3.1.1. Insights from the Interviews
All participants mentioned cost, quality, and reliability as important factors, or “characteristics” as participants called them, in their water source preferences.
Table 3 displays the range of values mentioned for the most relevant characteristics. Costs were divided into upfront capital and annual running expenses. The annual component of SE3, which is delivered under pressure (no pumping costs), includes a fixed cost independent of use and a variable cost in relation to the water supplied. The variable cost further depends on the farm’s location in the irrigation scheme.
Some participants indicated that sources varied in “manageability”, which is related to the ability to trade water with neighbours and flexibility of use (water may be available on demand or be provided as a constant flow over the summer). Some of the relevant characteristics could be defined in different ways, and this might have influenced personal preferences. For example, water quality encompassed an array of parameters and a range of threshold values relevant to suitability for the purpose of an enterprise.
Participants linked their water source preference and willingness to pay to the crop they grew with the water. In some cases, non-monetary factors were also in play, and these went some way, in certain cases, towards bridging the gap between the cheapest and most expensive sources, possibly making the latter worthwhile. One participant said “The two characteristics I find most important are high reliability and high quality. For that, I pay whatever I need to pay to irrigate my orchard.” Another participant said “I will deal with whatever reliability or quality, but I am really focused on cost. Cost is actually all I look at; if it gets higher than I want to pay, I will not grow a crop and will sell my stock.” These two quotes represent opposite ends of a spectrum. Based on the recommendations of the participants, we divided the farm enterprises into three types: livestock, annual cropping, and perennial cropping. As
Table 4 shows, these enterprises have relative differences in their demands regarding water source characteristics.
We also learned that the valuations assigned to characteristics of both water sources and enterprises were subject to change. Indeed, over the years, most participants’ willingness to pay for water had evolved. For example, one participant stated: “I remember when water from the Craigbourne cost $15/ML and it went to $20/ML, and we all thought it was too dear. Sometimes you have got to pinch yourself and realise that I’m about to spend $250,000 just to get access to 50 ML of water. If someone would have told me this 10 years ago, I would have thought he was living in fairyland, but perceptions change. If I tell other growers about the reality of irrigation water, they often don’t believe me. However, you really need a crop that generates the value that covers the costs.”
3.1.2. Insights from the Workshop
Our insights from the workshop are focused on the discussion rather than the specific values assigned to the crossover points or their changes. Nonetheless,
Appendix D provides an indication of the crossover points. Participants’ reasoning is fundamental in determining the crossover points and therefore likely to be more transferrable and relevant to other farmers, water managers, and policymakers than the crossover points themselves. Crossover points, and even changes in crossover points or confidence levels before and after the discussions, may simply be an artefact of the facilitation process (e.g., providing a better understanding of the question). These results are clearly subject to change, case-study dependent, and by no means representative. There is also a risk that crossover points may be misinterpreted when lacking context.
Our reporting of the discussion focuses on reasoning and insights, with a summarizing sentence at the beginning of every paragraph accompanied by a reflection on the aims in
Table 1 at the end of every paragraph.
What is Water Worth?
The first three questions of the workshop focused on willingness to pay for water. Participants discovered that within the group, there were distinct ways of accounting for the various components making up the total cost of water. These contributed to very different views on investments in water rights. The factors considered, the way these factors were brought together, and the assumed cost of the different factors turned out to be subjects of personal perception. Some reported seeing water as a capital cost and spread it over a period of least 10 years. Others just considered the interest rate of their loan to procure water, which would lead to a higher willingness to pay, compared to participants who integrated the cost of water rights into their yearly budget, similar to the purchase of an irrigator or a tractor. Some thought that water would increase in value, while others disagreed. Some expected interest rates to go up in the future, making water more costly if you had to borrow from the bank to finance it. Participants also disagreed on whether a bank would lend money to buy water or not, and about whether buying water is equivalent to buying more land. These different views suggest the usefulness of following up the workshop with a more quantitative study to provide information or advice about strategies to integrate the cost of water rights into a yearly budget.
