Water trading pays dividends for irrigators in a wet year

National Water Commissioner Laurie Arthur has released a set of three reports that demonstrate Australia’s maturing water markets continue to play a vital role in helping irrigators manage their businesses.

Arthur said, “The 2010-11 water year was an extraordinary one that offered the commission the chance to examine the response of water markets to marked changes in water availability.

“It is clear that irrigators are employing increasingly sophisticated strategies to meet their changing water requirements and generate income from their water rights assets,” said Arthur.

Record high rainfall in the Murray-Darling Basin in 2010 led to the highest water allocations seen in at least six years in eastern Australia.
As drought eased, irrigators traded their water allocations in large volumes to those who had capacity to store water for future seasons. The result was that allocation trade rose 40%.

Prices for allocation trades dropped in the wake of increased supply; averaging approximately $32 per megalitre in the southern connected basin in 2010-11, down from $150/ML in 2009-10.

Water entitlements told a different story - with trades falling by 40% and prices falling by approximately 10%. This reflected both seasonal conditions and the Australian Government’s move to smaller rounds of tenders for environmental water purchases.

Reductions in allocation trade prices, coupled with decreased entitlement trade, saw the estimated value of market turnover fall by 50% from around $3 billion in 2009-10 to $1.5 billion in 2010-11.

Arthur said, “Water trading in Australia continues to be strongly concentrated in the Murray-Darling Basin, which accounted for 83% of entitlement trade and 98% of allocation trade.

“It is encouraging that entitlement trading outside the basin has continued to grow as farmers exploit welcome options to buy and sell water as they need. However, there remains ample opportunity for governments, particularly those outside the Murray-Darling Basin, to foster the development of water markets,” said Arthur.

The Australian water markets report 2010-2011 is the National Water Commission’s fourth definitive national statement of annual water trading activity.

The commission also released a companion report, ‘Australian water markets: trends and drivers 2007-08 to 2010-11’, which analyses market activity over the past four years; and ‘Water markets in Australia: a short history’, which recounts the development of water markets in Australia.

The reports are available at www.nwc.gov.au.