10Farming Systems in the Murrumbidgee Irrigation Area of NSW - an Economic Analysis

Executive Summary

The objective of this report has been to describe the farming systems in the Murrumbidgee Irrigation Area (MIA) of southern NSW, in general, and the rice-based farming systems in the MIA, in particular. Describing the rice based farming systems gives some insights into current financial performance and the role of water trading in these farming systems at a time when the contribution of rice income to total farm income has been lower due to reduced water allocations.

A representative whole-farm model of the MIA rice-based farming systems was developed with the help of rice growers and staff from NSW Department of Primary Industries. The typical farm was 220 ha in size and had a water allocation of 1400 ML. While farms and farming systems vary considerably across the MIA, it was possible to group the majority of them into three common systems. An estimated of 20-30 percent of farmers follow a pasturebased rotation, 30-50 percent follow a cereals-based rotation, and 5-10 percent follow a splitfarm rotation ie. continuous crops.

Using the whole farm model, the business return on owner’s equity with water trade from these three systems was estimated to be 6.7, 6.8 and 7.7 percent respectively, suggesting that MIA rice-based farming systems compare favourably in terms of return on investment with other farming systems in NSW. Farm operating surplus was $100,300, $102,000 and $114,000 respectively.

These farm operating surpluses and business returns to equity are for a scenario in which the irrigators receive 100 percent of their water entitlement and are allowed to operate in the water market. The last time irrigators received their full entitlement was 1996/97. Allocations have been as low as 30 percent as in 2003/04. A reduction in allocation to 80 percent is likely to cause some farmers to apply less water to wheat and barley. However more severe reductions in allocation area likely to cause some irrigators to reduce the area of medium grain rice they grow and to switch to more dryland barley.

When allocations fall from 80 percent to 30 percent, farm operating surplus for the pasture based system falls from $91,900 to $5,900 assuming some water purchasing. For the cereals based system farm, operating surplus falls from $93,600 to $8,900 and for the split system, farm operating surplus declines from $98,400 to $13,400.

In all cases farm operating surplus increased when farmers were allowed to trade water. The results indicated that although it was the most lucrative, the split-farm system tended to be the riskiest of the three cropping systems in the MIA especially with water availability becoming a risk factor. There is also concern about possible long-term environmental and sustainability consequences associated with this more intensive farming system.

The whole farm model was used analyse the impact of water trading, with different levels of water allocation, on different crop rotations in the MIA. The model can also be used to provide a snapshot of how farm income might respond to by the introduction of new technology such as permanent beds for growing rice, a new enterprise such as an opportunistic wheat crop immediately after rice, or an alternative management practice. The importance of considering the interactions between enterprises or new technologies in a whole-farm context analysis has been emphasised. Often these interactions through time mean that more sophisticated techniques must be used to fully analyse such questions.

This work was done prior to the formation of the NSW Department of Primary Industries (on July 1, 2004) through an amalgamation of NSW Agriculture, NSW Fisheries, State Forests of NSW and the NSW Department of Mineral Resources.