rights: the key to
achieving efficiency in
rural water use
WATER IN AUSTRALIA
Water has always been a defining issue in Australia's prosperity. And in recent decades irrigation has grown rapidly. Even so, the proportion of Australia that is irrigated, at two per cent of the land, comprises a share that is amongst the lowest among OECD countries. Only Canada and the rainiest countries, New Zealand and the UK, have lower shares; that of the US is 11 per cent and in Japan it reaches 60 per cent.
Modern agriculture is only 200 years old in Australia and though in the first 100 years agricultural productivity was increased to equal that of anywhere in the world, gains continue to be made-output has doubled over the past 50 years, a growth that could not have taken place without a similar expansion of irrigation. Irrigation in the Murray-- Darling agricultural province alone contributes $5 billion to Australian agricultural output, and non-irrigated agriculture in the region contributes a further $5 billion. This makes the area, which comprises 14 per cent of Australia's land mass responsible for a third of the nation's $35 billion agricultural output.
Applying Property Rights to Water
Most of the uses of water involve choices or compromises-drinking water versus irrigation versus industrial and so on. Some, however, involve complementarities, particularly certain recreational uses, such as water sports that are facilitated by storage and consistent availability.
In many cases, water will perform sequential functions-the same water can be used and reused for irrigation, used for industrial cooling and finish as drinking water. Water with different, sometimes competing, productive uses will be optimally used as long as two conditions are in place. The first is that its ownership is clearly specified and the owners' obligations to other users (or claims from other beneficiaries) are well understood. The second requires each property right to be tradable to enable acquisition by those who value it most, thereby maximizing its value.
The rights specification, and therefore property ownership, can rarely commence with a clean sheet of paper. People acquire individual rights to property initially through a variety of routes. One of these is seizure of something that was originally of little value until it was acquired and improved. Squatters assume rights in this way. However they are first acquired, they need to be tradable and relatively inviolable. This provides the incentive for them to be improved and for their owners and others to search out ways in which the assets they represent can be used to provide increased value or other benefits.
If confidence in the exclusivity an owner has over the property right is lost or was never present, the asset will be used less productively. For example, owners will milk them for their current-use value rather than tradeoff present value for a future value that is less certain.
Even without a total emasculation of individual rights (for example, when title to the property depends on continuing governmental assent), lack of certainty brings lower incomes and diminished asset protection. One outcome of this can be observed in the Murray-Darling system. Water rights on the Victorian side of the Murray are secure, while those on the NSW side have been over-- allocated and are subject to administrative discretion, including having a firm duration of only ten years. In Victoria, high security water (available 95 per cent of the time) comprises the great bulk of entitlements. In contrast, in NSW high security water is available only 60-80 per cent of the time. The result is that farmers on the Victorian side plant perennial crops while those in NSW tend to focus on annual crops, especially rice.
There are claims that Victoria's more robust property rights mean that the …