Australia, frontier of a global rush to commercialize water

By Rob Taylor Reuters
Published: August 31, 2008

CANBERRA: On the cracked gray clay of an ancient lake bed on the edge of Australia's outback, Guy Kingwill is at the frontier of a global rush to commercialize water.
Despite a long-running drought, Kingwill, who runs the vast Tandou farm, 142 kilometers, or 88 miles, southeast of the mining town of Broken Hill, has just sold his property's critical water on a national market rather than pump it into irrigated cereal crops.
"The return on the water is higher," Kingwill told Reuters. "Where we are, it's broad-acre cropping. But the market now is driving significantly more per megaliter from horticulture than you can get a profit margin out of wheat and barley," he says.
Around the world, speculators are increasingly looking to water as a new profit engine as supplies dwindle, caught between booming populations demanding more access and climate warming threatening its very availability.
Australia, the most parched inhabited continent, has for 25 years had an internationally unique water market to better share supplies among farmers and reverse years of allocating more water than the country's rivers and dams could spare.

That market last year traded $1.1 billion in permanent and seasonal water rights, according to Mark Siebentritt, the operations manager for the Australian water broker Waterfind, who says business last year grew by 20 percent.
But Kingwill, whose corporate farm is listed on the Australian Stock Exchange, says that prices are being pushed up by a metaphorical gold rush, luring bankers and speculators both at home and internationally to a new and waterlogged Elysian field.
With drought gripping some areas for a decade, prices for one megaliter of seasonal water - enough for an Olympic-size pool - are peaking at 600 Australian dollars, or $517, while permanent water entitlements are less volatile but still pricey at up to 2,500 dollars a megaliter. "You've got from the biggest financial institutions down to Auntie Jane buying 10 megaliters of water," Kingwill says "It's now an asset, just like a block of land, and people are buying on a daily basis."
While Australia has the most mature water market, it is stunningly complex, with about 10,000 rules and the regulation of four states spreading over the huge food bowl in the Murray-Darling river basin in the southeast.
The country's consumer protection agency, the Australian Competition and Consumer Commission has been asked by the center-left Labor national government to develop new and uniform rules for how water should be priced and traded.
State governments agreed in 1993 to establish a free market underpinned by a national register of water entitlements. Development has so far been hobbled by political rivalries and water overallocation problems in some regions.
"What we want to do is to see water trading freed up so it can trade not only across regions, but also across state borders," said the commission chairman, Graeme Samuel.
But some farmers are wary of intervention by the powerful national regulator, fearing it will further push up prices when drought is already evaporating supplies and even major cities are enforcing tough water-saving measures, like no car washing.
In July, Water Minister Penny Wong extended the time for farmers to have a say in the coming changes, with the commission to report back in December and again in June 2009.
"By making it so investors can come in, there is concern the small guy on the block is not getting a fair shake," Kingwill said. "But then again, some argue that the more investors come in, they drive the value up. The arguments go on forever."
Siebentritt of Waterfind says his business has been tracking water trade for 20 years and has developed an electronic platform that automatically matches registered buyers and sellers, advising which areas are legally entitled to trade.
Kingwill's Tandou farm, which has more land under water-saving subsurface drip irrigation than any other farm in Australia, is a client, with a sizable ability to store water.
But Siebentritt does not see water making the transition anytime soon to a pure investment rather than a public right overseen by government and used 70 percent for agriculture.
"There's some speculation, but people investing in water now are doing it as a way of investing in agriculture," he says.
"What drives the price is the value of the produce that can be grown with the application of that water, so really the price of commodities on international markets - whether it be food or rice or cotton - is having an impact on the value of water," Siebentritt says.
Wendy Craik, in charge of managing water for the food bowl through the Murray-Darling Basin Commission, said there had been an "explosion" on the water market in recent years, with about 30 percent of all available water traded.
"We're seeing corporate groups getting together and purchasing water, and then having an arrangement with farmers where they provide the water to produce a crop," Craik says.