LAND JOURNAL

The future for water in Australia

With drought on the increase in a mainly arid continent what is the future for water in Australia if it is not recognised as a public good?

Author: Sam Paton

31 July 2020

For decades until Prime Minister John Howard’s government’s reforms in 2004 with what was known as the National Water Initiative, and then in 2007 with the Murray-Darling Basin Plan, irrigation water entitlements in Australia were directly linked to land title and transferred with that title whenever a farm property was sold. This was perceived to have created inflexibility insofar as many landholders who held large water entitlements along with their land were not necessarily using these entitlements to their fullest extent.

Nevertheless, in this rigid environment, water entitlements were probably priced more appropriately than currently.

Inadvertently, when water rights were unbundled from land title, today, some 15 years later this has led to irrigation water being commoditised. Virtually any private or corporate entity can hold and stockpile water entitlements while not necessarily using the entitlement directly in relation to a landholding. This situation is also true for both traded river licensing entitlements and groundwater licences.

Australia is one of the most arid continents on the planet, and most of the irrigated agricultural farming systems are down the eastern coast from Queensland through to southern Victoria, and then west to South Australia. There is a vast area of desert across the Nullarbor Plain to the West Australian farming zone.

The other important point is that various agricultural systems use largely divergent quantities of water for irrigation expressed in terms of megalitres per hectare. The table below shows various levels of water consumption for a sample of irrigated crops and pastures typically used in Australian agribusiness.

"Inadvertently, when water rights were unbundled from land title, today, some 15 years later this has led to irrigation water being commoditised"
Close

Levels of water consumption in Australian agribusiness

Crop Consumption in Ml/ha
Wine grapes 1.5 - 3
Perennial pasture 4
Cotton 8
Irrigated cereal crops (barley, oats, wheat) 5
Rice 12 - 13
Almonds 10
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Levels of water consumption in Australian agribusiness

Crop Consumption in Ml/ha
Wine grapes 1.5 - 3
Perennial pasture 4
Cotton 8
Irrigated cereal crops (barley, oats, wheat) 5
Rice 12 - 13
Almonds 10

Note: a megalitre (Ml) is a million litres of water.

Water trading by state
Victoria

Depending on the river system in question, high security irrigation water entitlements can now be traded in other irrigation zones covering different river systems, both in Victoria and interstate.

In relation to groundwater entitlements that come from underwater aquifers, a particular landholder in any Victorian region can typically only trade its groundwater entitlement to another irrigator in a specified zone. Often the overall volume of groundwater that can be extracted in any particular geographical zone is heavily regulated and this was a positive feature of Victorian groundwater management.

Controversy has emerged over a groundwater irrigation zone north of Shepparton, Victoria, known as the Katunga Deep Lead aquifer. A major corporate entity apparently controls 17 per cent of the groundwater in this zone and other irrigators fear potential spikes in the price of groundwater plus over-extraction of the resource. Since 2001 legislation has required any farm dam larger than 25Ml to be licensed. This regulated uncontrolled damming of farm gullies and catchment areas that were traditionally feeder systems to creeks and tributaries to the major rivers.

Often the overall volume of groundwater that can be extracted in any particular geographical zone is heavily regulated, and this was a positive feature of Victorian groundwater management. For example, if two potato farmers in a district are irrigating from a groundwater aquifer, there must be a minimum setback distance between their respective bores and the amount of water they pump is monitored by a meter. This has prevented the previous problem of over-extraction from the aquifer whereby the overall water table was becoming depleted and dropping.

New South Wales

The state has a complex system of water trading management, where the volume of water that can be traded is held as a water share and this must be matched with what is known as a delivery entitlement for the irrigator to physically ship the water to the farm property in question from, say, the Murrumbidgee river. That is, the volume of water stated on the share certificate in megalitres must match the volume stated on a separate document, known as the delivery entitlement, which the irrigator must possess.

Other twists that have emerged in relation to the commoditising of irrigation water include the fact that state-owned and taxpayer-funded irrigation water-storage facilities provide backup to the state’s river systems, and yet private sector water traders were never required to contribute to the funding of the state-owned structures.

An analogy could be drawn with the state-owned linkages between Victoria, New South Wales and South Australia of the poles and wires network used by energy distributors and retailers since privatisation of the power grid.

