Paper to the Australian Water Congress – Sydney
9 April 2014
Delivering a sustainable and efficient plan for Australia’s water resources
Thanks so much. Thanks so much Stuart for that warm introduction. I can happily report that it’s a slightly overcast day here in Sydney today, wearing my Bureau of Met hat, that Cyclone Ita is approaching the Northern parts of Queensland and that it’s raining in my home state of Adelaide, my home city of Adelaide which is nice and hopefully for many other parts of the country we pick up a bit of rainfall at present.
It is good to be able to be here today and to address the Australian Water Congress. This really is as Stuart has given a good scene setting, a great opportunity for stakeholders across the Australian water industry to be able to engage in economic, the business, the legal, the environmental and the social issues that all intertwine when it comes to managing the water resources of our country.
Of course, as Stuart has highlighted, water reform in Australia is driven very much, first and foremost, by the scarce and unpredictable levels of rainfall that we have in Australia. It can be achieved, and is achieved, and has been achieved by establishing the most efficient and sustainable industry balancing in a sense those of course the long-term needs of the community, industry and the environment.
We have made and Stuart rightly congratulated many in this room and many others working in the water sector great progress over the last ten years in relation to water reform. Particularly since 2004 when the Howard Government, along with the states and territories, secured a national agreement on water reform that gave water a value, gave it a price and also afforded water rights with the security required to underpin investment and trade in water markets.
By extending standard economic and sustainability principles to water pricing, planning and allocation, the National Water Initiative continues to drive water efficiency and water- related investment that benefits us all.
In a drought prone country like Australia, it is critical that we have a price on water that reflects its true value that provides maximum incentive to ensure that we use it in a way that equally reflects that value.
It’s amazing what a difference this simple principle has made in terms of how we’ve navigated water reform and particularly navigated the worst of the dry times we’ve had over the last decade.
This basic economic concept of course of having tradable rights in water has provided far greater certainty for investment, greater clarity for our environmental goals and improved our capacity to effectively deal with both expected and unexpected changes.
The NWI supported the principles of valuing water, preserving it, trading it, using it efficiently and seeking maximum utility from it.
We have in a decade of water reform come a long way.
Under the NWI, states and territories are implementing comprehensive water plans that account for wide-ranging considerations – environmental, community and business. We have worked toward a clear definition of water rights, enabling the legal security of entitlements to water, as distinct from land.
Without this acceptance of sound market principles the pathway to return the Murray-Darling Basin to sustainable levels of extraction would have been difficult to accomplish.
We need to acknowledge the sequencing that occurred there of the NWI in 2004, the setting of those basic market principles that then enabled the Howard Government in 2007 to pass the Water Act based on the principles and requirements of the NWI, making the creation of the Murray-Darling Basin Plan a possibility, and making its implementation now a reality.
Successive Australian governments and I give credit to those that have gone before us today, have supported the Plan’s focus on reducing over-allocation of water resources in our largest catchment by investing in water security, modernising irrigation systems and securing environmental water.
Our Government is committed to implementing the Basin Plan on time and in full, as evidenced by the Prime Minister’s signing of the long awaited implementation agreements with New South Wales and Queensland just last month, which were the final pieces in the jigsaw in the whole array of intergovernmental agreements and national partnership agreements that made the Murray-Darling Basin Plan implementation a reality.
We have already contracted 1,900 gigalitres towards the 2019 target of recovering 2750 gigalitres in additional water to meet environmental needs of the Basin’s rivers and wetlands.
Of course it’s still a big task to recover, to bridge the remaining gap. We will bridge that gap in a carful way; ensuring practical steps are taken to deliver a sustainable outcome for the economy, for Basin communities and for the environment. After all, healthy rivers and healthy communities should be complementary, not contradictory.
More broadly, water markets fostered under the NWI have delivered tangible benefits across the Murray-Darling Basin. The separation of water from land has been an important step in the development of markets to facilitate increasing trade, allowing price signals to improve water market efficiency, water use efficiency and supporting redistribution of water resources to areas where they will be used most productively.
