Keeping the water flowing: Protecting the water supply in the Murray-Riverina

Transcription

1 Keeping the water flowing: Protecting the water supply in the Murray-Riverina

2 Introduction Water is a critical resource that has been the focus of much policy debate in Australia in recent years. Much of this debate has focused on the environmental role of water and the challenges facing the Murray 1 -Darling river basin. The Murray-Riverina region of the NSW Business Chamber understands the importance of environmental flows to the health of the basin. However, members are concerned that there is not sufficient awareness of the economic impact of water amongst policymakers and the general Australian community. There has been a distinct lack of acknowledgment within the policy debate that water is a key driver of economic growth especially in regions such as the Murray-Riverina in NSW. There is a need for a more balanced approach taking into account both the economic role of water, such as growing food, and environmental considerations. In response to these concerns, the Murray-Riverina Regional Advisory Council 2 of the NSW Business Chamber has consulted with a number of local stakeholders to develop this report. This paper is designed to increase awareness of the economic output from the key water-dependent industries, improve understanding of who is involved in the irrigation sector, outline the adverse impact that the Federal Government s buy-back scheme (under its present design) is having on the region and put forward more balanced alternate policy responses to the water challenge. The report makes a number of key recommendations: Key Recommendations That the Federal Government looks at alternatives to water buy-backs such as recovering lost water in the system, temporarily leasing water allocations, forward contracts, options and other derivative products and targeted buy-backs. This would include both direct public investment in water saving technologies and rewarding those businesses that invest in water saving technology. That the Federal Government conducts an inquiry into the effects of Government purchases in the market both economic and social effects. The following recommendations have been taken from the Water4Food program that we also wish to endorse: Murray-Riverina Adoption of a pragmatic approach to water-licence buybacks ensuring economic and social impacts are not concentrated in specific communities. Long-term certainty of water entitlement and entrenchment of food production at current levels. Allocation to RAMROC 3 communities of a fair proportion of money distributed for the modernisation or maintenance of water infrastructure. Allocation of a fair proportion of money distributed for structural industry adjustment, including alternative employment programs. Support for scientific research and development aimed at improving farm productivity while using lower volumes of water. 1 The Murray in this paper, refers to the NSW side of the region. 2 Participants are members of the NSW Business Chamber who volunteer their time to provide support and advice to the Regional Manager and Regional President. 3 RAMROC Riverina and Murray Regional Organisation of Councils is a group of 18 member Councils that work to enhance the economic, social, economic and environmental capabilities of communities to ensure the region's long-term sustainability. 1

3 Water s contribution to the economy Think of the Murray-Riverina region and you think of water. This is not just due to the prolonged period of drought, but also because water is one of the critical inputs into the area s economy. Almost every job in the region depends, directly or indirectly, on reliable access to water. The region is the food bowl of NSW and a major exporter. This means that it is in everyone s interest to ensure the region s access to water is at least maintained and increases once drought conditions recede. Based on information about the region s different industries, if there were no water allocations this would cost the region s economy at least $2.5 billion directly in the first year alone and it would take up to a decade for some agrisectors to recover. The loss of key agricultural production would also cost at least 8000 direct jobs in the Riverina. These agricultural-based businesses drive the success of almost all other business in the region. If they have no or reduced access to water, this flows to firms such as freight haulers, retailers & hospitality, farm suppliers and skilled tradespeople (such as builders, plumbers and electricians). This means the overall economic impact of no or a reduced water allocation would be significantly greater than the direct impacts outlined above. Research published in the Journal of the Australian Water Association 4 suggests that the multiplier for industries dependent on irrigation may be as high as 3.5 times. This would put the economic value generated by water-dependent industries in the region at almost $9 billion. Below are some of the key economic measures associated with the major industries of the Murray-Riverina. Wine & Grape Industry Rice Industry The industry adds $720m to the Murray-Riverina. Grape vines are perennial, which means they need water to survive. This is usually delivered through high technology drip-irrigation systems. If the vines are lost, it will take 4-7 years for any subsequent new plantings to reach maturity. If water allocations were removed, this would cost the region almost $3 billion in lost earnings over four years. The industry covers 700 farms covering 22,000ha of vines and has 28 wineries. The sector employs 1500 fulltime staff and an additional 600 people during harvest time from January through to April. The sector generates $400 million in export earnings each year. Annual turnover of $800 million have just had the smallest crop in 32 years. 95% of Australia s rice crops are grown in the Murray-Riverina. Unlike citrus and grapes, this crop is planted annually and is not a permanent planting growers in the Murrumbidgee Valley. 1,100 fulltime jobs in the region plus an estimated 30,000 indirect jobs. $500 million in exports and $2.5 billion invested in land, plant and equipment. 4 W Meyer & K Montagu (2006), The Irrigation Industry in the Murray and Murrumbidgee Basin, Journal of the Australian Water Association, August

