Agronomic and on-farm infrastructure adaptations to manage economic risk in Australian irrigated broadacre systems: A case study

• Published in: Agricultural water management 2022-07, Vol.269, p.107740, Article 107740
• Main Authors: Monjardino, Marta, Harrison, Matthew T., DeVoil, Peter, Rodriguez, Daniel, Sadras, Victor O.
• Format: Article
• Language: English
• Subjects: Downside risk; Investment; Irrigation; Profit gap; Risk aversion; Water price
• ISSN: 0378-3774; 1873-2283
• DOI: 10.1016/j.agwat.2022.107740

Irrigated agriculture is critical to feeding a growing global population. Irrigation contributes 30% of agricultural gross value in Australia, but water scarcity and the volatility of Australia’s open water market are significant challenges. In this paper we advance a context-specific, system-based approach that aims to identify financially feasible irrigation designs and decision making, with the goal to increase water productivity, whole-farm profitability, and risk management. We use a new analytical framework that combines crop simulation, discounted cash flow, system profit gap, probability theory and risk aversion analysis to quantify economic risk and compare 16 adaptation scenarios in an irrigated broadacre farm of the Riverina region in Australia. The scenarios result from the factorial of four agronomic systems (Baseline/Current, Diversified, Intensified, Simplified) and four irrigation methods − including surface irrigation by gravity (Flood) and by pumps (Pipe & Riser), pressurised irrigation by overhead spray (Pivot) and micro-dosing (Drip). A system profit gap of ~$10 M was quantified for the irrigated farm area over 30 years. Relative to the Baseline – flood-irrigated wheat-canola − significant long-term profit gains were identified for the Intensified (mean 273%) and Diversified (mean 80%) scenarios. Current and Simplified scenarios were less profitable than the Baseline (mean −16% and −37%, respectively). The benefits of intensification were accrued from large gains in crop gross margins − especially cotton yields − that consistently offset the set-up costs and additional water use. Diversification was superior in mitigating economic risk due to higher returns per ML of irrigated water and more diverse sources of income. Under the assumptions in our study, agronomic system had greater relative influence on financial performance than irrigation infrastructure. We demonstrated the potential to inform investment decisions from improving our understanding of trade-offs between profits and risks in the face of high climate variability, market volatility and Australia’s open water market. [Display omitted] •Water scarcity and price volatility challenge the irrigation industry in Australia.•Profit-risk profiles of 16 adaptation scenarios were compared for a Riverina farm.•A system profit gap of ~A$10 M was quantified over 30 years.•Intensification was the most profitable, crop diversification de-risked the system.•Agronomy had a greater effect on