Optimising irrigated agricultural productivity under varying water availability: Industry challenges in northern Victoria

Abstract

In an environment of uncertain water allocations, irrigated agriculture in Northern Victoria is being challenged to meet the opportunities of a growing domestic and international market. Historically, increased agricultural demand has relied on access to readily available water and productive land. Under current environmental flow obligations and water caps, access to high- and low-reliability water varies by season and is constrained by sustainable diversion limits (SDLs). Assessing options to increase irrigated agricultural production under varying water allocations required the development of an economic framework to enable an evaluation of the balance between environmental flow obligations, consumptive water-use demands, crop performance and farm profitability. The developed bio-economic model, known as the Water Policy Model (WPM), considers all irrigation districts in northern Victoria and evaluates the economic efficiency implications of specific water allocations and water allocation methods (such as water trading) to ensure that environmental goals are achieved at lowest economic cost. The range of farm activities modelled includes permanent horticulture, summer and winter crops, livestock production, hay production for on-farm use or sale, and maintaining and feeding pasture. The commodities considered are irrigated and dryland pastures, summer and winter grains, pome fruits, grapes, tomatoes, citrus, stone fruits, almonds, olives, dairy cattle, beef cattle and sheep. The total area modelled is 1,601,474 ha. The model adopts a non-linear optimisation approach and is capable of assessing: the impact of various trading rules; the relative impacts of improvements in crop yields and water delivery technologies on profitability and water use; the economic impacts of substitution of surface water with groundwater; the impacts of commodity price shocks on water use and enterprise type; and the conditions resulting in the transition between irrigated dairy, mixed cropping and irrigated horticulture. The design of the optimisation model is to maximise total net benefits under various constraints including water availability, farm activity, available irrigated farming area, trading rules, SDLs (surface water and groundwater) and production volume. The model utilises satellite data and water/yield production functions based on farming system models. Results suggest that farm gate profitability from irrigated agriculture in northern Victoria can be increased from $2.2b to $3.6b assuming the current range of land uses, or $3.8b if available groundwater within SDL settings is 50% utilised and to $4.4b with access to additional groundwater and adoption of 10% improvement in water efficiency via genetic improvement, system design and precision water management. Overall, these results imply that achieving maximum profitability for irrigated agriculture industries under future water availability scenarios involves political and economic implications related to land use and access to various sources of water. The results have been used to inform government and stakeholders of the likely costs in achieving environmental outcomes. Due to the interactive and agile modelling approach developed in this study, enhanced engagement with stakeholders through active participation was achieved. This resulted in improved understanding of complex interactions and informed discussion about the potential trade-offs between meeting environmental flow obligations and maintaining irrigated agricultural profitability in northern Victoria.