The Economic Benefits of Irrigation to National and Regional Economies

Summary

This study uses a modified version of the Centre for International Economics’ (CIE) economywide general equilibrium model of the Australian economy. This modelling framework allows the net economic value of the irrigation sector to be quantified both in terms of its direct contribution to gross domestic product (GDP) and employment, and the indirect contributions, which capture the economic linkages between the irrigation sector and other sectors of the economy.

Aims

The two key objectives of this study were:

• to estimate the real contribution of the irrigation sector to the Australian economy
• to estimate the economic impacts of recent and future water reforms at the national level

This is the first part of a wider project, which also assesses the regional impacts of water reforms using the Goulburn Broken region as a case study. The study is being funded by Land and Water’s Sustainable Irrigation Program and is being guided by a steering committee consisting of prominent people from the irrigation sector and government.

Outcomes

Irrigation makes a substantial contribution to incomes and standards of living of Australians. Irrigation contributes:

• directly and indirectly, $12.4 billion or 2.3 per cent to Australia’s GDP;
• $2.8 billion indirectly to total household expenditure on goods and services — representing over $530 for each Australian household per year; and
• $7.4 billion to total exports, as well as saving $4 billion in imports.

Using the ‘accounting’ approach, irrigated agriculture contributed over $5 billion to Australian GDP for 1996-97, representing 33 per cent of all agriculture and 0.9 per cent of GDP. This represents irrigators share of the agricultural and GDP ‘pies’ respectively.

The ‘economic’ approach estimates the contribution of irrigation to the economy over and above what would have been the case in the absence of an irrigation sector having developed. The accounting approach does not recognise that without irrigation that land would have been used in the same enterprise or a dryland alternative enterprise.

Using the ‘economic approach’ irrigated agriculture directly contributed $3.4 billion or 23 per cent in 1996-97 to the value added for all agriculture. This equates to a 0.65 per cent contribution to Australia’s GDP.

The flow-on effects to the rest of the economy are significant. Value added in the food and fibre processing sector is estimated to be $2.5 billion. This represents 0.47 per cent of GDP.

The flow-on effects beyond the early stage processing sector, including household incomes are most significant. These flow-on effects are estimated at $6.4 billion or 1.2 per cent of GDP.

In total the direct and indirect economic contribution of irrigation to the economy is estimated at $12.4 billion or 2.3 per cent of Australia’s GDP.

In addition, irrigation directly and indirectly contributes around 171 000 employee jobs to the Australian economy, representing 2.6 per cent of total employment in Australia. An additional 17300 persons are estimated to be employers.

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