Bismarck is supposed to have said that for the sake of digestion and peace of mind, one should never watch the process by which either sausages or legislation is made. Certainly that’s true of the Draft Basin Plan released by the Murray Darling Basin Authority a few days ago.
What was supposed to be an evidence-based analysis aimed at determining sustainable outcomes was derailed by poor communications and legalistic processes. The botched release of the Guide to the plan last year produced an outpouring of fear and outrage among irrigators who were repeatedly told that their water allocations would be “cut”. The Government rapidly abandoned the process and engaged in the political bargaining that has produced a new plan, of which the most prominent feature is a proposed environmental water allocation of 2750 gigalitres (or perhaps less) well below the 3000 to 4000 GL suggested in the Guide as the minimum necessary for a sustainable outcome.
The process by which this outcome was reached wasn’t pretty and, unsurprisingly, no one is happy about it (I had my dummy-spit a fair while ago). But, considered as a political compromise, the outcome isn’t all that bad. If the 2750 GL total holds, the environmental allocation will be around 25 per cent of the median flow – that’s comparable to what the Snowy got in the deal brokered by Craig Ingram in 2009. It’s a lot better than seemed possible even seven years ago, when politicians could barely agree on measures to return 500 GL, and a suggestion of 1500 was ruled out of court before it was even studied.
Thanks to the Water for the Future program, something like 1700 GL of average flow has already been (re)purchased from irrigators who have been happy to sell. If the government pursues this path, they could declare victory in a few years time and abandon the costly boondoggles involved in subsidising supposedly water-saving engineering projects.
John Quiggin 
In the event the buybacks are not enough I think we must consider what now seems heresy, that environmental flows could be cut. A major way to do this is allow seawater incursion in the lower Murray lakes which appears to be its geological destiny without human intervention. The end of the main river channel would be dammed and a narrow channel dredged to the sea for navigation
http://www.lakesneedwater.org/case-for-seawater
The WW2 era barrages and a pipeline to dairy farms now being built from upstream suggest some have already predicted a grim future of the lower lakes.
I can’t give a figure for the water savings since I don’t know how much salt flushing would be needed, but try 1000 GL for a start. Many millions of dollars would be required to compensate farmers and homeowners in the affected area. I expect this idea will be ridiculed until we hit the next big dry spell. Until then there seems to be no bounds to the sense of green entitlement.
Hermit seems to have forgotten that environmental flows have benefits outside the small fraction of the basin that is the lower lakes.
And as a side note it wasn’t Bismarck:
http://quoteinvestigator.com/2010/07/08/laws-sausages/
In its annual report for 2009 the MDBA notes that the average [which is higher than the median] flow for the MDB was decreasing.
For the period 1891-2009 the average annual flow was 10,995 GL/y.
But that includes ‘the good ole days’.
So for the earlier years of 1891 -1996/7 the average was 11,600 GL/y.
Thats because the later year averages drag down the number for the whole period.
What has the average been since 1996-7 [that can drag the long term average down so heavily]?
From 1996-2009 the average was/is …..5400 GL/y.
That is not much water.
And the median flow shows an even more depressing state of affairs.
In 2002 the MDBC gave the median flow as 9,000 GL/y and that number could be decreased post ’96 by the same method as the average number to something significantly less than 9000 GL/y.
What does this mean?
It means that the amount of water in the river is far less than it has been in the past and with the spectre of climate change predicted by the CSIRO as likely to cause ‘a 11% reduction in average surface water availability across the MDB ” [CSIRO Report On MD Basin Water Sustainability] water is going to become an resource even more scarce in the future than it is now and far more scarce than it has been in the past.
So unless irrigation allocations are dramatically cut there will be less than minimal water for urban/domestic usage and environmental flows. Current irrigation licence allocations exceed the likely future inflows to the river by huge amounts.
The proposal of this present plan is simply not sustainable.
But this plan can surely be improved over time though right? Once the government has finished this round of buy-backs, it can start another. So this should be considered a baby step.
It’s a gutless plan. Those demanding “balance” ignore the obvious fact that the Plan is already a “balance” between envt and farming, a balance weighted heavily towards farmng. That said I don’t think Greens should oppose it. Tony Burke seems to be behaving courageously and is faced with months of monstering from the irrigators supported by MSM and shock jocks like Jones. If Hanson-Young hits him from the left the river is what will suffer because nothing will get through. I think Sarah should stand shoulder to shoulder with Tony on the [Murray] Bridge and try to hold the 2750 line. Then, that bedded in, buybacks and technology bringing some sanity in, have another round adding say another 1000gl in a couple of years. Then again 5 years after that. There is simply no way of turning back the irrigation “facts on the ground” created over 50 years in one go in one short time period. I wish things were otherwise but they are not.
