I’m going to make a couple of comments on the recent report. I’m writing this as I generally find this an area that is poorly understood. I used to work for the CRC for Tropical Pest Management (1994-99), and this is an area where the economics could be improved. However, notable economic contributions to this area have been made by Clem Tisdell and David Pannell.
Before we get started, some terminology:
Hopefully this terminology clarifies some of the language and illustrates how changing density within a pest-load alters costs, and/or entrance of a new pest doesn’t necessarily mean that more costs are required as existing strategies could deal with the entrance of a new species.
The Murray-Darling Basin (MDB) has the second most variable inflows in the world, and this uncertainty provides complexity in managing the outputs generated from the application of water to either environmental or agricultural production systems. This uncertainty in water supply results in irreversible capital losses (natural, social and economic). During the Millennium Drought the area irrigated in the MDB essentially halved from 1.8 million Ha in 2000-01 to 900,000 Ha in 2006/07 (ABS data various).
We can simplify the environmental outcomes from developing a set of environmental rights and the problems of dealing with supply uncertainty in the following chart.
After our recent political spill and fill, there is always a need to show that you are a positive change and you can do something. So combined with:
CSIRO has released a series of report today (here) (summary by ABC here) by cherry picking 3 regions, they have identified 6 new dams locations in northern Australia. If they were all developed up to 4,400 GL of water would be available to irrigate 380,000 Ha and generate an additional $5.3 billion per year and require 15,000 new workers. (I'm deliberately ignoring the 710,000 Ha of new lined ponds in coastal areas for now.
As I'm a poor student of economic history, I once again turn around and drag out two of the classic Australian agricultural economic texts by Bruce Davidson:
Perhaps its time to remind people of the other white elephant in the north, the Ord Scheme. Bruce Davidson's Northern Myth is about the Ord. It tells the failure of the process and recent expansion (my review for The Conversation of stage two is here) was and is still not a shining economic success story. The 2017 Australia Institute report found that it had a return of $0.17 for every dollar invested. Or in other words for every dollar invested you loose 83 cents.
So lets say these new 6 dams generated the same return on the Ord. Well its probably going to cost about $31 billion a year to generate the reported $5.3 billion in benefits a year.
Lets not forget we need another 15,000 people to make this work and all plans to reduce the current rural labour shortage (here) have been so successful for backpackers (here) and migrant workers (here) and (here)
I think these white elephants are going to stay on the horizon once the costs are considered.
Background: The Murray-Darling Basin Plan is based on the concept of 'common property' were a set of environmental rights are established and managed in the national good (economic, society & the environment). The environments rights were purchased from farmers either: directly via market mechanisms (i.e. buy-back where rights were traded); or obtained as part of the water saved when on and off-farm irrigation infrastructure was upgraded with the assistance of public funds (i.e. water use efficiency). The costs of this purchase of environmental rights from farmers is estimated at between $10-13 billion in public expenditure.
The story today in the Guardian (here ) where politicians are calling for the farmers to be able to purchase environmental water goes against everything that the Basin Plan stands for and highlights one of my personal fears. In short the environmental water is not an overdraft facility that can be used when farmers failed to account for the risk and uncertainty associated with this land 'of droughts and flooding rains' (Mackellar, 1911). Nor should the environments water be used to provide base or conjunctive flows.
For too long, the environments share has been utilised for private gain at social & environmental cost. This is how we operated before the Basin Plan. The environments water is the environments water. The environment can experience irreversible losses when it fails to receive its share. If farmers want water, they can buy the water from other farmers.
I will provide a word of warning that people still fail to consider here. With all things considered (see the excellent charts by the ABC) this drought is in it infancy when compared to the Millennium Drought. If this drought turns into a long and persistent drought, there may be real welfare gains from buying more water for the environment from the allocation market.
If the environmental manager is willing to pay the most, why would we prevent willing sellers from maximising their income.
On Monday 30 July 2018, Dr Adam Loch and I gave evidence at the Murray-Darling Basin Royal Commission. The transcript from the proceedings can be found here. Both Adam & I were approached about our work in the area (we didn't put in a submission) and subsequently asked to give evidence.
Overall it provided the opportunity to talk about our work and depute points about the Murray-Darling Basin Plan with both the Senior Council (Mr R. Beasley) and The Royal Commissioner (Mr B. Walker). It ended up being an enjoyable experience as both The Royal Commissioner and the Senior Council have sharp minds and very dry wit.
C. Dionisio Pérez-Blanco (google scholar page) at the Universidad de Salamanca (map) has two predoc positions going. A pre-doc position gives young researchers a chance to build their skills before applying for a PhD,
Dioni is a friend of mine and I can highly recommend this opportunity. Salamanca is simply stunning and the town is a University town and a simply beautiful place to live. While working with Dioni will provide you an opportunity to develop the skills and thinking to help your endeavours in future study. Dioni is well connected and excellent at his work.
Details of the position:
We offer 2 positions based in Salamanca (Spain), with a competitive salary (same level as Ministry of Science's predoctoral fellowships FPI/FPU) and a duration of 32 months (20+12).
Successful applicants will work alongside other predoc and postdoc researchers on the development of a multi-model ensemble framework within the Program for the Attraction of Scientific Talent's SWAN Project (https://proyectosayuntamiento.usal.es/index-en.html).
