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Impact of the Murray-Darling Basin Plan on regional Australia

CHAIR —I now welcome representatives of the Australian Conservation Foundation to today’s hearing. Thank you for your submission. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We have received a written submission from you. Are there any further submissions that you would like to make? If so, feel free. Would you like to make an opening statement? I remind all witnesses that we do have written submissions and we do not need people to reread their submissions in any sense. I think the value of the interchange today is obviously the receipt of the submission but also the capacity to ask questions in relation to the content of it.

Dr Harriss-Buchan —We will make a short statement—we will try and keep it short—and we have a couple of additional pieces of material being handed around. We would like to thank the committee, of course, for the invitation to appear today; it is a great privilege. The Basin Plan represents a once-in-a-lifetime opportunity to put both the environment and the economy of the Murray-Darling Basin onto a genuinely sustainable footing. Everybody knows that the way that we have tried to manage water in the basin for decades just is not working. In less than a century, the amount of water that we extract from the basin has increased by 500 per cent. That is far too much, and as a consequence the river and wetland health is in serious decline. The Guide to the proposed Basin Plan itself says:

… environmental failure now threatens the long-term economic and social viability of many industries and the economic, social and cultural strength of many communities.

That is a pretty strong statement, and I think that is why we have to change the way that we share water in the Murray-Darling Basin to restore the balance between water for irrigation and water for the environment. The only alternative to sustainable diversion limits is a continuation of unsustainable diversion limits, and that will not support any of the values that we currently recognise—social, environmental or economic—and that we want to preserve for the long term.

In the guide to the plan, the authority says it will only recommend changes within the range of 3,000 to 4,000 billion litres because of the perceived negative social and economic impacts that might occur above this, yet the authority acknowledges that 3,000 gigalitres of additional water will achieve this only under a wet future climate scenario, despite what we see all around us. That is not what the climate change scientists are telling us to expect—quite the contrary, in fact—so we have to do more than just the bare minimum to put the basin back onto a sustainable footing. On the subject of climate change, we feel that the serious and in many cases disastrous floods across south-eastern Australia, hard on the heels of a decade of intensive drought, echo what the scientists have been warning us about for 25 years—that is, that climate change will cause more frequent and intense extreme events, including drought and climate change.

One of the benefits of a strong basin plan which properly addresses overextraction is that it will make the environment, the economy and the communities more resilient and able to bounce back from extreme events like the last drought. Regarding the floods, I have provided the committee with two additional short papers. There is an op-ed there by ACF’s president, Professor Ian Lowe, which discusses floods and other extreme natural events within a climate context, and there is also a summary of some recent scientific advice regarding climate change and the risk of increased flooding, particularly in Queensland. The committee could consider making a clear, public statement about the link between climate change and extreme weather events as a step forward in the process of helping Australians understand the immediate need to get on top of the climate crisis. To talk specifically to the question of direct and indirect social and economic impacts of the proposed Basin Plan I will hand over to Simon O’Connor, ACF’s economist, who will look at some of the key pieces of evidence that we have at hand.

Mr O’Connor —I think it is timely to revisit some of the economic evidence that we have at hand because we do have a broad and deep amount of modelling that has been undertaken that underpins the plan. I will just go through a few of those that identify some of the socioeconomic impacts of sustainable diversion limits, in particular and firstly the ABARE modelling that was undertaken by the authority, the Australian Bureau of Agriculture and Resource Economics, which is very clear that there could be 800 job losses across the basin with a loss in the value of irrigated agriculture of around 15 per cent.

More recently, this was supported by some more modelling that was undertaken for the authority by Monash University’s Centre of Policy Studies. This was another very detailed piece of modelling from some of Australia’s leading modellers that came up with similar outcomes but gave a little more insight into the regional impacts of sustainable diversion limits. Notably, it estimates a loss of about 500 jobs and a reduction in the value of irrigated agriculture by about $800 million by 2026. However, it does note that the value of dry land agricultural output will increase over time by about $400 million. Employment over that time decreases by only 0.1 per cent below forecast employment levels. In fact, jobs in the services sector increase in that time. Some regions will see slight decreases in employment and other regions will in fact see increases in employment, according to the modelling.

