June 28th 2003

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Articles from this issue:

COVER STORY: Counting Stalin's victims 50 years on

EDITORIAL: Australia's population challenge

PACIFIC: Solomon Islands: nightmare in paradise

CANBERRA OBSERVED: Why the Crean-Beazley issue is unresolved

ENVIRONMENT: Climate scientists reject Kyoto Protocol

STRAWS IN THE WIND: Labor mates / Night to remember / Heart of darkness / Intervention

EUTHANASIA: Stopping Australia's Doctor Death

Sugar price decline (letter)

Free trade deal and local shareholders (letter)

TIMOR L'ESTE: Looming food shortage in East Timor

AGRICULTURE: National water trading plan questioned

FAMILY LAW: Canadian court changes definition of marriage

EDUCATION: The problem with boys ...

South African economic miracle?

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National water trading plan questioned

by Patrick J. Byrne

News Weekly, June 28, 2003
Plans for a national water entitlement and trading scheme are being questioned by farm and political leaders. Pat Byrne reports.

The Federal Government has placed water issues high on its list of priorities in the run up to the next election. Part of this is to include a national water entitlement and trading framework to be presented to the next meeting of Federal and State leaders at the Council of Australian Governments (COAG) in August.

Water rights and trading is a highly complex issue involving irrigation waters from dams, rivers and streams, as well as ground water from underground aquifers.

Water rights

In each state, the system of rights, entitlements and trading have evolved differently since Federation. Further, reliability of supply varies markedly across the continent.

Some areas have high reliability of supply. In other areas water delivery fluctuates enormously depending on annual rainfall and the degree to which state governments have licensed the available water. In some areas, water licences have been over allocated and reliability of supply is low.

Security of water is important for bank lending. In lending for farm investment, banks require security of long-term water supplies.

Water rights have been linked to farm properties, from which reliability of water supply has been traditionally calculated for lending purposes.

In principle, the national water management proposal is supposed to provide security of water rights and a national water trading system. In theory, it would allow water in southern Queensland to be sold to Mildura farmers for production of high value added wine grapes. Full details on the national water trading system are yet to be released.

However, serious questions are being raised about the proposal.

Chairman of the Victorian Farmers' Federation Water Resources Committee, John O'Brien, says that there are serious limits on trading water across Australia.

"Water can be traded from say Cobram downstream to Swan Hill on the Murray River, but water cannot be traded from Griffiths on the Murrimbidgee to Shepparton in central Victoria. Water will not run upstream from where the Murrimbidgee enters the Murray. Water won't flow up hill.

"Further, water trading has come to be tightly restricted in catchment areas for sound environmental reasons. There are set limits on the amount of water that can be applied per hectare of farmland to avoid problems like rising water salinity and waterlogging of soils.

"There is a serious risk of such restrictions breaking down under a nation wide water trading system."

A second major problem is that the water market will be opened to traders and speculators. Currently in most states, water can be traded between farmers, councils and other water uses like in mining and food processing.


Now, in anticipation of an open market in water being created, National Waterbank Ltd has been formed to raise $27 million to buy up permanent water rights from farmers and to then trade and speculate on water sales. The company is headed by former Federal Labor Party Assistant Treasurer, George Gear.

According to Mr O'Brien, "temporary, or annual, irrigation water in NSW and Victoria on average costs $30-50 per megalitre. But due to the drought, water is currently trading at $300-500 per megalitre to protect the permanent plantings of horticulture, like vineyards and orchards.

"Given the current cost of permanent water at $1,200-1,500 a megalitre, for National Waterbank to make a profit of say 8%, it would have to sell water for about $100 a megalitre for over a decade. This is double the normal price farmers pay for water. Given that only a limited amount of water is traded annually in many catchments, such speculators could well come to control the price of traded water."

Mr O'Brien also says that the banks are extremely concerned at the national water trading proposal.

"If farmers can sell their permanent water rights - as some would do when stressed by bad seasons or low prices - then the banks cannot assess risk when looking at lending to farmers.

"Rather than strengthening farmers water rights, the banks see the decoupling of water rights from property rights as an erosion of water security. Banks could well end up stopping lending to many farmers."

Mr O'Brien also says that the notion of being able to trade water from one region to another is further flawed. "Trying to trade water from Queensland to Victoria would entail huge transmission losses. In other words, one megalitre of water from Queensland will transmit to Victoria only with huge losses. By the time it reaches Mildura, al little as 0.15 megalitres could be left.

"Reliability of supply because of seasonal factors or due to over commitment of water in some states and catchments, puts the process further in doubt."

According to NSW Liberal Senator Bill Heffernan, planned legislation in NSW is "laying the foundations under tradability and divisibility of water licences, to transfer, off-farm, any benefit of the increasing value of water.

"[By] untying of water licences from the land, it will be possible for a person lying on the beach at Noosa or a corporation in Hong Kong to tie up the profits of water trading, profits which are critically vital to funding on-farm 'smart water'. It is imperative that these profits be retained in the bush."


Last week, the NSW Government announced that it was postponing its legislation, due to take effect in July, until 2004, pending consideration of the Federal water trading plans to be presented to COAG in August. The NSW Government is facing up to 12 legal challenges to its legislation.

Senator Heffernan raised the issue at the recent Liberal Party National Conference in Adelaide.

He put a resolution to the conference that water trading be restricted only within catchment areas and that the trading of water by speculators be prohibited. The latter part of his motion was carried, but the section restricting water trading to catchments was deleted from the final motion.

He argued the case saying, there is an urgent "need for security of legally traded long term water access rights for users of water in any aquifer, continuous river or basin catchment. The word 'use' is intended to include use in forests, farming, urban and environment.

"This is important not only for financial security for farmers and their bankers but also the social, economic and environmental protection of urban communities in those catchments.

He attacked National Waterbank's attempts to make "profits out of water for shareholders", adding that there "are many more investment vehicles in the wings. I say our farmers and other users can't afford to be tenants to paper traders."

Senator Heffernan called for a fifty year water plan for Australia. However, he said that any "fifty year plan for water, which excludes moving Adelaide upstream, must recognise the need for smarter water technology such as the need to go into trickle instead of furrow etc. Everyone has to pull their weight ...

"The message ... is we have an untapped agricultural frontier in Northern Australia. We have a need to invest heavily in new technology in Southern Australia, be it shower heads or trickle irrigation.

"This will require every dollar that can be squeezed out of water being directed to address these challenges, not to a paper trader."

In a recent article on the issue, Senator Heffernan said that "water barons preying on irrigation farmers will be a serious disincentive to funding 'smart water'. Positive incentives and encouragement is the most effective way to promote public and private investment in efficient water infrastructure.

"Certain regions have worked towards commonsense schemes that have been effective in minimising erosion, salinity and the issue of the distribution of our water.

"Research and development technology has produced innovations which have the potential to dramatically improve efficiency in the agriculture sector.

"Investigations are continually being conducted on irrigation layouts, designs, equipment and best management practices.

"The challenge is whether we choose to embrace these new ideas or alternatives and then how we go about harnessing these initiatives."

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