Despite fears of local economic loss fuelling widespread protests against water buybacks, a review of current research says such concerns are based on poor analysis and modelling.
Academics have described claims of water buybacks negatively impacting rural economies as ‘furphies’ in the wake of a literature review on current research.
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Adelaide University water economics researcher Professor Sarah Wheeler said in a report published on June 23, 2023, that the positive impacts of buyback expenditure within a local economy were often ignored in research.
Prof Wheeler reviewed 106 relevant economic studies of the Murray-Darling Basin and found that not all farmers who sold water entitlements left farming or suffered negative changes in production.
The review said that quantifying the direct costs of water recovery to rural communities was difficult to achieve and the quality of the research modelling ‘extremely’ variable.
“The most significant problem that all analysts face with trying to model the impact of water recovery is to identify its causal impact and disentangling true relationships between reduced water and various economic outcomes,” the review said.
Prof Wheeler spoke with Country News and said the variability in the quality of the research highlighted the paucity of robust analysis and that identifying water buybacks as the only reason for community decline was a distraction from genuine problems.
“Why is this important?” Prof Wheeler said.
“Well, the more that water buybacks are blamed, then the more that rural economic communities issues will never be addressed.
“It is a furphy and a distraction from the real problems.”
Prof Wheeler’s research found that the 26 per cent of papers considered ‘high quality’ were peer reviewed, not funded by industry, and involved sophisticated modelling.
Those same reports also described the economic impact of buybacks as ‘none to small’.
“You can go to any academic water economist in this space, and they will tell you that the modelling of the ‘predicted’ huge job losses from water recovery is completely rubbish,” Prof Wheeler said.
“It is assumed that, say, a one per cent reduction in water entitlements owned in a community, leads to a one per cent reduction in water irrigated area (which) leads to a one per cent reduction in farm production.
“It then leads to an even larger but inaccurate reduction in gross regional production mainly because of poor multiplier effects applied to figures to get a larger impact.”
A schematic breakdown of the 106 water economics research papers based on their quality.
The review said poor consulting modelling relied on assumptions and not thorough analysis and that ‘simple’ statistical methods used by Prof Wheeler on available reports’ datasets showed those analyses to be incorrect.
She said the finding of a statistical correlation in economic modelling did not automatically explain a cause.
“Any modelling not based on real data but based on making up assumptions about relationships, is utterly wrong,” Prof Wheeler said.
She said that most of the $7 billion spent on water recovery was used to fund water-saving infrastructure, with $2.67 billion spent on buybacks, and that such expenditure led to positive increased impacts within local economies through a variety of ways.
“There are always positive and offsetting impacts of water recovery on local communities — it depends on the exact characteristics of the community, how the money was spent, and environmental and other impacts.
“One assumption made constantly — by very poor economic modelling — is that you take the water away and it leads to a direct decrease in farm production and then to multiple direct and indirect impacts on local communities.
“But this ignores farmer adaptation, it ignores dryland conversion, it ignores surplus water, it ignores the fact that some farmers become more productive due to the money they received for selling water.
“It also ignores all the other benefits a community receives from having a more sustainable environment.”
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