The use of water is a controversial topic, fraught with political tension and environmental concerns, but it is also a vital one for investors in agriculture to understand and grapple with.
Questions over how to best use water have flared up again in Australia in the last couple of weeks following a report published by a South Australia Royal Commission examining the Murray-Darling Basin Plan, which was signed into law in 2012 to better regulate water usage in this vital river system in the east of the country.
So far, the response from governments at all levels has been muted to the Royal Commission’s 44 recommendations, which include taking back water from irrigators for environmental purposes.
It should not be forgotten that the MDB Plan’s passing six years ago was achieved on a wide bipartisan basis, with agreement from four different state governments – no mean feat and not something that should be, or will be, discarded lightly.
The plan has also achieved a lot of good. It has helped to establish and regulate a water market that is “the envy of the world,” as one source put it to us last week, and it has succeeded in providing for more water to be set aside for environmental flows.
With that in mind, more than one industry source has been at pains to point out to Agri Investor that the political climate surrounding the Royal Commission’s establishment and its terms of reference should be considered when assessing its recommendations (a pinch of salt has been mentioned).
But the industry should be careful not to dismiss the Royal Commission, either.
To give one example, it raised fair questions around the transparency of the Murray-Darling Basin Authority, the body set up to oversee implementation of the basin plan.
This is important: a review into the five-year implementation of the plan by the Productivity Commission, published last month, found the MDBA has conflicting roles as an agent of state governments and an effective regulator ensuring compliance with the plan. The PC argued this conflict of interest will only intensify over the coming years, so the MDBA should be split into two organizations to look after each of these aspects, with the state governments leading on implementation of the plan via one of them.
There’s been no sign of movement on this front yet, though, and its also fair to ask why the federal government waited until the day before Australia Day, a major public holiday, to publish the PC’s report when it was made available to them in December.
Actions like this undermine public confidence in the plan, even if it has made progress on achieving its goals.
Investors should not be unduly concerned yet. Holders of water entitlements, for example, would likely see the value of their investments increase should the SA Royal Commission’s recommendation of buying back water for environmental purposes be implemented.
Any significant changes in the short term are also unlikely, with elections looming at state and federal level in the coming months.
Still, the headlines about fish kills and drought aren’t good.
Yes, it may be true that there have always been droughts and fish kills in Australia, as it is a land “of droughts and flooding rains,” as Dorothea Mackellar wrote in her famous poem, My Country.
But social media will increase awareness of events like fish kills without the nuances being widely communicated, leading to more of these kinds of headlines in the mainstream media, whether those involved in Australian ag think them fair or not.
We’ve heard multiple accounts in recent months of institutional investors from North America being put off Australia because of negative headlines. We’ve also been told they’ve been asking specific questions about issues to do with water on the back of recent events.
These headlines leave politicians in a difficult position, too, which can lead to decisions being taken that are not in the sector’s best interests.
All in all, it’s not a good look, though it’s nowhere near the point where investors would rethink their decisions. Perception is a big factor, however, and the importance of investing sustainably is only going to increase.
To achieve this and maintain investor confidence, it’s vital that the Murray-Darling Basin Plan is implemented in plain sight, with proper accountability, to make sure that the good it has already achieved is not lost.
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