Here's why root-and-branch water reform won't flow easily

Here's why root-and-branch water reform won't flow easily


Australian Dairyfarmer News
A downed river red gum at the Barmah Choke, a narrow point on the Murray River. That's where river banks and riparian environment has been struggling with unnaturally high and persistent flows, caused by river operators scrambling to satisfy the unprecedented demand for water by Lower Murray permanent plantings like nut trees.

A downed river red gum at the Barmah Choke, a narrow point on the Murray River. That's where river banks and riparian environment has been struggling with unnaturally high and persistent flows, caused by river operators scrambling to satisfy the unprecedented demand for water by Lower Murray permanent plantings like nut trees.

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Grower groups demand minister step in to cool overheated market, but any intervention will cause winners and losers.

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Representatives from about a dozen horticulture groups have written to the federal water minister alleging price manipulation and unconscionable conduct by water brokers.

Water Minister, David Littleproud, has referred the allegations to the Australian Competition and Consumer Commission, and to the Inspector General of the Murray Darling Basin, saying he would not tolerate any water traders acting in bad faith.

"Ongoing unconscionable conduct by some water traders and brokers is undermining the integrity of the water market and pushing water prices beyond what they would be in a fair market," said Almond Board of Australia chairman, Neale Bennett.

Mr Littleproud has asked the ACCC to include the southern irrigators concerns in its water investigations commenced in May.

"I've asked the ACCC to step in and use its powers of prosecution if it finds evidence Commonwealth laws have been breached," he said.

But the grower groups didn't detail any specific cases to the Minister, so it's unclear what action the authorities can take.

Water prices hit $800 a megalitre in the Lower Murray irrigation zone last week, about $200 short of the millennium drought peak.

The 12 grower groups demanded a range of solutions to spiking water prices which they said were unworkable.

The grower groups want the ACCC to investigate if water trading is consistent with competition law, enforce mandatory price reporting and prohibit brokers from holding and trading water from their own accounts.

Water owners that only trade, and don't use their water for irrigation, make up about 14 per cent of the market. The growers want a temporary moratorium on non-water users buying allocation and carrying over water.

They're also concerned about weak regulations that permit corporate water owners, which don't own land but trade the commodity, withholding from the market to drive up the price and their profit.

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"This behaviour would not be tolerated on the Australian Securities Exchange," Mr Bennett said.

"In fact, this behaviour would be illegal, and brokers and investors alike would be prosecuted."

The growers also told Mr Littleproud to create a single Murray Darling Basin water exchange ready for the 2020-21 season, presumably to even the price disparities across catchments.

But water given that prices varies with availability, which is different for each catchment, it's unclear how this would work.

In May Mr Littleproud commissioned the ACCC to investigate the Southern Basin water market.

It's up to the ACCC to determine what impact these traders have on the market, and more broadly what impact the current water market rules have on prices and competition.

But it's the Minister's job to determine what action, if any, he should take to reform the market.

It's an unenviable task that would create winners and losers not just among corporates, but farmers as well.

In demanding action against surging prices, industry leaders are essentially calling for reform to ensure food and fibre producers can always secure water at an affordable price.

When the market was reformed with the Water Act in 2007, farmers were issued tradeable, permanent water rights that were previously tied to their parcel of land.

Following this, when the environmental reforms under the Murray Darling Basin Plan kicked off, many farmers sold their permanent entitlements for over-the-odds prices during government-funded water buyback bonanzas.

Those who sold their entitlement, but stayed on the farm, shifted to temporary water entitlements and are now facing eye-watering costs during drought.

But if Mr Littleproud curbs trade to lower the price of water, he will diminish the value of assets owned by farmers who took a conservative approach and held onto their water, and rewarding those who sold for maximum profit back in the day.

Also, farmers don't just own water to grow crops.

Many sell their assets from year to year, when it's more profitable for them to trade rather than farm, or they have insufficient water allocation available to water a crop for a full season.

What's more, water assets are a retirement package for a growing number of ageing irrigators, and the primary investments of many farm businesses.

If Mr Littleproud bans un-landed traders, he will have to consider if landowners would be prevented from maximising the value of their water in the same way.

This in turn raises the question: should the government compensate water owners for their losses?

The ACCC will issue an interim report on May 18 next year, and submit its final report to government in November.

The ACCC will investigate:

  • Water market trends since 2012 including demand, changing patterns of use, trade volume, water availability, new market products, and the number of participants in the market.
  • Carryover practices.
  • Water brokers, exchanges, investment funds and other significant traders
  • Market transparency such as the timeliness, accuracy, and completeness of public of information and true trade price reporting and the types of trade
  • Barriers to entry, expansion and exit, including transaction costs
  • The effect of constraints management on storage or delivery of water, including adjustments made to give effect to trades and inter-valley transfers.
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