Citrus Australia’s response to the interim report for the ACCC’s inquiry into MDB water markets
30 October 2020
The Murray Darling Basin has been subject to countless investigations and inquiries through the years; disappointingly the ACCC inquiry into the water markets in the Basin is another which concludes that ‘it’s complicated’.
In the lead up to the commission of this report, many growers asked that the inquiry question the appropriateness of a water market:
▪ that trades a commodity that is unique in its necessity for plant and animal life;
▪ that includes participants that have no tangible use for water;
▪ that encourages market practices that drive up the price for a commodity which is irreplaceable in the production of food and livestock;
▪ that allows factors other than natural supply and demand to inflate the price of a critical input; noting agriculture is an industry that cannot easily pass on cost increases to its consumer.
Growers have repeatedly called for a water market that is exclusive to water users which, as the interim report reflects, was the genesis of the current water market in the 1980’s. Other than noting these origins, the interim report does not investigate this request, preferring to report on the fiscal benefit to the economy of the trade of water valued at some $1.5 billion per year. In contrast to the growers’ view, the interim report focuses on the ACCC’s perception that by making adjustments to the water market to exclude certain participants, it would devalue the market, and write down water assets of all participants; which to the ACCC and others is not a suitable outcome.
Evidence shows that the inflows of water to the Murray Darling Basin have significantly decreased over the past 20 years, and that the price of water has increased markedly in the preceding 5-10 years. The effect across the Lower Murray Darling Basin will be a further centring of cropping to a small number of profitable industries. Whilst that may bring efficiencies and secure supply, it hobbles diversity and increases risk of events such as biosecurity incursions and industries collapsing due to market access or political issues (see China/Australia continued political stoush) leaving both industries and communities vulnerable.
The issues that make trading in this market difficult are numerous, they stem largely from the governance framework; variances in state policy, state regulation and processes. As pointed out in the interim report, the Commonwealth Water Act 2007 reforms were meant to be the first step toward greater centralisation whereby the states would refer their power to the Commonwealth.
The inconsistencies in state governments’ approach to the ongoing approval of water use licences creates inequality between growers who are but 100 metres apart, separated by a river. It also creates twice as much work for growers who live in border regions and farm on both sides of the river, whereby they must understand the cumbersome water trading rules made up by not just one government, but two or sometimes three.
This modern market with its sophisticated products is too slick for the cobbled together, counterproductive structures on which it is built; and farmers who rely on this superseded structure for information to make decisions find it can only deliver inaccurate, untimely and incomplete data.
To Citrus Australia’s knowledge there is limited uptake of the ‘new products’ the water markets offer because there is mistrust in the system, therefore the ‘many benefits’ the markets provide are of little consequence to most irrigators. None the less, the ACCC see value in improving the markets in order to increase the opportunity for trade in these new products. Whilst this may offer some flexibility to growers, it can’t help but also point to a desire for more products to derive financial gain for investors; these two goals do not always align.
The report does identify some very simple and achievable actions that can be taken, such as improving procedures to stop zero-dollar trades without a justification. It identifies the lack of regulation in the brokerage sector, noting there is a lack of obligation and inadequate oversight of brokers which should be rectified with regulation; we would hope this regulation is uniform across all Basin States.
The potential for manipulation of the market by sophisticated traders is an ongoing focus of the ACCC and no conclusions have been drawn. However, the lengths the ACCC have had to go to obtain sufficient information to investigate stakeholder concerns are a testament for the need to
improve collection, coordination and transparency of data.
Whether data is provided by state institutions, brokers or Irrigation Infrastructure Operators (IIO) – there are too many opportunities for market asymmetry.
The great conundrum industry faces is that whilst this report highlights easily (and some not so) identifiable issues that could be addressed in the short and medium term to improve the transparency, accuracy and timeliness of information, it ultimately comes down to this:
▪ Who will drive the change that will have to be enacted by the states?
▪ How will the states be enticed or cajoled in to action?
▪ Who ultimately will pay?
It seems the irrigator and the tax payer are punished over and over to pay for the mistakes of poor policy, poor governance, and a lack of regulation which has now gotten so far out of control that the consequences have become irreversible.
The long-term solutions, the big picture items the report references like single information platforms or single trading models, appear to be so far from achievable in this modern political landscape. News cycles dictate policy rather than long term strategic planning for the good of the nation. It is unfathomable that these projects will be realised in any of our lifetimes without the emergence of strong leadership in our political or perhaps agri-political environment.