4 Feedlots and Livestock $300 million annual turnover. 750 fulltime employees. 165,000 cattle processed through abattoir. Area has 130,000 cattle, 505,000 sheep and 38,000 pigs that are dependent on access to water. Chicken Processing Industry Citrus Industry Juice Industry BAIADA Poultry has an operation near Griffith (formerly Bartter Enterprises). Have 5 million birds that need water. Industry also needs locally produced grain that is dependent on water. Employ 1450 fulltime employees. $300 million in sales each year. Australia s largest citrus growing region. Annual turnover of around $280 to $300 million. Citrus trees are perennial, which means they need constant water to survive, particularly in the heat of summer and the frost risk period of winter. Farmers are increasingly moving to drip-irrigation in the face of reduced water allocations and improved water use efficiencies. It would take 7-9 years to re-establish the sector if an annual water allocation was cut. This long lead time combined with fierce competition from overseas imports means it is unlikely to sector would start up again in the Riverina. 689 orchards covering 8300 ha of plantings fulltime employees in orchards and 430 in packing sheds, plus additional positions throughout the supply chain and at retail level. $55 million turnover per year plus $5 million in exports. 5 major juicing plants in the region and supplies additional major juicing plants interstate. 200 fulltime employees. Vegetable Industry Numerous different vegetables grown in the area such as broccoli, capsicum, carrots, gherkins, lettuce, onion, potato, pumpkin, rockmelon, and watermelon. All dependent on access to water. $40 million annual turnover. Several hundred fulltime employees. Cherries and Nut Industry These are emerging industries with current turnover of $4 million (cherries) and $35 million (walnuts). 3

5 Who s Who of the Irrigation System? There are three major groups of stakeholders in the water and irrigation system. The table below gives a brief summary of these groups, the major players involved from the Murray-Riverina and their role in the system. Stakeholder group Major organisations Role in the system Irrigation companies Murrumbidgee Irrigation Limited and Coleambally Irrigation Co-Op Ltd Supply the water allocations at the time and place requested by the water purchaser (i.e farmer or agricultural company). Maintain and expand the infrastructure associated with the irrigation channels. Environmental management. Water licence holders Government Authorities and regulators Rice, wine, citrus, chicken and livestockrelated farms/companies NSW Dept of Environment, Climate Change and Water, State Water Corporation, Dept of Environment, Water, Heritage and the Arts, National Water Commission and Murray-Darling Basin Authority Purchasers/end-users of the water. There are different categories of water licence depending on the crop high security and low security allocations. High security allocations tend to be for permanent plantings such as citrus trees and grape vines. Low security are for crops such as rice. Not surprisingly, high security licences are more expensive than low security as these licences have a better chance (but not a guarantee) of gaining some water, even in drought years. Manage the licence schemes and develop and implement water management policy including water for environmental purposes. 4

6 Impacts of water trading Water trading critical to region s future The importance of water to the economic wellbeing of this region means that securing water rights (including the ability to trade) is a major focus of stakeholders in the area. A water entitlement or licence provides the entitlement-holder with a right to access a share of available water based on annual availability (known as annual allocation ). A water entitlement is an asset that can be traded and/or borrowed against. Water entitlements are now separately tradeable from land and as such can be sold within particular valleys, inter-valley and across State boundaries. Trades can be on an annual or permanent basis. Until recently, annual trading made up the vast majority of all water trade in the Murray-Darling Basin. More recently and with the entry of multiple government environmental water buyers, there has been a significant deepening of permanent trade market. Sovereignty for water has historically rested with the states. The creation of the Murray-Darling Basin Commission was an attempt to create multi-state cooperation on broader issues but ultimately this process was hamstrung by the need for consensus one state could always hold out. Traditionally, the Federal Government has not had an active involvement in water. However, in recent years there has been political pressure on the current and former Federal Government s to step-in to the water policy area in an attempt to respond to rising community concerns about the long-term health of the nation s rivers. The Water Act 2007 and subsequent actions, including the transfer of some state powers to the Commonwealth, is a step away from the way water was managed in the past. Notwithstanding, the way the states apply agreements with the Commonwealth including trade rules remains largely up to them. Impact of Trading Caps NSW, Victoria, South Australia and Queensland, together with the Federal Government, have signed-up to the 2008 Inter-Governmental Agreement (IGA) - for the Murray-Darling region. This process was designed to improve water management and resolve some of the inter-state tensions around water usage. As part of this plan, the Federal Government has begun the process of buying up water entitlements and directing them towards environmental flows. Despite the agreement, a key issue remains over discrepancies around the implementation of the agreement in different states. This means that while the rules have become more even differences in the practical implementation still leave the Murray-Riverina region at a distinct disadvantage to its Victorian counterparts. Prior to the IGA, the Victoria government had in place a policy that stated no more than 10% of Victorian water licences can be owned by non-irrigators. Currently, 7% of Victoria s water is owned by non-irrigators. Recently the Victorian Government agreed to abandon its 10% cap for non-irrigators after October Without the removal of this 10% Victorian cap, and the fact that it has almost been reached, the bulk of the water purchased by the Federal Government would have needed to come from the NSW sections of the basin, such as the Murrumbidgee Irrigation Area. The removal of the 10% cap is welcomed by Murray-Riverina irrigators. However, NSW is still at risk of bearing the majority of the impact of the Federal Government s buy-back scheme. This risk arises from the different way that the 4% cap rules are applied from state to state. NSW, SA and Victoria all have in place a 4% cap on the total water allocation that can be removed from an irrigation district each year. The restriction does not apply to licences linked to a river. This restriction is designed to prevent major shifts of water allocations out of irrigation districts. Victoria has accounted for their 4% limit in a way that creates an unlevel playing field. To give a practical example, if an irrigator transfers entitlement from his name to a superannuation fund, this is counted by Victoria as part of the 4% cap. In other words the entitlement has not moved anywhere and yet the 4% cap is being triggered. This is not the case in NSW or SA. This uneven playing field has been further exacerbated the introduction of transformation by the Commonwealth on the advice of the ACCC. Transformation is the ability of a shareholder in an Irrigation Corporation to transform 5

