Factors affecting water prices in a rural water market: A south Australian experience

Abstract

Government agencies and water managers have showed an increasing interest for tradeable water entitlements (TWE) as a tool to alleviate the influence of raising water prices and to facilitate a reallocation of water resources to more efficient and sustainable uses from economic, social, and environmental perspectives. An understanding of how the water market works and which factors determine water right prices has become important to establish whether TWE policies facilitate this process. This research shows that the objectives largely have been achieved and that the more efficient irrigators are willing to pay a higher price for water, whereas the least efficient farmers are willing to sell at a lower price, showing that the buyers with high value of marginal product are willing to pay a price in excess of the value of the income generated by the sellers with low value of marginal product. Within the present legislative framework TWE does not, however, always direct water to the most sustainable users in an equitable manner.