In the eyes of a Minster, a “sustainable outcome” would not be one where the Minister/Government lost power at the next election.
Saxe, probably Bismarck and seemingly Quiggin, support NOT watching “the process by which either sausages or legislation is made”. The rationale is related to digestion and peace of mind, so one can surmise that the “watching” may produce extreme mental anguish so as to make one laugh or cry.
John quotes Australian data, but I think I saw the above story on “Yes Minister”, although the circumstances were slightly different – it was very funny!
I think the outcome is not too bad and that the propensity to show outrage is a kind of defensive response (by for example the Green movement) to the anticipation that the other side will show outrage (for example irrigators). There is no exact science – particularly when it comes to valuing environmental benefits and measures which substantially improve the status quo should be applauded.
I felt outraged myself when I heard Green Senators would vote against the plan if accepted in this form. Reminded me of their destructive attitude toward carbon pricing a while back.
I was also outraged when a farmer was quoted in The Age saying “if they take the water from us”. What a disgraceful, bald-faced lie. Water is not being taken from anyone, it is being purchased on terms acceptable to vendors. There are no compulsory acquisitions.
@David Horton
I actually think the Greens opposing this is good political strategy. The Australian political commentariat seem completely beholden to “The Grey Fallacy” – that is, that the correct opinion is always halfway between two vociferously opposed parties. It’s a silly, lazy, non-position held by people who can’t be bothered to acquaint themselves with the facts, but it’s political reality.
If the Greens are seen to be as outraged as the irrigators, it might attract the support of self-proclaimed Centrists. If Brown and Hanson-Young are seen to be happy with the package, Alan Jones is going to have a lot more ammunition.
Surely a better plan would be to reverse the current system of water rights. First we guarantee the environmental flows, then we allocate any remaining water. Given the economic habits of the day, presumably via an auction. With residential water prices the way they are, that is unlikely to affect anyone’s drinking water price. After that I suspect it would be the mining companies, but there’s a lesson in that too.
“costly boondoggles involved in subsidising supposedly water-saving engineering projects.”
What are you trying to say, water doesn’t evaporate from open channels therefore it is a waste of time installing pipes. That large shallow dams shouldn’t be taken out of the system. That basic science should be acknowledged when talking about climate change but ignored when talking about irrigation, dismissed with the throw away line ” supposedly water-saving engineering projects”.
As ignorant statements go I suspect this is up there with the best offered by climate change deniers and other flat earth types.
@Charles
The basic engineering and science of the boondoggles is that the water savings are not worth the money. As the irrigators will not have to pay the water savings are well worth it to them. If the irrigators had to pay themselves they wouldn’t dream of spending the money for a second. Maybe the word ‘supposedly’ is ill chosen but the sentiment, that they’re not worth the money, is perfectly correct.
High time for Australia to stop pandering to farmers.
hermit#1 The lower lakes, in their natural state, were predominantly fresh, becoming brackish only after extended periods of low flow.
Those who continually advocate opening the lower lakes to the sea are advocating both the death of the Coorong and the Lakes as natural ecosystems. Where next? Close off all the billabongs, backwaters and anabranches one by one until you get to the other major lakes on NSW and Vic? Why not close off Menindee lakes? Hattah lakes?
Have a look at this map and compare the size of the lower lakes to some of the other lake systems in the MDB.
http://www2.mdbc.gov.au/nrm/water_issues/wetlands.html
True, the lower lakes are not as natural as they once were because now they are always fresh as opposed to predominantly fresh, but this is a survival mode brought about by excessive extractions by upstream states in the early 1900?s.
Click to access the-facts-the-lower-murray-lakes-and-coorong.pdf
The Coorong was a major fish nursery but is becoming hypersaline due to years of low river flows.
Those upriver so keen to give up the ecosystems in SA, what ecosystems are you prepared to give up in your respective states?
“As ignorant statements go I suspect this is up there with the best offered by climate change deniers and other flat earth types.”
Perhaps you should resort to Google (or a look in the mirror) before you start talking about “ignorant statements”. This has been the conclusion of every serious study of these projects – you would be hard pressed to find an economist or independent expert anywhere in the country who supports these schemes
http://www.theage.com.au/environment/water-issues/brumbys-water-plan-savaged-20100327-r4dh.html
The Victorian Ombudsman – http://www.ombudsman.vic.gov.au – has just presented his report on the ‘Foodbowl Modernisation Project and related matters’. Inter an excellent alia, chapter 3 presents a succinct account of the false claims that are often made about the potential for water savings through investment in irrigation infrastructure. Even if the claims about water savings were true, the costs would be exorbitant, not to mention grossly unfair to other businesses that provide their own capital equipment.
