Modelling Water Trade in the Southern Murray-Darling Basin

This Productivity Commission staff working paper, 'Modelling Water Trade in the Southern Murray-Darling Basin', was released in November 2004. It examines the likely economic impacts of expanding water trade in the southern Murray-Darling Basin. The paper uses TERM-Water, a bottoms-up regional CGE model of the Australian economy, to examine the regional effects of expanding trade of irrigation water in the southern Murray-Darling Basin. The study finds that water trading dampens the impact of water allocation cuts on gross regional product (GRP). The benefits of introducing trading within irrigation districts are greater than the further benefits of expanding trade to between these regions. Permitting trade of seasonal allocations allows irrigators to reallocate water in reaction to climatic conditions and water availability - and it is this flexibility that enables GRP reductions to be minimised. The views expressed in this paper are those of the staff involved and do not necessarily reflect the those of the Productivity Commission.