River Murray irrigation areas was designed for flood irrigation and is not always compatible with the requirements of drip or micro irrigation systems.

Irrigation channel and distribution systems are also subject to under utilisation and potentially stranded assets if structural adjustment results in the farms they serve selling their water rights to other areas.

It is therefore inevitable that in some areas investment in WUE will require coordination between on-farm and off-farm measures.

At the workshop some consideration was given to the need to consider water use efficiency on- and off-farm at the sub district or region level in circumstances where on-farm water use efficiency measures had the potential to reduce the total deliveries to a point where the delivery infrastructure was no longer viable. For example if on-farm efficiencies were subject to auction it may be necessary to consider exit fees or to arrange for total closure of the sub district as part of progressive structural adjustment in the district as a whole.

6.1.3 Exchange rates

Some reports noted the need to allow for exchange or conversion rates for transfers between regions – particularly between the Murray and Murrumbidgee river systems and the Snowy. The Bewsher (1999) report noted different interpretations in the exchange rate between savings accruing to Snowy environmental flows from savings in regulators on wetlands.

ACIL Tasman has not investigated this issue in detail. However conversion rates between the Murray/Murrumbidgee systems and the Snowy will be a significant factor in terms of water use efficiency savings required to meet Snowy environmental flows.

6.2 Environmental issues

6.2.1 Understanding environmental values

The importance of understanding the value of environmental flows to judgements about economic efficiency was discussed in Section 2. It is by the nature of environmental values that many of them are intangible and in some cases they represent non-use values.



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Other reports from state and Commonwealth governments allude in differing ways to the value of environmental flows for water quality and salinity management, wetlands and biodiversity.

Other industries in the economies associated with the River Murray system benefit from environmental flows. These include tourism, hotels and resorts, recreational fishing, boating and camping, towns and cities depending on the river for water supply and general amenity and industries depending on the river for water supplies.

Techniques for estimating the value of environmental flows are discussed in the supporting documents to the Snowy Inquiry. These include techniques such as contingent valuation and threshold valuation methodologies. Other techniques such as real options have been proposed elsewhere to estimate the value of cultural and intangible benefits.

Governments have already indicated that they consider the value of environmental flows to be at least $1000/ML of permanent entitlement in the purchases of water for environmental flows. A clearer understanding of the value would assist in prioritising and evaluating investment options.

6.2.2 Management of wetlands

Some of the options considered involve changes in lakes that were once wetlands or changes in scheduled flooding of existing wetlands.

Reports indicate conflicting interests between the preservation of lakes and permanent watercourses that were once wetlands or swamps and their return to their original state. The preservation of existing wetlands and changes in their flooding patterns is also at issue. These conflicting objectives arise in a number of cases including the Darling Anabranch pipelining proposal, the Lake Mokoan options and presumably also the flooding of existing wetlands and areas such as the Barmah forest.

Consideration of different demands from the community may be complex. However given the major concerns for the sustainability of the river system and perhaps the irrigation industry itself, it will be important to have priority uses clearly identified. This supports the case for understanding more about the value of environmental flows to different users.

6.3 Economic and policy issues

6.3.1 Water price

There are currently two prices for water in the market for water entitlements – the price for a permanent entitlement and the price for a temporary water entitlement. These two price concepts are well understood by the market.



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The price of a temporary water entitlement reflects the marginal cost of a ML of water at the time it is delivered.

The price of a permanent water entitlement reflects the additional capitalised cost of a ML delivered in perpetuity.

For example the price of $1000/ML of a permanent transfer is equivalent to a price of around $60/ML of temporary water at a 6 per cent discount rate. Different reliability factors associated with permanent and temporary water will also affect the price equivalence.

The calculations undertaken for the marginal cost off-farm investment in water use efficiency are expressed in terms of a permanent entitlement. When making calculations of the cost of on-farm water use efficiency savings it is important to capitalise the additional costs in perpetuity to obtain a comparable price.

This has been done in the subsequent sections of this report.

6.3.2 Market instruments and policy intervention

There is a strong logical argument in support of development of an efficient water market as set out in COAG water reform objectives.

An efficient water market would facilitate the efficient allocation of water between different uses for irrigation, other consumptive uses and for environmental flows.

It will also facilitate efficient resource allocation on-farm where information on costs and economics are not well understood by institutions and agencies.

However as noted in the ABARE report, water use in the River Murray is subject to significant externalities. This means that policy interventions will be necessary to achieve economically efficient outcomes.

The advantages and disadvantages of water trading are discussed in several documents – notably in a recent report on the value of water issued by the Victorian Department of Natural Resources and Energy (DNRE December 2001).

A more effective market for water may however result in reduced river flows as irrigators seek to realise the economic value of their water rights. The reports examined identified the activation of sleeper rights as a possible loss of flows previously left in the river. Water recovered from improved drainage and reuse systems may be more valuable on-farm in a more efficient market and not returned to the river.

Policy development should focus on:

Policy for the design of an efficient market for trading in water temporally and spatially within the river valley system;



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Policy interventions to allow for externalities that arise in private and

public investment in water use efficiency savings; and

Clarity in policy implementation to maximise as far as possible efficient resource allocation through the operation of the water market while at the same time targeting policy interventions to address externalities efficiently.

6.3.3 Externalities

An issue that is related to the previous discussion is the consequences of externalities associated with investment in water use efficiency measures. The ABARE research using the SALSA model highlighted the non-uniform nature of externalities associated with such investments.

These externalities arise as a result of the effect of water use efficiency savings on return flows to the river. In some areas water lost through seepage, leakage and outfalls returns to river or recharges fresh aquifers and has value in downstream use or for environmental flows. This is the case for example in the Goulburn Murray and Murrumbidgee irrigation areas.

However in other cases the losses exacerbate salinity problems and inflows of saline groundwater to the river.

The ABARE research showed that externalities associated with water savings can be negative in some areas because the improved water use efficiency leads to less runoff or returns to the river. They are positive in other areas where seepage and outfalls result in return of saline water to the river.

The externalities for different irrigation areas along the river system were summarised in above. Table 9

These results illustrate the importance of understanding the differing external benefits associated with water use efficiency at different points in the river system.