7 their water entitlement held under the bulk licence into a Water Access Licence (WAL) in its own right. The WAL holder continues to pay for and use the Corporation s water distribution infrastructure, but is able to enter into water dealings using the WAL without reference to the Corporation. This decision has rendered the 4% rule in NSW effectively useless. The Victorian Government has agreed to phase out its 4% cap from 2011 with a view to it being completely removed by But as part of the transition mechanism, a volumetric cap has been put in place which will have a similar impact as a percentage cap. The different way that Victoria applies its 4% cap rules means that a significant amount of Federal Government buyback is still likely to be carried by NSW. In response, the NSW Government has put in place an embargo on the permanent transfer of water for nonproductive purposes, which effectively means a suspension of Federal Government buy-backs. 6

8 Alternate policy options The Federal Government s response to the water challenges of the Murray-Darling basin has been heavily focused on a buy-back policy to shift water permanently to environmental flows. As discussed above, the bulk of this adjustment burden is being carried by NSW because of the lack of a level playing field between states. There are, however, other alternate policy responses that have not been adequately explored. Infrastructure investment Investment in water saving technology is one such approach that has not been used to its full potential. This could involve both direct public investment in water saving technology along the irrigation system, and rewards for those businesses that undertake such water saving investments. This is a key piece of the policy response that has been under-resourced. As this paper has discussed, the problem around water is finding the balance between environmental and economic uses for the resource. The Federal Government wishes to adjust this balance so that more water is available for environmental use. The Federal Government s approach assumes that there is a fixed amount of water in the irrigation system and that farmers need to draw a fixed amount of water from this system. However, investment in infrastructure from both farmers and the Federal Government could simultaneously increase the amount of water in the irrigation system (through reducing the amount of water lost in delivery) and decrease the amount of water needed by the agricultural sector. This would then increase the amount of water available for environmental usage, which is the solution the Federal Government s is trying to achieve. The other advantage of this infrastructure approach is that it incentivises and rewards water saving approaches in the agricultural sector. In contrast, using a buy-back approach only will quickly and permanently remove water for use as an agricultural input and greatly reduce the economic sustainability of the Murray-Riverina region. Other trading-based approaches One of the key concerns for businesses in the Murray-Riverina is the permanency of the buy-back approach; once the transaction has gone through that water is permanently lost for use in agriculture. This means that agricultural operations cease to operate almost immediately. This can have a dramatic social impact on small local communities as they struggle with the employment challenges which may force some residents to permanently leave the area. An alternative approach would be to look at buy-backs that allow for an adjustment process within the effected region. The Federal Government could ease the adjustment process and make the system more flexible by combining permanent buy-backs with more sophisticated instruments such as temporary leasing of allocations, forward contracts and options to buy water in the future if certain triggers are reached. Use of these trading instruments would encourage and give agricultural operators time to invest in water saving technology that may reduce the impact of the Federal Government buying some of their allocations permanently. Alternatively, a delay in the actual execution of the permanent buy-back (say via options or forward contracts) would allow communities time to adjust to the impact of the permanent loss of water and develop new industries to offset the potential employment losses. 7

9 Acknowledgments The Murray-Riverina Regional Advisory Council of the NSW Business Chamber would like to acknowledge the following contributors to this report. Members of the Murray-Riverina Regional Advisory Council (as at August 2009) Griffith City Council Roy Spagnolo & Associates Hi-Marq Engineering Griffith Chamber of Commerce & Industry Wine Grapes Marketing Board A-Z Real Estate Professionals Wagga Wagga Business Chamber Temora Shire Council Janette Tucker Finance Plus Buckman Laboratories TAFE NSW Riverina Institute Adams Kenneally White Albury City Council Milspec Manufacturing Beechworth Honey Johnsons MME Rob Salisbury & Associates Mountain H20 Regional Contributors Water 4 Food CRC Irrigation Futures Murrumbidgee Horticulture Council Inc NSW Irrigators Council Coleambally Irrigation Co-Op Ltd Riverina Citrus Booth Associates Cargill Beef Deniliquin Chamber of Commerce Murrumbidgee Irrigation Ltd RAMROC REROC Wagga Wagga City Council South Pacific Seeds VISY Title Page Image Paul Foley 8

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12 For more details, contact: Ben Foley Regional Manager, Murray-Riverina Suite 8, 620 Macauley Street Albury NSW 2640 (02)