In a comments thread, a few weeks ago, regular commentator Observa asked
read somewhere (maybe on the Sydney water supply price hikes for heavy users)that it takes about 7,400L of water to grow a dollars worth of rice compared to a tenth of that volume for fruit and veges and hence we should import our rice. Are those sorts of consumption figures true?
Here’s a a table from an article I published in the Australian Journal of Agricultural and Resource Economics a couple of years ago.
Table 1: Water required for $1 000 gross profit
Commodity Water use, in Ml
Fruit 2.0
Vegetables 4.6
Dairy products 5.0
Cotton 7.6
Rice 18.5
Pasture 27.8
Source: adapted from Hall, Poulter and Curtotti (1994)
Observa’s relativities are right and the number in the table implies 18000 litres for a dollar of profit in rice. Assuming gross profit is around half the value of total output, the number quoted also looks pretty accurate.
Before drawing policy implications, it’s worth noting that irrigating pasture is even more water-inefficient. The quoted number implies that an increase of $40/Ml in the price of water would wipe out all the gross profit from this activity.
So the first big agricultural adjustment is likely to be a shift away from the use of irrigation for pastures. One feature of the table that surprised me is that irrigation for dairy products (which presumably means pastures for dairy cows) is actually quite profitable.
John Quiggin 
Do you want tell the farmers, or will I?
PS I see you’ve managed to get right up Mike Nahan’s nose (today’s AFR letters.)
I really do get up their nose, and it’s a lot of fun. OTOH, Lomborg gets up mine, so I suppose we’re even.
These are good points, John.
In California last year, they started comparing the amount of off-stream water farmers get as compared to their contribution to the Gross State Product – about 7%. Morality and hunger aside, these types of arguments point out the breadth of water subsidies; we really don’t pay real price for food.
D
any figures for tobaccee?
‘…irrigating pasture is even more water-inefficient. The quoted number implies that an increase of $40/Ml in the price of water would wipe out all the gross profit from this activity.’
That would depend a little on the elasticity of demand for local meat and wool, wouldn’t it?
In any case, why is profit rather than value added the appropriate denominator? Assuming (rashly, I’m sure) that operating surplus reflects the cost of land and capital used by the industry in question, might these ratios be explained simply by the fact that dairy and rice are more capital intensive than pasture?
My favourite rice pudding is not going to taste quite the same again!
It’s quite possible to run pasture for anything *except* dairy without irrigation of any kind.
Most of Australia does it.
It’s not that surprising that dairy products are more efficient if you think about it. A dairy cow needs a lusher pasture than a beef cow, (so a little more water) but each dairy cow provides a much larger income than a beef cow over the same period of time.
Noticed an article in ‘Business News’ The Advertiser Wed Oct15 pge43. A Bob O’Brien started Percat Water in 1998 in SA to buy and lease water rights and is expanding into NSW with the aim of trebling annual turnover of $1mill recently reached in the drought. He needs to expand because SA represents only 5% of the market. He stated that while water trading presented heartache for irrigators, it had anecdotally led to 20% water savings. SA introduced water trading in 1983 and it had exploded in the early 90s.”During the drought, a licence to take 1ML of Murray River water cost $1500 compared with $50 in 1990. The current price is about $1450.” He also states “There is continual talk about water barons and large owners of water, but most people who are buying water licences and investing in water are irrigators. There is no mythical third party.”
I am certainly sceptical about the ‘water barons’ idea. I’ll post more on my thinking about this when I get time.