The role of economics is to help people think about options and trade-offs. That doesn’t always mean that economists ‘have the answers’ but they can provide information that helps decision makers interrogate the values that attend the choices they have on offer.
In the case of the Goyder project titled Adaptation of the South-Eastern drainage system under a changing climate delivered in collaboration with the Limestone Coast Landscape Board and the South Eastern Water Conservation and Drainage Board (SEWCD Board) there was an opportunity to consider what value is created by water in different applications.
Currently, water is used to support a range of agricultural and forestry activities in the Limestone Coast region. Water is also a key ingredient to groundwater dependent ecosystems. The purpose of this project was to better understand the range of values that accrue from water in agriculture and forestry and establish the value of water when it delivers ecological or environmental benefits.
In the case of agriculture and forestry, the team assembled primary and secondary data covering hardwood, softwood, dairying, winegrapes, onions and potatoes. The purpose was to understand what commercial value would be generated from an extra Megalitre of water in each of these activities. This was done by estimating what economist call the ‘residual value of water’ – that is, the dollars generated from having an additional Megalitre of water available, minus other input costs.
Since input and output prices vary over time, this information can also be used to show how profitability can vary within and across the different agricultural and forestry activities.
The results show considerable variability in the case of the Limestone Coast, with some industries generating negative values, partly due to low current output prices. The results also show sizable variability within each activity, supporting the view that some enterprises will be doing much better than others even within generally profitable sectors.
To gain an understanding of the value of water from an ecological perspective, the project used a survey technique known as choice modelling. Choice modelling is particularly helpful when people value the existence of an ecological asset, even if they never visit it.
A choice survey was designed with input from ecological experts in the region. The purpose was to understand what environmental changes would likely occur if different amounts of water were available to a specific site. In this case the survey focussed on Bool Lagoon, a large and diverse freshwater lagoon system that is an important remnant wetland in the Limestone Coast region. The Lagoon has been dry more often and for longer periods since the Millennium Drought and this is changing what species can survive and thrive in the system.
An online survey was distributed to over 1000 households across South Australia covering both metropolitan and regional areas. Households were given three options to consider at a time. Each option described the likely changes to native species and an extra amount to be paid as part of the landscape levy. By repeating this task several times, the team was then able to understand how different households trade-off the benefits to the environment with the costs they incur.
The results show that average households in the state have a significant willingness to pay to preserve and restore systems like Bool Lagoon. This is especially the case when additional water can forestall further deterioration in the population of some native species.
This project is jointly funded by the Australian Government through the National Water Grid Authority, the Limestone Coast Landscape Board and the South Australian Government. The findings from the project’s five key tasks are set for release in June 2025.
Brolga Image Credit: Claire Harding
