In Australia, climate variability and the predicted impact of climate change help in making seasonal rainfall less predictable and seasonal irrigation supplies more uncertain, eroding agricultural production prospects and profitability. Water allocation forecasts have economic value to irrigators for making informed cropping decisions. This study estimated the economic value of improved irrigation allocation forecasts in the Coleambally irrigation area (CIA) in southeastern Australia using a non-linear programming model. The model uses production and profit functions to estimate yield and gross margins for various water allocation levels rather than using given crop yields and gross margins. The model also captures the tactical response of improved cropping decisions made by irrigators based on water allocation announcements throughout the irrigation season. Tactical responses include changing the winter crop combinations, abandoning irrigation for a percentage of the summer crops, temporary purchase or sale of water, and deficit irrigation.
The estimated economic benefit of improved seasonal water allocation forecasts to the CIA irrigators ranges from AU$ 1.33 ha−1 to AU$ 9.58 ha−1 (AU$ 1 = US$ 0.77). The economic analysis of water allocation forecasts shows that the potential total gross margin for the irrigators at the 100% allocation level was AU$ 47.6 m, assuming accurate forecast of the end-of-season allocations. A more realistic scenario generates a forecast value of AU$ 8.9 million reduction in the gross margin (pessimistic water allocation outlook) and AU$ 1.60 million in the forgone gross margin (optimistic water allocation outlook) for only 5% variation in outlook above or below the actual allocation level of 60%. This suggests that losses far exceed when water allocations are over-estimated by irrigators, as resources and inputs could be overly committed to execute the less-informed cropping plans. The knowledge benefits from forecasts are far greater at the lower end of an allocation due to relative water scarcity. However, for higher allocation levels (>80%), the knowledge benefits are negligible due to less water scarcity. Thus, investments in water allocation forecasts and related agrometeorological information could be useful tools for policy makers, farmers, agribusiness, and the insurance industry. Copyright © 2009 Royal Meteorological Society