The Age article referenced refers to the pipeline to relocate water from the north of Victoria to the Melbourne conurbanation. Did the related report also cover off the evaporation/seepage issue in general? That pipeline plan was flawed for many reasons, one of which was that it did not take advantage of existing infrastructure.
National Program for Sustainable Irrigation does seem to identify some progress in reducing evaporation/seepage, looking at dams, channels and sprinkler irrigation, and there’s Erik Schmidts work, too. http://eprints.usq.edu.au/8344/
A reading of the Vic ombudsmans report suggests that the concerns are with project governance and to a lesser extent, the accounting processes for water losses (it did not , in my reading, refer to these as false), rather than commenting on the potential savings and the broader economic value.
To quote, selectively:
“NVIRP has achieved its progressive water savings targets to date and
made satisfactory progress in modernising the irrigation infrastructure.
However, some capital installations are behind, due to the recent floods,
and some quality issues exist in relation to capital installations and
designs.”
If it is worthwhile why wouldn’t competent farming companies do it themselves? Why does the taxpayer need to pay for it? Simply because it is not worth doing unless some other poor sucker, in this case the taxpayer, pays for it.
Reducing seepage isn’t a real saving – the water “lost” through seepage goes back to the environment. There’s no reason in principle why reducing evaporation couldn’t be worthwhile, but the actual schemes that have been implemented have been, as I said, appalling boondoggles.
Mozzie you are world’s best practice on selective quotes. Of course, the Victorian Ombudsman was more concerned with governance issues. Nevertheless, I defy anyone to read chapter 3 of the report and not question claims about water savings. There is an international literature on the chimera of water savings in irrigation. A good local place to start is an elegant paper by Oliver Gyles in Connections, Autumn 2003, available on the website of the Australian Agricultural and Resource Economics Society.
@Salient Green
If I recall the link in 1839 Capt Charles Sturt found the lakes very salty after the river channel. The difference between the Lower Lakes and evaporation pans like Menindee and various billabongs is cost effectiveness. Recently the side channel to Lake Albert was blocked then unblocked by bulldozers, nothing like a major engineering project. A salt barrier weir at Pomanda Pt would be fairly cheap and quick to build. Those interested should fly to the placemark Nalpa, SA on Google Earth and see the layout. With the Goolwa barrages it’s simply a matter of leaving them open for the sea to inundate. A salt flushing and navigation channel say 10m wide minimum 2m deep could be dredged from the weir to the sea.
The big money will be needed for compo for ‘lifestyle’ homeowners and some dairy farms, some of whom already are getting a backup water pipe from way upstream. SA people (as I was formerly) have a very big sense of entitlement oblivious to the fact that most Murray water originates in Qld and NSW. Then they have the gall to create new housing subdivisions near Adelaide presuming they have first dibs on Murray water.
Unfortunately when you say “If the government pursues this path, they could declare victory in a few years time and abandon the costly boondoggles involved in subsidising supposedly water-saving engineering projects.”
Its those expensive boondoggles of water saving infrastructure upgrades that are intended to be the main vehicle for purchasing water – about 10 times more expensive than just buying the water off willing sellers.
It is so strange that the government could never win any of the basin seats off the Nationals, yet they are so scared of getting them off-side by buying their water (in a non-compulsory manner) that they will waste money upgrading their farming infrastructure…?!?
Ok. I’m really not trying to troll. But I’m interested in getting this issue clear. Thanks for the reference to the Gyles article – it gave me an idea of the arguments and some places to investigate. He deals with the seepage issue, and it seems quite similar to the outfalls and tailwater issues.
His concerns seem to me to be mainly with definitions and accounting (a point that greatly concerned the Vic Ombudsman). These losses go back into the environment (broadly), albeit in a localised way. But so (broadly) does evaporation. Gyles, by the way, mentions but does not cover evaporation, other than citing it as 15ml/ha (not sure what this is as a rate).
His other major criticism (it seems to me) is that there is no recognised system model, and that aggregation of lower level models are done without netting. Haven’t the hydrologists dealt with this issue?
The government shouldn’t pander to them. Government ought to use the right terminology when talking about them “Bludgers from the Bush”. Attempts at farming marginal land can often cause a lot of harm. Farms are businesses and shouldn’t be given any favoured treatment relative to any other business. In fact, because poorly operated farms can do a lot of damage to the environment government ought to keep an eye on them. If people want hobby farms, fine. But people in the city ought not to be expected to subsidize them.
