Water allocation in Australia's Murray-Darling Basin: Managing change under heightened uncertainty

Historically, water resource policy in the Murray-Darling Basin (Basin) has taken a pro-farmer orientation leaving the environment to become the residual claimant. Around 1990, the attention was focused on minimising overuse that led to on-farm productivity losses and developing a market for water to help define opportunity costs of water in irrigation. More recently, the scope has been extended to include explicit allocations for the environment. However, the failure to agree on policies for recovering water for the environment in the implementation of the Basin Plan has extended avenues for rent seeking and cost shifting, thereby raising the total costs of reform. A focus on water use per se, rather than system productivity, and sidelining of market-based approaches in preference for government investment in water recovery and water use efficiency has complicated risk assignment amongst different users. Recurring droughts and resultant scarcity of water has made negotiations further complicated and controversial, broadening the gulf between environmentalists seeking public good outcomes and irrigators seeking private profit. Despite these, the MDB system as a whole, including dryland and irrigated farming, environmental uses and other industries, has adjusted to chanding conditions, drawing on new knowledge and technology and emerging market opportunities. Irrigators have shown an ability to diversify into new commodities with better prospects for managing risks. However, declining farm numbers, a changing demography and accelerating climate change point to general failure risks if the reform process were to halt and governments disregarded the gains through a rebalancing of consumption possibilities from the full complement of Basin's resources - not just irrigation. This paper, examines the sources of social costs in water resource allocation, including pros and cons of water trading with respect to agricultural production and externalities. The aim is to canvass possible reform alternatives which might help governments to become a catalyst in fostering collaboration for efficient adaptation. (c) 2020 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.