Irrigated agriculture in the southern Murray–Darling Basin
Murrumbidgee, Murray
and Goulburn–Broken regions
2006–07 to 2012–13
Dale Ashton
Research by the Australian Bureau of Agricultural
and Resource Economics and Sciences
Research report 14.10
September 2014
© Commonwealth of Australia 2014
Ownership of intellectual property rights
Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth).
Creative Commons licence
All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms.
Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode.
Cataloguing data
Ashton, D 2014, Irrigated agriculture in the southern Murray–Darling Basin: Murrumbidgee, Murray and Goulburn–Broken regions 2006–07 to 2012–13, ABARES research report 14.10, Canberra, September.
ISSN 1447-8358
ISBN 978-1-74323-199-9
ABARES project 43493
Internet
Irrigated agriculture in the southern Murray–Darling Basin: Murrumbidgee, Murray and Goulburn–Broken regions 2006–07 to 2012–13is available at daff.gov.au/abares/publications.
Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)
Postal address GPO Box 1563 Canberra ACT 2601
Switchboard +61 2 6272 2010
Facsimile +61 2 6272 2001
Email
Web daff.gov.au/abares
Inquiries about the licence and any use of this document should be sent to .
The Australian Government acting through the Department of Agriculture, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture, ABARES, its employees and advisers disclaim all liability, including for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon information or data in this publication to the maximum extent permitted by law.
Acknowledgements
This report uses data collected in an ABARES survey of Murray–Darling Basin irrigation farms. This survey was voluntary. Its success depended on the cooperation of farmers and their accountants providing information on farm operations. ABARES appreciates their support as the survey would not have been possible without their full cooperation and assistance. The 2012–13 survey was co-funded by the Murray–Darling Basin Authority and the Australian Government Department of Agriculture. Earlier surveys were co-funded by the Australian Government Department of the Environment and the National Water Commission.
Irrigated agriculture in the southern Murray–Darling Basin
Contents
Summary
1Introduction
2Overview of farm performance
3Irrigators and water policy
Water allocation trading
Sale of permanent entitlements
Investment and irrigation technology
Survey methods and definitions
Glossary
References
Tables
Table 1 Financial performance, by industry, southern Murray-Darling Basin
Figures
Figure 1 Farm cash income, by industry, 2006–07 to 2012–13
Figure 2 Index of prices for selected commodities
Figure 3 Rate of return, horticulture farms, southern Murray–Darling Basin
Figure 4 Distribution of horticulture farms, by rate of return, southern Murray–Darling Basin
Figure 5 Distribution of horticulture farms, by rate of return, southern Murray–Darling Basin
Figure 6 Rate of return, irrigated broadacre farms, southern Murray–Darling Basin
Figure 7 Distribution of irrigated broadacre farms, by rate of return, southern Murray–Darling Basin
Figure 8 Distribution of irrigated broadacre farms, by rate of return, southern Murray–Darling Basin
Figure 9 Indexes of milk prices, production and receipts, Murray and Goulburn–Broken regions
Figure 10 Rate of return, dairy farms, Murray and Goulburn–Broken regions
Figure 11 Distribution of dairy farms, by rate of return, Murray and Goulburn–Broken regions
Figure 12 Distribution of dairy farms, by rate of return, Murray and Goulburn–Broken regions
Figure 13 Receipts and income, by selected rate of return, Murray and Goulburn–Broken regions
Figure 14 Proportion of farms trading water allocations, by region
Figure 15 Volume of water applied, by region
Figure 16 Water purchases as a proportion of total use, by region
Figure 17 Water use as a proportion of total allocation, by region
Figure 18 Farm cash income, southern Murray–Darling Basin
Figure 19 Main irrigation systems, by industry, southern Murray–Darling Basin
Figure 20 Water application rate, by commodity, southern Murray–Darling Basin
Maps
Map 1 Reporting regions
Map 2 Rainfall deciles for the Murray–Darling Basin, 2011–12 and 2012–13
Boxes
Box 1 Key financial performance measures
Box 2 Commodity prices
Box 3 Seasonal conditions and water availability
1
Irrigated agriculture in the southern Murray–Darling Basin
Summary
This report contains the results of analysis of farm financial and physical performance data collected from irrigation farms in the southern Murray–Darling Basin (Murrumbidgee, Murray and Goulburn–Broken regions) over the period from 2006–07 to 2012–13. The three regions covered account for around 62 per cent of irrigation farms in the Murray–Darling Basin and produce a wide variety of irrigated crops.The results in this report cover key farm performance measures, water trading, farm investment, and irrigation technology.
Key farm performance results
The first three years covered by the irrigation survey from 2006–07 to 2009–10 were severely affected by drought, with record low inflows to river systems and low irrigation water allocations. Generally, incomes for horticulture and broadacre farms were relatively low throughout this period.They improved significantly from 2010–11 as seasonal conditions improved and there were subsequent changes in the mix of irrigated crops produced and the quantity of outputs obtained. Also, changing commodity prices and the cost of farm inputs were key drivers of annual changes in farm incomes over the period.
