Confusing Policy and Catastrophe: Buybacks and Drought in the Murray-Darling Basin

Water buybacks in the Murray-Darling Basin entail compensation at market prices for water sold by farmers to the Commonwealth. Despite this, the Murray Darling Basin Authority met with hostility at public meetings in basin communities late in 2010. This reflects hardship arising from three consecutive years of drought rather than the consequences of buybacks. Dynamic CGE modelling results indicate that around 6000 jobs were lost due to the 2006-07 to 2008-09 drought in the Murray Darling Basin. Even in the long run, years after a rainfall recovery, jobs will remain 1500 below forecast due to lost years of investment during prolonged drought. This contrasts with 500 jobs lost across the basin due to buybacks. Some industry groups and politicians have asserted that buybacks will result in rural catastrophe. This underestimates the adaptability of farmers in response to a voluntary and fully compensated process, and confuses the impacts of drought and buybacks. Nevertheless, there are aspects of the 2007 Water Act that warrant modification in order to move towards a socially optimal restoration of environmental flows in the Murray-Darling Basin.