The only rural adjustment scheme that ought to be operated is a once only in a lifetime bus ticket to move to the big city.
Perhaps not surprising that people misunderstand the Charles Sturt in Lake Alexandrina data. First it was 1830 – not 1839. Second Sturt reports the water in the lakes salty to taste. Human taste will say water is salty around 1500 ppm or less. Sea water is 30,000 ppm. Sturt’s comments are not evidence that the lakes would not be destroyed by letting in masses of seawater.
Without the barrages the lakes were esturine – somewhat salty but the usual river flows meant the lakes were never more than a bit brackish. Compare that to the proposals for moving the barrages to above the lakes. Result with low or no flows means the lakes head towards sea water status. Disasterous for the lakes ecosystem – same as the destruction cyurrently in the Coorong with water as salty as the sea or higher.
Maintaining salinity in the lakes way below sea salinity is essential for the lakes ecosystems.
@21, hermit, the point of the MDB plan is to return water for the environment, to protect valuable ecosystems like the coorong and the lower lakes, not for ” ‘lifestyle’ homeowners and some dairy farms,” or “new housing developments” as you thoughtlessly suggest, but for all Australians present and future.
It’s illogical to suggest cutting environmental flows if buybacks don’t succeed. A target has been set, weak as it is, and buybacks plus infrastructure improvements will continue until the target is met. Buybacks are through a tender process which allows the price to rise when not enough are selling, thereby making a sale more attractive.
[Reducing seepage isn’t a real saving – the water “lost” through seepage goes back to the environment. There’s no reason in principle why reducing evaporation couldn’t be worthwhile, but the actual schemes that have been implemented have been, as I said, appalling boondoggles.]
You have got to be joking. 90% of the water put into the wimmera/mallee system was lost to seepage in areas where water never flowed. The system opened up 10% of Victoria’s land area. Piping the channels has considerable reduced the amount of water used, as has closing the down the holding lakes used to control the flow into channels.
As to the benefits not justify the cost, I have heard the same argument applied to the NBN, roads, airports etc. and so on. I treat all such comments with equal suspicion.
Given that Australia’s strength is reasonable infrastructure combined with natural wealth, contempt would probable be a better word.
Take your link, http://www.theage.com.au/environment/water-issues/brumbys-water-plan-savaged-20100327-r4dh.html as an example. You obviously read the reporting and not the report.
Brumby was just unlucky, the North/west pipeline was an insurance policy. People seem to forget it pulled Bendigo out of the s**t. If the drought had of continued it would have been needed to save Melbourne. Does you rational economic policy extend to the destruction of state capitals?
I’ve ended up with a comment in moderation so I will use less colourful language when making this comment.
Much agriculture depends on irrigation, irrigation requires a complex system, water delivery and drainage has to be considered. It is actually best done in a dry environment as rain destroys crops.
Irrigation is expensive, with the long term viability very much dependent on the initial investment. John you have just dismissed seepage as a return of water to the environment, such a comment is wrong (I would like to use more colourful language).
Many irrigation schemes have failed because there was to much seepage and not enough drainage. The Murray Basin is no exception. In fact the rational way to close down the system ( some of it will have to be closed) is to close down the areas that do not have proper drainage combined with efficient water delivery.
In the above comments I read that if it was profitable farmers would put in the system. The counter is, if roads, rail, airports etc. and so on, were profitable the residents would install them.
Oh wait they do, they band together form a governing structure and build infrastructure. The governing bodies that build dams to water the city populations also build dams to irrigate. I know it was back in the fifties when governments still had this crazy notion that people have to eat.
Pretty much all the great cities have fertile hinterlands, hinterlands seem to be a forgotten concept in economics, I suspect it has something to do with the average city dweller believing milk is made in a factory.
In a modern would we have globalisation no doubt many will yell, and we can export the problem and import the food, have you ever looked at the price of Californian grapes (we do import them in the off season), it’s a pity the Californian irrigation system is under the same pressure as ours, but it’s not our problem is it, and grapes are a luxury anyway, so who cares.
I tell people that complain about “the government” to do it while driving on a road, and then ask themselves how they plan to get the roads built.
Perhaps Freelander, next time you tuck into your potatoes for $2.00 a Kg you contemplate how it happened. It has a lot to do with an irrigation scheme we all paid for. The farmer is just the sucker risking capital for this years crop. The subsidy you complain about is actually part of the infrastructure that ends up supplying cheap food (there are also a lot of public road, rail and other utilities built with public money involved).
