water trading

Farmers are well known to be risk-averse. Although a considerable literature has focused on the role water markets play to allocate water more efficiently, none has explicitly studied the risk management role water markets play in irrigators’ decision making. We used a two-step empirical procedure to estimate the impacts of variability in profit and downside risk in profit on the volume of water allocation purchased and sold using an unbalanced panel data sample of 1,449 farm observations across four industries in the southern Murray-Darling Basin in Australia from 2006-07 to 2009-10. We show that farmers experiencing higher variability in profit and facing more downside risk purchase greater volumes of water allocations, and this is supported across all irrigated industry sectors (namely, dairy, broadacre, horticulture, and viticulture). There was only weak evidence found for the broadacre industry to suggest that higher variance in profit and greater downside risk drive greater vo...

This study uses a hydro-economic model to examine the role of water trading, and the economic impacts of climate change and reduced surface water availability in the Murray–Darling Basin. The results show that losses to irrigated agriculture under a median climate change scenario are modest, but under a 'mod-ified 2030 dry extreme scenario' there would be substantial reductions in water use, irrigated land use and profits. Nevertheless, the Basin-wide proportional economic impacts would be less than the percentage decline in water use. A comparison of model results with and without interregional water trade shows that interregional water trade in periods of much reduced water availability mitigates the on-farm impacts of climate change. Given that agricultural production in the Basin is likely to be affected by climate change, the development of drought-tolerant crops and cultivars along with learning and extension of best farming practices to reduced water use could also assist irrigated agriculture adapt to climate change within the Basin.

The impacts of water shortages on Egypt's agriculture continues to receive widespread attention. Several mitigation schemes have been proposed to reduce the potential economic impact of supply reductions of the Nile's waters into Egypt. This paper examines the economic consequences for the Egyptian agricultural economy of application of limited water markets to mitigate the impacts of potential water supply shortages. We address this aim by assembling detailed data on farm budgets, hydrology, institutions and culture in order to develop an integrated catchment framework for analyzing Egypt's use of the Nile. The results of our policy analysis illustrate that a limited form of water trading is one institutionally flexible measure that can mitigate the impacts of water shortages. When water supplies flowing into Egypt are reduced by 10 and 20% per year, adopting limited water trading reduces national farm income losses by 32 and 33% per year, respectively, compared to inco...

This paper examines water use efficiency and economic efficiency with a particular focus on the Murray – Darling Basin of Australia and the stated policy goal of increasing environmental flows of water in the Basin. The different measures of efficiency are explained, and their implications for water reform and the efficacy of market based approaches to addressing the water scarcity issues and environmental flow needs are explored. Public policies to subsidize investments for improvements in irrigation efficiency are shown not to be currently cost effective compared to alternatives, such as buying water through water markets. The implications of these findings, and the factors that determine the demand for irrigation water by competing uses, can guide policy makers undertaking water reforms in the agricultural sector to mitigate the environmental consequences of overuse of water resources.