Factors influencing prices paid in the market for temporary water

This paper explores the factors which influence the willingness of irrigators to pay for water in temporary markets. The analyses are based on ten years of data using correlation, regression and time series techniques. The major drivers of price are: (i) water scarcity, as determined by seasonal availability of water; (ii) demand factors, as determined by precipitation and evaporation; and (iii) potential longterm losses incurred by irrigators with significant investments in water dependent infrastructure if insufficient water is used. These irrigators are willing to pay prices in excess of the value of water in productive use in order to protect their production and thereby the value of their assets.