In the light of these externalities it will be important that efficient investments in water use efficiency measures are integrated with the broader natural resource management in the Murray Darling Basin.

6.3.4 Dealing with asymmetries in information

The problem of asymmetry of information between governments, irrigation authorities and irrigators was identified at the workshop. Irrigators have better knowledge of the economics of their enterprises than policy makers. This can create inefficiencies particularly where externalities associated with on-farm water use efficiency occur. Externalities can be either those referenced above in relation to returns to the river or those related to public or shared infrastructure. In the latter



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case reallocation of water entitlements can result in inefficiencies in delivery infrastructure.

Measures to address such problems include competitive tendering for bids to undertake efficiency improvements to create savings for environmental flows, charging exit fees and treating public and private investment in water use efficiency savings at the sub regional level.

Such approaches have merit in terms of the efficiency of implementation of public and private investments as the cost of attempting to assemble the information necessary for policy intervention at the irrigation enterprise level is likely to be significant – it is reasonably safe to conclude that such an approach is not likely to result in benefits that would justify the cost.

7. Scope for water use savings

This section addresses the scope, cost and savings on-farm and off-farm in the River Murray system.

The reports supplied to ACIL Tasman for review provided sufficient information for discussion of off-farm investments but not for a full assessment of on-farm investments. Following the Workshop ACIL TASMAN undertook additional research to address the information gaps in relation to on-farm activities.

7.1 General location issues The location of water use efficiency savings will be influenced by levels of diversion at various points in the River Murray system and by the impact of waster use savings on the quantity and quality of returns to the river and ground water system.

The MDBC has identified reference point flow recovery levels that correspond to levels of river health – these are summarised in . Table 13

Table 13 Flow recovery levels and river health

Recovery of flows from WUE Measures

ML

Likelihood of healthy river system

0 Low 350 Low 750 Low-moderate

1500 Moderate

These figures provide a framework for review of options for recovery for flows from water use savings. As discussed previously up to 220 GL has already been accounted for in environmental flows for the Snowy River.



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The reductions in natural flows along the River Murray system due to diversions with the Cap are shown in . This diagram illustrates the importance of areas from Yarrawonga Weir to the Darling as potential sources of WUE savings for environmental flows.

Figure 7

Figure 7 Reductions in natural flow due to diversions

R. MurrayOutflow

G L/a

SnowyOutflow

Murrumbidgee R.

Upper DarlingFlowto SA

Goulburn R.

Darling River

RiverMurray

NEW SOUTHWALES

Sydney

Melbourne

CanberraAdelaide

VICTORIA

Albury

Ovens R.Kiewa R.

Yarrawonga

Snowy belowJindabyne

Notes: The red areas reflect the reduction in river flows from diversions. The green areas indicate the flows remaining after diversions. The flows account for the Cap on diversions.

Source: MDBC

However, the impacts of externalities discussed previously will also be important considerations in assessing the economics of WUE savings. The impact of some of these externalities is not known. However as a general observation, the positive externalities that occur downstream of Barr Creek suggest that investments in these areas will reveal additional benefits compared with those upstream.

There are therefore two influences that will impact on the economics of the options discussed below. They may not necessarily be congruent influences and the ultimate outcome will only become clear with further investigation in many of the options considered.

8. Scope for WUE Savings

ACIL Tasman has drawn together the information available in the reports provided plus information obtained from further research and discussion



46

to assemble a supply schedule according to the marginal cost of acquiring permanent entitlements.

Considerable information was available from existing reports on off- farm measures. These reports however did not cover in detail on-farm progress or opportunities. As a result the project was extended for one week to enable ACIL Tasman to investigate recent work published on on-farm efficiencies.

The level of detail, comprehensiveness and consistency varies between off-farm and on-farm information. The results have been presented below in two stages. The first relates draws on information contained in reports or provided by governments. It includes off-farm investments plus some on-farm in the Murrumbidgee irrigation area and in South Australia. The second relates to on-farm savings in NSW and Victoria drawn from additional investigations undertaken by ACIL Tasman.

8.1 Off-farm savings The information for potential water use efficiency savings in these reports came from: the following sources:

Off-farm Victoria from SKM and Marsden Jacob reports;

Off-farm NSW Channels from MDBC GIS data, SKM channel lining estimates and information contained in the Bewsher 1999 report;

Bulk water and hydraulic works from SKM, Marsden Jacob and Bewsher reports; and

Off-farm SA from SA Department of Primary Industries and Resources.

Cost estimates are very approximate and do not take into account externalities. Marginal costs are calculated as the cost of transferring a permanent water entitlement.

Darling Anabranch Pipeline

The domestic and stock system in the Darling Anabranch provides 3000 ML/year to 40 properties through a system of natural watercourses and weirs by releasing approximately 50,000 ML/year into the anabranch system. Pipelining these supplies has been estimated to save 32 GL/year. There would be local concern to lower flows in the watercourses (Marsden Jacob report).

Estimated potential water use saving – 32 GL/year

Estimated marginal cost of permanent water saved – $1000/ML

Regulating storages in distribution system in Victoria and NSW

Regulating storages are a common feature of most channel systems. They are used to store excess flows due to rainfall rejections etc and can



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improve channel use efficiency by reducing outfalls. SKM (2000) and Bewsher (1999) identified potential opportunities in Goulburn- Murray and Murray Irrigation NSW. There may be options in other areas such as Coleambally however in some cases the outfalls supply other downstream users and are not available for environmental flows.



Weir upgrades – Victoria

Proposed works at Cohuna Weir and the removal of Little Murray Weir in Victoria could reduce outfalls and evaporation. The SKM report identified these for further investigation to assess offsetting measures and supply options. To allow for this ACIL Tasman has increased the estimated marginal cost.



Metering stock and domestic water supplies

The SKM (2000) report identified potential water saving through metering currently un-metered stock and domestic water supplies. The savings were subject to confirmation. It is understood that agreement has been reached with Goulburn Murray water to undertake some work in this area as part of the implementation of Snowy environmental flows.



Upgrade Channel Structures – Victoria

The SKM (2000) report identified potential savings from upgrading control and outfall structures to reduce leakage. Estimates of savings were made for two conditions one where channels were empty and full during winter. The second option eliminates the losses incurred when channels are emptied and filled at the beginning and end of seasons – it is subject to further analysis. Only the first of these options has been included here.

