Australia's water markets show record trade activity
Media release - 10 December 2009
The CEO of the National Water Commission Ken Matthews today released the Australian Water Markets Report 2008-2009, saying that it charts the remarkable growth of Australia's water markets.
Mr Matthews said, 'This authoritative national statement of trade volumes, prices and trends is particularly important given the increasing role of government water purchasing programs and the impacts of 4% limit on entitlement trade.'
This year's report finds that in the 2008-09 year, the trade of water entitlements almost doubled (1800 GL compared to 920 GL in 2007-08), and that allocation trade continued to grow significantly (2158 GL compared to 1594 GL in 2007-08).
'Predictably, given the protracted drought in the southern connected Murray-Darling Basin, this major market has continued to grow', explained Mr Matthews.
'And, as the Commission emphasised in its major report on Australian water reform 2009, that's good news because it shows that trading has given irrigators and other water users much needed flexibility in adjusting to economic and climatic pressures.
'Importantly though, there was even greater proportional growth this year in the entitlement markets outside of the Murray-Darling Basin, particularly in Queensland, Western Australia and Tasmania. This signals an expanding national water market.'
Mr Matthews said, 'But once again we can do better. The Commission is concerned that even though this was another exceptional year for water trading, there was no tagged interstate entitlement trade this year. Clearly, the administrative arrangements that support tagged trade need to be simplified and better communicated to the market.
'The findings in this report also reinforce the Commission's repeated calls for removing the annual 4% limit on permanent trade out of irrigation districts, given this limit constrained trade from six districts in Victoria during the 2008-09 water year.
'Noting that the capture and reporting of information remains limited in some markets, the Commission welcomes the recent Australian Government announcement to develop a faster and more efficient National Water Market System.
'Similarly, the Commission encourages the efforts being made by the jurisdictions to speed up trade processing times under the COAG standards introduced in 2008-09.
The Australian Water Markets Report was produced with assistance from the Allen Consulting Group and the Bureau of Rural Sciences, and was funded under the Australian Government's Raising National Water Standards Program.
This year's report drew for the first time on the water data being collected from the states, territories and other water management entities by the Bureau of Meteorology under the Water Act 2007. The Commission also acknowledges the valuable contributions by state and territory departments and other data sources.
Backgrounder - Australian Water Markets Report 2008-2009: major findings
Trading summary
The overall value of the water market transactions for the year was estimated to be approximately $2.8 billion, an increase of 75% on the estimated $1.6 billion in 2007-08, with most trading activity occurring in the Murray-Darling states.
Activity in the water trading market has been driven in large part by the variable rainfall around Australia and the continuing severe drought in the southern connected Murray-Darling Basin.
Each government around Australia has played an important role in facilitating trade arrangements in recent years.
The total volume of entitlement water traded was 1800 GL, up 95% from 920 GL in 2007-08. This indicates that about 7% by volume of the total entitlements on issue in Australia were traded.
There was also increased water allocation trade, with 2158 GL being traded in 2008-09, up 35% from 1594 GL last year.
New South Wales had the most active market with over $2 billion in turnover (of the $2.8 billion total), accounting for 71% of the total national entitlement trade (by volume).
Murray-Darling Basin
The bulk of trading activity occurred in the southern connected Murray-Darling Basin:
- 1080 GL of entitlement trade representing 60% of the Australian total and a 75% increase on last year.
o High reliability entitlements in the basin averaged at $2000/ML, up from $1750 last year.
- 1739 GL of water allocation trade, representing 81% of the Australian total and an increase of 41% from 2007-08.
o Allocation prices were far less volatile, peaking around $500/ML in September then levelling out around $300 - 350/ML. This contrasts with last year's prices, which peaked at over $1000/ML in October 2007.
Other regions
There was a proportionally larger increase in entitlement trading activity in water systems outside the southern connected Murray-Darling Basin:
- 720 GL of entitlement trade - 40% of the Australian total, a significant increase of 138% on 2007-08 figures.
o In Tasmania, the volume of entitlement trade rose from 56 GL to 104 GL
o In Western Australia, entitlement trade increased from 0.5 GL to 8 GL.
- There was also an increase in water allocation trade (proportionately less significant) - 419 GL of water allocation trade, which represents 19% of the Australian total and an increase of 17% on 2007-08 figures.
Interstate trades
There was no interstate entitlement trade during 2008¬-09, whereas there was a solitary 'tagged' trade in 2007-08 representing 200ML.
Interstate allocation trade witnessed another year of significant down-stream trade, with New South Wales exporting 553 GL (net change) of water allocations to Victoria (236 GL) and South Australia (317 GL).
South Australia continued to be a large net importer of water, acquiring 336 GL - a 132% increase on last year. The SA Government publicly announced the purchase of 291 GL during the year (231 GL for critical human needs and 60 GL for essential permanent plantings).
Australian Government water purchases
In 2008-09, the Australian Government continued to purchase entitlements through the Restoring the Balance in the Murray-Darling Basin program. By 30 June 2009, the Commonwealth Environmental Water Holder had total registered holdings of 64 GL (24 GL from the 2007-08 tender and 40 GL from the 2008-09 tenders).
- In addition to the 40 GL that had been registered as a result of the 2008-09 tenders, by 30 June 2009 the Australian Government had exchanged contracts for a further 382 GL of entitlement (an agreed 422 GL for the 2008-09 water year).
- By 30 September 2009, the agreed purchases from the 2008-09 tenders (i.e. contracts exchanged, but not necessarily registered) had risen to a total of 588 GL of entitlements from the tender, at a cost of $913 million.
Of the 1800 GL of registered entitlement trade in Australia in 2008-09, 1643 GL was traded in the Murray-Darling Basin, and 1534 GL were the type of entitlement products that were purchased under the Restoring the Balance in the Murray-Darling Basin Program.
The 64 GL of entitlements purchased by the Australian Government and registered during 2008-09 represents 3.9% of the total entitlement trade registered in the Murray-Darling Basin. The larger volume of entitlements purchased by the government, but not registered by 30 June 2009, is likely to represent a higher proportion of the total entitlement trade in 2009-10.
Notes:
ML - megalitre = 1 million litres
The volume of an Olympic swimming pool is approx. 2.5 ML (50m x 25m x 2m)
GL - gigalitre = 1000 megalitres or 1 billion litres of water
The volume of Sydney Harbour is approx. 500GL
Document for download
Go to Australian Water Markets Report 2008-2009