Sunday, June 25, 2006

Water trading

Farmers are complaining about being given the right to sell off their claims to Australia's water supplies under the National Water Policy. There are circumstances where being given a choice can make you worse-off but this is not such a situation.

If a farmer facing bankruptcy is forced to sell his water rights then the sale is a consequence of the imminent bankruptcy not a cause of it. If denied the right to sell water in this sitiuation the farmer will be worse-off not better-off. We need trading of water rights so that scarce water resources go to their highest valued uses so that valuable irrigation water is not used to flood fields so grass will grow to feed dairy herds. Nor does the rice-growing industry make much sense in arid Australia.

For once The Age's editorial gets it right.


FXH said...

Those farmers whinging up north of Bendigo are experiencing the normal cycles of that land. It was always marginal rocks, dust and weeds at best with good rainfalls only every 3 or 4 years.

Should never have been opened up in the first place. Most of them would have inhereited it debt free from their original settler families who got it for almost nix.

When the rest of us were paying 21% for a house loan or business overdraft "those whose lifestyle must be preserved" were getting rural finance loans on the never never for 2.5% and driving around in new Fairlanes every two years.

I expect to see an Australian Story and 4 Corners with a few weeping farmers pleading for more handouts, like they did after their ill fated speculations in the overseas money markets a few years back.

Funnily I never noticed those who had done well out of overseas loans paying anything back to government or banks.

hc said...

Francis, This wasn't an anti-cockies post but it could easily become one. People on the land see themselves as 'doing real work' and the rest of us taking it easy. Hence their claim for special privilege.

But on this water trading issue is interesting. Denying the right to trade generally makes you worse-off. That is unless the trades reveal that you are getting your water for much less than urban folk and hence value it less. But doesn't this just tell us something we already know?

That it reveals you are getting access to a public asset for less than the rest of the community might reveal a hidden subsidy but that is known - being given the right to trade it will still make you better-off.

A tricky one.

FXH said...

hc - sorry for the bit of the rant. I feel I'm entitled to the odd rant as I'm an ex- farm boy and agricultural transport operator so I do know from experience of whence I speak.

I suspect that they want trading to be suspended and get handouts until the price goes up to beyond urban levels when they can then make a real windfall.

I have rurals telling me how the city people waste water by washing cars etc. Pointing out that the whole of urban australia accounts for less than 10% of the total water usage doesn't seem to win a lot of friends.

FXH said...

On a more important matter - and I suppose I should do my own trawling through say, Quiggin's papers, but do you have any figures on how much of that 10% of urban water would be considered essential public health expenditure and any exploration of what complications that poses for a pure market based price?

It seems to me that there should be a certain amount of water available to households (or perhaps persons) at the marginal dollar or free,for public health purposes, then an amount at, say, average cost and then another amount at some variable or spot cost (eg if its winter and all dams are 100% full it's marginal - if dams are 90% full, it's higher and if 60% much higher.

We know that a good waste system and a good supply of potable running water contributes enormously to our preventitive health. I just can't remember if I've seen any (local or otherwise) $ quantification of this preventitive benefit.

FXH said...

Now I think of it I'm sure I half heard Andrew Leigh spruiking on about water markets in the car the other day on some panel with Phil Adams.

I might be able to download it.