On 26 March 2021 the Australian Competition and Consumer Commission (‘ACCC’) Final Report on its inquiry into Murray-Darling Basin water markets was released to the public. There is also a Guide to the Final Report which provides a useful summary. This report builds on the preliminary findings detailed by the ACCC in their Interim Report, released back on 30 July 2020, and provides 29 recommendations in the following areas to further bolster market fairness and efficiency:
- Market Integrity and conduct (4 recommendations)
- Trade processing and water market information (10 recommendations)
- Market architecture (11 recommendations)
- Governance of the Basin water markets (4 recommendations)
In addition to the range of recommendations, other key findings in this report include:
Water market Benefits
- Basin water markets are critical to the efficiency and productivity of Australian agriculture.
- Water trading has brought substantial benefits to many water users across the Basin. This is demonstrated by the fact that, despite tough and volatile climatic conditions, the value of production from irrigated agriculture in the Southern Basin has increased by 29% in real terms since 2010–11.
Investor Market Participation
- The report is unequivocal in its support of the benefits investors provide to water markets, including new sources of capital to irrigated agriculture, increased water market liquidity and the provision of a range of water products which help irrigators manage their water supply risks.
- This water market inquiry was initiated shortly after the 2018-19 financial year, in part due to the financial burden rising water prices were having on irrigator profitability. In response to conjecture that trading behaviour by large investors may have resulted in market manipulation, four large investor market participants, including Kilter Rural, were required to submit extensive trading data to the ACCC. This data covered the period from 1 July 2017 to 31 December 2019.
- The report concludes that there is no evidence that investors exercised market power or manipulated markets to increase water prices in the Southern Connected Basin.
Kilter Rural welcomes this report, congratulates the ACCC for undertaking a thorough inquiry and supports the implementation of the report’s recommendations. The recommendations in this report present as sensible and necessary for market transparency and to help ensure effective ongoing market maturity.
The recommendations in this report will need support of the current water governance structure which includes three states (VIC, NSW & SA) and federal government (including the Murray-Darling Basin Authority) and implementation will likely be complex, take time and hence have its challenges. However, as highlighted in the report, the importance of the market to agriculture and communities can not be underestimated and on-going collaboration across basin states, stakeholders and communities will be vital to improving market transparency and operations.
This inquiry into the Australian water markets by the ACCC represents the most comprehensive market analysis seen by Kilter Rural since our irrigation farmland and water business began back in 2004. Kilter has been very open and active in responding to the ACCC report and our feedback and information is directly cited four times in the final report and indirectly six times, more than any other market participant. The report provides excellent reference material pertaining to the status and issues facing a maturing water market. We trust and hope the report’s recommendations can be enacted by governing bodies in a timely and comprehensive manner.