Estimated potential water use saving – 27.5 GL/year


Regulating storages on river wetlands

The construction of regulators on wetlands located in NSW, Victoria and South Australia provides the opportunity for evaporation savings. This was identified in Snowy Water Inquiry and were investigated in the 1999 Bewsher report.



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Estimates of potential savings require further investigation to confirm. One estimate of 4 GL is half the estimated savings in the Snowy Water Inquiry.



Partitioning Barren Box Swamp

Barren Box Swamp in the Murrumbidgee Irrigation District is a source of losses through evaporation and unplanned spills. The proposal involves partitioning the swamp to create a storage with a higher operating level than that existing in the swamp to reduce both. (Marsden Jacob)



Improvements in metering

The SKM report discusses the inaccurate recording of flow meters to irrigation farms – most under recording. It suggests that up to 136 GL could potentially be under-recorded in Victorian irrigation systems but recommends further investigation. Marsden Jacob notes that under-recorded water may be claimed by irrigators as an allocation right. The costs and amounts below are based on the SKM report.



Hydraulic Improvements to Mulwala Canal

Bewsher (1999) discusses work to re-regulate the storage at the drop on Mulwala Canal saving potentially 10 GL/year at a cost of $1000/ML of permanent water. A later study by Murray Irrigation Limited (MIL) released in September 2001 calculates that 60 GL/year could be saved through improved hydraulics on the Canal at a cost of $75 million and annual operating costs of around $1.9 million – equivalent to about $1500/ML. Without further information an estimated saving of 60 GL/year is assumed at $1500/ML. However the extent of these savings would depend on the nature of the losses saved. Some may return to the river.



Menindee Lakes Hydraulic Structures

It is estimated that on average 450 GL is lost per year in evaporation from Menindee Lakes. Proposals for construction of weirs and enlargements in



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outlet capacity are estimated to save 10 GL/year at a cost of around $2000/ML.



Decommissioning Hepburns Lagoon

This option was identified in SKM (2000). Hepburns Lagoon is located in the upper catchment of Birch Creek and is formed by two dams. Decommissioning would reduce evaporation losses of around 600 ML/year at a cost of around $2000/ML

Estimated potential water use saving – .6 GL/year


Implementation of SCADA in Victoria

Supervisory Control and Data Acquisition (SCADA) systems provide remote operation and monitoring for delivery systems and outfalls. Work done in Victoria reported savings through the use of SCADA. SKM (2000) estimated savings and costs for Victorian irrigation districts.



Lake Mokoan

Lake Mokoan is a water supply storage in the Goulburn- Murray Bulk water supply system that suffers high evaporation losses. Options include returning the lake to its natural state and partitioning. The savings associated with returning the lake to its natural state is included here.



Pipelining supply channels

This option involves pipelining supply channels of less than 25 ML/day in Victoria and NSW to reduce seepage and evaporation and some more expensive pipelining of stock and domestic water supplies in Victoria and NSW. Estimates of channel pipelining are based on information contained in the SKM (2000) report for Victoria and estimates of channel lengths from the MDBC GIS information database using SKM cost estimates.





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Pyramid Creek ground water interception scheme

This project is aimed principally at intercepting saline groundwater flows and water savings are incidental to the scheme. Although saving is relatively small, externalities could be high given the location of the project.



Decommissioning Laancoorie Reservoir

Laancoorie Reservoir is located on the Loddon River. Decommissioning the reservoir would reduce evaporation but would also have some environmental consequences and require some offsets. It would involve some shortfall in supply to existing users.

Estimated potential water use saving – 2.5 GL/year


Channel lining in Victoria

A number of options for channel lining are discussed in the SKM (2000) report. These may overlap to some extent with the pipelining option. There may also be opportunities in NSW particularly in the Murrumbidgee area as indicated in the ABARE report. In this estimate only the lining of channels in the central Goulburn area are included.


Estimated marginal cost of permanent water saved – $21,000/ML

This schedule is summarised in and in . Table 14 Figure 8



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Table 14 Details of water use savings

Savings Option Quantitiy GL/year

Cumulative Quantity

GL

Marginal Cost of

Saved Water $/ML

Comments

Darling anabranch pipeline 32 32 1000 There may be a need for environmental flows in some years to restore natural flow conditions .

Regulating Storages in Victoria and NSW

11 43 1,000 These relate to Goulburn-Murray and the NSW Murray Irrigation areas. There may be other areas in NSW. The water savings may created may in demand to supply additional irrigation.

Weir upgrades 25 68 1,000 Cohuna and Little Murray Weirs (VIC). Offsetting measures to be determined.

Metering S&D Supplies VIC 38 106 1,000 Metering of stock and domestic supplies for Victoria only and savings still to be confirmed.

Upgrade channel structures VIC 28 134 1,000 Upgrades to channel structures also subject to winter storage options.

Regulating storages on river wetlands

4 138 1,000 Potential savings are based on broad estimates contained in reports. Subject to more detailed investigation.

Partitioning Barren Box Swamp 30 168 1,500 Interactions with other potential savings in Murrumbidgee Irrigation Area discussed elswhere in report.

Improved metering 136 304 1,500 Metering savings based on SKM report and are yet to be confirmed. Savings may be transferred to conveyancing losses.

Hydraulic improvements to Mulwala Canal

60 364 1,500 Mulwala channel hydraulic improvementsis based on a NSW DLW paper. Other channel improvements in NSW have not been estimated.

Menindee lakes hydraulic structures

10 374 2,000 There are several proposals for Menindee Lakes some of which have savings up to 20 GL/year.

Decommission Hepburns Lagoon

1 375 2,000

SCADA VIC 5 380 3,000 Offsetting flows to be considered. May have negative externalities where outfalls return to river or are used downstream.

Lake Mokoan 42 422 3,500 There are other options for Lake Mokoan that partition the lake rather than returning it to Winton swamp.

Pipelining Channels less than 25ML/day and pipelining some stock and domestic water

66 488 4,500 Applies to channels < 25ML/day in Victoria and Murray NSW. Estimates based on SKM costings for Victoria.

Pyramid Creek groundwater interception

1 489 6,000 Pyramid Creek scheme is primarily aimed at reducing high salinity inflows. Externalities likely to be positive.