There will also be some minor increases in some food prices. Notably, and at the highest end, that is rice production. The price of that will increase by seven per cent by 2026. But, on the other hand, we see that vegetable prices will in fact decrease over that period due to the changes in sustainable diversion limits. The Monash report provide some good insight into how to minimise the socioeconomic impacts of reform, and its conclusions are notable. It says that the reform has little impact because it is a voluntary program that is undertaken over time as opposed to rapid and involuntary. The reform is not a shock but rather a slow and predictable change that farmers can plan for.

The report’s authors conclude strongly with the following:

There has been a recurring tendency by some lobbyists to assert that SDLs could be as detrimental to agriculture in the MDB as drought. This is not true.

Unfortunately, the evidence from this report, released in November last year and largely ignored to date but which was an authority commissioned report, continues to be largely ignored. When this is the very evidence that is directly supported by the empirical data we have from the last 10 years of drought across the basin it is worth looking at this. The guide itself found that, despite the drought, over the last 10 years employment in the basin has continued to grow at around 8.3 per cent. The basin is a very diverse and dynamic economy beyond merely agriculture and so we see that growth in jobs has been largely unrelated to agriculture, with most growth being in government, administration, defence, construction and the services sector such as health, community services and education. Furthermore, we also see that, despite the massive reductions in water entitlements over the drought period, the equivalent reductions in the value of irrigated agricultural output were relatively minor. The conclusion there is that water trade has allowed irrigators to adapt with very little basin wide reductions in the value of agricultural output.

One report that is worth noting that has been cited as evidence that thousands of jobs will be lost directly contradicts this weight of evidence that I have just presented. Known as the Stubbs report—by Judith Stubbs for the cotton community CRC—it claims a reduction of water of 25 per cent across the basin will lead to devastating job losses. For Mildura, for example, the report projects an employment loss of over seven per cent under 25 per cent water reductions. Yet ABS data from 2001 to 2006, when in drought, water reduced by over 25 per cent, in fact shows employment in Mildura growing by four per cent and across the basin growing by 1.2 per cent. So we really need to assess the credibility of some of the modelling that people are referring to out there in the debate at the moment.

The empirical evidence of the last decade suggests the irrigation industry is in fact dynamic and is willing to adapt and respond to the challenges of reduced water availability. Just as important to the committee is the assessment of economic benefits that can come from sustainable diversion limits. We have heard earlier of ecosystem services. Some work has been commissioned by the authority to value the environmental benefits and the economic benefits of improved environmental health. This was released quietly at the end of 2010 and has largely been ignored to date but I think it is a fundamental piece of research. It was undertaken by two leading academics across Australia from the CSIRO and Charles Sturt University. These non-market values are indeed difficult to pin down but nonetheless they are critical as they reflect the often undervalued role that a healthy environment plays for those living in the basin. This research finds that merely restoring the Coorong region from a state of poor health to good health is worth a massive $4.3 billion in economic benefits, well and truly overwhelming the loss of potential irrigated agricultural output.

We at the ACF have also been contributing to this because we feel that this is the unseen part of the debate to date. We have been looking at the value of restoring wetlands to health and what are the economic values that come from the ecosystem services that wetlands provide to the surrounding communities. In particular we are talking here about water filtration, water storage, indeed the habitat provision that is important for pollination and insect predation.

CHAIR —Please draw it to a close as we would like to ask you some questions.

Mr O’Connor —Sure. A study of ours alone found that 16 wetlands across the basin were worth about $2 billion annually. It is important to look at the actual evidence out there. There is a lot of hearsay in the debate. I am happy to take questions along these lines.

