Rice and water

A couple of people have suggested that I should comment on some stories in the Australian about water and the rice industry. Since I’m busy, along with the RSMG team, working on models of this very topic (for all irrigated industries, not just rice), I’m happy to oblige.

The first, by Amanda Hodge and Matthew Denholm, presents a fairly negative view of the rice industry as a profligate user of water, and the second, by Laurie Arthur, is a response from the industry. A lot of interest focuses on the amount of water used to produce a kilogram of rice. In the original article, this was erroneously reported as 21 000 litres: the correct figure is about 2000 litres/kg, or 2Ml/tonne which is still a lot of water[1].

How useful is this kind of figure? In general, economists like to look at all the inputs to production, but there are some occasions on which it’s useful to look at individual factors like water. The general premise of the first Australian article is that as water becomes scarcer we’ll have to stop growing crops like rice. It’s certainly true that, whereas water costs were once negligible in relation to the total costs of production when water cost a few dollars per Ml, they are now a major part of the whole. If we suppose that rice sells for $300/tonne and water for $50/Ml, water costs are one third of the total. This is still a long way below the price paid by many urban users, which is between $500/Ml and $1000/Ml, net of treatment and reticulation.

However, it’s noticeable that, as water prices have risen, with further increases expected, growers have economised on water use, exactly as economists would expect. Arthur claims water use/unit of output has declined by 60 per cent, and it’s easy to see that the industry could not have remained viable without improvements in efficiency. It seems certain that further improvements will be needed as water prices rise over time.

One thing that’s often done is to compare average output per megalitre between different industries with the presumption that, as water becomes tradeable, it will flow, literally and metaphorically, from low-value to high-value uses. I’ve presented this kind of comparison myself. It’s not strictly accurate, though. Standard microeconomic analysis doesn’t have much to say about average partial productivity measures. The crucial prediction is that the marginal value product of a factor of production, such as water, will be equalised between industries. Unfortunately, marginal product is much harder to measure than average product.

To sum up, I think it’s a mistake to adopt a broad-brush condemnation of an entire activity like rice-growing. On the other hand, I expect that, as the true social value of water is reflected in increasing prices, we’ll see some contraction in water-intensive industries like rice, and also continuous pressure for improvements in the efficiency with which water is used.

fn1. Using the standard, but bogus illustration that 1 Megalitre is enough to fill an Olympic swimming pool, that makes 500kg per swimming pool.

29 thoughts on “Rice and water

  1. I looked into this area as a major assignment for my MBA during the early ’90s. I won’t give my full reasoning (indeed, I didn’t digress that much during the assignemnet), but here are two key points:-

    – What counts isn’t so much the amount of water being used as its opportunity cost.

    – What counts isn’t so much the opportunity cost of water mow as its value at the establishment point.

    Forgetting either of these can lead to misallocation and/or wealth transfers (e.g. to the state by setting up water rights after the fact). Complete separation of water rights as property can lead to misallocation by destroying the synergies and forcing the component economic activities to be handled separately, a form of asset stripping which benefits nobody.

  2. That can’t be right. Oympic pools are 50m X 25m. For their volume to be 3000 cubic metres, the average depth would need to be 2.4m. I think they are about 1.5m deep at the shallow end, so they would need to be 3.3m deep at the deep end, which I’m sure they’re not.

  3. I had thought of rice as one of the most staple of all food types. Is water sufficiently abundant in South East Asian countries for this not to be a problem?

    If we were not grow rice what be a suitable alternative? Are there any cereals or other food crops which don’t also require excessive quantities of water, and which aren’t harmful in other ways for our environment?

    As an example, soy beans usually require fertilisers which are produced from non-renewable petroleum. This would surely not be a suitable alternative.

  4. It depends how deep the pool is. That one in the U.S. Olympic Complex in Colorado Springs, CO is 2 metres at the ends and 3 metres in the centre. I would imagine pool depths around the world could vary. The minimum depth is 2 metres.


    If we took the minimum as the standard depth would that give us approximately 2,500,000 litres?

  5. Yes. Scratch that 1.5 business – I was probably thinking of Parramatta Council pool. They need to do tumble turns at both ends in a proper olympic pool. Maybe Thorpy needs 2.6m for that, which gives you your 3.3ML.

  6. Why am I getting into this anyway? I still haven’t gotten my prize for determining the number of 100-digit numbers whose thirteenth roots are integers, or whatever it was.

