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Water Amendment Bill 2008

CHAIR —I welcome officers from the Department of Agriculture, Fisheries and Forestry. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanies by a statement setting out the basis for the claim. Does anyone wish to make a brief opening statement before we go to questions?

Mr Grant —Not really, but I would just like to remind the committee that, under the Australian government administrative arrangements, program policy responsibility for all water related issues rests with the Department of Environment, Water, Heritage and the Arts.

CHAIR —Thank you for that clarification.

Senator NASH —Perhaps you could remind us what you are responsible for so we make sure we ask questions in the right area.

CHAIR —That is a very good point, Senator Nash.

Mr Grant —Well, in general terms, we are responsible for looking after the interests of the Australian agriculture sector and promoting the profitability and growth of the Australian Agriculture sector. Jointly with the environment department we work on natural resource management issues, through the joint team, but we do not have specific policy responsibility for any of the water policy issues.

CHAIR —That is very helpful, because the Department of Environment, Water, Heritage and the Arts will follow, so I am sure that if a question comes up that is not under your banner you will be able to steer us very quickly so that we can give it to the next department. I know that Senator Nash is busting to ask some questions.

Senator NASH —Not necessarily, but I am happy to proceed. I have some questions around agricultural production. Is it the responsibility of your department—or have you done any work on it—to model potential productivity losses in terms of reduction in water capacity for communities, whether or not there is any reduction, potentially, in those communities? Have you done modelling on the different scenarios?

Mr Gooday —ABARE. has done some modelling, presented at last year’s Outlook conference, looking at the impacts of a reduction in water availability to the irrigation sector. That was based around a hypothetical scenario of a 10 per cent reduction in long-term rainfall and, following that, a 20 per cent reduction in inflows. The results of that analysis were that across the basin we estimated a 5½ per cent reduction in irrigation incomes. Underneath that reduction was quite a substantial shift in land use out of some of the lower-value activities, with water moving from those lower-value activities.

Senator NASH —Did you do any concurrent work on water efficiency? If there were to be, say, water efficiency gains alongside that reduction in water use, did you do any work on whether or not the productivity levels would increase from what you have just outlined?

Mr Gooday —No, we have not done any of that sort of analysis. The irrigation survey report that came out earlier this week has some information in it regarding water use by different crop types and by areas, but we have not looked at what the implications would be of a change in technology or people adopting different technologies in regions.

Senator NASH —It might be useful if you could provide a copy of that to the committee, if that would be okay.

Mr Gooday —Yes, we can do that.

Senator NASH —Did you just do broad general numbers or did you drill down commodity by commodity?

Mr Gooday —They are broad numbers in the sense that we split out horticulture, dairy and broad-acre irrigated agriculture. And they are broad in the sense that we looked at—I cannot remember exactly—around seven or eight regions in the model. So it is not going down to the micro subcatchment level and we did not look at different types of horticulture and different types of dairy operations.

Senator NASH —With those broad commodity areas, did you look at them in terms of domestic production compared to what we may have exported across those commodities?

Mr Gooday —No, the analysis so far has basically assumed that prices remain constant—

Senator NASH —Oh! Sorry, I am a farmer and I find that very amusing.

Mr Gooday —We have not looked at what the implications of a change in the relative price of commodities produced using water might mean. And, yes, there may be some change in relative price but we have not looked at that yet.

Senator NASH —All right. Did you do any work additional to that on the community impact from those broad reductions you were looking at?

Mr Gooday —The paper includes analysis at the regional economy level. We used a general equilibrium model of the Australian economy and within that we have been able to split out the parts of each state that are in the Murray-Darling Basin and looked at what the flow-on impacts to those broad regional economies are. The results of that were that for most of the areas there was a relatively small impact; I suppose we are talking about a 5.5 per cent reduction anyway. But it was really only in those areas that are highly specialised in terms of agriculture production that it had a substantial impact or something above the one or two per cent level at the regional economy level.

