The Australian Competition and Consumer Commission has set out the areas it will consider in its inquiry into the Murray-Darling Basin water markets.
These include the factors driving changes in water markets and water prices, how market participants (including irrigators, investors, water brokers and others) use market information, and whether the markets are sufficiently transparent.
In an issues paper published today, the ACCC said it was specifically looking to “better understand the differing practices and behaviours of the various participants” in the MDB water markets, which include private investors.
It said: “Policy reforms to ‘unbundle’ water rights from land holdings have allowed the emergence of investors who trade water rights (sometimes without owning any irrigable land) for profit maximising purposes.
“Over time, water market participants have expanded to include investment funds, retired irrigators, large water users that do not own much or any water entitlement (and rely on allocation markets to purchase water), indigenous users and communities, urban/town water authorities and environmental water holders.”
The ACCC added that each type of water market participant uses and trades water in different ways and, as a result, how they affect the markets is not the same.
The inquiry will also examine “whether the design of water markets is working in circumstances where there may not be a large volume of trade occurring, and whether limited volumes of water availability and trading activity increase the ability of some water market participants to influence particular markets.”
The issue is reaching a head as drought continues in Australia’s eastern states, affecting the MDB in particular.
Since the unbundling of water rights from land holdings, private investors have built significant holdings in water entitlements through both pooled funds and direct mandates, thereby generating strong returns.
Consultant Aither found in its Water Markets Report 2018-19 that average monthly allocation prices in the MDB had risen from approximately A$230 ($155; €140) per megaliter in July 2018 to more than A$550 per ML in June 2019 – an increase of 139 percent.
Aither also found that the average monthly allocation price across the year 2018-19 was between A$375 and A$460 per ML, depending on the trade zone.
In a statement, ACCC deputy chair Mick Keogh said: “This inquiry follows a period of significant change in water markets and in irrigated agriculture in the Murray-Darling Basin. It also comes at a time of drought, water shortages and significant increases in water prices.
“We understand how important the effective operation of these markets is for the economic health of communities across the Basin, and for the Australian economy more broadly. We are also aware there are a range of concerns about these markets.”
Other areas to be covered by the inquiry include: how market regulation and policy differences between states and trading zones have affected water markets; how the practices and behaviours of different market participants and interested parties impact water markets; and the extent to which the objectives of water markets have been achieved and how overall market competition and efficiency have changed over time.
The ACCC also announced that it will hold a series of public forums throughout November in New South Wales, Victoria, Queensland and South Australia to help inform the inquiry. It will then provide an interim report to the federal Treasurer by May 31, 2020 and complete the inquiry and provide a final report to the Treasurer by November 30, 2020.
The competition watchdog is inviting submissions in response to the issues paper, with a deadline of November 29.