EDITORIAL: by Peter WestmoreNews Weekly
Water trading: what it's all about
, October 28, 2006
It was a sign of the times that on the very day the Victorian Government's more restrictive policy on water use in Melbourne was announced, the State Education Minister revealed that new swimming pools would be constructed in state schools. The new plan has the approval of both government and opposition parties. (Sunday Age, October 15, 2006)
The issue of water allocation has become a major public policy issue.
No major public reservoirs have been constructed in Australia for at least the past 20 years - despite substantial population growth and sustained drought. Incredibly, some state governments have said they will not approve any such development in the future.
For the past century, Australian governments have had responsibility for establishing publicly funded reservoirs, and have also determined the share available for consumption among irrigators, country towns and major cities. Governments have modified these allocations for various reasons, including drought, water availability and environmental flows.
Since the 1980s, governments have allowed limited trading of farmers' water entitlements. The theory is that the value of farmland depends on its access to guaranteed water, and, if farmers do not need to use their water entitlements, they should be able to sell them, and others should be able to buy them.Free market in water
However, in recent years free market economists have argued that any valuable resource such as water rights should be saleable, so that water is used more efficiently, and at least theoretically, will be diverted from lower to higher value agriculture.
The South Australian Government's Department of Water, Land and Biodiversity Conservation states, "An open and effective water trading market is critical to achieving a sustainable balance in water resource management. Allowing water access entitlements to move between users in an open market mechanism ensures that the water allocated for consumptive use progressively moves to higher value uses.
"This not only results in greater production from the same (or less) volume of water but also accrues environmental benefits where water is traded from degraded areas and/or low value low efficiency production to areas more suited to irrigation using improved management practices on higher value crops."
Every other state has the same approach, which has also been entrenched in National Competition Policy and endorsed by the Productivity Commission, the Australian Bureau of Agriculture and Resource Economics, employers' organizations and the National Farmers Federation.
In a report released in August, Rural Water Use and the Environment: The Role of Market Mechanisms, the Productivity Commission suggests that governments should use markets to more efficiently allocate water among competing users.
Others have argued that all water rights should be traded on the open markets, in the interests of economic efficiency. The objective has been vigorously pursued by the Council of Australian Governments' National Water Initiative.
Already, the consequences of the new policy are becoming alarmingly clear.
An independent report has shown that almost all of the traded water in northern Victoria has been bought not by other irrigators, but by what are known as Managed Investment Schemes, cashed-up city investors buying water rights as an investment for subsequent resale, or to supply water to blue gum plantations on what were formerly dairy farms.
Another study of Managed Investment Schemes showed that they are indirectly receiving over a third of their gross income as a result of generous government tax concessions.
David Cornish, a director of the rural consulting business, Mike Stephens and Associates, said, "We cannot understand why the Federal Government [is] prepared to sell out the majority of Australian agricultural producers and communities to support a handful of very wealthy individuals and publicly listed companies."
The other consequence of letting market forces rule is that Governments which have done nothing for decades to increase water storages or implement recycling are using water trading to divert large quantities of water previously earmarked for agriculture to the cities, because city consumers and industries can afford to pay far more for water than farmers.
Water from the Thompson Reservoir in Eastern Victoria, originally intended principally for farm irrigation, has primarily been allocated to Melbourne, while water from the Shoalhaven River in southern New South Wales is being diverted to meet the needs of Sydney.
In other words, water trading is an opportunity for profiteering by city-based water barons, and a camouflage for diverting irrigation water into the growing cities.
The long-term effects of this will be to undermine Australia's agriculture further, forcing families off the land, pushing up the price of food, and increasing Australia's reliance on imported foodstuffs. Is this what we really want?- Peter Westmore is national president of the National Civic Council.