April 12, 2021

By Lynda Kiernan, Global AgInvesting Media

It was in 2019 (August 8, 2019, to be exact) that the Australian government requested that the Australian Competition and Consumer Commission (ACCC) conduct an inquiry examining the country’s $2 billion water market. 

The request followed on the heels of a serious drought that saw the country’s Darling River turn dry, sparking a groundswell of anger, with many pointing fingers at water markets, claiming the system was fertile ground for fraud, and even water theft. 

Since 2007, Australia has witnessed an expansion in trading of water rights following changes in water management designed to increase productivity and sustainably manage water resources. It was reasoned that placing a value on water would foster greater conservation and productivity through farmers utilizing water to their highest-valued crops; and provide them the flexibility to buy or sell water (and the option to supplement income in dry years) in response to the price of water and agricultural commodities. 

But was the system acting as intended, or was it being manipulated by bad actors at the cost of the country’s farmers and food system? Were events happening across the southern basin the result of drought and commodification, or was the water market a failed experiment? The ACCC was tasked with finding out. And after an 18-month-long inquiry, has released its conclusions in a final report released on March 26, 2021. 

Amid the 29 recommendations in its final report, the ACCC concluded that despite being maligned, investors participating in the country’s water markets did not exercise power over the market, nor manipulate prices in the Southern Connected Basin.

“The importance and positive contribution of investors participation in the market was noted by the ACCC and confirmed by a range of farming lobby groups including the National Farmers’ Federation, the National Irrigators Council, the NSW Farmers Association and the Victorian Farmers Federation Sunraysia Branch,” noted Riparian Capital Partners, a specialist water, agriculture, and food investment firm that operates across the Australian agriculture sector.

While noting that water markets are key to the efficiency and productivity of the country’s agriculture sector, the ACCC, in its recommendations, did carry forward its view, disclosed in its interim report issued last year, that the market system as a whole needs comprehensive reform, including measures that would strengthen its governance.

Considering the market’s current scale and complexity, the report suggests the formation of an independent Basin-wide Water Markets Agency tasked with ensuring that the markets are “efficient and fit-for-purpose”.

Particularly, this agency would consolidate administrative roles and help users navigate the market more easily by centralizing functions, improving market oversight, reducing duplicative costs and processes for participants, and developing a bank of expertise that governments could pull from when making major decisions affecting water markets. 

Although positive, the ACCC conceded that the country’s water markets have not been equally beneficial across all participants and regions; citing shortcomings in its framework and trading arrangements, which haven’t kept pace since the advent of water markets in the basin.

In addition to the formation of a Water Markets Agency, other key ACCC’s recommendations include:

~ The creation of Water Market Data Standards, a public-facing Water Market Information Platform, and a Basin-wide Water Market Education Program to foster greater transparency, improve data quality and data flows, and raise participant’s understanding of the market.

~ Introducing legislation to protect the integrity of water markets and regulate the operations of stakeholders and the conduct of participants, specifically intermediaries (brokers and exchange platforms, etc.).

~ Strengthening current market architecture to include better transparency in regard to water allocations, river operations, conveyance losses, inter-valley trade mechanisms, and for improved hydrological models.

For its part, Riparian “is supportive of the findings and recommendations of the ACCC’s final report as it considers the findings consistent with the outcomes of previous reviews into the Australian water markets and the objectives of the National Water Initiative (NWI),” and sees the inquiry and recommendations “as an important and positive step in the ongoing implementation of the Murray Darling Basin Plan (Basin Plan) and general maturation of water markets across the Basin and Australia as a whole. The Basin Plan was designed to be flexible and adaptable to incorporate where possible feedback from reviews such as this.”

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.