For irrigated broadacre farms in the three regions, better seasonal conditions and higher water allocations from 2010–11 to 2012–13 led to increased plantings of both irrigated and dryland crops which, combined with higher prices for most crops, resulted in significantly higher farm cash incomes. The increase in incomes for horticulture farms in the latter survey years was more modest and varied by the type of crop grown.
Compared with horticulture and broadacre farms, incomes for dairy farmers in the Murray and Goulburn–Broken regions tended to fluctuate more from year to year over the survey period. This was largely a result of fluctuations in farm gate milk prices and milk production, and variation in total cash costs (particularly fodder) that was heavily influenced by prevailing seasonal conditions.
Water trading
Growth in the use of water trading has been a key outcome of water policy reform in Australia, with various government initiatives and policies contributing to the development and expansion of markets for both permanent water access entitlements and temporary water allocations. The survey results show that around 35 per cent of irrigators in each region surveyed — Goulburn–Broken, Murrumbidgee and Murray — traded water allocations (either buying or selling) over the 7 years from 2006–07 to 2012–13. The proportion of farms trading water allocations rose in each region from 2006–07 to 2008–09 and then declined in subsequent years.
Water trading provided irrigators with an important tool for managing low water allocations during severe drought between 2006–07 and 2008–09 by allowing irrigators to adjust flexibly to changing water availability and providing an alternative source of income for many irrigators. The survey results show that the ability to trade water allocations was also important in seasons of higher water availability.
The market for permanent water access entitlements has also provided irrigators with a tool for managing their farm businesses. However, there have been fewer trades in entitlements than in water allocations. Over the period from 2006–07 to 2011–12, the proportion of irrigators selling permanent water access entitlements in the Goulburn-Broken, Murrumbidgee and Murray regions rose from around 1 per cent to 8 per cent, while the proportion of irrigators purchasing permanent entitlements rose from 2 per cent to 5 per cent.
For those irrigators selling entitlements, around 53 per cent sold to the Australian government in 2011–12. The survey results show that at least part of the proceeds from entitlement sales were used to retire part of farm debt. While some irrigators sold entitlements and ceased irrigating or farming altogether, other irrigators continued irrigated farming by purchasing seasonal water allocations or entitlements. However, these results do not provide a complete picture because those that left farming altogether were not included in the survey.
Investment and irrigation technology
As part of water policy reforms in recent years, the Australian Government has provided funds to assist irrigators invest in more efficient on-farm irrigation technologies. The results from the survey show there have been movements toward more efficient irrigation technologies in some industries (particularly citrus, wine grapes and vegetables) that have resulted in reduced average water application rates. The survey results also show there have been overall reductions in water application rates for many individual farms within the basin, but these can vary significantly from year to year because of changes in seasonal conditions and water availability.
1
Irrigated agriculture in the southern Murray–Darling Basin
1Introduction
Irrigated agriculture in the Murray–Darling Basin makes an important contribution to the Australian and regional economies. In 2011–12 the basin accounted for 66 per cent of Australia’s total area irrigated and 41 per cent of the nation’s irrigating agricultural businesses (ABS 2013). These businesses undertake a variety of irrigated farm enterprises, including vegetable crops, tree and vine crops, pastures for grazing, hay, rice, cotton, cereals and oilseed crops. In some locations, many of these enterprises could not be produced without the use of irrigation water.
Since 2007, ABARES has conducted annual surveys of irrigation farms throughout the Murray–Darling Basin to provide industry stakeholders and governments with comprehensive data for major irrigation industries and regions. The surveys collect a wide range of financial and physical data from irrigated farms in selected regions and industries within the Basin.
This report contains results for the Murrumbidgee, Murray and Goulburn–Broken regions in thesouthern Murray–Darling Basin over the period from 2006–07 to 2012–13. The three regions account for around 62 per cent of irrigation farms in the Murray–Darling Basin and produce a wide variety of irrigated crops. The results presented in this report cover key farm performance measures, water trading, farm investment, and use of irrigation technologies.
By providing detailed farm-level data, the surveys are critical for monitoring and evaluating affects of changes in the farm operating environment on the physical and financial performance of irrigation farms. For example, the data can be used to monitor and evaluate the implementation and effectiveness of the Murray–Darling Basin Plan by examining ways in which irrigators have responded to changes in water availability, use of water markets, and adoption of more water efficient irrigation technologies. In addition, the survey data have been widely used for monitoring and analysing a range of broader issues affecting irrigation industries such as farm adaptation and structural adjustment. The data can also provide information that can be used to assist in monitoring progress toward water policy and program objectives and assessing the implications for the irrigation sector and regional economies.
2Overview of farm performance
Irrigators in the Murray–Darling Basin have faced a number of changes in their operating environment since ABARES began surveying irrigation farms in 2006–07. A range of policy and program initiatives introduced by the Australian and state governments have included better developed water markets, changes to pricing for water storage and delivery, funding for more efficient irrigation infrastructure, government purchases of permanent water access entitlements, and development of the Murray–Darling Basin Plan.
