RURAL POLICY: by Patrick J. ByrneNews Weekly
Water trade to shift water from farms to cities
, July 2, 2005
Farm leaders are up in arms at the latest proposals for separating farmers' water rights from property titles, reports Pat Byrne.Anthony Gray is a dairy farmer on the Campaspe Irrigation District at Rochester, northern Victoria. He and other farmers depend on 20,000 megalitres of water rights, which is based on the water rights attached to their farms. (One megalitre is about one Olympic-sized swimming pool.) These farmers' properties contribute over $50 million to the local economy annually.
But now Bendigo City's urban water authority, Coliban Water, is considering a proposal to take the water from the western half of the Campaspe Irrigation District to augment the growing needs of Bendigo.
Dairying requires intensively-capitalised farms, that fundamentally depend on irrigation water to grow feed for their cows. Without irrigation water, Rochester dairy-farmers would need at least 10 times as much land as they currently own to make a living from dry-land cropping.Taking by stealth
If Coliban Water succeeds in taking this water by stealth, then a compensation and re-adjustment package for the region could cost $80-100 million, according to one water expert.
What is proposed for Rochester is just the tip of the iceberg. It is just the start of a process of shifting water from farms to cities, which will lay waste to Australian irrigation areas.
This crisis has been created by the joint federal and states' National Water Initiative (NWI) and the 1994 Council of Australian Governments (CoAG) water agreement. To understand the nature of this crisis, it is necessary to understand something about how water titles and water markets have operated in Australia.
A farmer's water right has traditionally come with the farm property title. Water is what gives value to the land. Banks lend to farmers for a 10-year business plan, which is necessarily based on a secure water-title attached to the property title.
Also, water has traditionally been treated as a public utility, with two separate markets. There has been an urban water market, where cities would charge $800-1,000 a megalitre for access and delivery.
There has been a separate farm irrigation water market, where farmers would pay about $50-100 a megalitre as a delivery and infrastructure charge for high security water, i.e., a farmer's water rights.
Depending on the region, irrigators could also buy low-security water, that is, extra water (or "sales water") that is available after all farmers in the area have been supplied with their high-security water. For extra water, they may pay a slightly higher price.
Low-priced irrigation water provided to agriculture has helped farmers provide Australian consumers with the lowest-priced food in the developed world. It has allowed our farmers to compete on world markets against highly-subsidised products from the EU, the US and Japan.
But the National Water Initiative (NWI) and the Council of Australian Government's (CoAG) water agreement of 1994 have set out to abolish the separate urban and rural water markets, to create a single water market where farmers and cities would compete for the same water. Separating farmers' water titles from their property titles would enable farmers to sell their water to the highest bidder.
For two years, News Weekly
has warned that the convergence of three things would have a devastating effect on rural Australia:
1) In creating a single water market, the NWI would see cities easily outbid farmers for water. This will have a major effect on individual farmers and regional economies, as this would involve a removal of water without adjustment and compensation for farmers' loss of water titles.
2) With large areas of agriculture severely stressed by 20 years of economic rationalist policies and prolonged drought, many desperate farmers would sell their water to the highest bidder in order to retire and pay off their debt, even if it left their "dry" farm almost worthless. The highest bidders would be the water-hungry cities which can afford to pay the highest price for water.
3) With some states refusing to build new dams to placate the green lobby, the cheap, short-term option would be to buy up irrigation water, regardless of the economic consequences for farmers and the Australian economy.
Until now, nobody has been willing to admit that shifting water from farmers to cities was a key objective of the NWI.
But the recent Productivity Council inquiry report, Review of National Competition Policy Reforms
(No. 33), has "spilt the beans". It says that the primary reason for the unbundling of water rights from land is to shift cheap water from farms to cities.
The report says that Australian cities are facing water shortages and consumers are facing ongoing water restrictions. Possible solutions include "building new storage capacity, storing and treating storm water, desalination of seawater and ... facilitating the transfer of water from rural to urban areas" (p. 206).
But some states have a "no new dams" policy, while treating storm water storage and desalination of seawater as costly processes.Cheap water for cities
So the Productivity Commission has endorsed the proposal of the Prime Minister's Science, Engineering and Innovation Council, that cities "purchase irrigation water from willing sellers. It is probably the cheapest source of new water for several cities, and it is already taking place to some extent" (p. 206).
In fact, the report's recommendation 8.7 says that the federal and state water reform process should also give close attention to "better integrating the rural and urban water reform agendas, including through facilitating water trading between rural and urban areas" (p. 209).
It goes on to further recommend "developing ways to better reflect the scarcity value of water and achieve more efficient and effective management of environmental externalities ..." (p. 209). This means charging farmers full-cost recovery for the supply of water, including environmental costs, and allowing market forces to bid up the price of water.
If this happens, Australian consumers had better get used to paying a lot more for their food. And the Federal Government will have to get used to Australia's trade deficit growing even larger, as higher prices for water will force up farm costs and cut our rural exports.
Recently, when the Productivity Commission report was shown to a national water committee, it shocked farm leaders to the core.
(Some leaders are also afraid that some state governments are intending to buy low-security water from irrigators and then arbitrarily convert this to high-security water.)
The fate of west Rochester's farmers is just the start of what faces Australian irrigators. Melbourne is believed to be eying water from the headwaters of the Goulburn Valley irrigation system, to augment Melbourne's urban water needs.
The NWI aims to allow market forces to rule as the separate markets for rural and city water markets are abolished. This policy is set to have disastrous consequence for Australian agriculture.