The development of rural water markets in Australia
Chloe Munro
ACCC Regulatory Conference 28 - 29 July
National Water Commission Chair Chloe Munro spoke about the development of rural water markets in Australia at the ACCC Regulatory Conference.
Ms Munro said that since signing the National Water Initiative most states and territories have implemented reforms to introduce or advance water trade.
'The most fundamental reform has been to separate entitlements to water, such as licences, from rights to land,' she said.
'There are now very active trading markets across the Murray-Darling Basin, with the largest volume of trade occurring in the Southern connected Basin, which includes southern New South Wales, northern Victoria, and the south east of South Australia.'
Trade is also starting to grow outside the Basin, including parts of central Queensland, south west Western Australia, and Tasmania, but markets in those areas are still in the formative stages of development.
'In 2009-10 trade in entitlements had an estimated value of $2.6 billion, and the allocation market was estimated to be worth $365 million. Around 7% of total water entitlements on issue were traded nationally.'
Overall trade has been a huge success, according to Ms Munro, and has enabled flexibility and resilience in changing conditions.
'Trade between regions in the southern connected Basin provides significant flexibility for water users to cope with a range of issues. Climate variability over time and between regions can have significant impacts on production. Interstate and inter regional trade allows users to source water from regions where it's available.'
'Trade allows water users to cope with commodity prices, by realising the value of allocations or entitlements, and altering production decisions. This can include increasing production when water is abundant, or reducing production and selling allocations when it's scarce.'
Ms Munro said rice production provides an effective example of how irrigators can be more flexible in their production decisions.
'In 2005-06 there were large levels of production, reflecting good water availability. As prices climbed in 2006-07 and 2007-08, the price of water went beyond its value so it made more sense for rice producers to sell what allocations they received in those years, and use the proceeds for other activities. This was reflected in the large volumes of trade from the Murrumbdigee downstream in 2007-08 and 2008-09.'
'By 2009-10 the price of allocations had declined sufficiently to make it more profitable for rice farmers to produce rice.'
Ms Munro said the basic elements that support effective water markets are similar to those in other markets, including the presence of scarcity, and the need for many potential traders but unique to the water market is the need for physical connectivity between water sources and traders.
'The Commission's Strengthening Australia's Water Markets report identified a range of areas that could be improved to support more efficient markets in areas that already have established markets, and support development in formative areas.'
Ms Munro identified key areas where there are gaps:
- reforms need to be implemented to better support groundwater trade
- trade processing times and methods could be improved, especially in regard to interstate trade
- the multiple roles some organisations hold could possibly conflict, and this may be damaging confidence in trading arrangements
- traders continue to be concerned about allocation determinations so there could be greater transparency around this
- the availability of price information, and its quality, is highly variable
- while the Commission has found little evidence of issues with market intermediaries, some stakeholders continue to have concerns about intermediaries
- outside the Basin, there is still a real need to implement a range of fundamentals required for effective water management, that will also support development of effective water markets as scarcity becomes more acute.
The Strengthening Australia's Water Markets report made several recommendations to bridge some of these gaps including:
- better disclosure of information and processes
- better collection and verification of data
- statutory planning processes and NWI consistent entitlements
- improved trading rules
- effective complaints handling processes
- compliance with rules or codes of conduct
The report also recommended actions around better information disclosure and access, planning and rights definition, administrative reforms, monitoring and compliance and governance.
'The Commission acknowledges the reforms in the Strengthening Australia's Water Markets report are significant, but believes they are required for Australia's water markets to continue to meet the challenges presented by climate variability and climate change, population growth, and development.'