Senator NASH —The ABARE socioeconomic impact study report is due mid next year isn’t it?

Mr Gooday —Yes.

Senator NASH —With that, what process or recommendations will be in place given that the buy back program has already started? If indeed that report does show that there have been negative impacts on the communities, what will the department do in terms of some kind of framework to address that? I guess I am asking what the next step is. If we go with this buy back program—which is really putting the cart before the horse because the report is not coming out until the middle of next year—and then the report actually shows that it has had some negative impacts on our communities, what happens then?

Mr Gooday —That is very hypothetical. We would have to look—

Senator NASH —But I think it is a very important question because the whole point of doing the report is to figure out whether there are going to be negative impacts or not on our rural communities. So it might be hypothetical, but I would have thought that that was something that had been considered, otherwise, what is the point of doing the report.

Mr Gooday —I guess you would have to try to disaggregate the report by whether there are specific subregional issues or specific commodity based issues—some commodity groups may fare differently to other commodity groups, or there might be some regional or subregional impacts or there might be other demographic impacts that come out of that. So it is really hard to predict that there will be a general conclusion that says that it is all bad or it is all good; potentially there will be mixed reporting there. Until that comes out we will have to have a look at that in conjunction with the environment and water department and make a judgement then about what the impacts really are.

Senator NASH —Sorry, that was not my question. We will be able to see from then what the impacts are. My question is actually what will the next step be? You may be quite right, there may well be mixed reporting, so if indeed at that point it can be shown from the reporting that there has been a negative impact—even if it is on a particular community area or particular commodity type aspect—what is the next step?

Mr Gooday —I guess the government will have to look at the outcomes of the report and decide on what sort of changes to policy, if any, are needed.

Senator NASH —Has there been any discussion at all pre-empting perhaps any negative impact on communities?

Mr Gooday —I think you should ask that question of the environment portfolio because they are actually commissioning ABARE to do this work.

Senator NASH —Okay, that is fair enough. I will happily ask them and I will leave you alone not having to answer that question.

Senator SIEWERT —I have some questions but I think they may be better directed at the department of the environment. I will flag that. Is it your department that I should ask about audits and inventories around the issue of the interaction between groundwater and surface water? I think our first witness, Ms Mattila, said there needs to be better work done around groundwater.

Mr Grant —No, it is the Department of Environment, Water, Heritage and the Arts.

Senator SIEWERT —Yes, that is what I thought. I think that most of my questions are for the environment group. Because Senator Heffernan is not here I will wear the mantle for this issue—oh, he has just come in—about plantations that are impacting on water use and are not being properly factored into water sharing plans. I am also thinking of the report put out by CSIRO a couple of years ago that looked at those six threats to water use, one of which was plantations. Then there was a subsequent report that said, ‘Well, it’s not quite as bad as we thought it was, but it is still an issue.’ What further work are you doing around that?

Mr Grant —I think most of the work on that is being done through the COAG process. They are trying to put together some consistent guidelines that they can offer to the local catchment management authorities whose job is to construct those local water management plans. They want to provide some better science around the uptake of water from plantations and its broader impact. Hopefully, through that process there will be a more consistent treatment of trees in plantations and water allocations across the community. I am pretty sure that is where most of that work is being done.

Senator SIEWERT —Where catchment water sharing plans have been developed in the absence of those guidelines and that work, what potential is there outside the 2014 expiry date in New South Wales? Is there capacity to go back and alter those in light of new information or do we have to wait until 2014?

Mr Ryan —I believe that would really be a matter for the states, under whose jurisdictions the plans are developed.

Senator SIEWERT —Okay, I appreciate that. Thanks.

Senator FISHER —It will surprise no-one that I would like to ask this department about its views on the meaning of proposed section 82A in the bill. I will provide those questions to you in writing for you to answer them on notice.

Mr Grant —Could I just reiterate, Senator Fisher, that we do not have responsibility for the bill or the policy—

Senator FISHER —I understand that.