  7. Over the past few months I’ve been trying to learn about rice and cotton and their water use. I’m far more concerned about cotton than rice. I haven’t learnt much but I’ve been lead to believe rice is a lot more water efficient than it once was. Are there any specific papers on the RSMG site you can direct me too?

  8. Just a quick look at the first article in the Australia, I notice Cullen of the Wentworth Group mentioned, haven’t the Wentworth Group been discredited? Or was that just the water piping idea as advocated by Alan Jones which he now denies thats been discredited?

  9. Usually, I am diligent about buying Australian-grown foodstuffs if I can. Last week, I formally abandoned buying Australian rice and bought Thai rice instead. End of an era.

  10. Speaking of swimming pools I notice that the new Sydney water restrictions do not prevent the refilling of pools.

    I understand from a client who sells a gadget to that permits the automatic refilling of pools that a on warm to hot windy day a pool can lose around an inch of water ie. .254m

    Now a typical suburban pool is say 7m x 3m or 21 sq m. giving a loss of 5.33 cu m. Is my client seriously suggesting that a pool could require a 5000 li refill or is my arithmetic out?

    Even if I am out by a factor of 10(?) a 500 li per day seems an awful waste.

  11. Vee, you’re thinking of Farmhand. It was the Wentworth Group who did the discrediting.

    RSMG is working on a model that will cover both cotton and rice, but there’s nothing detailed on the site as yet.

  12. If you buy Thai rice in preference to Australian for environmental/greenie reasons, you are getting two things wrong:-

    – You are causing greater burdens by getting the rice here (South Asian rice is nearly all consumed near the production location, and the distribution systems are inefficient).

    – For similar distribution chain reasons, selling rice as a cash crop makes life harder for locals who are not in the cash crop business. They have difficulties replacing their diet since they aren’t well integrated into cash activities, and the distribution costs affect cash food purchases (and rice isn’t truly commodity like in those markets, so it cannot be substituted easily).

    So you are making more fuel get burned and more people go hungry. And, by the bye, greater water supplies do not translate into greater water availability – those countries get too much water when they don’t want it, and have trouble switching the supply on and off to match agricultural needs. They end up with far more water “wasted” – but again, it comes down to opportunity cost.

    But if you just happen to prefer Thai rice and those other things are not a consideration for you, go for it.

  13. An inch is 0.0254m, not 0.254m. Multiply by 7*3 = 21m^2 to get 0.533 cubic metres, or 533L as you correctly suspected. And we are talking about a ‘hot and windy’ day here. But nobody accused swimming pools of being environmentally friendly.

  14. This is completely tangential to the rice thing, however.

    The pool confusion comes about from what we usually regard as an olympic pool which is just a standard swimming competition pool i(50m and minimum depth of 1.35m), and the requirements for a pool at World Championships/Olympics level which has the minimum 2m depth. The extra depth has the joint advantage of being slightly faster than shallow pools apparently and being able to accommodate waterpolo.

  15. Albatross, we’ve got a pool in Brisvegas. It’s kidney-shaped, but probably equivalent of 7*3. In summer with a hot dry northwesterly wind it could well lose up to an inch a day. We often have to run the hose full bore for an hour or two to fill it up.

    Up until a month or two Brisbane water seemed inexhaustable. But now we are told that if we don’t get really good rain next summer we’ll be in trouble.

    My missus and I have often talked about covering the pool over, turning it into an undergound storage tank and catching the water from our roof. Some-day maybe.

  16. btw, I happened to tune into parliament the other day. Bob Katter was having another go at his favourite scheme of turning the northern ‘wild rivers’ inland. The plains around Cloncurry have deep black soil, but little water. North of there 126GL of water runs into the sea each year. Bob reckons his scheme could feed 100 million people.

    Katter is usually pretty well-researched, being an inveterate user of the excellent Parliamentary Library Service. But no-one takes any notice of him.

  17. Water shortage, what water shortage? We are surrounded by it, we just need to get the salt out of it, or pipe some of the fresh stuff down from up north.

  18. PMLawrence, there is no comprehensive calculation of overall costs and benefits involved in my decision to buy Thai rice instead of Australian rice. I doubt whether anybody has the data to do such a calculation accurately, and even if they did, the relative rankings of social “costs” and “benefits” would always be contested.