After several minutes’ discussion about the minimum value that needs to be generated per megalitre to still prefer SE3 over alternatives, one participant came up with a rule of thumb. He reasoned, “For me, it would be $6000/ML. I base that on $300 annual cost and 10% of the cost of the water rights, another $300, so $600/ML. I use the rule of thumb that the cost of water should be around 10% of the budget to grow a crop. If you grow fruit, I reckon that if you need more than 10% for your water, you go backwards because you have a lot of other expenses that come in as well; wages are huge costs for me, investment in capital, fertilizer, and marketing.” This very explicit line of reasoning began with a discussion on the robustness of preferences, which unfolded into exchanges about this personal rule of thumb. Some participants agreed that although they had not considered the rule before, the 10% was a good figure to aim for. Others reasoned that this figure might be applicable to fruit trees but not annual crops, as water is just one of the many costs involved in growing a high-value crop such as fruit trees. For most annual crops, the percentage spent on water could be greater as there are fewer other inputs. Both the average value of crossover points and the level of confidence (how confident participants were about their crossover point) increased during the discussions. By explaining and exploring the specific rule of thumb, participants gained a better understanding about where differences in willingness to pay for water came from.
There was strong consensus in the group about minimum value generation. Based on their experience and the scale of cropping in the valley, participants agreed that it was impossible to make a profit from either livestock or traditional annual crops (e.g., cereals) using SE3 water. Use of this water source would thus involve a change of enterprise to a high-value crop, preferably “with a contract in your pocket” before investing in water. They did note that the situation might be different for larger farms, as they knew of farmers growing annuals with high-value water in nearby valleys. The finding, based on end-user experiences, that investment in high-value water would require a change in enterprise and everything that comes with such a change, are very relevant for other farmers, irrigation scheme designers, and water managers.
Where does Reliability Come in?
There seemed to be consensus among the participants about the minimum reliability needed for perennial crops: irrigation water bought for use on perennials needed to be at least 95% reliable. For some, preferences were very robust: Craigbourne Dam water would never be suitable because the quality and the reliability of Craigbourne water was not good enough. The crossover points on reliability and the associated confidence levels stayed the same during the discussions. However, there was much debate about the meaning of reliability and how scheme management affects reliability. One participant said that if there was a guaranteed minimum supply to at least protect your trees from dying, there would be a crossover point somewhere. Another argued that if water was cheap enough, you could buy water rights to have “up your sleeve” if your main source was restricted. Others pointed out management benefits of Craigbourne Dam compared to SE3: (1) “The reality is that the delivery process makes a big difference. When there is not enough water for everyone, water trading kicks in. We learned in the last 20 years that during a drought, some people end up buying water and other people sell, probably making more money than they would have if they applied it to their low-value crop. Craigbourne allows you to buy the yearly water rights from others that do not need it as much.” (2) “Craigbourne is a public dam that is holding the water for you. If you buy SE3, you still need a big farm dam, so you are duplicating what is already been done for you.” (3) “SE3 gives you water during 180 days a year while you can order Craigbourne water in a large volume delivered over a short time.” (4) “Craigbourne actually pays for evaporation while with SE3, you pay for it yourself.”
Differences in experiences and in the practical meaning of reliability influenced how participants factored this characteristic into personal decision rules. A preference for other sources seemed very robust if high reliability was demanded but could not be guaranteed.
What Restricts Reuse?
When discussing reuse water, participants agreed that restrictions and regulations needed to be reconsidered, as they were currently hampering uptake. However, they did not agree on which characteristics of reuse water would have to change for it to become the preferred source for perennial crops. Various inhibitive factors were mentioned for reuse water: costly regulations on groundwater monitoring, restrictions regarding empty creeks, regulations demanding that fully grown crops be “washed” with non-reuse water before harvest, and differing regulations for the domestic and international market. Some participants thought that restrictions on reuse water were different in mainland Australia.
Allocation of reuse water was another issue raised as this source is allocated in a year-to-year procedure instead of long-term water rights. Such flexibility in the allocation of water might particularly benefit the water provider, as participants said they would rather know their allocation for at least five years, in order to plan ahead. This indicates that there is room to improve the supply management of reuse water, and a better understanding of the costs and restrictions might influence farmers’ willingness to pay. However, “optimal” management is influenced by the perspective taken, as what is best for farmers might not be best for water managers.