Low water prices insufficient to encourage water sales in the Murray Darling

A NEW report on progress with Commonwealth water buyback in the Murray Darling indicates that the two tender rounds that were held in the Lower Balonne have been undersubscribed, leaving most of the budget of $140 million unspent.
Water market specialist Waterfind prepared the report but found that there had been insufficient progress with the implementation of the program in the northern Basin to provide any useful analysis.
They conclude that the low water price of around $1430 per megalitre set by the Commonwealth Government is the reason both tender rounds in Lower Balonne have been substantially undersubscribed.
Clearly, with such a low subscription at this price, irrigators are sending a message to the government that farmers place a higher value on their water than $1430/ML.
Analysis conducted in the southern basin has found that the Commonwealth has increased its prices by up to 3 percent, reversing the trend up to the 2009-10 season.
This upward trend is expected to continue for at least the next 12 months but the longer term outlook is uncertain.
Waterfind also concludes that Budget allocations will be insufficient to meet the targets for water recovery proposed in the Guide to the Basin Plan released last year.
The report estimates that an additional $1.6 billion would be required to achieve a 3000 gigalitre reduction and an additional $5 billion to meet the 4000 gigalitre target.
Nonetheless, irrigators and communities will be holding the government to its promise of fully meeting sustainable diversion limits (SDL) by purchasing water from willing sellers.
Water recovery initiatives include the buyback program and water use efficiency measures implemented on farm and in irrigation schemes, which shares water between irrigators and the environment.
The Commonwealth Budget released last Tuesday indicates that an additional $310 million will be made available each year from 2014-15 to bridge the gap between the level of water recovered under existing initiatives and the level required under the final Basin Plan.
The Budget papers note however that the application of this additional funding to continue buying back water entitlements is ‘subject to the availability of water for purchase from willingsellers’. The total cost of this commitment is to be confirmed when the Basin Plan is finalised.
QFF welcomes this additional budget allocation. However, there remains significant uncertainty about the progress being made with the buyback program for unsupplemented water in Queensland.
Purchases in the Queensland catchments remain at just 6.8 gigalitres whereas total purchases for the Basin are 967.7 gigalitres.
Irrigators are questioning the Commonwealth’s interest in setting prices that will encourage willing sellers in catchments such as the Condamine-Balonne.
This is particularly the case if the prices the Commonwealth will accept for water harvesting entitlements in areas such as the Lower Balonne remain around the $1430/ML level.
Given there remains a strong outlook for global soft commodity prices including cotton, it is difficult to imagine any softening of the water market.
Also, as irrigators in the Balonne region recover from drought and finish harvesting a good cotton crop, they should also hopefully move away from the ‘forced seller’ scenario that was a concern during the peak of the drought.
The Lower Balonne is a nominated priority area for the buyback program but as Waterfind concludes the prices being offered are resulting in tenders being significantly undersubscribed.
The absence of a functioning water market also makes it difficult to determine a value for water.
The lack of feedback to entitlement holders in regard to unsuccessful bids is adding to the level of uncertainty and concern that Queensland irrigators are not being given an even chance with southern irrigators to soften the blow of future entitlement reductions.
Irrigation communities in Queensland recognise the importance of the buyback program to achieve water recovery targets for the environment.
They also recognise the need for water buyback to be successful in areas such as the Lower Balonne if the SDL targets expected in the draft Basin Plan are to be met.
They do not believe that other recovery measures can make up for any significant under-recovery from buybacks.
However, if prices set by the Commonwealth are insufficient to encourage willing sellers,will the Commonwealth reduce entitlements without any financial adjustment?
That is exactly the type of concern that saw public anger boil over at public meetings on the draft Guide last year, and a situation that must be avoided.