A systems thinking approach to water trade: Finding leverage for sustainable development

•Water trade is a key water scarcity risk-management tool for water users.•Behaviour of water markets is controlled by a number of interacting feedback loops.•Systems thinking offers a holistic approach to developing sustainable water markets. Water trading has become a key water scarcity risk-management tool for irrigators. Effective and enduring water trade systems require approaches that can cope with dynamic complexity and enable the inclusion of multiple stakeholders. Previous efforts to improve water trade systems have largely focused on reductionist approaches, which examine system components in isolation neglecting their interconnected nature. Such approaches to water trade system assessment are at risk of maladaptation resulting in increased market inefficiencies, transaction costs and market failure through barriers to participation. Using a systems thinking approach, we develop a conceptual model of a generalised water trade system in Australia’s Murray-Darling Basin (MDB or the Basin). The model visualises the Basin's water trade systems as a whole and identifies feedback mechanisms likely to influence trade development and endurance. We argue that such a conceptual model provides an effective communication tool for achieving a better understanding of market dynamics and alignment of stakeholder priorities to improve enduring market use. It can also serve as an assessment/evaluation tool for water trade policy and identify key leverage points for systemic interventions.