For much of the 20th century, the expansion of irrigated agriculture in the Murray Darling Basin, was treated as a self-evidently desirable objective, to be pursued without excessive regard to questions of economic costs and benefits. Irrigation seemed to offer a ‘droughtproofing’ solution to the risks and uncertainties that plague dryland agriculture in Australia. By the late 1980s, however, the capacity of the Basin to support additional diversions was close to exhaustion. Analysis at the time suggested, in the terminology of Randall (1981) that a move from an ‘expansion’ phase in which resource constraints were relatively unimportant, to a ‘mature’ phase, characterised by increasingly sharp conflicts over access to the resource, was underway. It was hoped that these conflicts could be resolved at low cost through the introduction of market mechanisms. In reality, however, as noted by Quiggin (2008), the actual outcome was a ‘crisis’ phase, in which the possibility of a systemic collapse loomed ever larger. The only feasible response, it has become evident, is a ‘contraction’ phase, in which claims to the resource are scaled back. Attempts to deal with the problems of the Basin through the creation of markets in water rights, minimising the role of governments, began with the communique of the 1994 Council of Australian Governments meeting and was developed more fully in the National Water Inititiative announced in 2004 (Council of Australian Governments 1994, 2004). The NWI was described by the National Water Commission as ‘Australia's enduring blueprint for water reform’, through which ‘governments across Australia have agreed on actions to achieve a more cohesive national approach to the way Australia manages, measures, plans for, prices, and trades water.’In practice, however, the NWI failed to resolve many of the key conflicts associated with the mature water economy. Come conflicts between states arose from the need to deal with different systems of water entitlements. Conflicts also emerged between states and within the Commonwealth over the extent to which trade in water entitlements should (or should not be restricted) and over the possibility of transfers of water from rural to urban use.
