Debunking Murray-Darling Basin water trade myths

Abstract

Australia, and particularly the Murray–Darling Basin (MDB), has the most mature and adopted water markets globally. Water trading is an important policy tool to deal with water scarcity issues, demonstrating allocative, dynamic and productive efficiency benefits. At the same time, water markets have been controversial in Australia. Markets have been blamed for a range of issues, including claims of unsustainability, inequity, farm bankruptcy, farmer distress and farm exit. This study reviews the MDB water trade literature and finds little evidence to support such myths. Arguably, the biggest misconception is that critics do not separate water markets from the meta-governance institutional structures that define them. Perceived water market failures are often due to governance issues – not water trade per se. This is not to say that market failure does not exist, it does, and indeed, there are also serious distributional issues that need addressing (e.g., water property entitlements for indigenous stakeholders). As such, water market design and governance need to adapt and evolve as problems arise and the market matures. However, in an era of increasing water scarcity, enabling water trade remains one of the most important instruments available to assist in water sharing, reallocation and farm adaptation to climate change.