Decomission Laancoorie Reservoir

3 491 6,500 Considerably higher costs could be involved associated with environmental consequences and offsets.

Channel lining membrane VIC 11 502 21,000 Channel lining seepage losses are to be confirmed. Potential savings from channel lining in Murrumbidgee Irrigation Area referred to in ABARE report not included.



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Figure 8 Schedule of off-farm water use savings

0

1000

2000

3000

4000

5000

6000

0 100 200 300 400 500 600

Water savings - GL

Mar

gina

l cos

t - $

/ML

Darling Anabranch Pipeline.Regulating storages. Weir upgrades.Metering stock and domestic supplies.Upgrading channel structures.

Barren Box Swamp.Improvements in metering.Mulwala Canal hydraulics.

Menindee Lakeshydraulics.Decommision Hepburns Lagoon

SCADALake Mokoan

Channel lining

Pyramid Creek groundwater interception Decommission Laancoorie reservoir

Pipelining supply channels and other stock and domestic water supplies

The information indicates that there could be up to 365 GL of potential savings at a marginal cost of around $1000/ML to $1500/ML. Costs then rise reaching $4500/ML at around 420 GL reflecting the higher cost of SCADA systems, works at Lake Mokoan and the cost of pipelining channels and some stock and domestic water supplies.

Above 488 GL marginal costs rise sharply reflecting the cost of projects such as Pyramid Creek groundwater interception and lining channels in NSW and Victoria. The Pyramid Creek groundwater scheme is likely to exhibit significant positive externalities although the quantity of water use savings is small.

8.2 On-farm savings There was little information in the documents examined to provide a reliable overview of on-farm savings apart from estimates made in the ABARE report mentioned previously and estimates provided in the Bewsher report of 1999.

The savings recorded in these reports are summarised in . Together they total to around 200 GL/year at marginal costs of between $1000/ML and $3000/ML. The ABARE results are based on the research discussed previously. They offer saving of 123 GL per year at a marginal

Table 15



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opportunity cost of around $1000/ML to $1500/ML. The savings are from both on-farm and off-farm water use efficiency measures.

Table 15 On-farm water use savings from other sources

Source of saving Description Savings

GL/year

Marginal cost

$/M permanent

On- farm efficiencies and channel refurbishment in Murrumbidgee Irrigation Area.

Work undertaken by ABARE to model efficiency improvements and reuse on-farm and channel refurbishment off-farm. These savings do not take into account externalities.

123 1000 -1500

On farm efficiencies in South Australia

The predominant method of irrigation in South Australia is sprinkler. According to the South Australian Government many vineyards could be converted to drip irrigation combined with sprinkler.

40 3000

On-farm water management

According to the South Australian Government irrigation efficiency gains can be made thorough improved management of irrigation scheduling and growth cycles. The department estimated that up to 20 GL could be saved.

20 500

On-farm Murray Irrigation areas in NSW

Bewsher (1999) recorded possible irrigation use efficiency savings in the NSW Murray areas in pastures and summer crops. Significant areas have already improved efficiency through laser grading and tail water recycling. There is little opportunity in rice in this area.

10 1000-1500

On farm efficiency savings from private diverters in the Murrumbidgee Irrigation Area

Bewsher (1999) reports that private diverters in the Murrumbidgee area have an allocation of 680 GL/year but typically about only half is used the remainder being traded. On-farm technology improvements could make additional water available although there could be competition for this from other irrigators.

20 1000-1500

8.2.1 Economic scope for other on-farm water use efficiency savings

ACIL Tasman was not able to locate comprehensive data on the economics of on-farm water use efficiency measures for the Murray River system more generally. Additional research was undertaken on papers and information provided by the Victorian Department of Natural Resources and Energy and Agriculture NSW. ACIL Tasman then applied its own economic analysis using the data available.

This section addresses the information that was obtained from this research. It addresses the costs of changing irrigation application technologies on-farm and the savings that might be created in examples where information could be located.

As discussed earlier in this report less water used on-farm does not necessarily mean that less water will be diverted. This analysis is concerned primarily with water savings that are possible not with what the farmer decides to do with the water saved.



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In addition ACIL Tasman’s investigations suggested that it cannot be assumed that one particular irrigation application method is universally more efficient than another, given that soil type, climate and land-form will have a significant influence on the performance of a given technology or management technique. For example, only marginal gains may be made by switching irrigation technology on the heavy clay soils of Victorian dairy farms that are believed to be well suited to traditional flood/furrow techniques. Irrigation farmers make judgements about the relative costs of different inputs including water savings technology on the basis of their specific cost structures. It would be unwise to attempt to form generalised judgements about the most economic water saving measures.

ACIL Tasman also notes that there are potential gains from adopting alternative management practices such as better irrigation scheduling, soil moisture monitoring, regulated deficit irrigation (RDI) or partial rootzone drying (PRD). Reviews of the literature indicate that there is considerable scope for increased WUE through the application of these practices but information relating to the specific economic costs and potential water benefits is not readily available.

Methodology

Our approach was to compile information pertaining to:

The current adoption of various irrigation technologies by area and crop type to determine a baseline water use;

The water used by each of these technologies; and

The costs of adopting each technology.

Because there is no comprehensive, complete dataset with information of this detail across the entire Murray system, our analysis has been conducted as a series of case studies by area/crop type. For the water use by each application technology and the current adoption rates, where possible we have utilised information derived from recent surveys of individual irrigation areas. This information is likely to reflect not only the crop/enterprise but also variables such as soil types, rainfall and landforms.

We have interpreted the costing information as slightly more generic with regards to the application technology. In any case, due to the specific nature of the information to each irrigation area and crop type, we have chosen not to extrapolate costing and water application efficiency information between the areas. It was not possible to obtain a breakdown of costing information for each area in order to separate land preparation costs from equipment costs; where this is the case it is possible that the costs of changeover have been overestimated.



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With the information above, specific to each area analysed, the cost of adopting a more efficient application technology can be calculated along with the change in water consumption for irrigation that could potentially be achieved.

8.2.2 Case studies

Table 16 at the end of this section contains a summary of the potential water saving options analysed as part of the study.