Across the Murrumbidgee, Murray and Goulburn–Broken regions (Map 1), farm financial performance (Box 1) for each industry (horticulture, broadacre and dairy) followed broadly similar trends over the survey period from 2006–07 to 2012–13 (Figure 1). Generally, incomes were relatively low from 2006–07 to 2009–10 before improving significantly from 2010–11. In particular, changing commodity prices (Box 2), the cost of farm inputs, and varying seasonal conditions and irrigation water availability (Box 3) were key drivers of annual changes in farm incomes over the period. The affect of these and other factors differed among horticulture, broadacre and dairy farms.
Map 1Reporting regions
Source: ABARES
Box 1 Key financial performance measures
Farm cash incomeTotal cash receipts (revenues received by the farm business during the financial year) less total cash costs (payments made by the farm business for materials and services and for permanent and casual hired labour, excluding owner, manager, partner and family labour). Farm cash income is the surplus farm-based income available after paying for cash operating costs.
Farm business profit
Refines farm cash income by adding changes in trading stocks and deducting depreciation and imputed value of family labour. Farm business losses do not necessarily mean negative cash flows. In practice, positive cash flows can be maintained by reducing expenditure on capital asset replacement and forgoing wages for family labour.
Rate of return
Farm business profit with interest, lease and rent payments added (adjusted to full equity basis) expressed as a percentage of total farm capital. It represents the ability of the farm business to generate a return to all capital used by the business, including borrowed or leased capital.
Figure 1Farm cash income, by industry, 2006–07 to 2012–13
average per farm
Source: ABARES survey of irrigation farms in the Murray–Darling Basin
Box 2 Commodity prices
Irrigators produce a variety of irrigated agricultural products for which prices received can vary widely from year to year. For irrigated broadacre farms, wheat prices fell sharply in 2008–09 and 2009–10 before improving in subsequent years, rising by 2 per cent in 2011–12 and a further 36 per cent in 2012–13 (Figure 2). Prices for cotton rose sharply in 2010–11 before falling in 2011–12 and 2012–13. Rice prices followed a similar trend, rising sharply in 2008–09 then declining in the following two years, falling by 19 per cent in 2009–10 and a further 43 per cent in 2010–11.For dairy farms, farmgate milk prices tended to fluctuate from year to year, rising in 2007–08 and 2010–11 but falling in all other years. More recently milk prices fell by 3 per cent in 2011–12 and a further 8 per cent in 2012–13.
For horticulture farms, overall prices for fruit remained steady on average, although there were wide variations in prices for individual fruit crops. For example, citrus prices fluctuated with no obvious trend from 2006–07 to 2010–11 but fell sharply in both 2011–12 and 2012–13. Average vegetable prices have tended to fluctuate from year to year with no obvious trend, more recently falling by 4 per cent in 2011–12 before rising by 10 per cent in 2012–13. Wine grape prices on the other hand declined substantially over the period from 2006–07 to 2010–11 before rising by 5 per cent in 2011–12 and by a further 7 per cent in 2012–13.
Figure 2Index of prices for selected commodities, 2006–07 to 2012–13
Source: ABARES survey of irrigation farms in the Murray–Darling Basin
Box 3 Seasonal conditions and water availability
For the early years of the survey from 2006–07 to 2008–09 seasonal conditions were among the driest on record for the Basin. Seasonal conditions generally improved in 2009–10, particularly in the southern Basin. However, despite this improvement, dam levels and irrigation water allocations remained low in most regions at the beginning of 2010–11. Seasonal conditions continued improving throughout 2010–11, particularly in the first six months of the year when rainfall throughout the Basin was very much above average to the highest on record, with widespread flooding in some areas. Heavy rainfall in the middle of the 2011–12 financial year resulted in above average rainfall again being recorded across the Murray–Darling Basin for the year (Map 2). Drier conditions returned in 2012–13, with rainfall across most of the basin lower than the long term average.As a consequence of above average rainfall in 2011–12, the level of water held in most major storages was near capacity by the end of the financial year. Reflecting the availability of water, the total volume of irrigation water applied in the Murray–Darling Basin during 2011–12 was 30per cent higher than the previous year (ABS 2013). The total volume of water used for irrigation is estimated to have increased by a further 13 per cent in 2012–13.
Map 2Rainfall deciles for the Murray–Darling Basin, 2011–12 and 2012–13
2011–12 2012–13
Source: Australian Bureau of Meteorology
Horticulture farms
Farm cash income for irrigated horticulture farms in the Murrumbidgee, Murray and Goulburn–Broken regions averaged around $54 000 (in 2012–13 dollars) over the period from 2006–07 to 2009–10, before rising to an average of $122 000 in 2012–13 (Table 1). From 2010–11 to 2012–13, average farm receipts for vegetables, wine grapes and almonds rose sharply; receipts for stone fruit and citrus rose only slightly; while receipts for apples and pears fell. Average farm cash income rose in each year from 2006–07 (with the exception of 2009–10) as increases in total cash receipts outweighed increases in total cash costs.