    It is a personal best-bet decision based on a belief that it is foolish for Australia to produce rice and that the resources involved should be used to produce something else. There are elements of both boycott and political pressure involved. Boycott of Australian rice producers to encourage them to produce something else, and political pressure by adding yet another item to our already negative balance of trade – there will be an extra (albeit infinitesmal) pressure on the Govt. to rectify our trading situation. There is also an element of personal blame avoidance, along the lines of the old bumper sticker: “Don’t blame me, I voted Labor”; in this case, “Don’t blame me, I don’t eat it”.

    This action is not persuasive, in the sense that I am not offering anybody a convincing rationale why they should do as I do, beyond the bare announcement. Yet I think my decision is rational.

    First, it is rational in the sense that it is consistent with my beliefs about the need to adapt Australian agriculture to the Australian ecology, and an associated belief (based on some evidence, though only modelling) that global warming will make the driest continent even drier. Second, it’s consistent with a belief that one should take what action is available (often pitifully little) in furthering one’s considered opinions, especially if those opinions run counter to the status quo. Third, it’s consistent with a nationalist orientation, which ranks “good for Australia” ahead of “good for the world” (provided that affordable generosity and a sense that some sorts of cooperation can be win-win are also part of that decision-making).

    It seems to me that many decisions are “personal best-bet” decisions in this sort of way – rational not in a global “best possible” sense, for which necessary data are often (usually?) missing, but rational in an internally consistent sense which really only could be persuasive for others who share the same set of beliefs.

    It only now remains to discover that Thai rice is GM, and the whole structure has to be re-done!

  19. I can provide a bit of ground truthing on this topic. Over the past decade, large swathes of dry station country along the Murrimbidgee have been laser-levelled and then flooded. The paddocks are huge, seemingly a kilometre or so wide. It screams water waste.

    Secondly, on a hot summer’s day in Hay, I’ve seen the Murrumbidgee actually flow backwards. Apparently this does sometimes occur due to the huge volumes of water being siphoned off upstream for irrigation. In effect, irrigators are taking water at a rate higher than the natural water flow of the river.

    Third, a lot of this rice activity is not family farms but city-based investors aware of the high returns from rice growing. They achieve those high returns because charges for excess water are so low. The Murray, which receives water from the Murrumbidgee, currently needs at least 500 GL extra, and preferably 1,500 GL, so pure business exploitation for rice growing should incur much higher charges. In my view.

    Fourth, the cotton farming activity further north actually exacerbates the effects of floods. The levees around cotton paddocks force flood waters prevent traditional flood dispersion, leading to more severe flooding on other non-cotton properties.

  20. Meant to say the levees around cotton paddocks prevent traditional flood dispersion, leading to more severe flooding on other non-cotton properties.

  21. I talked to my brother today about Katter’s plans. He says there is a lack of dam sites in the rivers flowing into the lower part of the Gulf of Carpentaria.

  22. I actually looked at that Carpentaria thing. It is actually practical, in engineeering if not economic terms, if you just think big enough. You need a huge earth dam across the bottom third or so of the catchment, hundreds of miles long, with feeder canals diverting much of the adjacent flow across into it. Such a dam could be built incrementally, using dredged earth brought in by barge from the filling reserve. Once it was high enough the flow could easily be diverted to make one single southward outlet.

    But you should probably think in terms of generations.

  23. Would anyone like me to rake up and maybe post the MBA assignment I did on the rice industry in the early ’90s? It might give some historical perspective.

  24. PML,
    It would make much more sense to actually re-cycle our water – water in the Thames, for example, is used about 9 times (from recollection) before it actually gets to the sea.
    We here do not do it for many reasons – but the point is that we need to look at the cost of each option and make choices. In WA we have been fortunate in that we always knew that we would run out of water and have been planning for a long time. We were not silly enough to get into the sort of crops that need vast quantities of water – with a few exceptions.
    We still have an agricultural sector that guzzles large quantities of water at ridiculously low rates, but the rest of the economy manages it quite well.

    The problem is not that there is not enough water, but that it is being used incorrectly. Only a quick dose of reality is needed – but most governments (including both your State and our Federal) lack the will – it is far easier to blame a large group of people for a little bit each than to blame a small and noisy group for the bulk of the problem.

  25. Vee, no luck finding the stuff in the obvious places. No doubt it will turn up on a floppy during the next few months, the next time I do a general floppy sorting and/or I shift stuff onto my new platform (which has been waiting to get up and running for months now).

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