ACCC finds no evidence investors manipulated Murray-Darling Basin water markets

The Australian Competition and Consumer Commission has found that investors provide a range of benefits to Murray-Darling Basin water markets, while also finding no evidence that they had manipulated water prices.

The findings, set out in the ACCC’s Murray-Darling Basin Water Markets: Final Report, vindicate the views of water investors who have maintained that they provide a service to the market and irrigators, despite criticism from some farmers and sections of the Australian media about their presence in the market.

The ACCC did, though, double down on the view it set out in its interim report last year that water markets need “comprehensive reform” and more effective governance.

The most significant of the 29 recommendations the ACCC made in its final report is that a new independent Water Markets Agency should be established to oversee trading and ensure water markets “operate fairly and with integrity.”

Despite finding no evidence of illegal investor behavior, the ACCC said there is a lack of quality, timely and accessible information for water market participants that had the potential to lead to undesirable outcomes.

“There are scant rules governing the conduct of market participants, and no particular body to oversee trading activities, undermining confidence in fair and efficient markets,” the ACCC found.

“In particular, water market intermediaries such as brokers and exchange platforms currently operate in a mostly unregulated environment, resulting in a lack of clarity regarding the role brokers play and permitting undisclosed conflicts of interest to arise.

“Trading behaviors that can undermine the integrity of markets, such as market manipulation, are not prohibited, insider trading prohibitions are insufficient, and information gaps make these types of detrimental conduct difficult to detect.”

The ACCC dismissed outright calls to return to a system whereby water ownership rights are tied to land ownership.

“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 Australian economy. It would also significantly diminish the value of water entitlements, which make up a substantial proportion of the assets owned by irrigation farmers,” it said.

The ACCC recommended introducing new Basin-wide legislation that would outlaw harmful conduct and practices, with the proposed Water Markets Agency responsible for enforcing the law.

ACCC deputy chair Mick Keogh said in a statement: “What started as an informal system for transferring water rights between neighbors has grown into a complex set of markets, but unfortunately the normal regulatory framework that would be expected for a market of this scale has not been developed. A new independent Water Markets Agency, backed by appropriate legislation, should prioritize making markets work for water users, traders and the economy to deliver the benefits of water trade.”

Keogh also said many water users do not trust that water markets are fair, which would inhibit efficient investment in agriculture in the region.

The federal government welcomed the ACCC’s report but stopped short of saying it would push to implement the recommendations.

Kilter Rural, cited in the report as one of four major investors in MDB water markets alongside Argyle Group, Aware Water and Duxton Water, said it supported implementation of the ACCC’s recommendations.

“The recommendations in this report present as sensible and necessary for market transparency and to help ensure effective ongoing market maturity,” the firm said in a statement, adding that implementation would be challenging and would require the co-operation of three state governments and the federal government.

“This inquiry… represents the most comprehensive market analysis seen by Kilter Rural since our irrigation farmland and water business began back in 2004… 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.”

Riparian Capital Partners said in a statement that the recommendations are “another important step towards a more transparent and equitable water market, to increase the efficiency of Australia’s water use, leading to greater certainty for investment and productivity, for rural and urban communities and the environment.”