Northern Victoria dairy

The main irrigation districts in the Northern Victoria dairy industry are Shepparton/Central Goulburn, the Murray Valley, Rochester/Campaspe and Torrumbarry/Pyramid-Boort. Current information indicates that almost all of the irrigation is provided via flood irrigation (ANCID, 2001), which is believed to be suitable to the predominantly heavy to clay type soils in the region. Analysis was conducted to quantify the potential water savings (if any) and monetary costs from adopting sprinkler and drip irrigation over flood irrigation, as the latter is currently the dominant form of irrigation in the Northern Victoria dairy industry.

Current water application rates and farming area statistics for these areas were derived from recent surveys of the Northern Victorian dairy industry (Armstrong et al, 1998, 2000) and from recent experimental and research reviews of application efficiencies and costs of various dairy irrigation technologies conducted by the Victorian Department of Natural Resources and Energy (DNRE) in Tatura. Our analysis assumed a complete adoption of either sprinkler or drip irrigation at the expense of flood. The application rates (ML/ha) of sprinkler and drip irrigation from the DNRE experiments were used to compare the new water use with that surveyed by Armstrong et al (1998, 2000). The application efficiencies achieved in each area, and the scope for improvement, is likely to reflect the prevalent soil type. A lighter soil is likely to need more water than a heavy soil from flood irrigation.

The annualised capital and operating costs of sprinkler and drip systems were set out as a time series for 100 years (to be consistent with the off-farm calculations) from which the cumulative incremental NPV was then calculated. In terms of the capital costs, it was assumed that the cost of changing over from furrow to sprinkler or drip incurred only equipment costs and that no further land preparation was needed. The capital costs of renewing equipment were assumed incurred every 15 years for all technologies. The cumulative incremental NPV was divided by the annual water savings to derive a marginal cost estimate for the savings for comparison with the permanent water price.

The first point of note is that the experimental water application rates from the DNRE study are not always significantly less than those



56

surveyed, particularly in Shepparton/Goulburn Valley. This suggests that, if the survey data is representative, in some areas the dairy farmers are already achieving a high level of efficiency in terms of the application rates of their irrigation practices and adoption of alternative technologies will only yield marginal water savings. In addition, the costing information indicates that the drip and sprinkler options are considerably more expensive than the currently employed flood, reflecting the substantial capital investment required (operating costs for sprinkler and drip are however less than flood). This seems to suggest that, as one might expect, farmers are making economic judgements about the appropriate irrigation technology.

In the case where 100 per cent adoption of the sprinkler and drip irrigation results in only small water savings, as is the case in Shepparton/Goulburn Valley, the marginal cost of those savings is extremely high, given that the full set of costs for complete adoption of drip or sprinkler irrigation have been incurred.

For the other dairy regions modest water savings in the range 2500-3500 ML/yr can be achieved at a marginal cost of $3000-6000/ML.

Murrumbidgee Irrigation Area horticulture

ABARE (2002) conducted modelling of potential on-farm water savings from the adoption of alternative irrigation technologies by horticulture and broad acre farms in Yanco and Mirrool irrigation areas of the Murrumbidgee Irrigation Area (MIA). In particular the study evaluated the adoption of on-farm storage/re-use and the adoption of twin furrow for wine grapes and drip irrigation for navel oranges. The results indicate that significant savings, to the tune of 53,000 ML, could be achieved from on-farm storage/re-use at low marginal cost ($500/ML). These numbers indicate a high level of scope for affordable water savings and as such require further investigation and validation.

By comparison, the potential savings from adoption of twin furrow and drip irrigation (modelled simultaneously) for horticulture is modest (3,000 ML/yr) at a relatively high marginal cost ($2,000/ML).

Sunraysia vineyards

An approximation of the current breakdown of irrigation by application method was derived from a report by to the MDBC by GHD (1999). The irrigation information was supplied by the DNRE Sunraysia office. A study by NSW Agriculture (Constable and Giddings, 1999) outlined the costs of adoption and water application rates for various application technologies for grape farms in the Sunraysia irrigation district. Without a detailed breakdown of the capital costs (ie land clearing versus equipment costs), it was assumed that the conversion from furrow to drip or sprinkler incurred the full capital costs.



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Interestingly, the costing information indicated significantly lower operating costs for drip compared with flood, to the extent that in our time series analysis, assuming capital cost expenditure every 15 years, adoption of drip irrigation came out cheaper than flood irrigation with significant water savings possible. Based on the information pertaining to the water application rates available, some significant water savings are available from the adoption of drip (59,360 ML/yr) at a low marginal cost and sprinkler irrigation (14,840 ML/yr) at a marginal cost of $2,000/ML.

Shepparton horticulture

Land use information came from recent surveys by Boland et al (2001) and Goulburn-Murray Water (1997). Costing information was derived from Cummins et al (2001). In this case study, the potential costs and water savings of a complete replacement of irrigation by drip and sprinkler irrigation were analysed. The amount of flood irrigated area in Shepparton is currently estimated at 22 per cent (Boland et al 2001). The analysis revealed that water savings in the order of 500-3000 ML/yr could be achieved from adoption of sprinkler or drip irrigation, with sprinklers proving to be more efficient (2,701 ML at $1,500/ML) compared with drip (660 ML savings at marginal costs over $10,000/ML).

The results of this investigation are summarised in . Table 16



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Table 16: Some potential on-farm water savings in the Murray system

Area/irrigation district Option

Marginal cost

($/ML) of water

saved

Potential annual water

savings (ML/yr)

Yanco, Mirrool (MIA)

Adoption of on-farm storage/re-use on

broad acre 500 53,000

Yanco, Mirrool (MIA)

Adoption of twin furrow for wine grapes and

drip irrigation on navel orange farms 2000 3,000

Sunraysia

Complete replacement of furrow by sprinkler

on vineyards 2000 14,840

Sunraysia

Complete replacement of furrow by drip on

vineyards <500 59,360

Shepparton

Complete replacement of flood/furrow by

drip irrigation on pome fruit farms >10,000 660

Shepparton

Complete replacement of flood/furrow by

sprinkler irrigation on pome fruit farms 1,500 2,701

Shepparton/Central

Goulburn

Complete adoption of sprinkler irrigation or

drip irrigation on dairy farms >10,000 1,544

Murray Valley (N Vic)

Complete adoption of sprinkler irrigation on

dairy farms 4250 3,473

Murray Valley (N Vic)

Complete adoption of drip irrigation on dairy

farms 6250 2,830

Rochester/Campaspe



Rochester/Campaspe


farms 5000 2,605

Torrumbarry/Pyramid-

Boort



Torrumbarry/Pyramid-

Boort


farms 5500 2,697

Summary of on-farm studies

While this analysis has been limited by the amount and quality of information available, the time constraints of the project and the necessity for simplifying assumptions, it does give an indication of the relative scope for water savings from some on-farm options and a rough idea of their relative costs. Emphasis is placed less on the absolute cost and



59

saving numbers and more on the relative values between the various options.

