Synergies Agricultural Water Demand Model

Effective planning and efficient investment is reliant on robust demand forecasts. Forecasting the demand for agricultural water is complex, as demand is driven a range of diverse factors, including supply-side factors such as agronomic and climatic suitability, and demand-side factors including commodity prices and regional competitiveness.

The Synergies Agricultural Water Demand Model is a tool for forecasting agricultural water demand, by commodity and at the State/Territory, regional, and sub-regional level. The model is informed by our team’s vast experience in undertaking agricultural water demand assessments throughout Australia to inform the economic analysis of major projects in the water and agriculture sectors.

Forecasting agricultural water demand

The past decade has seen a significant increase in the focus on the management of water resources and assessing the economic feasibility of infrastructure and non-infrastructure projects targeting the supply of additional water for agricultural use.

Understanding future water demand is critical to informing robust government policies and project evaluations in the rural water sector. This is critical in order to inform:

1. Evaluation of water infrastructure investments
2. Water resource assessments, including groundwater sustainability
3. Allocating water reserves between uses
4. Forecasting the impact of climate change on agricultural water use and production.

The robustness of water demand assessments has improved significantly in recent years, with the industry moving from largely qualitative assessments heavily reliant upon stakeholder input to quantitative demand assessments underpinned by probabilistic models and robust statistical analysis of key demand drivers.

Our team has been at the forefront of the industry over this period, having undertaken several water demand assessments throughout Queensland, including:

• North Queensland (Burdekin Basin, Wet Tropics, the Gulf region)
• Central Queensland (Central Highlands, Dawson Valley, Lower Fitzroy)
• Southern Queensland (Darling Downs, Southern Downs/Granite Belt, South East Queensland, Lockyer and Warrill Valleys).

We have also conducted agricultural water demand studies throughout New South Wales and Western Australia.

The importance of a national perspective

Our experience has highlighted the need for a broader geographical perspective in assessing long-term agricultural water demand. To date, assessments have been focused on forecasting water demand for defined regions. While these assessments often consider the region’s market share for key agricultural commodities, they do not have sufficient regard for the significance of the role of specific regions in the context of overall domestic and export markets.

For commodities that are predominantly supplied into domestic markets, it is critical to consider the role of specific growing regions in meeting market demand, including the seasonal window occupied by the region and the production outlook for competing growing regions. For export-focused commodities, in addition to assessing demand outlooks for key markets, it is critical to assess the supply-side market outlook, in particular the scope for growth in production in other major exporting countries.

Synergies Agricultural Water Demand Model

The Synergies Agricultural Water Demand Model combines top-down data on irrigated crop production by State/Territory with bottom-up data that draws on Synergies’ experience and farm-level data from various sources to derive long-term forecasts for water demand for specific crop types down to the sub-regional level.

The Model projects long-term demand for irrigation water to produce individual crops at the national level, based on factors such as per capita consumption, population growth, global market growth rates, and export market share proportions.

Demand is then disaggregated to the State/Territory, regional, and sub-regional levels based on regional market share projections. The State/Territory and regional market shares in the model are based on a combination of published data (e.g. HortInnovation production data, UNE Tree Crop Dashboard), combined with Synergies’ learnings from previous investigations in several regions.

Water demand is then calculated for each individual crop by applying region-specific crop yield and irrigation application rates, based on a combination of publicly available data and Synergies’ own research into the productivity and water requirements per unit of production across Australia.

In addition to enabling the derivation of forecasts that are underpinned by robust assessment of the long-term trajectory of all key demand drivers, the model also provides a flexible tool for extensive scenario analysis (e.g. assessing alternative export growth trajectories and the impact of constraints in key growing regions) and reduces the reliance on time-intensive and often unreliable stakeholder consultation processes.

Case study of model application: Forecasting water demand in the Lockyer Valley and Somerset sub-region

As part of the Lockyer Valley and Somerset Water Security Scheme (LVSWSS) project, Synergies was engaged by the Lockyer Valley Regional Council to undertake an economic analysis of several options for the development of the scheme.

