A report has found water buybacks in the Southern Murray-Darling Basin could significantly reduce milk production between 3% and 15% in the region. The report commissioned by Dairy Australia has analysed impacts in dairy farm businesses, processors and local economies under two scenarios; a moderate 302GL buyback scenario and a higher-impact scenario with a total buyback of 683GL. 

Based on analysis by ABARES and others, the report concludes water buybacks decrease the water pool available to all irrigators. This results in higher allocation prices for all irrigators. Financial impacts vary between individuals, but farmers buying water allocations at higher prices could see operating costs lift by 1% to 2% and EBIT fall 10% to 19%. Farmers opting to substitute water with purchased feed could see a 37% decline in EBIT and 6% increase in operating costs. Farmer case studies of reduced herd size and milk production found a 6% decline in EBIT and a 7% fall in operating cost but also milk production losses averaging 21%. According to the findings, financial losses are exacerbated during periods of severe drought with water allocation prices modelled to increase by 17.5% under the moderate scenario (302GL) and 40% under the higher-impact scenario (683GL).

The flow-on effect of lower milk production was also found to affect processors, facing higher transport and logistics costs to source milk from further away. This could lead to plant closures and move fresh milk production to other regions. Processors have limited ability to pass increased costs onto consumers and could face competition from cheaper imported products.

Reacting to the release of the report, the Victorian Farmers Federation (VFF) said the report raises serious concerns for water buybacks. VFF said the report findings highlight an urgent need for the Federal Government to acknowledge the impact of water buybacks.