The cost of irrigation water in the southern Murray-Darling Basin has skyrocketed by nearly 140 per cent in just 12 months, a new report by water consultancy Aither has found.
A combination of increasing water demand from permanent crops like almonds, citrus, and table grapes, and on-going dry conditions means prices now sit at levels only previously seen temporarily during the Millennium Drought in the mid-2000s.
The southern-Murray Darling Basin includes the Murray River, which runs along the border between New South Wales and Victoria and into South Australia, as well as the Murrumbidgee, lower Darling River, and Victoria's Goulburn region.
It is a region that produces everything from dairy, cotton, and rice to stone fruit, grapes, citrus, and nuts.
But this year, prices are so high that Aither director Chris Olszak believes many will be priced out of growing a crop.
"We expect a big reduction in the cotton crop unless high inflows return to the Murrumbidgee before October," he wrote in a statement.
There are two markets for water in the southern basin:
- permanent water entitlements give the owner an on-going right to extract water from the river, although the amount that can be extracted can change year-to-year as seasonal conditions change; and
- temporary or allocation water, which can be purchased from a willing seller as it is needed.
Prices for allocation water increased 140 per cent from $230 a megalitre in July last year to $550 a megalitre in July this year.
Aither, which maintains an index of permanent water entitlements, said it hit a record high of 224 entitlements in June, up 24 per cent from the previous year.
Changing demand
The soaring value of water rights — from just under $16 billion to $22.7 billion in the 12 months to June 2019 — reflects the demand for water security.
It is being driven up by shifting production patterns in the region, which overall is producing less annual crops like rice and cotton, and more permanent crops like nuts and citrus.
The total amount of irrigation water in the system is capped under targets set in the Murray-Darling Basin Plan, so no new water is being made available for irrigators.
But, as the prices in the Aither report show, competition for the remaining water is heating up.
To raise the crops, and keep them alive, large volumes of water are being traded downstream through the Barmah Choke and Goulburn Rivers.
The Victorian Government has recently moved to limit the expansion of horticulture in the lower Murray after last summer's peak demand period saw large price spikes and concerns over whether the required amount of water would make it downstream in time.
This year, the stage has been set for a repeat of those conditions, with dry conditions persisting and demand for water growing.
"Horticulturalists will be thinking about this year and moving to to secure water rights for their permanent plantings," Aither director Mr Olszak said.
"This will keep prices high."
