Water supply and demand in the southern MDB

Parts of the Murray–Darling Basin (MDB) are facing some of the worst drought conditions on record — with most areas reaching similar or worse conditions to parts of the Millennium Drought. Over the 2018-19 water year, dry conditions have persisted and intensified, with rainfall below or very much below average levels across large swathes of the MDB. In the last 30 months, many parts of the Basin have received the lowest rainfall on record, particularly around the Border Rivers.

Over 2017-18 and into the start of 2018-19, in the southern MDB, dry conditions were limited to irrigation areas. However, major headwater storages contained relatively healthy storage levels from favourable inflows over mid-2016. Driven by this stored water, irrigation activity in 2018-19 was relatively high for many crop types given the level of inflows recorded.

Though the prolonged dry and weak inflows have meant that the southern MDB has seen diminishing water storages and increasing impacts on agriculture. What was previously a dryland drought is increasingly an irrigated drought. Major southern MDB headwater storages decreased from 65 per cent in August 2018 to 38 per cent in August 2019 — with spring inflows remaining below average.

Additionally, the combination of warm temperatures and minimal rainfall has exacerbated already dry soils, meaning additional water is required to address water demand in crops. As a result, the price of water in the southern MDB has increased from $140 per ML in August 2017 to over $610 per ML in August 2019.

Spring is the season in which droughts are most likely to break, though relief does not appear to be forthcoming. A positive Indian Ocean Dipole (IOD) has moved rainfall patterns away from southeast Australia over 2018-19, a trend which the Bureau of Meteorology (BOM) suggests is likely to continue over coming months. As such, dry conditions are expected to prevail throughout spring and summer, increasing the likelihood of weak inflows, low water allocations and increasingly high prices over the 2019-20 water year.

Combined with increasing water demand — especially from permanent horticulture developments in the Lower Murray — water markets, carryover and alternative water sources are increasingly important for managing drought conditions. This changing dynamic is putting unprecedented pressures on the system, with significant potential risks to the irrigated agriculture sector.

Aither has researched the recent growth of water demand, as part of a broader effort, within our work with the Victorian Government to build a more comprehensive picture of the water supply and demand balance in the southern Murray–Darling Basin.

In recent years, and built on the success of water markets in moving water to its highest value use, water demand from permanent horticulture has grown dramatically. Favourable commodity prices for table grapes, wine grapes, almonds, citrus and other nuts have resulted in the rapid development of new agricultural investment — especially in the lower Murray region.

Aither has used a number of sources to build a more accurate and current estimate of the total volume of water demand based on existing plantings, and build a picture of how much this volume is likely to increase as new orchards mature and require more water over time. Aither estimates that there is potentially an additional 490 GL per annum of permanent water demand on top of the 2015-16 ABS water use estimate and approximately 160 GL in addition to estimated current 2018-19 demand.

Aither’s 2018-19 baseline permanent horticulture water demand estimates (both current and at full maturity) are compared to ABS water use data for 2015-16 in the figure below.

In addition to the change in water demand, water supply has also changed as Basin governments have cooperated to recover water for the environment under the Basin Plan. Accounting for environmental water recovery, and based on previous years, Aither estimates the amount of water in the southern MDB available for consumptive purposes (excluding carryover) could be equal to approximately:

• 1,510 GL in extreme dry sequences (similar to 2007-08)
• 3,100 GL in dry sequences (similar to 2015-16)
• 3,790 GL in moderate sequences (similar to 2014-15)
• 4,370 GL in wet sequences (similar to 2011-12).

As a result, in extreme dry conditions in the future, the volume of water allocated in the southern MDB may be only slightly higher than the water demand attributable to existing plantings. Aither has also identified a number of potential future developments, which in combination, have the capacity to result in total water demand in excess of the within-year water allocations.

Comparison of water demand from permanent horticulture, connected Murray, 2015-16 ABS estimate & Aither 2018-19 baseline estimates

Water availability scenarios & projected permanent horticulture water demand (at full maturity), connected Murray region

The report highlights that:

• Previous estimates of current permanent horticulture water demand are likely to be under-estimates
• Existing and projected permanent horticulture demand is expected to push the limits of annual water supply in very dry periods
• Carryover will be critically important to help irrigators manage through a severe drought
• How the water market functions and the behaviour of water holders will be critically important in shaping how prices respond under these scenarios.

The report outlines the details of this analysis and provides further insight into some of the impacts this might have. The report is accessible here.