‘Unsustainable’ Murray-Darling planting levels could crash market

Sunrice chairman Laurie Arthur warns of casualties among irrigation enterprises and industries if horticultural development keeps going at the current rate.

The chairman of listed Australian agribusiness giant Sunrice has expressed concern over the levels of horticultural planting in the Murray-Darling Basin, arguing that further expansion could result in a market crash.

Speaking to the Farm Writers’ Association of NSW in Sydney, Sunrice chairman Laurie Arthur said: “I believe we have passed the threshold and the continued unsustainable expansion of permanent plantings will produce a crash caused by the next significant drought or international commodity over-supply.

“Highly profitable annual irrigation enterprises and industries may be casualties leading up to this event unless action is taken now.”

Arthur pointed to the fact that surging water prices had prompted the Almond Board of Australia to call for a moratorium last month on the issuing of new water licences for developments in the southern Murray-Darling Basin as evidence that horticulturalists are concerned about the long-term viability of some projects.

The chairman of the ASX-listed firm sat on the National Water Commission from 2007 to 2012 and was involved in negotiations that established the MDB’s current water market, where water entitlements are traded separately from land.

Speaking to Agri Investor after his speech, Arthur said the federal government had failed to deliver on the promise of that water market, which was supposed to be a “big, broad trading platform with full price discovery and transferability.”

“We’ve got a lot of little exchanges, a lot of private deals, and I don’t think that’s good,” he said.

“There’s an opportunity there for astute people to work in the water market. You wouldn’t be happy with [this level of transparency in] another market, so I think it’s sub-optimal.”

Arthur added, though, that Australia was “right out in front” of the rest of the world when it came to its water market in the Murray-Darling Basin thanks to the separation of water rights from land titles. However, he expressed concern that relying on the market alone had not led to the best outcomes for the sector.

“For a new horticultural development in New South Wales, all you need is for a local council to approve it. What council is going to knock back a A$16 million ($11 million; €10 million) orchard development in its back yard? None,” he said.

He argued, too, that developers were pursing greenfield projects over purchasing and redeveloping existing irrigation schemes, because there was less bureaucracy involved and costs were lower.

Rice ‘well-suited’ to Murray irrigation

Sunrice produced just 50,000 tonnes of rice in Australia last year thanks to the dry conditions and the high price of temporary water. This was in contrast to a peak of 1.7 million tonnes in 2001, but still higher than the 19,000 tonnes it produced at the height of the millennium drought.

Arthur said price discovery in the current market was “difficult” and that much of the flex capacity in the temporary water market had disappeared thanks to the shift from annual cropping to permanent planting and horticulture in certain areas, where growers will be forced to buy water at higher prices to keep plants and trees alive.

“With the water market reforms we wanted more high-value water use, and that’s horticulture – but there’s a limit to it. We were aware 80 years ago that because of the ephemeral nature of our rivers, you just can’t have all high security [entitlements], and you can’t run all our rivers like they’re the Danube. I think we might be on the verge of learning those lessons again,” he said.

Arthur said the Murray Irrigation Area was “well-suited” to irregular river and stream flows thanks to its mix of annual cropping and livestock farming, and that rice was particularly suited to that mix.

Sunrice has remained profitable through the current dry period thanks to a well-established international supply chain that it sources rice through for its value-added products, replacing domestic production as needed. It developed this supply chain during and after the millennium drought.

“We’ve got strong sourcing supply chains, particularly out of the US and Vietnam. We certainly don’t enjoy an Australian drought, and there is high demand for the high-quality Australian rice that has such a clean, green image. But we’re still optimistic that our footprint here is appropriate,” Arthur said when considering the future of rice production in Australia.