Mr Grant —so it is unlikely that we will give a personal view about the definitions in the bill.

Senator FISHER —I would urge you to consider doing so because you will, nonetheless, be part of the advisory arm, in a policy sense, to government. I would have thought that you would want to ensure that government is implementing policy that is able to be understood clearly, and implemented with clarity and certainty.

Mr Grant —I agree, and we do work on a whole-of-government basis with our colleagues in the department of water, but again it is their responsibility to bring the bill forward and to construct the bill as it is.

Senator NASH —Can I just turn to Toorale. Did you give the government any advice on the buy-out of Toorale?

Mr Grant —Not to my knowledge, no.

Senator NASH —Nothing at all, anywhere?

Mr Grant —No.

Mr Ryan —Sorry, could you repeat the follow-up question?

Senator NASH —I asked, ‘Nothing at all, anywhere?’ I was just double checking that there was absolutely no advice from anyone in the department.

Mr Ryan —On the purchase, no.

Senator NASH —No. Did you provide anything at all on Toorale?

Mr Ryan —Subsequent to that we provided information to the minister on issues that arose in discussion about it, but not on the purchase.

Senator NASH —What were those issues?

Mr Ryan —They were land management-type issues and community concerns.

Senator NASH —What sort of advice did you give the government on those issues?

Mr Ryan —A description of the process that was gone through for the sale and the planning for post sale management of the land.

Senator NASH —What is the planning for post sale management of the land?

Mr Ryan —There is a committee being established to oversee the management after the handover.

Senator NASH —Who is actually going to do the management?

Mr Ryan —As I understand it, New South Wales will own the land and undertake the management. There is a process for management of the water, which will give the Commonwealth control over the water until the planning to separate the title of the water from the land goes through.

Senator NASH —Who will make up the committee? Has it already been formed?

Mr Ryan —You would have to direct that to environment department.

CHAIR —Senator Nash, we are inquiring into the water act. I know that there are a lot of questions to be asked about the whole Murray-Darling Basin but we have gone down that path extensively in estimates.

Senator NASH —We have plenty of time, Chair. I think my question generally relates, but I will accept your admonishment and cease my line of questioning forthwith.

CHAIR —No, it is already on the record.

Senator NASH —No, you are quite correct.

Senator XENOPHON —If my question has been covered before, please tell me. Further to the questions asked by Senator Nash in terms of productivity, I know that the CSIRO is undertaking its sustainable yields project. One of the propositions put to me by constituents, by irrigators in the Riverland region of South Australia—and I believe them on the basis of the evidence that they have put to me—is that they are more efficient in terms of there infrastructure investment and the like. Is there any way of assessing which regions are more efficient? In other words, for producing a kilo of citrus of grapes in different irrigation regions, to what extent can that be ascertained in terms of determining public policy and determining the basin plan and other ancillary measures?

Mr Grant —Efficient in terms of water use in particular?

Senator XENOPHON —Yes, and in terms of tying that in with productivity.

Mr Gooday —I suppose the survey report that came out earlier this week gives some information in that regard.

Senator XENOPHON —Earlier this week?

Mr Gooday —Yes. On Monday, I think.

Senator XENOPHON —Is that your department’s report?

Mr Gooday —That is an ABAIR survey of the Murray-Darling Basin.

Senator XENOPHON —Right.

Mr Gooday —That report produces farm financial information at a catchment level by different farm types and there is some information in there regarding water use efficiency by different crop types by area.

Senator XENOPHON —Sorry—by crop type or also by region?

Mr Gooday —Both.

Senator XENOPHON —Does that shed any light on the differences in efficiency for different regions, or not?

Mr Gooday —It is a difficult thing. Water is one input into producing grapes or citrus or anything else. There are a range of other inputs including—

Senator XENOPHON —You are sounding like Professor Garnaut!