The Agricultural Water Demand Model was applied to prepare a long-term water demand forecast for key vegetable crops in the region out to 2050. This involved:

• Identifying ‘starting demand’ for production of each key crop at the national level, based on a review of total consumption over the past five years
• Reviewing key market demand drivers for each key crop, including per capita consumption, population growth, and export growth rates
• Establishing the current State/Territory, regional, and sub-regional breakdowns for each crop, based on HortInnovation and Queensland Government production data, combined with Synergies’ knowledge of the crop profile in the Lockyer Valley and Somerset region
• Developing initial water demand forecasts out to 2050 at the regional and sub-reigonal level assuming no change in the regional market shares and applying region-specific crop yield and irrigation application rate metrics
• Reviewing the capacity of the major growing regions for each crop to meet projected demand, having regard to water and land availability
• Revising the regional and sub-regional market shares based on the capacity of each region to meet projected growth in market demand
• Preparing revised 2050 water demand forecasts for the Lockyer Valley and Somerset region by crop type.

Results

The ‘base’ version of the Agricultural Water Demand Model (i.e. demand projections with current regional and sub-regional market shares) produced an estimate for water demand growth in the Lockyer Valley and Somerset regions of ~7,300 ML.

The model was then used, in combination with desktop research, to identify other growing regions throughout Australia with similar crop mixes and seasonality as the Lockyer Valley. The key alternative growing regions identified were the Warrill Valley, the Sydney Basin, Werribee, and to a lesser extent, Bundaberg and the Darling Downs.

A detailed review of the long-term water supply-demand balance was undertaken for each of these growing regions to assess the extent to which each region is likely to have sufficient capacity to meet projected denmand growth based on the ‘base’ model outputs.

For several regions, the analysis identified that there is limited capacity to meet future growth in demand. This was certainly the case for the Sydney Basin, the main alternative growing region to the Lockyer Valley for several key winter/spring vegetable crops, including lettuces and other leafy vegetables, cabbages, broccoli, and sweet corn.

Analysis of the outlook for the Sydney Basin revealed that urban encroachment and subsequent changes to land use policy will significantly reduce vegetable production in the Sydney Basin over the medium to long term, leaving a significant shortfall in market supply to be taken up by other growing regions, of which the Lockyer Valley is the most significant. Similarly Werribee, another winter vegetable growing region, is also constrained in terms of access to agricultural land, preventing it from increasing production to keep pace with population-driven demand growth.

The revised crop-by-crop market shares for the Lockyer Valley and Somerset region resulted in additional projected growth in water demand of ~6,750 ML by 2050 (i.e. an uplift of over 92% on the population-driven demand growth).

This outcome demonstrates the criticality of taking a national perspective in assessing the long-term supply-demand balance in horticulture markets in considering the implications for water demands in specific regions.

The results of the water demand assessment were a critical input to the assessment of the economic benefit to be derived from the LVSWSS in the form of increased value of agricultural production.

Conclusion

The Lockyer Valley demand analysis demonstrates the capability of the model in developing robust, long-term forecasts of agricultural water demand down to specific growing regions. The model has also previously been applied in an engagement with the Queensland Government to forecast long-term agricultural water demand in the Wet Tropics region in Far North Queensland.

The model has the capability to be applied across any growing region in Australia to infrom an assessment of the long-term agricultural water supply-demand balance at the regional and sub-regional levels.

For example, the Manjimup region in Western Australia, which is the largest horticulture producing region in WA, contains ~8,000 hectares of irrigated crop production with annual production value of ~$250 million. Irrigation water supply in the region is reliant upon 65,000 ML of water allocations in the region, with 15 of the 25 sub-regions fully allocated. The WA Government is facing increasing challenges in managing water resources in the region, particularly in balancing the competing needs of agricultural producers and environmental flows. Climate change impacts are also adversely impacting the reliability of existing water allocations.

The Synergies Agricultural Water Demand Model could be used to develop long-term water demand projections for the Manjimup region in addition to informing the impacts of future supply constraints on the supply-demand balance for key crops produced in the region (e.g. avocados, apples, potatoes, citrus) and the implications for other horticulture growing regions in WA and other jurisdictions. This could include informing decision-making in terms of investments to improve water reliability or informing infrastructure prioritisation policy across the broader rural water supply sector.

Contact

For further information on the Synergies Agricultural Water Demand Model please contact Dan Culpitt at d.culpitt@synergies.com.au or 0430076223.