South Australia

Irrigators in the Murray-Darling Basin west of the Victorian border and southern New South Wales use the same trading arrangements for high-security river entitlements as their counterparts in Victoria and New South Wales. Again, groundwater in South Australia is heavily regulated, and cannot be traded out of a particular geographical zone.

Queensland

Greater regulation has emerged over the past ten years in terms of dam construction permits, and groundwater is also regulated in this area to be maintained within zones.

Western Australia

Unlike the eastern states, Western Australia has maintained a state-controlled irrigation water supply system, which is administered by the Western Australia Waters and Rivers Commission. One criticism valuers have of the water register database in that state is that it is often difficult to obtain information on the latest trade pricing when an irrigation entitlement changes hands. The system does use rural property agents as brokers to sell water from farmer to farmer, and the water is predominantly used for horticulture and viticulture. However, water cannot be sold to some corporate intermediary such as a hedge fund or private individuals to hold speculatively, as can happen in the eastern states.

As was the case in the eastern states, the water must be used by a primary producer and water cannot be traded out of the zone. For example, a Swan River wine sector operation on the fringe of greater Perth could not divest its entitlement to a Margaret River irrigator hundreds of kilometres to the south in another zone.

Tasmania

TasWater, the Tasmanian statutory authority, controls all irrigation water allocations and licensing in the state. This system has worked quite effectively.

Consequences of water reforms

Some nine years ago, Ian Douglas, the national coordinator of Fair Water Use Australia, commented on the unintended consequences of the federal national water reforms. The justification for these government changes was that free market forces were the best way to ensure appropriate allocation of irrigation water and improve capital-starved public utilities’ performance. However, Australia’s move to privatise water trading is at odds with the global trend, where more water services are reverting to public ownership. It is a cause of concern that several major corporate entities hold very large tranches of water entitlements and yet do not actively farm irrigated land, and the obvious by-product has been a significant spike in the price of high-security irrigation water, and an increase in the value of secure groundwater.

One positive by-product of water being more commercially promoted has been that higher use industries or those that had relatively marginal net returns, have been forced to review their position in the industry. Two examples are the growing of lower-value field crops such as tomatoes under irrigation and irrigated dairy farming. The new gold standard for intensive horticultural production vine tomatoes is under glass with full environmental controls and nominal drip irrigation water requirements. Equally, the dairying areas that are now sought after in Tasmania and south-western Victoria in particular are in high rainfall zones that need no irrigation.

Australia has suffered two major droughts of extended duration in the past 20 years. The inevitable impact of climate change has redrawn the parameters for assessing drought severity, because the Millennium drought in Australia that ran from 1998 to 2009 was considered a one in 100-year event in terms of severity, and yet the new droughts in Queensland and New South Wales that emerged in 2017 were as severe as any historic droughts on record.

Accordingly, managing the interests and expectations of agribusiness irrigators, domestic users and water for the environment has become more complex, complicated further by the emergence of speculators holding large quantities of irrigation water entitlements. Under a capitalist system, corporate speculators can lease out water at a high premium in droughts or can sell on a spiked spot price a high security permanent entitlement.

When government controlled these river entitlements this did not happen, and state water authorities in general managed water allocation and trading effectively. The new battleground is groundwater resources. The underground aquifer was historically seen as a natural resource to be managed by government. Speculators now see it as a new commodity to add to their portfolio.

This is a worrying trend, and Australia’s water trading and management system is once again crying out for reform. The original concept, now proved to be fatally flawed, was that creating property rights for irrigators and the ability to trade water would promote economic development, create more wealth and use less water.

Peter Cosier commented the following in The Guardian in 2016. "… we saw a centralist, top down program driven by government agencies, where one arm of government produced a plan while another arm spent billions of dollars without any genuine consultation with the communities affected.

"More warning signs came when the then Abbott government capped environmental water buybacks and abolished the independent National Water Commission, simultaneously shutting down the sustainable river’s audit that was designed to measure river health."

The issue remains topical, with ABC television’s 7:30 Report which aired on Tuesday 5 May 2020 querying the federal government’s lack of scrutiny in relation to Chinese government-related entities purchasing large volumes of water entitlements connected to river systems in northern New South Wales that feed the Murray-Darling Basin region.

"Australia’s water trading and management system is once again crying out for reform"

Sam Paton FRICS is registered valuer and agricultural economist at Agribusiness Valuations Australia  sam@agrivaluations.com.au

Related competencies include: Environmental management, Legal/regulatory compliance, Sustainability

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