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Water

July 2011

Water reform

Separation of water from land assets has been a key regulatory pre-cursor to reforming water usage in the Australian agricultural sector, but has also raised the issue of collateral security for lenders, particularly:

  • Security value and conversion from green acre land valuations
  • Enforcement of security.

The Murray Darling Basin Authority has sought extensive community consultation to identify implications for regional communities and the environment. The continued uncertainty surrounding long term entitlements, particularly in New South Wales, could result in credit limits being applied by the banking sector for new borrowings or refinancing of existing debt. In addition, the impact of any reform on the productive capacity of the land could further compound any concerns that lenders may have in this sector especially if, on a system wide basis, access to appropriate and timely water supply is decreased.

The final Murray Darling Basin Plan (“MDBP”) is due at the end of 2011 but whether this date will be achieved is questionable. Timeframes for consultation on the draft have been extended and the parliamentary report into the MDBP has proposed changes to the way in which water is returned to the environment. Due consideration of the proposal must now be given and this will likely lead to further delays in finalising the MDBP. 

As the MDBP develops there will be ongoing uncertainty over allocation reductions, process of water savings/buybacks and security of title. The timetable for water reform may be moderated by recent rainfall events that have recharged the system. With the additional flows through the system, it can be expected that there will be a temporary decrease in water prices as the previous drought driven buyer profile changes and the impacts of the proposed MDBP remain undefined. Industry will continue to monitor these developments closely as any significant reduction in entitlements could cause dramatic implications for regional communities and the Queensland economy in general.

Water trading

Scarcity, as a result of drought, has driven the market in water trading. Those primary producers with excess volume have been able to generate much needed cash flow, and those seeking additional volume have been able to maintain production. This has been particularly important for those with perennial and high value crops.

Permanent water trading prices have been relatively stable but did experience prices up to $2,800/ML at the peak of the drought. In comparison, temporary trading has seen significant volatility in pricing and is currently close to zero across the country (for example around $5 to $10 per ML in the southern Murray Darling Basin areas). Given the seasonal outlook and water storage utilisation, there would appear to be little market for trading in Queensland over the coming year, with any sales most likely from distressed sellers.

 

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