Mr Gooday —the price of the land as well as the productivity of the land. Just looking at the volume of water used to produce a kilo of output for a particular crop type by area is not the end of the story. I suppose the other—

Senator XENOPHON —I suppose you would have to factor in the cost of the land?

Mr Gooday —Yes. It is basically the profitability of the operation and how much they can afford to pay for the water. One indication of which areas are more productive is the direction of the water trade.

Senator XENOPHON —Because the market, in a sense, is voting with its feet?

Mr Gooday —Yes. Irrigators are deciding for themselves whether they want to purchase water and produce or whether they are better off selling the water to someone else and for them to produce.

Senator XENOPHON —But that indication of productivity is distorted by the four per cent cap, isn’t it?

Mr Gooday —Yes. The four per cent cap is, at the moment, restricting water trade—that is, permanent water trades; there are plenty of temporary trades taking place.

Senator XENOPHON —To what extent does that skew or distort the true picture though? Has any modelling been carried out to determine any changes in water trading as a consequence of the lifting of the cap?

Mr Gooday —We have not done any modelling looking at the impact of removing the four per cent cap to date.

Senator XENOPHON —Or any variations?

Mr Gooday —There has been modelling looking at what things would look like if you had perfectly free water trade over the longer term. Obviously, water moves to its most efficient uses. I am not sure that there is a great change from the current set of uses. It depends on what the water availability scenario is. But ABARE have not done any modelling recently looking at that issue. We have focused on looking at what will happen if there is less water available in the future than there is now.

Senator XENOPHON —Has any modelling being done on what will happen if things are still grim—a combination of drought and climate change? Has any modelling been done on variables of even less water in the system to look at how that would change production and where water would go and for what types of crops?

Mr Gooday —There is the ABARE work that was presented at the last Regional Outlook conference, which looks at a 10 per cent reduction in inflows.

Senator XENOPHON —That of course translates to much greater loss in terms of water in the system, doesn’t it?

Mr Gooday —Sorry, a 10 per cent reduction in rainfall results in a 20 per cent reduction in inflows. That translates into reductions in income and changes in land use. Similar work was done for the Garnaut review by the University of Queensland, looking at a much longer time period and different water availability scenarios.

Senator NASH —You said the four per cent cap was trade restrictive. How do you measure how much trade would actually occur if the cap was not there?

Mr Gooday —This is one of those counterfactual things. You can do it with a model. There would be estimates.

Senator NASH —It is an interesting issue, isn’t it, because there comes this very clear and distinct statement from a number of quarters saying that the four per cent cap restricts trade, but then how do you actually measure how many other trades there would be without the cap there?

Mr Gooday —You can see that it restricts trade just by seeing that the cap is reached. It is reached quite early in the irrigation season in some areas. You can see that people would like to trade more water out of those areas.

Senator NASH —But that is an assumption, isn’t it?

Mr Gooday —No. There is a waiting list.

Senator NASH —That covers it off for you, then.

Mr Ryan —There are a number of catchments in Victoria, as Mr Gooday was saying, where the cap is reached early in the season and trades are rejected because the cap is reached.

Senator NASH —What percentage?

Mr Ryan —I do not know. I heard an estimate of $19 million worth of trades rejected.

Senator NASH —Do you do that state by state?

Mr Ryan —No.

Senator NASH —I would be very happy for you to take this on notice, if you would not mind. I am interested in, across the board, the percentage that is sitting there that would trade if the cap were not there.

Mr Ryan —We could take that on notice.

Senator NASH —That would be good. Thanks.

CHAIR —That ends the easy part. Gentlemen, for the questions you have taken on notice, our reporting date is the 19th, so you have not got a lot of time to get that information.

Senator NASH —Tomorrow afternoon would be good, thanks!

CHAIR —So there were questions on notice from Senator Fisher and from Senator Nash. We know how efficient DAFF is. There is no query there. Thank you very much, gentlemen, for making the time to come today.

Proceedings suspended from 5.29 pm to 5.40 pm