Efficiently operating markets of course always come into their own in times of scarcity, where a limited resource should flow to the highest value outcomes.
The water market certainly came into its own during the trials and tribulations of the Millennium Drought. At its peak the proportion of water allocations traded in the Southern Murray-Darling increased – from 5 per cent in 2001 to over 30 per cent just six years later in 2007.
Many horticultural farming operations were able to keep permanent plantings alive during that time, preserving investments that had taken many years to establish through the purchase of water allocations from broad acre farmers, who also benefited from trade.
Overwhelmingly, this created improved outcomes for both of the parties to the transactions. Long term investments were able to be protected and preserved by buyers of water, while sellers were able to convert annual allocations that frequently weren’t sufficient in volume to enable the planting or growing of the crop, convert that into income.
In the height of the drought where incomes were diminishing and debt levels rising it didn’t feel like much of a win for anyone, and it’s safe to acknowledge that people throughout the Basin communities and irrigators in particular felt a lot of pain during that time. But imagine how much worse conditions could have been were such effective trading not allowed and rights to use water had been stranded in locations where it was unable to be efficiently utilised.
Some farmers took advantage of other market based opportunities by selling parts of their entitlements or borrowing against those entitlements, activities that were effectively impossible prior to water enjoying its own legal status.
Not only did market principles help to preserve a financial future for many farmers but they actually helped to maintain the value of agricultural production in irrigated areas during the drought. From 2005-06 to 2007-08, the combination of trading and the utilisation and ceasing of efficiencies driven by scarcity saw the amount of water used by irrigators fall from 57 per cent, yet the value of irrigated production fell by only 8 per cent, a remarkable dividend.
With relatively well established markets across the Murray-Darling Basin, irrigators now continue to make trading decisions based on optimizing their watering needs, business objectives and of course their financial circumstances.
A new development in water markets is the opening up of trade between environmental and consumptive users. Trade of Commonwealth environmental water has always been possible under the Water Act, but only where it will improve the Commonwealth’s water holdings to meeting of environmental objectives across the Murray-Darling Basin.
Trade opportunities for the independent Commonwealth Environmental Water Holder arise because sometimes the annual allocations associated with permanently held entitlements are not needed in one part of the system, yet more is needed in another part of the system.
Such trade flexibility has recently been demonstrated in two tenders overseen by the Commonwealth Environmental Water Holder in the Gwydir and Peel catchments.
Importantly, the proceeds from the sale will be quarantined until such time as a purchase of water for greater environmental benefit is identified.
Once again, this has provided a real world example of an effective market delivering a positive outcome to all participants.
The sale of a modest tranche of water allocations on the Gwydir was a good outcome for the environment as it allowed the Commonwealth Environmental Water Holder to obtain $3.2 million in funds to, at an optimal time in the future, purchase more water that can be more efficiently utilised for environmental outcomes.
The sale was also a good outcome for irrigators experiencing drier than expected seasonal conditions in the Gwydir, who purchased some ten billion litres of water to help deliver millions of dollars in agricultural output, finishing off crops that otherwise may not have been able to be completed.
The trading framework released by the Commonwealth Environmental Water Holder outlines how they will learn from these first trades and manage the water portfolio with the primary aim of environmental benefit, while also optimising the social and economic outcomes that may be achieved through their involvement in the water market.
In an effective water market, water property rights combined with the ability to trade, open up more options for irrigation businesses and environmental managers to manage their changing circumstances.
Market principles have also driven an enormous productivity dividend and drive across the Murray-Darling. Acknowledgment of scarcity by governments and irrigators alike, coupled with the market driven value attached to water, has helped provide incentive for billions of dollars in investment to improve the efficiency of irrigation farms.
It is now just as common to hear farmers discussing their yield per megalitre as it is their yield per hectare as they seek to maximise the production associated with every drop of water used.
Many irrigators have utilised the market to sell surplus water to help fund improvements in on-farm irrigation efficiency. As part of our water recovery activities, our Government is ensuring that we pursue complementary activities. And just last week, I announced an expanded $158 million investment in irrigation infrastructure to improve the water efficiency on farms, and of course to return water to the Murray-Darling to bridge the gap through the implementation of the Basin Plan.
