Tracing Factors Affecting the Adoption of Water Markets — Some Australian Experiences

This paper examines evidence of the factors affecting the adoption of water markets within Australia's largest irrigation district, the Goulbum-Murray Irrigation District in Northern Victoria. The district is unique for the purpose of this analysis for a number of reasons: (1) irrigators are supplied by two main systems with very different supply reliability, (2) parts of the district have a high proportion of land suffering from soil degradation and salinity with low value production while other areas have better soils and higher value production, (3) market restrictions have been eased over time and varies across the district, (4) the district has experienced severe drought over the last six years, and (5) there are two different types of irrigators within the district, those supplied by the district infrastructure and those pumping their own water directly from the rivers with slightly different entitlements. The paper uses the trading and entitlement registers to analyze the trading behavior of all farm businesses during the first 13 years of trading both in the market for water entitlements and water allocations. Originally markets were adopted most extensively in the area with the largest potential financial tradeoffs between high and low value water users and irrigators with poor and good soils, while in the other parts of the district the main driver of market participation has been scarcity and policy changes.