The value of irrigated agriculture

Samuel Admassu

Australia’s irrigated agriculture produces about a quarter of the total agricultural value from less than 1% of the area of agricultural land (ABS, 2018) (1). However, irrigated agriculture uses more than 60% of all extracted water. 

Irrigated agriculture is currently facing significant public scrutiny. However, the public and policy discussion on water use is happening largely in the absence of reliable evidence about the value of irrigated agriculture and the consequences to communities of an increased diversion of consumptive water away from irrigation.

At a time when competing demands for scarce water resources (including other economic uses as well as social and environmental outcomes) are provoking serious questions, the Australian Farm Institute is investigating a proposed collaborative research project on the value of irrigated agriculture to regional and rural economies.

Production from rainfed agriculture is becoming increasingly unreliable due to the variability of rainfall as a result of climate change. The availability of stable water throughout the growing season enables irrigated agriculture – unlike dryland production – to increase diversification and cultivate higher value crops. Irrigation also has potential to consistently increase agricultural production – although sometimes more production may not necessarily guarantee an increase in farm income (2).

Irrigated agriculture also can enable the formation of reliable and resilient supply chains and stimulate the growth of other regional and rural businesses, such as transportation, crop storage and farm equipment suppliers among others (3).

These interwoven factors make assessing the contribution of irrigated agriculture to Australian economies a challenging task. Previous research such as the CIE 2004 report has investigated the economic benefits of irrigation to Australia. However, this research focused mainly on the aggregate level and detailed knowledge of the benefit to local and regional communities is still lacking.

One of the major impediments to providing a robust assessment of the value of irrigation at a regional level is the availability of appropriate data to inform economic models. Assessing the value delivered by irrigation requires knowledge of alternative activities that would occur in the absence of irrigation. This will vary considerably by sector and region. For example, for many sugar and cotton irrigation areas, a reduction in irrigation would likely result in a switch to rainfed production of the same crops, while for other regions rainfed production of any kind is not an option. 

The flow-on effects of the value-add that irrigation delivers to regions and local communities can be modelled if the appropriate input data is available. Official statistics collections are only capable of delivering this information at aggregate levels and still require significant assumptions about replacement activity in the absence of irrigation. 

The proposed collaborative research to be led by the Institute will employ a two-stage approach towards this investigation. The first stage will focus on assessing the value and impact of irrigated agriculture for regional and rural communities, employing econometric modelling using the existing data and literature. This first stage will identify deficiencies in available information about replacement activities for irrigation and the level of regional and local disaggregation of the available data sets. The second stage – based on the gaps identified in stage one – will employ survey and case studies to provide a robust and detailed analysis. 

One method to assess the value of irrigated agriculture and the magnitudes and diffusion of the impacts to regional and rural communities is by using the Computable General Equilibrium (CGE) and or Input-Output (I-O) model with area, sector and commodity disaggregation. The CGE and I-O models are usually preferable because irrigated agriculture has a relationship with several other sectors of the economy. Given that the CGE and I-O models are demand driven, the direct, indirect and induced impacts of the irrigation-driven demand of other services can be captured. 

The main objective of the proposed research is to rigorously analyse the value and impact of irrigated agriculture to regional and rural communities at a disaggregate level. The assessment will consider irrigated agriculture’s direct and indirect benefits and costs by classifying farms into different categories according to their location, water efficiency, source of water and the agricultural product produced. 

The proposed research will provide useful insights about the efficient allocation of scarce water resources. The project will therefore benefit irrigators and regional businesses as well as policy-makers by providing more evidence about the value and impact of irrigated agriculture on regional and rural economies. 

References

ABS. (2018). Gross Value of Irrigated Agricultural Production, 2016–17. Australian Bureau of Statistics. Retrieved from https://www.abs.gov.au/ausstats/abs@.nsf/mf/4610.0.55.008

CIE. (2004). Implications of water reforms for the national economy. Centre for International Economics.

1. The contribution of irrigated agriculture varies across Australia. In 2016–17, irrigated agriculture contributed as much as 50% of the value of total agricultural production in Tasmania. In Victoria, Queensland, NSW and the ACT, roughly one third of value of agricultural production came from irrigation. (ABS, 2018).

2. Given the price inelasticity of demand for agricultural products, some economists argue that often a reduction in agricultural production can increase crop prices and by implication, farm income.

3. Irrigated agriculture has both direct impact such as the value of production and indirect impact such as resource opportunity costs. As such, it can be misleading to measure the contribution of irrigated agriculture merely as a proportion of the total GDP without considering the opportunity cost of land and other resources used.

Image:  Ord Irrigation