5 Reasons Why the Australia Institute Report into the Ord Does Not Hold up to Scrutiny

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5 Reasons Why the Australia Institute Report into the Ord Does Not Hold up to Scrutiny

The Australia Institute released a report titled ‘Dam the Expense: The Ord River Irrigation Scheme and the Development of Northern Australia‘ on 28 July 2017. It was financially supported by Environs Kimberley, a conservation organisation in the region.

Key Findings

The report, drawing on the findings of Hassall & Associates (1993) (prepared for the Kimberley Water Resources Development Office), Economists at Large (2013) (prepared for the Wilderness Society) and WA Auditor General (2016), states that between 1958 and 1991 the government invested $1,125 million (in 2016 dollars) into the Ord River Irrigation Area (ORIA) and extracted public benefits of just $186 million. That is, for every $1 invested in the ORIA, the public received back just 17 cents. Further, over this period there was a net private gain of $32 million (in 2016 dollars).

Criticisms of the Report

1. The report concluded that total private and public costs up to 2014 were approximately $2 billion (in 2016 dollars), but the total benefits had not been updated as ‘figures on benefits … are difficult to locate from 1992 onwards’. However, data relating to the value of production from the ORIA is available to the public through the Department of Agriculture and Food. Further, the report states that ‘the Hassall & Associates cost benefit analysis showed that costs exceed benefits by more than 2 to 1, and there is no indication that this has changed.’ However, the report provides no evidence that supports this statement.

2. Further, it did not acknowledge other economic benefits of the Ord scheme, ‘such as local tourism, Ramsar wetlands, hydro electricity and the entire town of Kununurra – all of which would not exist if the Ord River had never been dammed.’ However, it should be noted that the studies relied upon by the report did not consider these benefits.

3. The report did not include Hassall & Associates’ other conclusion from 1988 that ‘if the Ord project is to ultimately provide a net positive return to the nation, the release and development of additional land for irrigated agricultural production must be facilitated … Indeed, it is a remarkable achievement that annual total-project benefit generated from just 12,000 hectares of land now exceed the annual costs of a project designed to irrigate 70,000 hectares.’

4. Further, the report did not disclose what compounding rate was used to convert the values relied on from the 1960s into 2016 dollars. As noted by agricultural economist Francis Bright, cost-benefit analyses typically have a 10-20 year timeframe to minimise potential inaccuracies resulting from comparing monetary data from significantly different time periods.

5. In its discussion of the benefits of the Ord scheme, the report principally focuses on employment created. It states at p 16:

‘Given the public investment of $334 million ($364 million in 2016 dollars), 61 jobs is not a large increase in employment from the latest expansion. Similarly, across the whole scheme, employment of around 270 people is small when compared to the $2 billion in public and private costs including more than $1.5 billion of public money, in 2016 dollars. This simple exercise confirms the results of the more complete analyses done that show only a small benefit when compared to the substantial costs.’

This analysis is misleading as it fails to refer to the wider economic benefits that flow from public investment in the ORIA (including those used by Hassall & Associates (1993) in its cost-benefit analysis – irrigation charges, land lease payments, house rental, enterprises, electricity and town services etc, and the wider benefits mentioned above).

Conclusion

Ultimately, the Australia Institute report lacks the economic detail to be relied on as an accurate up-to-date overview of the costs and benefits of the Ord scheme. It is clear that a more in-depth economic analysis is required before conclusions can be made as to the economic viability of the scheme.

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