Based on the results displayed in it appears there is scope for increased water use efficiency, in terms of the water applied to maintain current yields, in some irrigation districts in the Murray System. This is particularly the case for the adoption of on-farm storage/re-use in the MIA and the adoption of sprinkler and drip irrigation in horticulture districts in Northern Victoria (Shepparton, Sunraysia). The former is particularly interesting and obviously requires further investigation to determine whether similar gains could be made, at the similar marginal cost, by adopting on-farm reuse/storage options in other areas.

Table 16

The potential for improved water use efficiency on-farm in NSW is exemplified by the recent improvements in the tomato industry where there has been widespread adoption of drip irrigation and more sophisticated irrigation management processes in recent years that have led to increased application efficiencies by the industry as a whole (Hickey et al, 2002). Other literature suggests that there is a real economic incentive and significant scope for horticulture farmers to improve WUE (eg, Cummins et al, 2001).

For the Northern Victorian dairy industry, it appears that the scope is more limited and that the adoption of alternative irrigation technologies to furrow/flood will be expensive and result in only modest water savings. This also reinforces the views expressed in the literature that dairy farmers have made progress in improving on-farm water over the last 10-20 years but that these gains are slowing and there is limited potential for further on-farm gains.

In our analysis, this result is driven by the high costs of adopting sprinkler and drip over flood irrigation, and that there is not a significant improvement in water application efficiency to offset these costs. In part, this may be because flood irrigation, which accounts for over 90 per cent of irrigation in the dairy districts, is particularly well suited to the predominant soil type or climatic conditions.

8.3 Water use efficiency in general The discussion of off-farm savings indicated the potential for savings of up to around 490 GL per year at a marginal cost of between $1000 per ML and $4500 per ML. After that marginal costs rise sharply.

There appear to be few off- farm savings available at a marginal cost less than $1000/ML.

The documents examined suggested that there could be around 200 GL per year from predominantly on-farm savings that may cost between $500/ML and $3000/ML from the Murrumbidgee irrigation area (ABARE modelling) and from South Australia (South Australian



60

Department of Primary Industries and Resources). ACIL Tasman has not examined the costing of the latter in detail.

Analysis of selected research in NSW and Victoria suggest that further savings on-farm may be available between $500/ML for re-use to $2000/ML for improved irrigation technology on horticulture and vines. The possibility of further efficiency in dairy however could involve costs of up to $5000/ML and more.

Some of the savings on-farm savings could be significant in some areas– for example the research suggested that there could be savings of around 60 GL in vineyards in Sunraysia at low marginal cost.

However these potential savings have been estimated on the basis of 1996/97 statistics. It is possible that a significant proportion of those savings may have been realised in the period since this data was collected.

The potential savings on-farm need to be qualified by the possibility that it may be more efficient for farmers to use savings to increase production or to sell them to other irrigators for whom the additional water has a higher value.

On the basis of the information examined therefore ACIL Tasman concludes that the potential to produce water use efficiency savings at low cost is likely to be limited:

– There are few savings available below $1000/ML.

– There are up to around 490 GL at marginal costs of between $1000/GL and $4500/GL.

Potential for an additional 200 GL from predominantly on-farm savings at a cost of between $1000/ML and $3000/ML

– With less certainty about the quantities and costs above 123 GL.

There may be further potential for savings on- farm at costs of up to $2000/ML

– With costs below $1000/ML in some applications (such as reuse generally and certain application technologies in horticulture).

– However there is a reasonable possibility that a significant proportion of those savings that are currently economic have been realised.

A significant proportion of the off-farm savings will be captured by the Snowy environmental flows process.

8.3.1 Levels of water use efficiency likely to be induced through increased scarcity or prices

The extent to which investment in water use efficiency is likely to be induced through increased scarcity of water or through higher prices on the water market will depend firstly on the efficiency of the water market and the information available to farmers.



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The incidence of externalities as demonstrated in the research undertaken by ABARE suggests however that investment decisions by farmers will not fully reflect the value of environmental flows in all cases. It is difficult to be definitive on this point because there is no clear indication of what the value of environmental flows are and because governments have been intervening to some extent in the provision of financial incentives to undertake investment in irrigation efficiency on-farm.

An efficient market in water would improve the ability of irrigators to respond efficiently to price rises. Apart from one or two exceptions, most of the options have a marginal cost that is higher than the price at which water is currently trading in the market. Without an increase in the price of water and in the absence of other policy interventions, it is unlikely that irrigators would have an economic incentive to invest in the higher cost efficiency savings.

Investment in water use efficiency both on-farm and off farm is likely to be more responsive when:

The market for water trading is efficient;

Investment in off-farm water use efficiency savings is targeted to optimise linkages with on-farm investment; and

Public investment is carefully targeted to take into account the incidence of externalities.

8.3.2 Level of confidence of assessment

After reviewing the work in existing reports ACIL Tasman considers that a margin of at least 30 percent should be allowed on the cost estimates of off-farm investment.

A similar margin for error would also be appropriate for cost estimates of on-farm investment given the lack of specific data on the economics of water use efficiency measures in many irrigation areas and the dangers of generalising across areas.

8.3.3 Information requirements to improve assessments.

Assessment of off-farm investments is well advanced in many cases. However some evaluations require further investigation into the relationship between economics and hydrogeology to determine the impact of the savings on net diversions from the river.

In the case of wetlands, there are likely to be environmental impacts associated with reducing evaporative surface area that are still to be explored.