CHAIR —Thank you. I will ask a question firstly in terms of some of the environmental icon issues. Does your group have a view in relation to some of the managed water arrangements that have been mentioned rather than in respect of total overbank flows in some of the reaches of the Murray River, for instance, that are more structured, so a more structured, targeted approach in terms of environmental management? Do you have any views on some of the suggestions that have been put forward? Do you have any suggestions that could alleviate some of the circumstances in those environmental icon sites?

Dr Harriss-Buchan —Are you referring to environmental works and measures?


Dr Harriss-Buchan —I think everyone would agree that we need to have really skilled environmental water managers. A lack of skill and expertise in that area can be worse than none at all, so we would very much support that. That requires proper funding, training, independence and an ability to make good decisions and support largely from within the CMAs, within the natural resource management bodies. It is very important that we have the state agencies on board and that we have local knowledge harvested and on board and so on. I think that, specifically in reference to environmental works and measures, there are plenty of opportunities out there to be able to use some pieces of infrastructure to improve the efficiency of environmental water use to get more environmental outcomes per unit of water used. It is not a panacea. It is not a one-size-fits-all thing. Things can operate better. The notion that we can improve the environment by putting another layer of concrete across the whole basin is, of course, ridiculous and we do not support that, but certainly there are case-by-case opportunities to do good stuff with infrastructure. Those should be researched and analysed on a case-by-case basis.

CHAIR —This is to assist the committee. If you did have any examples of where you believed there were some suitable options we would like to see those.

Dr Harriss-Buchan —We can certainly provide you with some of those.

Mr ZAPPIA —Through you, Chair, I thank the witnesses for their presentation. Mr O’Connor, in your report you quote a study which says that if the Coorong went from poor to good health it would generate an extra $4.3 billion in economic productivity. Can you provide some examples of where that $4.3 billion would come from? In other words, what constitutes the additional productivity that you are referring to?

Mr O’Connor —It is very important to note the difference between market and non-market values, and we are not talking about economic productivity in the market sense; we are talking here about non-market values. What we are generally referring to are things that are unpriced in the market, services that we are currently receiving for free. An example of these types of services are pollination and habitat provision for bats and birds and bees. Often these are not costed on the balance sheet because they are so difficult to pin down. We realise where these values lie when we lose these services. For example, in the United States we have seen the collapse of bee colonies and all of a sudden we have realised those pollination services from bees have cost the US economy $15 billion a year from lost production of fruit and nuts and the need to import bee colonies to replace those. Also, if you look at water filtration and storage for wetlands you are looking at a replacement cost. Were you not to have a wetland you would have to build the infrastructure to process and treat water or to build a dam to store water. So these are services that are provided for free and that otherwise would be costs incurred by the economy.

Mr ZAPPIA —Thank you.

Dr Harriss-Buchan —I can offer an example of an economic outcome which is recognised by the market and something which has a very clear social and economic value that has been lost. There used to be 23 dairy farms around the Lower Lakes and now there are three. The others went out of business initially because water became too salty for them to irrigate with and subsequently because they just could not get their pumps far enough out into the water. So that is a rather clear example of environmental degradation and of how industries that rely on a healthy natural resource to underpin those industries have lost out from that decline in environmental quality.

Mr SECKER —I thank you, Tony, because you asked the question that I was going to ask: where that $4.3 billion for the Coorong was going to come from. As the representative of the Coorong, I was quite amazed by that figure but there was the explanation which showed that it was not actually real money; it was in value. Some time ago the Wentworth group suggested that we needed to return 1,500 gigalitres to the system. I note that at the time the Australian Conservation Foundation, not to be outdone, said we actually needed 3,000 gigalitres returned to the system. What has changed your mind to increase it by 150 per cent to 7,600 gigalitres?

