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ABARES report shows water market could cope in repeat of millennium drought

Tom Nancarrow and Kath Sullivan, Wednesday August 8, 2018 - 13:41 EST
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The commodity forecaster says a decade of reforms in the southern Murray-Darling Basin are paying off. - ABC

Australia's commodity forecaster says water market prices in the southern Murray-Darling Basin are unlikely to be higher if faced with a repeat of the , despite a boom in almond and cotton plantings.

A new report, released by the Australian Bureau of Agriculture and Research Economics and Sciences (ABARES), assessed how the market would react should the 2008 peak of the drought hit again.

ABARES executive director, Dr Steve Hatfield-Dodds, said despite more than 2000 Gigalitres (GL) of water entitlement recovered for the environment under the Basin Plan, prices would likely remain around the same levels.

"At the same time, there have been large changes in the irrigation sector, including expansions in almonds in the Victorian Murray and cotton in southern NSW," he said.

"Despite this, ABARES modelling suggests that under a repeat of the Millennium drought, basin water market prices would be no higher than the peaks observed in the 2006-07 to 2008-09 drought."

On top of the implementation of the Murray-Darling Basin Plan, the years since the height of the has seen a boom in nut and cotton crops.

Recent figures show , while the almond industry forecasts 120,000 tonnes of production by 2025.

The commodity forecaster's director of climate and water economics, Dr Neal Hughes, said while this was the case, it was being offset by declining water use in areas of grazing, dairy and rice.

"Although there has been growth in demand for nuts and cotton, there has been some decreases in other sectors which you need to take into account," he said.

"In total, we do not really see a big increase in demand in aggregate. What we do see is basically a shifting around of demand."

"It is always possibly to have a drought that is worse than what we had previously. What we are saying is if we had a drought of an equivalent magnitude, we do not think prices would get any higher than what they were."

Dr Hughes said the introduction of water carryover rules in Victoria and South Australia, which allows the storage and use of excess water for future years, has also helped.

"That basically allows them to prepare for drought, to put more water away in the wet years, and have it there in storage ready to help out if we had another drought," Dr Hughes said.

RuralCo Water broker Peter Morrish agreed much had changed in the last decade.

"The difference between now and then is obviously the education of irrigators throughout the regions that know in terms of how their allocations come onto the market," he said.

"I do not believe anyone really wants water to get back to that sort of level, because that means it is very dire for everyone."

"At this stage, fingers crossed we get some good spring rain."

Tight supply drives prices high

With dry conditions being felt across eastern parts of the country, the available supply of water to trade on the market has tightened significantly.

According to RuralCo Water's Peter Morrish, the $350 per megalitre of water in parts of the Basin is among some of the most expensive prices being paid in three years.

"The dam situations were a lot worse than they are at the present time, but obviously because of the very dry period we have had over the last 6-8 months, everyone is starting to chase a little bit of water early in the season," he said.

"People that are traditionally sellers towards the end of the season are waiting to see what volume they are going to have to meet their own requirements initially."

Mr Morrish said with finances in drought-affected areas tight, it was important that irrigators do the sums before paying for water.

"A lot of people are only buying small parcels of water for exactly that reason," he said.

"There is also a lot or people looking at their budgets very tightly and deciding whether they will go ahead and plant, particularly the annual croppers in terms of rice and pasture."


© ABC 2018

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