Policy implementation could focus on the lower cost off-farm options and those that exhibit positive externalities. These are the most likely to result in economically efficient investments.



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Ultimately, if private investment is to be attracted to off-farm water use efficiency investments, information on the value that society, through governments, would be willing to pay for environmental flows would be necessary.

The information required for on-farm investment depends on the extent to which market measures are used to implement policy.

If market-based instruments are utilised, policy makers will not need as much detailed information about on- farm costs and adoption rates. Such a scenario would allow policy makers to focus on targeting public investment in concert with on-farm investment, investing in information on the impact of externalities and addressing market failure where it affects on-farm investment decisions.

If policy makers wished to form better judgements on the potential for on-farm savings, it would be necessary to obtain more location specific information on costs of on-farm measures and reliable information regarding the achievable efficiencies.

General information on irrigated areas and methods at sufficient detail to construct information at the irrigation district level will become available in a few months with the release of the 2000/2001 Agricultural Census. This information will indicate the changes in irrigation methods since 1996/97.

However there are other ways to address market failure that are less demanding of government assembled information and it would not be prudent to take a definitive position on the information required for policy reasons in isolation of policy approaches adopted.

Regardless of policy approaches it will be important that research on the cost and application of water use efficiency techniques is available for use by irrigators. They are the ones who are closest to resource allocation decisions on-farm.



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9. References

ABARE - Current issues. Improving water efficiency, July 2002.

ABARE, Benefits of improving water use efficiency, a case study within the Murrumbidgee Irrigation Area, prepared for Land and Water Australia, July 2001.

ABARE. On farm adjustment in irrigated horticulture in the southern Murray Darling Basin. Final Report to the MDBC, November 1999.

ANCID, Australian Irrigator Water Provider, Benchmarking Report for 2000/01.

Armstrong D, Knee J, Doyle P Pritchard K and Gyles, O. A survey of water use efficiency on irrigated dairy farms in northern Victoria and southern New South Wales. Natural Resources and Environment, Institute of Sustainable Irrigated Agriculture, Kyabram, 1998.

Armstrong D, Knee J, Doyle P Pritchard K and Gyles, O. Water use efficiency on irrigated dairy farms in northern Victoria and Southern New South Wales.

Bewsher Consulting Pty Ltd, A Review of Water Efficiency Savings Available in NSW, September 1999.

Bewsher Consulting Pty Ltd, Efficiency Improvements for Menindee Lakes and the River Murray, August 1998.

Boland A., Corrie J., Bewsell D. and Jerie P. Development of Benchmarks and Best Management Practices for Perennial Horticulture, prepared for the Murray Darling Basin Commission, March 2001.

Brown S and Rendell R. “Environmental factors which impact on improvements in water use efficiency in the irrigated dairy industry in North Victoria and Southern NSW” or Water Savings in the Irrigated Dairy Industry, September 2000.

CapitalAg, The potential for improving water use efficiency, First paper, August 2002

Constable, C. and Giddings, J., NSW Agriculture, the Economics of Drip irrigation

Cook H. Comparing three irrigation systems on sandy loam soil 1997-2000. DNRE Swan Hill 2001.

Corrie J and Boland A. Water use efficiency for horticulture to ensure profitability and sustainability, 2001.

Department of Natural Resources and Environment, Tatura. Improved Irrigation Practices for Forage Production, Module 6: Sprinkler, subsurface drip and surge irrigation experiment, June 2002.

Douglass W and Poulton D. Results of irrigated farm census. Goulburn Murray Water, 1997.



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Douglass W and Poulton D. ‘Living With Limited Water’ - Towards Efficient Water Use on Irrigated Dairy Pastures. ICID Journal, 9:2, 2000.

Gutteridge Haskins Davies. Salinity Impact Study. Final report to the Murray Darling Basin Commission, February 1999.

Hickey M and Ashcroft B, NSW Agriculture and ISIA Tatura. Project I7024 – Benchmarks and best management practices for irrigated vegetable crops in the Southern Murray Darling Basin, February 2002.

Hopkins M. Adoption of affordable, improved irrigation systems for horticulture. Final report, October 2001.

Jayasuriya R and Crean J, NSW Agriculture. The agricultural impacts of environmental flow rules in the Murrumbidgee, October 2000.

Kaine G and Bewsell B. Soil Monitoring, Irrigation Scheduling and Fruit Production, Part Two, October 2000.

Linehan C, Armstrong D, Doyle P and Johnson F. Factors associated with increases and decreases in water use efficiency on irrigated dairy farms in Northern Victoria. The Irrigation Association of Australia, 2002 National Association of Australia – “Irrigation: conservation or conflict”, May 2002.

Marsden Jacob, Improving Water Use Efficiency in Irrigation Conveyancing Systems, Draft final report September 2002.

Meissner T. Benchmarking and monitoring irrigated horticulture. PISA, Loxton, South Australia, presented to Irrigators Forum Tatura 1998.

Muldoon D. Drip Irrigation demonstrates benefits in the MIA. NSW Vegetables Conference, Bathurst, 1998.

Murray Irrigation Limited, Environment Report, 2001/02.

Murrumbidgee Irrigation, Environmental Performance Report, 2001/02.

O’Neill, D. Chandris Pty Ltd. On-farm water use efficiency in Northern Victoria, July 2000.

Raine R and Foley J.P. Comparing application systems for cotton irrigation – what are the pros and cons. Proceedings, “Field to fashion” – 11th Australian Cotton Conference, August 2002.

Sinclair Knight Merz, Water Savings in Bulk Water Systems in Northern Victoria.

Sinclair Knight Merz, Water Savings in Irrigation Distribution Systems, June 2000.

Snowy Water Inquiry, Final Report, 23 October 1998.

Tim Cummins and Associates with Rendell McGuckian and Alistair Watson, Analysis of Environmental Factors that Impact on Improvements



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in Water Use Efficiency in the Irrigated Stone and Pome Fruit Industry in Northern Victoria.

Wood M and Martin M. Department of Natural Resources and Environment, Tatura. Improved Irrigation Practices for Forage Production, Module 2: Alternative Irrigation Technology Desktop Analysis, 2000.

Young M, Young D, Hamilton A and Bright M. A preliminary assessment of he economic and social implications of environmental flow scenarios for the Murray River System.



