As prices increasingly become fully valued in highly active water markets, such as the southern Murray-Darling Basin (MDB), interest continues to emerge for alternative options from both investors and corporate agricultural enterprises.
To support the interest in alternative options, Aither has recently undertaken a market assessment of other markets, including Western Australia.
In Western Australia, expansion of irrigated agricultural activity is evident throughout the state. Ongoing water and land investigations by the State Government are identifying potential new or expanded irrigated agricultural opportunities. Several greenfield and brownfield land releases are occurring, particularly in north of the State where additional work on understanding the most suitable crops for the soil and climatic profile is being undertaken.
Significant new areas of land are also being developed through private investment in both on-farm and off-farm infrastructure. One such example is in the Ord Irrigation Area where current private development activity will nearly double the size of the land under irrigated agriculture within a few years, with sufficient water available to support both the current, as well as potential additional future expansion.
For Western Australia, a key part of Aither’s assessment has also been to better understand the current water resource management legislation and the potential impact that new legislation will have.
The primary water resource management legislation, Rights in Water and Irrigation Act 1914, places limits on the tenure of water rights and the establishment of an open water market, as seen in the southern MDB. However, it does provide a framework for trading water rights to ensure water moves to its highest value use in areas of water scarcity. In addition, several of the more developed irrigation areas, such as the Ord River, the member-based irrigation cooperatives use their own trading rules, including a system of water access entitlements and allocations, to allow for a member-specific water market to be established.
Western Australia also continues its near decade-long water resource management legislative reform journey. The proposed new water resource management legislation will enable many of the challenges seen in the current legislation to be overcome (such as the tenure of water rights) and allow for the development of sophisticated and open markets similar in design to those in the southern MDB.
Not all water resource management areas of Western Australia are likely to have such a market established – only those where a benefit can clearly be demonstrated, such as in areas of high competition and over-allocation. It would also be unlikely that any water market established in Western Australia would be of the same scale as the southern-MDB given the lack of a similarly-large connected system. However, for those areas where such markets are established, more efficient trading would enable the price of water to better reflect its scarcity value over the long-term.
In comparison to Western Australia, Aither’s recently released Water Markets Report: 2016/17 Review and 2017/18 Outlook provides a clear indication of the high valuation on entitlement markets in the southern MDB. In particular, the Aither Entitlement Index (AEI) increased by 4 per cent for the year after more than doubling over the last four years. These high prices have been sustained despite low prices for water allocations (due to wet seasonal conditions) reflecting the view that higher reliability water entitlement prices in particular are at, or close to, being fully valued across much of the southern MDB.
Whilst Aither expects continued long-term interest from investors and corporate agricultural enterprises in the southern MDB, current developments in water and irrigated agricultural in Western Australia present the potential for brownfield and greenfield opportunities not seen in other parts of Australia. In addition, if and when Western Australia enacts its proposed new water resource management legislation, additional opportunities are likely to become evident.
Not without its challenges, a rigorous understanding of the Western Australian regulatory framework and operating environment may present opportunities for those seeking alternative options to the southern MDB and the expansion of their geographical exposure.