Henning Bjornlund

Efficient water market mechanisms to cope with water scarcity

Water markets are increasingly being relied upon as an instrument to reallocate water between competing users under conditions of water scarcity, and within an environment of fully committed water resources. Without such a reallocation new irrigation developments cannot take place and economic developments will be forgone to the detriment of rural communities. There is therefore a need for continued development of a water market mechanism to ensure that this reallocation process can take place as efficiently as possible, and to alleviate the socio-economic impact of water scarcity. Since markets are still emerging around the world it is important to learn from operating markets. This paper discusses the operational mechanism of a water exchange in Victoria, Australia, and analyses the outcome of the first five years of operation.

Aspects of water markets for developing countries: experiences from Australia, Chile, and the US

Water market reforms are being promoted by international organisations, such as the World Bank, and pursued within many developing countries. Actual experiences with water markets are limited and the opinions regarding the beneficial or detrimental impacts diverse. It is therefore crucial to learn from the few functioning markets. Some of the longest operating, and most mature markets in the world, are to be found in Southeastern Australia. This paper examines the outcome of water trade in Southeastern Australia and combined with US and Chilean experiences outlines some lessons for the introduction of markets in developing countries.

Farmer participation in markets for temporary and permanent water in southeastern Australia

Abstract This paper analyses water market activities in an irrigation community in southeastern Australia during the first 10 years of operation, in order to establish the extent to which irrigators have become familiar with the use of markets and adopted the concept, and to identify factors impeding and driving the operations of markets for permanent and temporary water. These discussions are based on analysis of water right registers, trading registers, interviews with buyers and sellers of permanent and temporary water, and workshops with key stakeholders in the irrigation industry. The analyses show increased adoption of water markets within irrigation communities and an increased understanding of their operations and advantages. It appears that irrigators are increasingly treating water as a commodity to be bought and sold on a seasonal basis depending on supply, demand and commodity prices. Markets for temporary water have achieved far wider adoption than markets for permanent water. The emergence of a water exchange within the study area has had a significant impact on this process, providing secure, reliable, fast and cheap water transfers. Differential tax treatment, significant policy uncertainty, the administrative complexity and cost associated with markets for permanent water and irrigators’ perceptions of water rights as an inherent part of their property, also are significant factors driving the preference for markets in temporary water.

Price elasticity of water allocations demand in the Goulburn–Murray Irrigation District

Bid prices for the demand and supply of water allocations between 2001 and 2007, and average monthly prices paid for water allocations from 1997 to 2007 in the Goulburn-Murray Irrigation District are analysed to estimate price elasticities. Based on bid prices, the price elasticity of demand for water allocations appears highly elastic, with elasticities strongly influenced by the season and drought. The price elasticity of supply for water allocations is also elastic, albeit less elastic than demand. Using actual prices paid, water demand is negatively related to price and is inelastic, and appears to be most influenced by demand the previous month, drought and seasonality factors. Copyright 2008 The Authors.

Can water markets assist irrigators Managing Increased Supply Risk? Some Australian experiences

Abstract: Australia has undergone comprehensive water policy reforms since the mid‐1990s. These reforms have imposed considerable uncertainties with respect to future supply and passed the risk management burden from water authorities to irrigators. There is, therefore, an increased need for risk management tools to assist irrigators in managing this increased uncertainty. Water markets are seen as important tools for managing this uncertainty and in assisting irrigation communities in the necessary adjustment process. Australia, therefore, provides an excellent case study in the extent to which irrigators have used markets as a risk management tool. It is concluded that allocation markets have been used by irrigators to manage uncertainty and risk within and between seasons while entitlement markets have been used to adjust irrigators’ risk position in the long term, resulting in subsequent use of the allocation market to manage this new risk position. However, there is clear evidence that the substantial uncertainty with respect to future supply has made irrigators reluctant to use the entitlement market and has therefore seen them rely heavily on the allocation market to manage their existing risk position. Also, existing water trading arrangements are impeding new investments in high value, efficient production systems. To address these two issues and to remove these impediments a new National Water Initiative is presently being implemented.