The solution to our water problem is more efficient use of our water, that will involve installing proper irrigation and drainage systems in the areas that are to survive. More costly boondoggles.
I would be very disappointed with the Greens if they block this plan. You have to start somewhere.
A strategy to improve the plan incrementally would be the path of least resistance against entrenched farming / irrigator interests.
“People seem to forget it pulled Bendigo out of the s**t.”
That was a different (much shorter) pipeline, I think. In any case, the pipeline was the least of the problems as regards the Foodbowl Modernisation project.
“Take your link, http://www.theage.com.au/environment/water-issues/brumbys-water-plan-savaged-20100327-r4dh.html as an example. You obviously read the reporting and not the report.”
Umm, as you might have seen if you had bothered reading, I was one of the experts quoted in the report. This stuff is what I do for a living. You’ll have to do a lot more than the handwaving in your comments so far if you want to convince anyone here.
The statement by Charles that ‘Brumby was just unlucky, the North/west (sic) pipeline was an insurance policy’ suggests near total ignorance of the recent history of Victorian water policy, let alone its chequered past. No one explained at the time, or has since, why two insurance policies were required for Melbourne’s urban water supplies – the now mothballed north-south pipeline and the expensive desalination plant now under construction. The Foodbowl Modernisation project, also chillingly expensive, was supposed to provide simultaneously the political square off for the pipeline and water savings; in the event, the project has done neither. The people of Victoria were unlucky, not Brumby.
I have to agree that the Foodbowl Modernisation project sure looks like a boondoggle. Simply lining channels to stop seepage is numpty stuff when you still have evaporation and then need to add fencing because animals can’t escape the now slippery sided channels.
Not all irrigation rehabilitation projects are boondoggles however. Huge water savings are made in converting open channels to pipelines, not only by eliminating seepage and evaporation but by allowing the more efficient use of water on farm. Irrigators will dramatically cut water use by adopting efficient irrigation practices which require water at pressure.
As well as cutting water use, this has other benefits such as reducing fertiliser leaching which has on farm and environmental costs. Productivity will improve as a result of being able to deliver water precisely when it is needed by the crop and irrigators will become upskilled in their management practices.
There are many factors which should decide whether irrigation infrastructure is worth upgrading in any particular area and not all of them are purely a matter of economics.
One more thing. Why, when a government funds a rehabilitation project, does any water get returned to irrigators? That’s just nuts! Sure, the irrigators usually need to partially fund the scheme but they get plenty of benefits from the new system without having water handed back to them.
John writes:
That was a different (much shorter) pipeline, I think. In any case, the pipeline was the least of the problems as regards the Foodbowl Modernisation project.
If you going to take that path then the north-south pipeline is only the pipeline between yea and sugarloaf a mere 70km. The bendigo/ ballarat pipeline was longer at 87km, the Bendigo to the Goulburn Irrigation system was shorter at 45 km, the sorter distance being possible because the Goulburn irrigation system was in place.
Alistair Watson write:
The statement by Charles that ‘Brumby was just unlucky, the North/west (sic) pipeline was an insurance policy’ suggests near total ignorance of the recent history of Victorian water policy, let alone its chequered past. No one explained at the time, or has since, why two insurance policies were required for Melbourne’s urban water supplies
The north/south pipeline as completed in 2009. The desalination plant is still to be finished.
I am curious John as the “expert” which of these projects do you consider boondoggles, and what was your proposed solution if the the drought hadn’t broken.
Regards
Charles
Irrigators do have to put their own money into the efficiency savings programs. I think it works along the lines of govt pays 80% the farmer 20% with half the expected savings given to the govt in entitlement.
Of course some onlookers will think this is some great rort for the farmer, however this is more about maintaining vibrant communities, and in reality the given up entitlement will be worth more, in 5 years say, than a then second hand drip system.
It’s disappointing that economists don’t think an industry generating $5 billion per annum is worth taxpayer funds for water savings, even though it’s likely to be the irrigation industry’s own taxs as govt only plans to expend $1 billion a year.
Maybe it’s because they are economists that they would advocate spending a lesser amount of money on buybacks with no monetary return than a larger sum on infrastructure with a reasonable rate of return.
Whilst infrastructure will by and large cost more than straight buybacks, its because those buying are merely the highest bidder, not necessarily paying what it’s worth.
As I said, I don’t really have a problem with the pipeline. But in the absence of the Food Bowl project, the government could have built the pipeline more quickly, then bought whatever water Melbourne needed from irrigators willing to sell it, at a fraction (about 1/10th IIRC) of the cost they would have paid under the original proposal. As it’s turned out, of course, the whole thing has been cancelled/mothballed, which makes this one of the most spectacular boondoggles in history.
