When you think of ways to help the environment, housing a herd of dairy cows in a shed or planting a water-intensive crop like almonds are unlikely to be at the top of the list.
But these are two examples of how one of Australia’s most expensive environmental policies is changing the way water and land are used in this country.
The Murray-Darling Basin Plan (MDBP) was introduced to help conserve one of the country’s greatest natural resources, its largest river network.
Acknowledging that for too long, too much water had come out of the rivers, the plan set a target to ensure more water stayed in the system.
By doing so it was hoped there’d be more water for birds, fish, wetlands and communities, and a more sustainable resource for the industries that rely on the rivers, such as farming and food manufacturing.
Since its inception, Australia has already committed $13 billion to the MBDP — a figure that’s likely to rise.
As a result of this policy, across the basin today there is more water reserved for the environment, and a lot less specifically allocated to farming.
It means the way we use the water that is set aside to grow our crops and tend to livestock has rapidly changed.
And with the federal government about to embark on more water recovery to boost the environment, the pressure is on to ensure that every drop counts.
Water has become a hot commodity
As part of the Murray-Darling Basin Plan, it was determined that water rights — which allow irrigators to take an allocation of water from the rivers each year — should be separated from land titles, essentially turning something that falls out of the sky into a tradable commodity.
Now, about $2 billion worth of water is traded each year.
Australian Competition and Consumer Commission deputy chief Mick Keogh uses the example of two neighbouring farmers to explain how it works.
“One thinks it’s going to be a dry year and therefore holds back quite a lot of irrigation water to use, the other thinks it’s going to be a wet year and doesn’t keep any irrigation water,” he says.
“The year ends up being somewhere in the middle, and so without water trading you’ve got one farmer with excess water that he or she’s got no use for, and the other farmer without enough water to finish the crop.
“By being able to trade the excess water from one farm to the other farm that hasn’t got enough water, both end up with a good outcome.
“If you expand that to a large scenario across the basin, or longer river valley, it highlights that being able to trade availability of water results in a better economic outcome all round.”
The introduction of the water market has created a mega-shift in farmers’ thinking.
Compared to life before the MDBP, there is now less water allocated to farming, which means the price of that water has risen significantly.
As Keogh explains, water is moving to higher-value returns.
“We’ve seen a significant expansion in the almond industry, and we’ve seen a significant expansion in the cotton industry, particularly in southern NSW,” he says.
“At the same time, there’s been a flow of water out of the dairy sector, out of irrigated pasture and to some extent out of rice and horticulture … that really shows the market working.”
No longer are farmers driven by returns-per-hectare— instead, their business model is determined on returns-per-megalitre.
Thirsty crops and dairy herds
The shift has been significant.
Over the past 24 years, Australia’s almond crop has jumped from 3,500 hectares to more than 62,500 hectares — almost all of those trees are irrigated from the basin.
With the option to process nuts for powder and alternative milk or feed hulls to livestock, the crop has a range of uses.
In recent years, the demand for almonds in China and India has driven a boom in the crop, which typically offers growers a high return.
That’s despite it also being one of the thirstiest crops grown in the basin.
According to government economists ABARES, almonds require 10-12 megalitres of water each year. It’s the same for rice.
That compares to around 8 megalitres per year for cotton, and 3 megalitres per year for pastures grazed by dairy cattle.
Dairy is another industry on the frontline of federal water policy, particularly in northern Victoria.
Farmer Tom Acocks says since the introduction of water trading, which coincided with the millennium drought, the number of dairy farms in the Murray region has dropped from 4,500 to around 850.
“We’re still producing a lot of milk — something like 1.2 billion litres comes from the region — but it’s from a lot less farms,” Acocks says.
Around 20 years ago, in what is commonly referred to as a buyback, the Acocks family sold its permanent water entitlement to the Commonwealth, so that water would be left in the rivers to help the environment.
The family then used the proceeds to upgrade the farm’s irrigation system and buy more land to produce feed for the dairy cows.
The farm now accesses water by purchasing temporary water entitlements.
In a system that he expects will become more common across the basin, the farm’s milking herd is kept under cover.
Rather than grazing pastures, Acocks’ cows are housed in a 6,000-square-metre shed, where they’re fed three times a day.
Almost all of their feed is grown on farm, as a forage crop, but Acocks says the ability to feed the cows what and when he wants makes it a far more efficient way of producing milk.
“Ultimately this is the outcome of returning water to the environment — we shift cows inside because we need to feed them more efficiently,” he says.
“We use a lot less water than we used to 20 years ago and we grow a lot more feed, and we can still do that profitably.”
Another round of buybacks is about to begin
Since the first water buybacks in 2009, more than 2,100 gigalitres of water has been allocated to the environment across the basin each year.
That’s water that, without the legislation, would have typically been used to grow food or cotton, but now stays in the rivers and dams.
Last year the federal parliament amended the MDBP to ensure hundreds more gigalitres each year would build on that tally and be allocated to the environment by the end of 2027.
As of today, there’s a shortfall of around 750 gigalitres of water per year yet to be recovered.
Some of that could come from infrastructure projects run by state governments and efficiency upgrades.
But last year’s changes allow the Commonwealth to buy back more water entitlements from willing farmers.
This week the government will open a tender seeking 70 gigalitres of water entitlement from irrigators in the southern basin.
That represents less than 10 per cent of what still needs to be allocated to the environment in the next three years.
More buyback tenders are expected to follow.
The government won’t say how much it intends to spend purchasing entitlements, and it has separately announced $300 million to help communities adapt to life with less farm water, across the basin.
Recent modelling by ABARES found that if the Commonwealth purchased up to 325 gigalitres of annual entitlement from the southern basin, it would wipe more than $150 million from the value of farm production each year.
ABARES wasn’t able to model the impact of buybacks in the northern basin, where irrigation is dominated by cotton farming, but it found in southern NSW and northern Victoria, rice — which has one of the slightest margins for growers — would be the worst affected crop.
The impact on almonds, ABARES stated, would be negligible.
That’s because almonds typically offers growers higher margins, therefore growers are most likely to be able to afford the water.
While ABARES doesn’t expect a total almond takeover in the southern basin, the crop’s high returns does raise questions over whether more farmers will switch to this thirsty crop in the future.
Tim Jackson, from industry group the Almond Board of Australia, says that’s a question for the market.
“No-one’s telling anyone what to grow. People have gravitated to almonds because of the business case … market demand is what drives what people plant and grow,” he says.
Managing this water will be a delicate balance
While the ACCC says the water market is working, the ABARES modelling throws up all sorts of questions about the future of irrigated farming in the basin.
How can the system balance annual crops such as rice and cotton, which are typically planted in wet years, with permanent crops like almonds and grapes, which require water year-in, year-out, sometimes for decades.
What happens when it doesn’t rain, or if the water can’t be delivered to farms because the river is too narrow or the crop is too far from the dam?
What if one of the basin’s largest irrigated crops becomes blacklisted by China, just as we saw with red wine grapes in 2020?
Despite the resumption of that trade, wine grape growers have been seeking assistance to pull out their vines.
With less water available for farming, how that water is used will keep changing.
On one of the driest continents on earth, those who rely on rainfall and the precious litres flowing through this river system are well aware of the risks.
“In these periods of extreme dry … when we don’t have enough water to supply the businesses already there, to me that’s a worry,” Acocks says.
“If we take more water out [of the system allocated to farming], where does that lead? It’s a worry for all of us.”
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