Selling back the buybacks

24 Jan, 2014 01:00 AM
Comments
5
 
I think a lot of growers will welcome the CEWH coming into the market

AFTER the buyback, the sellback: northern NSW irrigators were this week given the first opportunity to bid on unallocated water bought up by the Commonwealth’s Environmental Water Holder (CEWH).

Since its inception in 2008, CEWH has put together about 1900 gigalitres in environmental water holdings.

On Monday, CEWH announced that 10GL of those holdings would be made available for sale to water users in the Gwydir Valley.

Tenders closed on Thursday afternoon with the CEWH taking to Twitter to announce assessment of the offers was now underway and to "watch this space".

The sale marks the first trade in "environmental water", and a small but important test of the water trading principle between commercial and public good interests.

"It will provide some funds that the Environmental Water Holder can reinvest in the purchase of water, either in the Gwydir another year or potentially elsewhere within the system," said Simon Birmingham, Parliamentary Secretary to the Minister for the Environment.

"It really is about the dynamic management of a water portfolio to get the best possible environmental outcomes from that portfolio."

On the Australian Farm Institute blog AgForum, institute executive director Mick Keogh noted that the CEWH sale is for water allocations - a temporary right that expires at the end of 2014 - and not a permanent entitlement to irrigators.

At $300/ML - the current price being paid for water in the Gwydir - the sale could net the CEWH $300 million, to be invested in water in years when the environment is in need of extra flows.

Tom Chesson, chief executive of the National Irrigators Council, views the CEWH trade as a pilot program that will establish some ground rules for future environmental water trading.

CEWH is the nation's largest water holder, Mr Chesson said.

"It could have a massive impact on the market if it starts to trade. We're hoping it will learn how to trade without having a negative impact."

As a government agency, dealing daily with other government agencies, Mr Chesson also observes that CEWH has a unique and potentially compromising position for a commercial trading entity.

"It could have access to some insider information, for want of a better term. It could have access to information like opening allocations for the season, which could be used to manipulate the market."

"We're hoping to see structures in place to ensure that sort of thing doesn't happen."

Mr Chesson regrets the decision to release water wasn't made earlier in the season, when the extra gigalitres could have been more fully factored into crop planning. But Cotton Australia's chief executive Adam Kay thinks the CEWH water will still be very useful in the Gwydir.

Like much of the eastern States, the Gwydir Valley has had below-average summer rainfall through the latter part of 2013, and many days of hot, dry winds that have increased evaporation rates from on-farm storages.

While water availability has been in decline, cotton prices have steadied around the attractive rate of about $520 a bale.

"Crops are looking great, but a lot of growers are finding themselves a watering or so short, and that can impact yield and sometimes quality," Mr Kay said.

"I think a lot of them will welcome the CEWH coming into the market."

If those concerned with the integrity of the water market applaud CEWH's step into trading, those concerned with the integrity of the environment are less certain about the move.

"As scientists, we have no problem with trading water that's held on the public account for the environment, back into agriculture," said John Williams of the Wentworth Group.

"So long as it delivers a healthy river and productive agriculture - that's the whole point of the trading mechanism."

"But if this represents the start of selling environmental water back to the user, and the impact on the river system is negative, then we would be very concerned."

To make judgements about how much water can be released from the environmental account, Dr Williams said, there needs to be an understanding of how much water should be allocated to supporting river health.

That understanding isn't there.

"We never completed the science in the Basin Plan. We started, and we got to understand that we needed somewhere between 3000-7000GL of water - and then we didn't go any further, and picked a number out of the air."

Wentworth Group scientists estimate that about 4000GL should sit in the environmental account, more than double the CEWH current holding.

"Trading water is not the problem," Dr Williams said. "The problem is having enough water held back to ensure a healthy river system - and I don't believe we've got that."

'Ebb and flow' appropriate

Political reaction to the CEWH decision was predictably split along party lines.

Greens water spokesman Lee Rhiannon said the move would benefit a few irrigators at the expense of river communities, the majority of farmers and the environment.

"When you start the sell-offs, particularly when it's driven by a Coalition government, you're winding back the small achievements that have been made in terms of restoring health to the Murray-Darling basin."

"Regardless of where you take the water from, removing it from the system will be particularly detrimental to South Australia."

But Barnaby Joyce, the Federal Agriculture Minister, said it is "entirely appropriate" to use water held on the environmental account but not currently being used for environmental purposes to support irrigators.

“We have a cotton crop that is a couple of waters away from delivering billions of dollars to the Australian economy. We have plantings of grapes that need a drink or Australian farming families will lose millions in agricultural investment.

“We have the capacity to trade water to alleviate these problems and when it rains again, and it will, this water account can be replenished.

"In the interim, we can use the water that is available to deal with the problems of the drought that are with us right now.”

Murray Darling Basin Authority chairman Craig Knowles said the decision meant that water for the environment "can take its place for the first time in Australia’s history alongside other classes of water".

“This move by the CEWH demonstrates a further maturing of water management in Australia and, importantly, gives people more confidence to invest in the water market with increased certainty around the CEWH’s activities.”

What it's worth

Tom Rooney, chief executive of water market specialist Waterfind, said the CEWH decision to release water to the Gwydir Valley came at a time when water prices in the Gwydir were hitting up to $300 per megalitre - the highest prices since the drought year of 2009.

Copeton Dam, at the head of the valley, is low, and on-farm storages are back to 2010 levels after a couple of bumper wet years.

“A $300/ML price means there’s a shortage of water in the river, and a lot of farmers simply stop irrigating when prices get up to those high levels," Mr Rooney said.

"Since 10,000ML isn’t actually that much compared to usage requirements in the Gwydir, we expect the impact on price to be modest. With a new process, though, there can be surprises and we will analysing the effect on the market.

“What’s really important for the water market is that this process runs smoothly and irrigators have confidence in the Commonwealth’s actions.”

FarmOnline
Matthew Cawood

Matthew Cawood

is the national science and environment writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Correction
28/01/2014 5:45:07 AM

Umm Matt, try $3 million not $300 million #maths
Old Irrigation Enineer
28/01/2014 7:02:09 AM

What is Government doing playing God with the Irrigation Industry? Get the hell out and fix education, health and roads! The Murray was dry in 1845 when Sturt had to drag his rowing boat across the Murray mouth over the sand bars. So lets wreck the productive irrigation industry by borrowing money to buy farmer's water to throw it down the river into a salty lake. Brilliant work guys! Does anybody know how the basins really works? All this money and disruption may actually do more harm to the basin than good. One thing is sure, this intervention is wrecking businesses and regional economies!
fridgimus
29/01/2014 12:53:43 PM

Pretty obvious you don't know how it works OIE.
Old Irrigation Enineer
30/01/2014 9:16:53 AM

That's exactly the problem fridgimus, 40 years as a consultant in the basin means I do understand how it works. Do you?
fridgimus
3/02/2014 9:29:01 AM

As an irrigation consultant? From what I've seen in my time, that would tell me you probably don't, at least what is required for the ecological health of the lower parts of the basin anyway. My 40 years of living and working on the lower Murray as well as presently on a MDB icon site says I do.

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