AGRIBUSINESS ASSOCIATION OF AUSTRALIA WATER FORUM
Mr Stephen Mills
I am speaking today as a dairy farmer and as a director of GMW but I know that what I Will say today will be just as relevant in NSW and QLD. GMW is the major rural water authority in Victoria delivering approximately 2.5 million-ML p.a. (show map of GMW region, point out 2 major systems, Goulburn and Murray).
How much water can I have?
When can I have it?
What will it cost?
These are the questions irrigators have most frequently asked me over the last fifteen years, and for most of that time, the focus and concern of irrigators has been on the price of water. There is no doubt the focus has now shifted to the volume of water available to an individual irrigator and how he can access that water. This has come about as the amount of water being used is getting close to the amount available for consumptive use. And cost refers more now to the traded price of water rather than the delivery charge.
The MDB cap is unpopular in some quarters but it was necessary to stop the growth in consumptive use and protect some flows for in river uses, to help with water quality and help protect the biodiversity of our eco systems. I am sure everyone is familiar with this slide but I wish to show it just incase some of you haven't seen it before (growth in consumptive use v historic natural flows). Diversions in MDB have increased 7.9% from 1988 to 1994 and there is potential for further increases of 14.5%. It is a finite resource and the absolute limits are being approached.
I would like to remind you that the MDB cap is a cap on growth it is not meant to restrict existing development, it is meant to cap water use at the levels required to sustain 1993/94 development. Growth in development can occur, through efficiency savings both on farm and in the distribution systems, and through water trading (meaning some unproductive areas will go out of production when water is traded). Bearing in mind there will need to be some restrictions placed on existing development to supply sleeper and dozer licenses, particularly in NSW and Victoria as these are activated.
The problem now is that as more demands are being placed on existing resources, the competition for savings in the distribution systems is much greater. Savings that could have been used to make up the difference as far as irrigator security is concerned, is being sought by other sectors e.g. to supply water for the Snowy River and in Victoria to supply water for upper catchment farmers through the Baxter report and" Sharing the Murray" (this is how the MDB cap is being implemented in Vic through bulk entitlements).
One of the biggest potential users of water hasn't entered the arena yet, that is the loss of yield in the catchments through the planting of forests both native and pine. Irrigation areas had already identified savings in their distribution systems as part of asset renewal programs; some of these rely on the sale of saved water to ensure refurbishment occurs. What is the pecking order for the benefits of the saved losses? Do the Snowy requirements take precedence over the Baxter allocations etc? Who benefits from the cheapest saved losses because the first ones will be the cheapest.
The expectations of the amount of water that can actually be saved from "losses" may also be unrealistic; many of the transmission losses occur because of the use of streams as major carriers. A lot of water is lost to wetlands, the environment and groundwater recharge. Much of the so called distribution losses are in fact inaccuracies in measurement, it is pretty difficult to get a precise measurement at off take that relates to what is delivered to an irrigator through the wheel.
Irrigators know the needs of the environment are important and should be looked after, and that there must be some equity with all people in the catchment but irrigators also need some guarantees if they are to remain efficient producers of commodities in Australia. There are definitely more opportunities for win/win outcomes with environmental flows; these must be fully explored.
Today we are operating under the COAG free market and open competition agenda. One of the COAG aims is to have reform in the water trading markets, to enable water to move to its highest value end use and to encourage the most efficient use of water, aims I am sure we all agree with. Before this can occur, other things must happen to ensure that irrigators make the best decisions for their particular enterprise.
Irrigators need to know and understand the security of their water, it must be well specified and understood by all parties and the specification must not change. Any outside party (particularly Govt.) must not have the ability to make decisions that can change the specifications of water entitlement. If water is required for another non-consumptive sector the market place is where that water should be purchased. This would then allow for true competition for the water resources available. This can be done very easily through property rights. The COAG agenda also recognizes the importance of explicit property rights. At GMW we are calling this "Retail Entitlement Reform"
In GMW's region we have several different rights to water.