By investing in on-farm infrastructure we are making Australian farmers more water efficient, delivering a win for both farmers and the environment. Additionally, on-farm irrigation efficiency is adding to the flow of economic benefits and localised economic benefits from the government’s water programs.
Our Government will focus on infrastructure and water efficiency as the primary means of water recovery to bridge the gap to the sustainable diversion limits that come into effect in 2019. In finalising implementation of the Murray-Darling Basin Plan we will have invested over $4.9 billion in measures to make irrigation farms more efficient, irrigation systems more efficient and the delivery of environmental water more efficient.
A further $1.6 billion has been allocated for additional potential water recovery through additional irrigation efficiency measures.
Across the country, these projects are demonstrating improved farm scale productivity benefits such as increased crop rotation ability, increased crop water use efficiencies, improved soil management, reduced maintenance and reduced weed control requirements.
And it is not just irrigators who see the benefits of such investments. At the local level of course, benefits flow-on to other local businesses and services from these levels of investment.
The productivity dividends of these incentives to invest in improved efficiency are diverse. Take an irrigator who converted to a lateral move irrigation system reported that it has saved him six hours a day in labour costs.
Another farmer constructed a new storage dam and reuse system, also with a lateral move irrigator, to maximise production during dry periods. As a result of the upgrade, the farmer estimated savings 3.7 megalitres of water per hectare of production.
Some expect their crop production to increase by 10-20 per cent as a result of improved irrigation scheduling. Other irrigators are able to ‘do more with less’ by converting from sprinklers to drip irrigation and irrigating during the night.
Modernisation of systems in the Basin to reduce delivery losses have meant that farmers in these systems can now receive and use water for irrigation in dryer times than before.
An example is the Trangie-Nevertire Scheme near Dubbo, where a $115 million Australian Government investment in irrigation infrastructure funding has modernised the scheme.
Installation of automated real-time water metering, automated gates, new rubber lining for channels and improved telemetry to provide greater control over water use has ensured that secure and reliable water is available to farmers when they needed it more often, weather and rain patterns of course permitting!
This security means a more dependable income for farmers, which in turn also means more secure and reliable economic trade activity for local communities.
With results like these it is easy to see why our Government is prioritising infrastructure over water buybacks.
The activity in the Murray-Darling Basin, the Agriculture Minister, Barnaby Joyce announced recently a new ministerial working group that will identify new infrastructure projects to enhance and continue to develop Australia’s water supply, which I am pleased to be a part of.
Our Government understands that building water infrastructure must keep pace with economic activities and opportunities in Australia’s regions and with our population growth. We must also try to seize and utilise advantage in growing markets in the region, that of course are exemplified by the trade deals struck by the Prime Minister just this week.
This ministerial working group will allow us to have the opportunity to prioritise opportunities to upgrade existing water infrastructure or build new water infrastructure.
The economic, social and environmental challenges the Government has faced in seeking a more sustainable balance between productive and environmental needs in the Murray-Darling Basin will be highly relevant to the consideration of new water and agricultural developments especially in northern Australia.
The Government has commissioned a white paper to identify the full potential of opportunity in Northern Australia which will define the policies for development in the north through to 2030. Our White Paper, a key election commitment, and we expect it will be released at the end of the year.
The new ministerial working group comprising of Minister Joyce, Deputy Prime Minister Truss, myself, Minister Hunt and Minister Briggs will give consideration and provide the white paper with our views on options for and future opportunities for water capture, storage and use in the North and elsewhere.
Development if it is to occur will of course necessitate innovative and sustainable solutions. Full attention must be paid to setting sustainable limits on water use at the start of any development process and avoiding losses to downstream industries such as fisheries or ecosystems dependent on end of system flows.
In accordance with the National Water Initiative sound principles of cost recovery, price transparency and tradability must equally be applied to ensure new water infrastructure and irrigation development is commercially viable into the future and achieves the maximum economic return for water used.
