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Type: Report
Title: Water trading as a risk-management tool for farmers: new empirical evidence from the Australian water market
Author: Zuo, A.
Nauges, C.
Wheeler, S.
Citation: The Australian Agricultural and Resource Economics Society Inc. 57th Annual Conference Handbook, 2013, pp.45-45
Publisher Place: University of Queensland, School of Economics
Issue Date: 2012
Series/Report no.: RSMG Working Paper Series
Assignee: RSMG
Statement of
Alec Zuo, Céline Nauges and Sarah Wheeler
Abstract: Farmers are well known to be risk-averse. Although a considerable literature has focused on the role water markets play to allocate water more efficiently, none has explicitly studied the risk management role water markets play in irrigators’ decision making. We used a two-step empirical procedure to estimate the impacts of variability in profit and downside risk in profit on the volume of water allocation purchased and sold using an unbalanced panel data sample of 1,449 farm observations across four industries in the southern Murray-Darling Basin in Australia from 2006-07 to 2009-10. We show that farmers experiencing higher variability in profit and facing more downside risk purchase greater volumes of water allocations, and this is supported across all irrigated industry sectors (namely, dairy, broadacre, horticulture, and viticulture). There was only weak evidence found for the broadacre industry to suggest that higher variance in profit and greater downside risk drive greater volume of water allocations sold. The different findings between buying and selling water allocations are reflective of the fact that water allocation sellers represent a more heterogeneous group of farmers than water allocation buyers, and that sellers of water allocations may be more strategic in general with their farm management overall.
Description: Working Paper: M12_2
Rights: Copyright status unknown
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Appears in Collections:Aurora harvest 3
Global Food Studies publications

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