“Whilst infrastructure will by and large cost more than straight buybacks, its because those buying are merely the highest bidder, not necessarily paying what it’s worth.”
Say what? Would you be happy to pay double the going price for bread because the supermarket said it’s really worth more than what people are paying for it?
Are you saying that water used in irrigation has a higher value than what farmers are willing to pay for it? If so, why just water? Does irrigation deserve a subsidy relative to non-irrigated agriculture? Why not subsidise every input to agriculture? And, if you are going to subsidise every input, it would be more efficient to subsidise outputs instead? That wouldn’t be a good policy, but it’s better than paying farmers to use one method of production rather than another.
Pr Q @ #36 said:
Excepting the water desal plant. And lets not forget the near misses had with canals and river diversions. What is it about water supply that encourages grotesque ignorance of basic economic principles?
John Quiggin
December 3rd, 2011 at 21:41 | #36
Reply | Quote
As it’s turned out, of course, the whole thing has been cancelled/mothballed, which makes this one of the most spectacular boondoggles in history.
Actually the whole thing hasn’t been mothballed, the measures taken to make the system more efficient remain, bit sad for the keen water skiers but there is is. Because the pipes are there, Victoria’s water supply is more secure. Baillieu may like to play politics and get “experts” to write reports that suit his agenda, and make a show of not turning a pipe on (Suger Loaf is a pumped reserve with no natural flows, I read a age article claiming it is now full, I wonder how that happened?), but the fact remains, if any pipe is needed it will be used.
As an aside; I lump all three pipes into one because they all take water from the Murray basin, as the Murray basin is your interest, I find the splitting of the set to suit your argument interesting .
It may be acceptable for an accademic to assume infinite forsight when debating public policy, clearly it is not acceptable for public officials when the bets they are making can result in the destruction of a state capital.
Some may argue this has all happened before, the Labor Government panicked. I would like to point on the new variable is climate change, no one knows how it is going to end, for all we know the last two years may be the exception, the previous 15 the rule (if you have infinite for sight you could please let us know). It may be acceptable for a right wing nutter to assume climate change doesn’t exist but is not acceptable for pubic officials when the bets being made can results in the destruction of cities.
As I said, Brumby was unlucky,he took out insurance, and the event didn’t continue. There doesn’t seem to be too many bright enough to see the risks he was trying to balance and thank him for doing it.
Whilst infrastructure will by and large cost more than straight buybacks, its because those buying are merely the highest bidder, not necessarily paying what it’s worth.
Followed by a reduction of the problem to the selling of bread.
As there is considerable sunk costs in irrigation areas, and as the current payback is dependent on the situation in many unrelated agriculture areas the original quote is actually a sound argument.
The channels are only the tip of the ice-burg when it comes to sunk costs. The towns, the roads, the schools, many have no purpose if the irrigation areas are closed down.
If the factory making bread closes down all that is lost is a bit of capital sunk by the bread maker. The road across the front of the shed will still have a use, the school will probable not close down. The city will move on, in the scheme of things the sunk cost lost to the society will be next to nill.
In the case of the Murray Basin the sunk cost to be lost by the state are considerable, and yet we have an economist arguing we should leave the outcome to market signals that depend on rain (it destroys irrigation crops), or lack of rain (can’t irrigate without water) in other areas, price signals that have no relationship to the problem.
On a general note:
I accept I have no forsight, but my view is climate change is going to lead to more extreme events. The 100 year flood is going to occur in the next decade, the 100 year drought more often.
As engineers depend on climate records to make economic decisions it is going to make design very difficult. Should we now design for the 100 year flood or the 1000 year flood?
As the events occur society will demand that solutions will be found.
I know nothing about the situation in Queensland but I bet my bottom dollar there are now flood mitigations boondoggles being designed and if there is another flood event, they will get built, with many asking why where they not built before.
When Brisbane is once again under water will you be there John, arguing that the doondoggles can not be economically justified?
Salient Green. There are important differences in the economics of irrigation infrastructure in pumped irrigation districts producing horticultural crops, and gravity irrigation producing annual crops and irrigated pastures. Without elaborating those differences, issues of public finance and public administration are common to both. Should irrigation pay its own way like other agricultural industries? Are farmers or officials best placed to make decisions about water use and production plans; particularly, as you imply, when choice of irrigation techniques will be influenced by costs of labour, convenience and concern for product quality?
rojo. No economist is advocating ‘buybacks with no monetary return’. Support for buybacks derives from the much lower cost of achieving environmental objectives compared with public expenditure on irrigation infrastructure, on-farm or off-farm. This is not to say that all economists agree that the current approach to buybacks is satisfactory, or that environmental objectives have been properly considered.
