Water What can the nut industry learn from Australia?

Peanut and Tree Nut Processors Association ConventionBahamas, January 2009

Prof Mike Young Executive Director, The Environment Institute Research Chair, Water Economics and Management The University of Adelaide

Water

• Many nut crops depend on access to irrigation

• Adapting to change– Urban and industrial demand is drawing

water away from agriculture;and

– Supply may be decreasing• Nut industry prosperity will depend in

part on rapid access to water in an ever changing world.

Some Australian mistakes

• Climate shifts– We forgot to plan for long drys

• Rights, policy and governance– We embraced water reform without

establishing a property right system that was designed for trading

River Murray Inflows (GL)

In 2006/07, we broke the month by month inflow record for 11 months

Inflows have been well below evaporative losses

Managed by running down stocks and reducing evaporation by closing off wetlands and not replenishing lakes

Symptoms - The River Murray

• Over-allocation– Dredges in its

mouth since Oct 2002

– Level below the sea– Rising salinity– Serious acid-

sulphate soil problems

– Bottom in strife!– High security

allocations in SA on 18%

Long drys

DRY WET

Total River Murray System Inflows (including Darling River)

8 yrs 12 yrs 52 yrs

0

500

1000

1500

2000

19

11

19

14

19

17

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Ra

infa

ll (

mm

)

14% less 20% less

Rainfall for Jarrahdale

0

100

200

300

400

500

600

700

800

900

1000

19

11

19

14

19

17

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Str

ea

mfl

ow

(G

L)

N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ri l

48% less

66% less

S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )

PERTH

Insufficient planning for step changes

- 1%

- 3%

With half as much water

Users

Environment

River Flow

Environment

River Flow

Users

Water needed to ensure conveyance

Entitlements Environment

Flood water

Shared WaterEntitlements

Vo

lum

e of w

ater availab

le

Environment with a

fully-specified share

A robust sharing system

Now buying back water for the environment

$3.1 billion

With half as much water

Users

Environment

River Flow

Environment

River Flow

Users

River Flow

Environment

Users

Which nut industry future is best?

• One that gets water fundamentals right, now?

• A system that can be confidently explained as one that will enable the nut industry to cope -- whatever future arrives

• One that facilitates autonomous adjustment and change

• One that creates opportunity

• One that is always behind, always playing catch up?

• No guarantee of resolution of current problems• Lots of impediments to change

Australian water policy and reform

• Share rather than seniority system– In rivers, usually two surface water pools

• High security pool• Low or general security pool

• Formal volumetric allocation systems– All use is metered and use limited to allocation

• Minimal role for courts and lawyers– Allocations and rules decided by government

of the day– Right to trade held by individual water users

not districts

Water Rights & Reform in Australia

Water

Tradable Right Price

Land

Single Title to

Land with aWater Licence

Entitlement Shares

in PerpetuityBank-like Allocations

Use licences with limits & obligations

Delivery Capacity Shares

Delivery Capacity Allocations

SalinityShares

SalinityAllocations

National CompetitionPolicy 1993/94Plus Cap

National Water Initiative2004

Now trying to fix the problems created by the naive introduction of markets bolted onto an entitlement regimes that lacked hydrological, environmental & economic integrity

Scarcity and Trading

Source: Murray Darling Basin Commission, 2007.

Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04

0

100

200

300

400

500

600

700

800

900

1 000

1 100

1 200

198

3/8

4

198

4/8

5

198

5/8

6

198

6/8

7

198

7/8

8

198

8/8

9

198

9/9

0

199

0/9

1

199

1/9

2

199

2/9

3

199

3/9

4

199

4/9

5

199

5/9

6

199

6/9

7

199

7/9

8

199

8/9

9

199

9/0

0

200

0/0

1

200

1/0

2

200

2/0

3

200

3/0

4

Tra

ns

fer

Vo

lum

e (

GL

)

0

100

200

300

400

500

600

700

800

900

1 000

1 100

1 200

1983/8

4

1984/8

5

1985/8

6

1986/8

7

1987/8

8

1988/8

9

1989/9

0

1990/9

1

1991/9

2

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

2002/0

3

2003/0

4

Intrastate Temporary (GL)

Intrastate Permanent (GL)

Interstate Temporary (GL)

Interstate Permanent (GL)

Trading has been good for the Australia’s nut industry

Water Reform Trading opened up

Reform Outcomes

• Positive– Facilitated considerable greenfield development

• Grapes• Almonds

– Massive innovation– Massive wealth creation– Many more irrigators survived the current long

dry– Movement of water out of areas with salinity

environmental problems

• Negative– Over-allocation still not solved

Water reform created Wealth

400

500

600

700

800

900

1000

1100

1200

2000 2001 2002 2003 2004 2005 2006

Year

Cotton Index

Sugar Index

Total crops sector Index

Total Livestock sectorIndexMilk Index

Total prices received Index

Total Grains Index

Waterdex

Psi-Delta 2007

Bjornlund and Rossini 2007

Water reform

• Driven by political realization about the importance of getting water right

• States have referred MDB planning powers to Federal Government– New independent Authority of 6 people to

produce a new Basin Plan

• Buying water entitlements for the Environment

• Investing in water efficiency• Trying to remove remaining barriers to

trade• Taking climate change risk seriously

CSIRO Sustainable Yield Project, 2008

CSIRO Sustainable Yield Project, 2008

CSIRO Sustainable Yield Project, 2008

Advice from the lessons we have learned

Regime arrangements1. System connectivity – manage GW and SW as one2. Capped the wrong thing – cap entitlement potential not

use3. Return flows – account for them4. Unmetered uses – include them5. Climate change – plan for an adverse shift6. The environment’s share – define it and allocate to it7. Storage Management – include in trading regime

Individual licence arrangements1. Registers – validate them early2. Entitlements - define entitlements as shares3. Trading – forgot to get the costs and time to settle down4. Not enough instruments – needed to unbundle5. Inter-seasonal risk management – allow markets to

optimize carry forward6. Exit fees – Need to allocate to individuals or allow trade

out of districts7. Trading risk – develop tagged trading

Water reform and the nut industry

1. Encourage discussion of and planning for very long drys

2. Encourage transfer of ownership to individuals

3. Encourage replacement of seniority system with a share system

4. Encourage integrated management of ground and surface water

5. Encourage preparedness for a different water future and need to trade water on a daily basis

Embrace water reform – trial it It will be good for your future!

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

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