Agricultural Water Management 97 (2010) 1333–1343 Contents lists available at ScienceDirect Agricultural Water Management journal homepage: www.elsevier.com/locate/agwat The changing profile of water traders in the Goulburn-Murray Irrigation District, Australia Sarah Wheeler a,∗ , Henning Bjornlund a,b , Alec Zuo a , Martin Shanahan a a Centre for Regulation and Market Analysis, School of Commerce, University of South Australia, Adelaide, SA 5001, Australia b Department of Economics, University of Lethbridge, Lethbridge, Alberta, Canada article info Article history: Received 14 December 2009 Accepted 20 March 2010 Available online 21 April 2010 Keywords: Water allocations Water entitlements Water markets Irrigation Victoria abstract This paper examines the changing profile of water traders (both allocation and entitlement traders) in the Goulburn-Murray Irrigation District in Australia, and examines the efficiency of the water allocation and entitlement markets from 1998–99 to 2003–06. The results suggest that the profile of traders in the early and mature stages of the water allocation market differ greatly. In addition, the profile of allocation traders is significantly dissimilar from that of water entitlement traders at all stages of water market development. The decision to buy or sell water allocations was more likely to be associated with a farmer’s socioeconomic characteristics and the type of farm, while the decision to buy or sell water entitlements was more likely to be associated with the extent of existing farm infrastructure and farm productivity. Finally, there was strong evidence to suggest that trading in the water allocation market has become more efficient over time, though there is no evidence to suggest the same for the water entitlement market. © 2010 Elsevier B.V. All rights reserved. 1. Introduction Water markets were introduced in Australia in the mid-1980s. Trading in water allocations (also known as temporary water trades) and water entitlements (also known as permanent water trades) began to accelerate in the mid-1990s. A water entitle- ment is an ongoing right to receive water allocations on a seasonal basis (depending on availability) while a water allocation is a right to extract water during the current irrigation season. Allocations are announced at the beginning of each irrigation season and are then revised each month (and can vary from zero to over 100% of entitlement) and are determined by water storage and climate conditions. Up until the late 1990s, water allocations within the Goulburn-Murray Irrigation District (GMID) had traditionally been above 100% of entitlements in most years, but since the mid 2000s allocations have consistently been below 100%. Australia is currently experiencing severe water scarcity in many irrigation regions due to drought. The season-opening allo- cations in the GMID have been 0% for the last six irrigation seasons. The Murray-Darling river system is under extreme stress result- ing in a number of associated environmental, social and economic problems (Productivity Commission, 2009; CSIRO, 2008; Quiggin, 2006). Irrigators are experiencing severe structural adjustment ∗ Corresponding author. Tel.: +61 8 8302 0698; fax: +61 8 8302 7001. E-mail address: Sarah.wheeler@unisa.edu.au (S. Wheeler). pressures, and the government is increasingly relying on water markets to buy water from willing irrigators to supply it to meet environmental needs. Water for the Future is a $12.9 billion Fed- eral Government plan introduced in 2008 to secure a long-term water supply, with $3.1 billion to be invested in buying water entitlements in the Murray-Darling Basin to meet environmen- tal needs (Department of the Environment, Water, Heritage and the Arts, 2008). The plan has two broad components: the first, to modernize irrigation infrastructure and the second, to buy-back water entitlements (Crase and O’Keefe, 2009). This plan and other associated expenditure have been widely criticized as being ineffi- cient (Productivity Commission, 2009; Crase and O’Keefe, 2009; Lee and Ancev, 2009; Connell and Grafton, 2008; Grafton and Hussey, 2007). Without structural changes to the allocation and entitle- ment regimes the plan is unlikely to deliver sufficient water for the environment (Young and McColl, 2009). The CSIRO (2009) also argued for a more targeted approach to planning water ‘buy-back’ and associated land use changes in order to maximize the increase in ecosystem services and recover greater environmental water flows. Since the early 2000s there have been a myriad of govern- ment and private organizations involved in buying water for the environment in Australia. Bennett (2008) has discussed the need for increased coordination between such initiatives to reduce potential inefficiency and duplication. Since the introduction of water markets, irrigators have par- ticipated more in the water allocation market than the water entitlement market. The severe drought conditions from 2003 to 0378-3774/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.agwat.2010.03.015