A1-1

Attachment A1. Project Brief

A1.1 Scope for Water Use Efficiency Savings as a Source of Water to meet increased Environmental Flows – Independent Review

A1.1.1 Background

The Murray-Darling Basin Commission is seeking a comprehensive analysis of the likely costs and benefits in regard to possible increased environmental flow allocations to the River Murray. Background information on the project is available at www.thelivingmurray.mdbc.gov.au.

A potential source of water for increased ‘environmental flows’ is savings of water from existing consumptive uses, of which irrigation is of overwhelming significance. A range of policies have been proposed and implemented in recent years both on-farm and off-farm. These policies are usually referred to as measures to promote ‘water use efficiency’.

Yet, it is well known that efficiency is a difficult concept in economics. Technical efficiency in the use of one input like water is not the same as economic efficiency in the use of all inputs available to irrigators. Investment in water saving has to meet the financial tests applying to other investment. Moreover, water savings on-farm may have negative consequences for environmental flows. Laser levelling of land used in gravity irrigation and replacement of furrow irrigation with spray or drip systems in horticulture provide examples. Return flows will be diminished if water savings are used on-farm or sold to other irrigators. Similar investment criteria apply for water savings off-farm through measures to reduce distribution losses in irrigation such as lining channels, piping water or pressurised systems in pumped irrigation districts. Again, what happens to water savings with reduced distribution losses in the irrigation system impinges on environmental flows.

In undertaking its analysis of the costs and benefits of increased environmental flows, the MDBC must consider the potential for water use efficiencies as a source of water. While a range of broader studies into water use efficiency, including by the MDBC, are currently in progress, the MDBC requires an independent and rapid assessment of the likely scope and cost of such gains. To this end, a short consultancy to critically review available information and advise on the scope for water use efficiency gains is sought. The study will essentially be a desk-top review supplemented with selective consultation. The results of the study will allow the MDBC to postulate indicative options for realising water use efficiency gains and to explore their significance in the economic analysis of environmental flows.



http://www.thelivingmurray.mdbc.gov.au/

A1-2

A1.1.2 Tasks

The consultancy tasks are:

1. Clarify the concept of ‘water use efficiency’ from an economic rather than technical sense. This will require elaboration of determinants of the demand for irrigation water as an input to farm production. Substitution possibilities for irrigation water in different industries need to be understood to assess the social and economic impacts of reduced water availability.

2. Identify trends in on-farm and off-farm water use applicable to irrigation along the connected Murray River system.

3. Prepare a short critique of recent and current studies into prospects for improved water use efficiency in the Murray River system. In particular, studies supported by Land and Water Australia, the MDBC, and major Commonwealth and State research agencies should be considered. Relevant studies should include, but not be limited by:

ABARE (2001) Benefits of improved water use efficiency, a case-study of the MIA, report to LWA

CapitalAG (in progress), Water use efficiency in the MDB, a study commissioned by MDBC

Marsden Jacob (in progress), Investment Strategy for transmission losses, study commissioned by AFFA and administered by LWA

Marsden Jacob (in progress), Institutional issues and drivers for water use efficiency, study commissioned by AFFA and administered by LWA

Snowy River Inquiry and subsequent examination of water saving options by the Commonwealth and State governments.

4. Provide an overview of key technical, economic, environmental and policy issues likely to affect realisation of the water use efficiencies identified in (3) above.

5. Present the critique of studies (3) and overview of issues (4) to a MDBC convened workshop that includes stakeholder representatives. It is envisaged the workshop will be held at the Commission’s Canberra offices.

6. Based on the material reviewed and comments provided, provide an assessment of the likely scope, cost and location for water use



A1-3

savings that could be secured through targeted investments - on-farm and off-farm - in the River Murray system. In principal, this would yield a supply schedule of water from efficiency savings – however the likely difficulty in postulating such a schedule given the data and time available is recognised.

In the absence of such investment, identify those savings likely to be ‘induced’ through increased water scarcity / prices if consumptive use rights are otherwise reduced to provide water for environmental flows.

Advise on the level of confidence that can be placed on the assessment.

Advise on key information requirements necessary to improve future assessments of opportunities for water use efficiency savings.



A2-1



Attachment A2. Workshop Attendance

Attendee OrganisationAlan Smart ACIL ConsultingCameron O'Neill ACIL ConsultingNoel Beynon CapitalAgOnko Kingma CapitalAgJohn Marsden Marsden JacobMatthew Toulmin Marsden JacobKate Austin SKMColin Mues ABAREDrew Collins BDA GroupAlistair Watson Private consultantMichelle Scoccimarro EATony Martin CRPMatt Kendall MDBC Trevor Jacobs (part) MDBCLindsay White MDBCSandy Robinson MDBCLouise Rose MDBC Brendan Edgar LWAPhil Cole SAGerrit Schrale SAJudy Goode SAPaul Harvey SATerry Court GMW (Vic)Bob Wildes Formerly with NRE (Vic)Meredith Hope Dept. Ag (NSW)Saji Joseph DLWC (NSW)Martin Shafron EALois Hunt AFFAPeter Donnelly Environment ACT

A3-1

Attachment A3. Report of ACIL Tasman visit to Tatura On Monday the 11th November, Cameron O’Neill (ACIL Tasman) travelled to Tatura to meet with QJ Wang and Ian Goodwin from the Institute for Sustainable Irrigation in Agriculture (ISIA). QJ Wang provided the unpublished results of experiments recently conducted on the water application efficiencies of flood, sprinkler and drip irrigation methods on pasture for dairy. These results enabled ACIL Tasman to conduct analysis on the potential water savings from the adoption of sprinkler and drip irrigation over flood irrigation in the Northern Victoria dairy industry. Further prospective references were also obtained.

Ian Goodwin provided information about the application efficiencies and uptake of various irrigation methods in the Victorian horticulture industry that was also used in the analysis in Chapter 7.

Subsequent to these meetings research was conducted in the DNRE library which enabled further irrigation survey information to be obtained (ie Armstrong et al, 1998; Boland et al 2001) and other useful sources referenced in the report (eg Kaine and Bewsell, 2000; Cook, 2001).



scope for water use efficiency savings as a source of water ......5.2.1 water savings in...

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