A salad bowl, salt and not a drop to drink: recipe for disaster? Three essays on the economic value of agricultural land in a changing environment
Creators: name: Dent, Jared
Publisher: name: The Australian National University
Year: 2014
Subjects: hedonic price theory
Ricardian analysis
climate change
choice based sampling
damage estimates
land use
irrigation
dams
northern Australia
agriculture
land value
benefit cost analysis
salinity

description: This dissertation contains three core chapters which share a common theme of natural resource management in Australia and a common analytical technique of Ricardian hedonic price theory applied to agricultural land values. Chapter 1: This chapter presents a Ricardian analysis of the impact of projected climate change on Australian broadacre agricultural land values. Using several years of farmlevel sales data, we estimate the value of agricultural land as a function of climate attributes. We leverage satellite imagery-based land use data to separate our analysis by cropping and grazing land. Making this distinction is particularly important due to choice based sampling (as a consequence of land sale frequency) that would otherwise severely bias our land value estimates. We base our damage estimates on CSIRO climate projections for the 21st century, as used by the Intergovernmental Panel on Climate Change. We find that projected climate change would erode agricultural land values by around 10 per cent by 2050, and nearly 40 per cent by the end of the century; and negatively impact at least 95 per cent of the existing agricultural resource base. This damage is unlikely to occur suddenly. Rather, it would be equivalent to taxing agricultural productivity by about 0.6 per cent per year for the next 85 years. Chapter 2: Australia’s northern area has vast but largely undeveloped land that would be arable if irrigated. We analyse the net economic benefits of allocating northern Australia’s divertible surface water to irrigation, a scheme that would require significant investment in infrastructure for dam and canal construction. We estimate the benefits to northern Australia, using a Ricardian hedonic approach to forecast the economic value of constructing major new irrigation schemes that would be capitalised into agricultural land values. We use publicly available information from existing and potential Australian irrigation schemes to define the cost of constructing large water storages and distribution infrastructure, as well as on-farm irrigation infrastructure. We find that the costs of turning northern Australia into an irrigated food bowl are likely to exceed even the most optimistic benefits that would be capitalised into land prices by a multiple of between 1.1 and 3.2. Chapter 3: This chapter explores the damage wrought on broadacre agricultural property values by dryland salinity in the south-west agricultural region of Western Australia – one of Australia’s most productive wheat growing areas. We use a Ricardian hedonic approach based on 20 years of farm sales data to estimate salinity damages. We find that the damage caused by salinity in the south-west varies from approximately 20 per cent for land that is slightly affected by salinity to as much as 87 per cent for land that is extremely saline. Using these estimates, we project that the upside from eliminating existing salinity on 5.3 million hectares of currently impacted land would be worth approximately $2.6 billion. Conversely, if left unchecked, we find that an additional 3.75 million hectares of land worth approximately $5.85 billion is likely to become saline at some point in the future.