ACCC report confirms water market failure, but recommends more of the same

Lake Canobolas Dam near Orange in the central west of NSW. Photo: Tracey Carpenter

The federal government is sitting on a water crisis, brought on by the marketisation of water, and must act to restore water to rivers, farmers and communities, according to Water for Rivers spokesperson Paul Oboohov.

Oboohov was commenting on the Australian Competition and Consumer Commission’s (ACCC) Interim Murray Darling Basin Water Markets Inquiry report released on July 30.

It stated its brief was to recommend “options to enhance markets for tradable water rights”, even though it admits that farmers have been shut out of buying water by water speculators and a dysfunctional administration.

“Even the ACCC report reveals that the water market is in dire need of reform with insider trading and price fixing, opaque registries of ownership and poor tax regulation,” Oboohov said.

“Despite it pro-market position, its findings give weight to calls by communities to shut down what has become an illicit water market, benefitting only the largest corporate trading institutions.”

The ACCC said that many of the objectives of the Water Act 2007 to address the “over-allocation” of water in the Murray-Darling Basin and to manage the Basin’s scarce water resources on a more sustainable footing “have not been achieved”.

“The market’s complexity and lack of accountability is destroying agricultural productivity and locking away vital environmental water, without market checks, balances or controls”, Oboohov said.

Confidence in the management of the water market is so low, it has undermined itself, he said.

“A serious additional consequence of these problems is that many water users do not trust that the markets and key institutions are fair or working to the benefit of water users”, Oboohov noted.

“Some water users, particularly farmers, are deeply concerned about the fairness of the markets and question whether they are working in their interests and that of the wider economy.

“There is a disconnect between the rules of the water trading system and the physical characteristics of the river system.

“For example, the capacity of rivers to deliver with current scarce flows, losses due to evaporation, soakage and illicit pumping and the relative lack of rain upstream are not considered.”

The report noted that the complexity of the water markets is made worse by ineffective and opaque federal and state government agencies, which sometimes overlap or conflict, Oboohov said.

According to the report: “The level of expertise and experience required to navigate the complexity of the water market unfairly advantages professional and institutional investors”.

Further, it said: “Effective governance of the [Murray-Darling] Basin is impeded by fragmented roles and responsibilities, and differing rules, as well the inconsistent enforcement of those rules.”

The Water Act 2007 separated water from land titles and, in some cases, water entitlements are now equal to, or more valuable, than the land itself.

The report noted that some people “have called for a return to the system where water was tied to land, perhaps with some limited trade between water users only,” but that it did not support such a move.

“Dismantling existing water markets would mean the benefits that markets provide to many water users would be lost, and this would be to the detriment of the economy. It would also significantly diminish the value of water entitlements, which make up a substantial proportion of the assets owned by irrigation farmers,” the report stated.

“But water users, communities and the environment have been betrayed by the lack of accountability,” said Oboohov. “This is why Water for Rivers is calling for an end to the water-trading system.”

Even the report noted that water trading provides “opportunities and incentives for brokers to engage in behaviours that would not be permitted in other markets”, he said.

While the ACCC has argued for some reforms, they are limited to accountability and controls for the kind of products listed, for example, on the Australian stock exchange or real estate markets.

“What is needed is a full investigation of fraudulent trading, the lack of enforcement of the Murray-Darling Basin rules, and move away from water marketisation,” concluded Oboohov.

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