Dr Harriss-Buchan —There have been various studies over the last 10 or 15 years, all of which I think have actually been rather consistent in what they have said is required. The scientific advisory group, not the Wentworth group, said in 2003 that 1,500 gigalitres returned to the Murray was required to return the river to a healthy, working river. That only considered the Murray main stem. It did not consider any of the main tributaries. It also did not consider any of the Darling system. It did not incorporate climate change impacts into its modelling or its assessment. As for the studies that have been done by the authority and by others—the CSIRO initially and the National University and others—science is always uncertain, it is always contestable and it is always improving. There is a crisis going on in the basin. It is driven by overextraction and until recently it has been exacerbated by drought, and it will get worse under climate change. I really think there is a crisis and it needs to be dealt with.

Dr STONE —You referred to the fact that you thought the guide was very good and appropriate because it was a voluntary program. I presume you are referring to the voluntary buyback of water that irrigation farmers would offer.

Dr Harriss-Buchan —Yes.

Dr STONE —Are you aware of the statement that is being made very often that if you were drought stressed and were coming out of drought with a huge debt it is not necessarily voluntary when you put up your hand to put water up for tender at $1,400 given that when you borrowed against it it would have been worth $2,400 a megalitre. I am interested in where you got this sense that water buyback is in fact voluntary, not drought and lender pushed. Do you see any other alternatives if in fact those who are selling their water now are doing it as a last resort, not as a means of future productivity?

Dr Harriss-Buchan —I think that the drought had a shocking, awful, terrible impact on many, many producers right across the basin, and the level of debt within those farms is enormous. But the water market has enabled people to make good business decisions with the assets that are available to them. The water, whether it be selling part or all of their permanent entitlements or engaging in the temporary market, has enabled people, stressed under drought, to make decisions that are good for them and good for their businesses. The National Water Commission did a study last year looking at the water market and the impact of the water market on irrigators and other people within those areas and they concluded without any equivocation that the water market was good for irrigators and good for farmers. It enables them to do good business with their assets. I understand that many people are under a lot of pressure, but there is a difference between engaging in a process of making decisions about how you deal with that and having a blanket, across-the-board 10, 20 or 50 per cent cut in your allocation or being forced to give up an asset. There is a difference. Also, there are many people engaging in the water market who are not stressed sellers. They are businesses looking at the future, looking at their assets, looking at markets and making decisions which are good for them. We get phone calls all the time saying, ‘I am not a stressed seller. I want to sell. I am constrained by the cap’ or, ‘I am not stressed—I am a willing seller, but government does not want to talk to me. Why not?’

Dr STONE —I will ask another very quick question. You said that you see that the growth in jobs in the basin in the future will be government jobs. Are you suggesting they will be mostly Centrelink jobs? Clearly there will be fewer people engaged in agriculture if they keep on selling their water as you are saying is best. Which area of government jobs are you talking about where the growth is going to be?

Mr O’Connor —It is a fair question: the services sector more broadly, public and defence sectors but also health and community services—a broad array of the services sector, including retail. You would also know very well that there is a very strong construction and manufacturing sector across the basin too.

Dr STONE —You stressed the government sector would be where the growth was.

Mr O’Connor —As one of the five sectors I noted in the services sector, correct.

Mr TEHAN —I have two questions. I note in your modelling for Victoria, for the Wimmera and Avoca rivers, that under your current diversion limits the condition is poor, and I assume you would suggest would remain so unless there are changes made. The modelling for 7,600 gigalitres a year for the environment would return it to 80 per cent. Given the rainfall that has occurred over the last six months or so, do you think that maybe needs to be relooked at or would you still think that that stands?