Charles. Among several deficiencies in your views on Melbourne’s urban water policies, your arguments about insurance are unsatisfactory. Water security is a legitimate objective that is best achieved by selecting projects sequentially, the cheapest first, not the Brumby trifecta of a pipeline, desalination plant and the bizarre and indefensible Foodbowl Modernisation project. By the way, John Quiggin is not ‘an accademic [who assumes] infinite forsight’; he knows a thing or two about risk and uncertainty, and is not even an academic who assumes infinite foresight. With respect to your confused views on sunk costs and irrigation, you overestimate the role of irrigation, and any compensated cuts thereto, in the economies of towns in irrigation areas. These towns would be better supported by what John Quiggin has called elsewhere public investment in ‘soft infrastructure’ (education, health, transport and the like) than dodgy engineering exercises in irrigation infrastructure.
Alastair, The recent Productivity Commission report estimated that the extra cost of building the pipeline to Sugarloaf and of the desalt plant was $3.1-$4.4b over the next 20 years. This is the extra cost over using cheaper sources and using option pricing approaches. Take the average of this as $3.2b and ignore discounting.
Melbourne’s population is around 4 million so the annual cost of these measures is around $3.2 billion /20*4 million or about $40 per head. Is this a lot?
I don’t know but if we interpreted this as an insurance premium to ensure adequate non-rainfall dependent water supply for the next 20 years it is not obviously very large. Like Charles I am very concerned about the long-term effects of climate change. This seems to provide insurance against it at reasonable cost.
Arguments that the drought ended are silly since this is something you only know ex post.
OK you can say we could ideally save the $3.2b and use it for Schools etc. But I wonder if the scale of the costs being imposed here is not sometimes being exaggerated.
Harry
Alistair, I can only use my valley as an example. General security water was purchased by govt at $2212/ML. Dead money.
General security water recovered at a net $3300/ML. That Ml cost $1100 or so extra, but because it’s “saved” the farmer can continue to use the saved water to generate somewhere well in excess of $250 profit, even just in straight tax returns a 10% return. The point is economic activity is retained at a static level, not drained from the inland, at net economic benefit to the nation.
JohnQ, as a buyer my price is a little bit above the next offer, not what I’d be willing to pay.
The shoe is on the other foot because govt wants to be a buyer, and as such is able to buy the entitlement of those who value it least and sell. Thus the price is set. But I’m not willing to sell at such a low price, and as govt approaches the point where those with lower appreciation for their assets dry up the price will need to rise, to a point commensurate with the savings price of water.
What price would be paid for a loaf of bread if it were scarce? Hard to say and will depend on who is there to buy. And does that determine true worth in the end.
What we can estimate is a return on a ML of water, which is a much easier method of determining worth.
Harry. No one should dispute the case for water security for capital cities. The issue is then cost and project selection, including sequencing. It would be a notable fluke if a pipeline and a desalination plant were justified at the same time. The option of a smaller desalination plant for Melbourne scaled up over time also does not appear to have been considered. For the record, I don’t agree with a veto on dams. Securing water supplies should be an empirical question, including consideration of environmental consequences, as difficult as that it is. But we know for certain from the report of the Ombudsman that the former Victorian government was flying by the seat of its pants when it decided on the desalination plant, the pipeline and the Foodbowl Modernisation project as a package in the middle of 2007. There was no business case for the Foodbowl project. A large part of the burden falls on urban water consumers. This is a different kettle of fish to paying an insurance premium for water security.
rojo. The Commonwealth may have spent too much on water from your valley. But it is not ‘dead money’ in the hands of the seller. Implicit in your remarks is the assumption that water acquired for buyback will not be put to a beneficial environmental use. A lot more effort is required to sort out environmental watering policies, especially balancing flow and non-flow related objectives, but it is surely the case that buyback is the cheapest way of providing environmental water. It is also the case that returns to irrigation are low in some industries, in some places, at some times.
Alastair, I saw the claims in the PC report about scaling up from a small desal plant – I assume you give up some scale economies of doing it in one go but gain extra investment flexibility. Evidence on this would be useful.
It seems to me that the appropriate mix of desal and rainfall-dependent water supply technology is a portfolio problem analogous to the choice of holding assets as cash and in riskier but less expensive forms. The limitations to this are indivisibilities but what you want to hold are a set of uncorrelated (or better still negatively correlated) water yield returns.