While my remarks about the benefits of water reform have focused on rural aspects and that of course reflects where the Commonwealth’s majority role and influence sits there have been and I should acknowledge the gains and remaining opportunities to harness the effective use of market based principles in the urban water sector.
The development of an urban water pricing signal has produced a pricing regime that is more transparent and cost reflective. There are now independent regulators determining urban water prices in five states and the ACT. But there are some ways to go.
Economically, sound pricing of water to reflect the true costs of supply sends the right signals to consumers to value the water supplied to their businesses and their houses, and to use water wisely.
Other ways of demonstrating the value of water have been established. Such as the Water Efficiency Labelling and Standards Scheme which has encouraged the increased use of water efficient appliances across the nation.
According to a report from the Australian Bureau of Statistics, national domestic water consumption dropped from 103 kilolitres per capita in 2004-5 to 76 kilolitres a person just seven years later (by 2011-12).
While the drought and water restrictions were significant drivers of this change, the sustained decrease in the average amount of water consumed by Australian households can also be linked to WELS.
A consistent rise in the price of water has of course influenced our behavior more fundamentally. Today households and businesses are far more inclined to spend money investing in water efficient household appliances along with actively planting more drought-resistant gardens.
The sense of responsibility that all Australians have for our water resources has increased, with a much better understanding of the scarcity of water.
Applauding increased water use efficiency and improvements in placing a true value on water in both rural and urban settings should not be confused of course with applauding increased prices, that’s not a wise thing for a politician in particular to applaud. A properly functioning market should see downward pressure on prices wherever possible.
In the urban water landscape we do continue to see generally monopoly providers, deliverers and retailers of water, with varying levels of practical integration.
While the nature of storing and piping water to its end use especially in urban settings presents as a natural monopoly, it is important for the states to consider all avenues to make urban water markets more efficient, driving prices down wherever possible.
In the spirit of the National Water Initiative consideration should be given to greater competition or contestability for components of urban water delivery in ways that can enhance the efficient operation of water markets and provide commensurate benefits to residential and business users, as well as the overall economy.
Our Government recognises that electricity is a major input cost for many businesses and is seeking to apply downward pressure on electricity prices to enhance Australia’s competitiveness through our abolition of the Carbon Tax, our review of the Renewable Energy Target and development of a new energy white paper.
However water itself is also of course a key input cost for many businesses as well as households and the economy overall; it equally impacts on our competitiveness. Where further market innovation can be applied to reduce prices, or at least reduce the rate of price rises, then it should be.
We have learnt, and continue to learn, valuable lessons from the adoption of the National Water Initiative ten years ago and its ongoing implementation. These lessons, including those learnt from our reforms in the Murray-Darling Basin, must be applied to future developments in both urban and rural settings.
Our national challenge, whether in cities or towns, as farmers, local community leaders, academics or state and federal policy makers, is to work within the realities of our unpredictable natural environment, to get the best outcomes for both our rivers and the communities that rely upon them.
While the Millennium Drought was declared over in 2012, we again see many Australian farmers especially in the North and West of this state looking at bare paddocks and failed crops.
Water reform will not stop droughts and all of the inevitable associated problems. However, the application of sound market principles to our use of water does mean that both farmers and river systems are more robust and better able to face the tests of drought.
The focus on creating more water sensitive Australian cities through promoting innovation and capacity building is a tenet of the nation’s broader National Water Initiative reform process.
This year marks the tenth anniversary of that process, and it is a process which I am pleased all jurisdictions remain committed to but which I equally hope a fresh look will be taken at the opportunities for the future.
It is important that we redub our commitment the important principles of the NWI using the power of markets to get the best returns from our scarce water resources and to recognising the value of our water resources having a true value applied to them.
Can I thank you all very much for your time, your attention today and particularly for the role from diverse perspectives and areas of engagement that you work across – urban and rural water settings. It’s great to have the opportunity to share these remarks with you. I look forward to hearing some of the outcomes of the conference proceedings and welcome your questions.