Dr Harriss-Buchan —That is not our modelling. That is the Murray-Darling Basin Authority’s modelling or what they have drawn from. Australia is a nation of droughts and flooding rains. We always have been; we always will be. But the prediction from the climate scientists is that the impact of climate change is that it will make droughts much worse—longer, deeper, harder, with bigger impacts—and it will make the flooding events more intense, bigger and difficult to deal with. So, with respect, we should not get distracted from the long-term need to have water reform in a good process, a good basis for sharing water between all the legitimate users. People said over the last 10 years that the worst drought in history was the worst time to try to make water policy, and there is a point in that. The biggest flood in history is also a bad time to make water policy. But we have no choice. There have been 20 years of bipartisan support in water reform and we just must not be distracted from the task. We need to keep our eye on the medium and the long term and make decisions that will be effective during periods of drought and flooding rain. So please do not get distracted by the floods.

Mr TEHAN —You have talked about the benefits of the water market. Do you think that having the government in that market and as a large consumer of that market could lead to inefficiencies?

Mr O’Connor —It will likely lead to a higher volume of trade and higher liquidity, which may even improve efficiency. Inefficiency can be variably defined. It is certainly something that the government needs to play very carefully so that it does not crowd out the market and inflate the market. I understand that it is trying its best to do that at the moment. But I think there are relevant concerns there.

Dr Harriss-Buchan —We would refer the committee to the Waterfind analysis of that. They have done a very professional and broad-reaching study into the impacts of government and looked at some advice that comes from that to improve the way that government can participate in the reallocation of water between sectors without distorting markets or having other unintended negative impacts.

Mr TEHAN —Would you agree that there is a danger, though, of government interference in the marketplace that could lead to problems within the efficient use of that market?

Mr O’Connor —In response, I would say that the government are players in most markets in Australia. For example, they are the largest procurer of commercial rental space in the cities and are the largest electricity producers. They are active participants and players in all our markets. By definition, that is how Australia with a large public sector operates. So markets are very used to governments being active players. This situation is no different.

Ms LEY —On the issue of the water markets, do you think that it is reasonable during these floods that the government continues its buyback pushing, if you like, the price of water down to at least $1,000 a megalitre less than it was six months ago? You have a product such as water in such large supply; therefore, its price is lower. What would you say about the government continuing a tender based buyback of water?

Dr Harriss-Buchan —I think we should keep our eye on the long term and the medium term, not on the short term and that the government should continue to purchase water and align its buyback and efficiency programs, consistent with priority areas as identified in the Sustainable Rivers Audit and in the proposed Basin Plan. In terms of price, though, it always happens. When there is a lot of water the price goes down; when there is not a lot of water the price goes up. I am not an economist, but that is my understanding of what a market is all about. In terms of forcing the price down that comes back to the previous question. I would refer the committee to the Waterfind report, which has done an extensive analysis on that.

Ms LEY —You have not really answered the question. If this were the Stock Exchange and this were a trading market there would quite possibly be a trading halt, given the uncertainties surrounding the Basin Plan and the recent floods. Do you think—yes or no—it is reasonable for the government to continue its tender based buyback?

Dr Harriss-Buchan —Yes.

Ms LEY —Do you also believe, as do the previous witnesses, Environment Victoria, believe it would be a good thing to remove the locks and weirs on the Murray River?

Dr Harriss-Buchan —There are about 2,500 locks, weirs, regulators, dams and things in the Murray-Darling Basin. Some of them—

Ms LEY —I was thinking of the main ones on the Murray River. There are just over 30.

Dr Harriss-Buchan —Some of them are very important and provide for the multiple values of people who use them. Many others are redundant, mostly small ones that block fish passage and so on. They should be removed. I do not think it is a one size fits all. There are multiple, legitimate users of the Murray-Darling Basin and they all need to be provided for. Until very recently, the environment has been poorly provided for and this Basin Plan, along with other processes, should address that. But we have no fixed, one-size-fits view on infrastructure in that context.

CHAIR —Thank you very much. Our time is up. Thank you for taking the time to come along and for the written submission. If you do have any additional material or would like to follow up on some of the questions that have been raised, please do so. There will be a transcript from Hansard of the proceedings today.

[9.55 am]