Factors affecting water prices in a rural water market: A South Australian experience

Government agencies and water managers have showed an increasing interest for tradeable water entitlements (TWE) as a tool to alleviate the influence of raising water prices and to facilitate a reallocation of water resources to more efficient and sustainable uses from economic, social, and environmental perspectives. An understanding of how the water market works and which factors determine water right prices has become important to establish whether TWE policies facilitate this process. This research shows that the objectives largely have been achieved and that the more efficient irrigators are willing to pay a higher price for water, whereas the least efficient farmers are willing to sell at a lower price, showing that the buyers with high value of marginal product are willing to pay a price in excess of the value of the income generated by the sellers with low value of marginal product. Within the present legislative framework TWE does not, however, always direct water to the most sustainable users in an equitable manner.

The Socio-economic structure of Irrigation Communities – water markets and the structural adjustment process

Abstract Structural adjustment is an ongoing process within Australian agriculture. Governments have encouraged this process through rural adjustment schemes and since the 1990s, water markets and pricing policies have been seen as drivers of the process. This paper investigates the structural adjustment impact of temporary water markets within the Pyramid-Boort and Torrumbarry irrigation districts in northern Victoria. This investigation is based on interviews with temporary buyers and sellers in the market during 1998/99. Descriptive statistics, factor analysis and cluster analysis are applied to the outcome of this process to group farm businesses depending on their position in the farm adjustment process. These analyses suggest that all sectors of the farming community use water markets to cope with the adjustment pressures. One group uses the markets to retain their farming lifestyle, another group uses it as part of the adjustment process to become larger and more viable, while a third group uses it opportunistically. The irrigators who are not using the market are significantly smaller and use all their water. The research outcome strongly supports that structural adjustment schemes should concentrate on assisting adjusting farmers to become economically viable and to adopt best practice natural resource management.

Allocation Trade in Australia: A Qualitative Understanding of Irrigator Motives and Behaviour

Governments in Australia are purchasing water entitlements to secure water for environmental benefit, but entitlements generate an allocation profile that does not correspond fully to environmental flow requirements. Therefore, how environmental managers will operate to deliver small and medium-sized inundation environmental flows remains uncertain. To assist environmental managers with the supply of inundation flows at variable times, it has been suggested that allocation trade be incorporated into efforts aimed at securing water. This paper provides some qualitative and quantitative perspective on what influences southern Murray–Darling Basin irrigators to trade allocation water at specific times across and within seasons using a market transaction framework. The results suggest that while irrigators now have access to greater risk-management options, environmental managers should consider the possible impact of institutional change before intervening in traditional market activity. The findings may help improve the design of intervention strategies to minimise possible market intervention impacts and strategic behaviour.

Recent Australian Market Mechanisms as a Component of an Environmental Policy That Can Make Choices Between Sustainability and Social Justice

Markets in terms of tradeable water or pollution rights, are increasingly being offered as rational solutions for environmental problems. The rational pursuit of personal gain through trading is assumed to promote increased efficiency in resource use and promote a reduction in the negative aspects of the resource use. The social and distributive effects of the introduction of markets and their rules and operations have received little concerted study and examination. In this paper the role of justice considerations in the development of economically rational environmental decision making will be addressed through some case studies of rural water markets and urban water markets in Australia.

The Competition for Water: Striking a Balance among Social, Environmental, and Economic Needs

With many water resources overcommitted and suffering environmental degradation, it is becoming urgent to find ways to reallocate increasingly scarce water supplies to meet rising demand and growing environmental concerns. In Canada, this challenge is nowhere better illustrated than in Alberta. The province is home to 60 percent of all irrigation in Canada and has a fast-growing population and economy. These pressures helped prompt the province to halt the issuance of new licences for taking water from the Bow, Oldman and South Saskatchewan River subbasins in 2006, bringing into focus the need to fulfill rising demand for industrial, urban, and environmental water use. Without a reliable mechanism for transferring water access rights from prior holders to new users, Alberta’s continued economic development and its ecosystems could be threatened.