@article{Kirby:124490,
      recid = {124490},
      author = {Kirby, Mac and Connor, Jeffery D. and Bark, Rosalind H.  and Qureshi, Muhammad Ejaz and Keyworth, Scott W.},
      title = {The economic impact of water reductions during the  Millennium Drought in the Murray-Darling Basin},
      address = {2012-02},
      number = {423-2016-26978},
      pages = {26},
      year = {2012},
      abstract = {The recent drought saw the lowest inflows on record in the  Murray-Darling Basin in 2006. Water use by irrigation in  2007-8 and 2008-9 was about one third that of pre-drought  levels. Understanding how irrigation adapted to less water  is key both to provide information to help plan for the  future and data for model calibration. Complicating this  objective was the concurrent international food price  crisis of 2008 and an increase in water trading in the  basin. This presents a challenge in unpacking the effects  of commodity price changes, input substitution,  productivity gains and water trading from the effect of  reduced water availability. In this paper we seek Our  objective is to unpack the various effects.
We used  publicly available price and production data to calculate a  price index and adjust gross value data in actual dollars  using this index; some price and volume data are not  available, so the adjustment is approximate for total  irrigation. We calculated productivity both in terms of  output volumes per unit of water and in terms of adjusted  gross value per unit of water.
In 2007-8 and 2008-9,  overall water use in irrigation was down to about 31 % and  33 % respectively of the 2000-01 value. In 2008-9, the  gross value of irrigated agricultural production was down  to 86 % in unadjusted terms, but 80 % in commodity price  adjusted terms. The gross value (adjusted) per unit of  water more than doubled (at 241 %).
The aggregated data  obscure the variation of water use in different industries.  Water use by cereals, grapes and fruit and nuts changed  little. Rice, cotton, meat (pasture) and dairy all reduced  their water use substantially (to as little as 1 % of the  2000-1 value in the case of rice in 2007-8). Dairy,  cereals, rice and meat all experienced significant price  rises in 2007-8, whereas prices of cotton and grapes fell.  In cereals, the higher prices and the modest change to  water use resulted in a large increase (to 187 %) in gross  value; some of this was due to higher prices, the remainder  to productivity gains. Cereal production increased in the  north of the MDB and fell in the south; we speculate that  cotton growers swapped to winter cereals, whereas rice  growers did not. For rice, which is a high water use crop,  the price rise was insufficient to outweigh the decline in  water availability, and production fell.
All industries  show increases in productivity by value or by volume per  unit of water. The greatest increase was in dairy: dairy  farmers adapted to water scarcity and high water prices by  substituting bought-in feed for irrigated pasture.
Water  trading increased after 2006; importantly, inter-regional  trade increased greatly, from a few tens of gigalitres (GL)  per year before 2006 to more than 500 GL/yr in 2008-9. The  source of traded water was from the Murrumbidgee and to  a
lesser extent Murray NSW; buying regions were South  Australia and to a lesser extent Murray Victoria. Much of  this trade was away from rice and dairy and towards  horticulture. Trade thus offset some of the impact of  reductions in water availability, buffering South Australia  and the Victorian Lower Murray from very low allocations.},
      url = {http://ageconsearch.umn.edu/record/124490},
      doi = {https://doi.org/10.22004/ag.econ.124490},
}