Australia’s east coast sweltered through record-breaking November temperatures last week, a reminder (not that anyone there would have forgotten) about the dangers of bushfires following the horror start to 2020.
Those fires followed a long drought that, as we have written about extensively on Agri Investor, contributed to unusually high water prices, causing unrest and prompting a landmark investigation by the Australian Competition and Consumer Commission into the Murray-Darling Basin’s water markets.
The ACCC’s interim report earlier this year generally backed water markets but flagged changes that would introduce closer regulation and greater transparency – which is exactly what water investors and other market participants have been calling for.
There was a reminder of this in the results of ASX-listed almond producer Select Harvests this week, which reported a drop in profits thanks to falling almond prices.
Alongside the headline numbers, which were not unexpected, Select Harvests reiterated its calls for greater regulation of Murray-Darling water markets.
The firm described water markets in 2020 as “challenging” thanks to record or near-record water prices, a view shared by many, and while the outlook for both water supply and price looks more positive for the year ahead following winter rain, Select Harvests was clear that it wants to see markets regulated akin to the Australian Securities Exchange, with water brokers licensed. Both are firmly on the cards for the ACCC’s final report, which will be published by February 2021.
Greater oversight of water markets will help water to mature as an investment asset class, making it more attractive to institutional investors who have strict requirements when it comes to environmental, social and governance – it should be noted the ACCC did not find evidence of market manipulation in its interim report, but the negative headlines over the past two years show that negative perceptions are a problem.
New South Wales’ newly appointed agriculture commissioner Daryl Quinlivan emphasized this point when addressing the NSW Farm Writers’ virtual meeting last week.
Quinlivan, who as ag commissioner has no statutory powers but is tasked with advising the state government on ag policy and advocating on behalf of farmers, said there was “good momentum and goodwill towards water reform.”
“In the end, water users and the agriculture sector will be the main beneficiaries of this because there will be greater water security at the end of it. That will be important for the kinds of investments that will be necessary to get more economic value from all the water as it’s deployed,” he said.
“There’s no doubt we’ll see less water used for broadacre [cropping], because there are higher-value uses – I don’t think we should be scared of that. When things settle and some of the politics are less sharp, I think the environment for new investment in some of these areas will be much more positive.”
While water is a finite resource, Quinlivan noted that the amount of capital wanting to invest in Australian agriculture seemingly is not. After a challenging 2020 following many positive years, the sector continues to perform strongly, and greater regulatory oversight of this major component could help ensure that 2021 will be bright.