We request a sound quantitative background (economics, engineering) and digital competences. Knowledge of mathematical programming/optimization (e.g. GAMS), macroeconomic (e.g. GEMPACK), hydrologic (e.g. SWAT) and/or statistical computing software (e.g. R) is an asset. Working language will be English.
Candidates can apply online here:
Go to "todas las publicaciones"; in the page that opens, click on the field "título", write "8357", and click on "buscar". Then scroll down and select the job offer that appears. A detailed job description in English is available in the doc "Anexo Conv". You can provide my contact for more information for potential candidates.
Cost to defend the health system from tobacco lobbying countries: Or some better media coverage please
In a prior blog post (here) I mentioned that it had been estimated that $50 million had been spent on protecting Australia's rights to have plain packaging on cigarette packets. Well this story here claims its only $39 million and then it has the usual story about opportunity costs of expenditure. Well a simple little reporting may have widened the rationale for this expenditure.
Tobacco causes millions of dollars in medical costs and lives a year. Lung cancer is estimated to cost over $107 million per year in Australia.
By all means complain that we aren't suing the tobacco companies for using third parties to go after our regulations. But hell even if the costs were $50 million, the future benefits from this expenditure can not be underestimated.
To build a comprehensive economic debate in policy we test hypothesis with real data to: determine trends, explore the reality of theory, and predict how individuals will respond to incentives (positive and regulations). Facts allow for the development of evidence-based policy that ideally should lead to welfare improvement. Data allows for the evaluation of policy decisions.
But evidence based policy is undesirable by those politicians who trust their feelings. The media game of pointing out falsehoods (Fact Check) appears to be running out of steam as it has little to no impact on individuals future statements. However, those same individuals who spruik feelings can influence public expenditure. They also know that without data, rational arguments are easier to defeat.
A critical provider of data to the policy debate is the Australian Bureau of Statistics (ABS). The ABS 's desire to increase the speed of reporting on the CPI reporting from a quarterly basis to a monthly basis sounds like they are doing alright.
However, if you type the words ‘ABS funding Cuts’ into your search engine, you end up with a raft of stories detailing funding cuts, staff layoffs, the delays in upgrading infrastructure, etc. The recent report by the ABS has the following chart
While the funding looks fairly constant, I believe the data is nominal and not real values. So using the RBA Inflation Calculator that $350 million in 2000-01 equates to $544.4 million in 2017 values. Or putting it in another way what the ABS received in 2016-17 is only 64% of their budget in 2000-01.
Budget slashing comes with a cost. Its not just the people, the skills, the infrastructure that helps create costs savings, but it’s the reduction in data. This reduction in data comes with real social costs, it allows feelings and not facts to dominate, reducing economic welfare.
The lack of data was noted in the 2007 Water Act where funding was allocated to collect data. A quick cut from my PhD
The Water Act legislated the roles of:
The MDBA was allowed to commission external parties to fill knowledge gaps. A principal knowledge gap was undertaken by the Commonwealth Scientific and Industrial Research Organisation (CSIRO), who were given the responsibility for determining the MDB’s sustainable water yields, and quantifying the risks climate change posed to the SDL (CSIRO 2008).
While the Basin Plan isn’t perfect, this data (while not perfect, and this is a long debate for a later post) has definitely helped enable the policy debate. When no data existed before, imperfect data provides a starting point for discussion.
However, the decommissioning of processes designed to collect data and the decommission of data sets comes at a cost. This cost is ultimately born by society.
In 2011, 4 Corners released 'A bloody Business' highlighting beef animal welfare in the live-trade industry. The story basically shut down the beef live-trade industry in northern Australia for about 6 months. In 2018, the beef industry was seeking over $600 million in compensation by the forced shut down.
The lack of market resilience (i.e. exports can be shut down by either party) exposed the lack of financial resilience in the northern beef industry. One key option strategy to diversify the beef industry was to encourage the development of abattoirs to increase market opportunities.
Well the Australian Agricultural Company (AACo) has just mothballed its $100 million, 3 year old abattoir, primarily due to supply chain logistics. This should be putting a fear into the northern beef industry.
Regulatory agencies can be described as benevolent social welfare maximisers (Laffont & Tirole 1991) who serve the public interest. However, the effectiveness of regulations is eroded by regulatory capture (regulations are designed in the interest of business and not society) and the failure to enforce regulations.
We can argue that this failure to enforce existing regulations and redesign of regulations away from the public interest has been evident in recent public policy development. The recent cry of 'smaller taxes' for business by our current government was fortunately a recent failure of an international race to the bottom.
There is perhaps nothing worse than watching the recent news story about the deaths of over 2,400 sheep over a shipment of 64,000 (I'm not putting links in), just after you have had a paper published reviewing the regulations concerning the live trade supply chain.
The comment today that the losses were due to extreme weather and crowding, is not a surprise. These are common excuses found here: http://www.agriculture.gov.au/export/controlled-goods/live-animals/livestock/regulatory-framework/compliance-investigations/investigations-mortalities
These rules and regulations have been developed in response to past failures and mounting public pressure on the live trade industry, These regulations allow for both regulation and criminal action based on losses of these levels.
Just like with the recent water thefts, its time to enforce regulations!
Jackson, E.L., Adamson, D., 2018. The live sheep export supply chain: when operational and societal complexities collide. International Journal of Business and Systems Research 12, 181-196.
Laffont, J.-J., Tirole, J., 1991. The Politics of Government Decision-Making: A Theory of Regulatory Capture. The Quarterly Journal of Economics 106, 1089-1127.