- Gravity irrigation water rights - these have access to sales (max 100% of W.R.) and off quota until it is phased out (max 30 % of W.R.) the total allocation to any property must not exceed salinity criteria (max 10 ML per ha.inc G.W. use) Ave. allocations are approx. 4 ML per ha.
- D&S supplies guaranteed 100% regardless of the season but do not attract any sales.
-Diversions licensed volume - diverters who pump directly from streams, these irrigators do not have access to any sales until gravity sales exceed 30% and then they have a maximum of 70%.
- Urban entitlements.
- Pumped districts (Sunraysia) have allocations of 9 ML per ha. which is equal to crop requirements for grapes using old technology. They also have access to unlimited sales.
The biggest problem with all these different entitlements is they take the form of the new entitlement when traded, as trading is currently available between all these different entitlements. These are all High security but different rights.
It is a bit like selling Westpac shares and when you get home you have CBA shares or vice versa, there are currently no conversion factors. In fact the stock market would suspend trading until the shares were sorted out. It is probably not important for temporary sales, but for the permanent trade irrigators must know what they are buying or selling.
The control and ownership of sales water is currently held in a pool referred to as either the Murray or the Goulburn sales pool. These pools are controlled by the GMW board and allocated on a seasonal basis according to resource availability. When Dartmouth dam was completed and came on line in the early 1980's Victorian allocations were not increased rather irrigators were encouraged to just use more sales as it would be available on a regular basis. Many irrigators did just that and developed their farms on sales water, mostly large scale dairy farms with state of the art technology. Now many of these farmers are at risk because other parties want a piece of the sales pools.
Over the past 50 years the availability of sales water has never been a problem (chart of modeled February allocations for last 100 years), this has also led to a sense of false security, irrigators believing that sales would always be there. In fact there has been a common saying amongst some irrigators since these graphs have been made public "I know we are going to have a low sales year but please not this year or next year" the only problem is they say that every year.
One solution to holding sales water in a pool where it is more easily accessible is to allocate a new medium security product as a property right that the irrigator has full control over. This new M.S.R. could be fully tradable either on a permanent or temporary basis. There would then only be 2 products up and down the river in Victoria a high and a medium security product (show relative securities and compare to old sales pool in Murray).
This would give individual irrigators the opportunity to decide the level of risk they want to take with their own farming enterprise. E.g. mix of high and medium security rights. The next step is to have compatibility with NSW to allow trade across state borders with proper conversion factors.
It is time for hard decisions in regard to water and lets not kid ourselves water is a very emotive issue whether we are sharing flood or irrigation locations. But I am sure with sensible policies the needs of all parties including the environment can be looked after. In the MDB 2.5 million ML p.a. is being applied to enterprises returning less than $100 per ML gross margin, it is just a matter of attracting this water onto the market and redirecting it to higher value enterprises.
About the water on my farm.
1978 purchased property lO4ha 184ML W.R. 12.5ML D&S usage 400ML security less than 2ML /ha
1988 purchased more land 9Oha 104ML W.R. 8.OML D&S usage 500ML this property was purchased for the water only (sleeper).
1989 purchased next door 44ha 80 ML W.R. 5.OML D&S usage 750ML this property was purchased for farm extension, security now 2.7ML /ha
1997 purchased more land 32ha 81ML W.R. 4.4ML D&S usage 750ML this property was purchased for the water only (sleeper), security now 3.2ML /ha.
All of the water allocation is now used on the home farm which is now 148ha with 449ML W.R. and 29.9ML D&S. Security has increased from less than 2MLha to 3.2ML/ha usage now averages 160% of water right or 5. 1ML /ha. At the same time on farm practices have also improved with the installation of some automatic irrigation to give better control and the recycling of all tail water.
All irrigation on the out block is done via a drainage diversion permit (the pumping of irrigation water from an arterial drain to help keep nutrients out of the rivers). The permit is 1 80ML, but it has no guarantee of any quantity or quality but allows for opportunity irrigating (I usually grow maize for silage)
The only way I could improve the security on my farm was to buy more land downstream on the same channel system, due to the limited capacity of the channel to deliver any extra water. All these calculations were predicated on all irrigators fully using their sales entitlement. With a MSR I would just be able to go and purchase more water.