BTW I wrote down the wrong range of estimated costs for the pipeline to Sugarloaf and the desal plant – they are $2.7-$3.7b. The average of these is $3.2b as I assert.
Alistair Watson
you overestimate the role of irrigation, and any compensated cuts thereto, in the economies of towns in irrigation areas. These towns would be better supported by what John Quiggin has called elsewhere public investment in ‘soft infrastructure’ () than dodgy engineering exercises in irrigation infrastructure.
Mate if there are no people, education, health, transport and the like are a complete waste of time.
A dryland area in the mallee will have farming units of several thousand acres, a irrigation farm a couple of hundred acres (and like it or not my generation deals in acres). A dryland farm producing grain will employ directly approximately 2 people, an irrigation farm on average around 20. You don’t have to analyse the situation very deeply to see that the populations densities are very different.
Each dry-land person does not require 200 times more Infrastructure to survive, in fact the infrastructure required in an area is pretty close to being proportional to the number of people in the area.
Closing down irrigation areas will destroy towns, get over it and get real. Proposed solutions stand a better chance of being accepted if they accept reality. Destruction is why irrigation areas are upset, they understand the economics of their town, they know areas will be abandoned, unless water can be used more efficiently (this includes delivery), or less gets put aside for environmental flows.
They also know that the river is in serious trouble. People of my age can remember swimming in a Murray that was clean and drinkable.
Why do you think the north/south pipeline was so controversial. The trouble was (in my view), those opposing didn’t follow things through (just as many on this site don’t seem to be). If large regional cities and worse, state capitals fail, the farms cease to be part of a hinterland. Their markets move. There is no use saving an irrigation area at the expense of a city.
With regards to dams, they are a dam good idea before the drought; a pretty poor idea in the middle of the drought. An empty new dam is just as empty as an old dam.
The Brumby government had three options (if we exclude the way out like towing icebergs; public officials need to deal with the rational). Taking water from other systems, desalination or recycling (drinking your piss).
Taking water was faster. They took the option and if the drought was still on, we would now be using that option. Clearly however it was a short term solution if the pressure on the Murray Basin was to continue. Thus the longer term solution, desalination.
You write
Ombudsman that the former Victorian government was flying by the seat of its pants when it decided on the desalination plant, the pipeline and the Foodbowl Modernisation project as a package in the middle of 2007. There was no business case for the Foodbowl project.
The ombudsman report may support your view however:
1) It’s the report of a Liberal Government trying to denigrate the work of the previous Labor government.
2) I doubt very much the ombudsman department is the right place to go to get an analysis of Victorian water requirements, that is probable why the report focused on governance issues and left the denigration of the project to “experts” from Queensland.
3) The case for the foodbowl projects was very clear. Melbourne was going to take water from a stressed irrigation system. Brumby was smart enough to see that politically this was gong to be difficult if money was not going to be spent to offset the take. And like it or not, the spend was very successful at reducing water wastage. Politically it wasn’t so successful.
The desalination plant would have solved the problems for sure, but the build was longer (with it still not being completed).
Recycling, I think is the solution; but “drinking your piss” sums up the hurdle.
As you seem to want to denigrate the decisions made by the Victorian officials responsible for these issues, I assume you have alternate proposals. I would be interested to hear what they are as it is a topic I am interested in.
regards
hc
December 4th, 2011 at 16:43 | #47
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It seems to me that the appropriate mix of desal and rainfall-dependent water supply technology is a portfolio problem analogous to the choice of holding assets as cash and in riskier but less expensive forms.
That is a good way to look at it if you want to reduce survival to an investment. Now treat it as a derivative investment. If you get it wrong you burn your portfolio and every other asset you own.
It should be pointed out that desalinated water will cost double or more recent river water prices. Water ex the Pt Stanvac desal in Adelaide will cost about $3 per kilolitre or $3,000 per ML. Traded river water prices have been around $1,500 per ML. Additionally since all desal in Australia uses the reverse osmosis process requiring 3-4 kwh of fossil fuelled electricity per kL from next year that will also attract carbon tax.
Not true the politicians insist, the Wonthaggi desal will be offset by the Crystal Hills wind farm and Sydney’s Kurnell will be offset by the Bungendore wind farm. I beg to differ since water demand is highest in hot weather when wind power is weakest and vice versa. Hot wire them together off the main grid and see how it works out.
On recent prices desalinated water is too expensive for agriculture, maybe some hydroponic tomatoes in the suburbs. However I don’t see Melbourne urban desal ‘freeing up’ rice growing for Deniliquin. When it’s hot and dry rural and urban areas alike are both short on water. In short no easy answers which is why I have rainwater tanks.