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‘Major changes’ required to improve water trading in the Murray-Darling Basin

Major changes are needed to create open, fair and efficient water trading in the Murray-Darling Basin, the Australian Competition and Consumer Commission (ACCC) has found. 

The ACCC’s interim report of its Murray-Darling Basin Water Rights Inquiry, released last week, found that the $1.5 billion-a-year Basin water markets had outgrown governing frameworks, with reform required to restore efficiency. 

ACCC Deputy Chair Mick Keogh said improving operations, transparency, regulation and competitiveness were the key objectives outlined by the ACCC as integral to bolstering the market.

“Water trading has brought substantial benefits to water users across the Murray-Darling Basin, including by allowing irrigators to manage the amount of water they use, to earn income by selling excess water or their water rights, and to release capital to invest in their businesses,” he said.

“However, these markets have significant problems. In basic terms, there is overly fragmented or complex regulation in some areas, not enough regulation in others, and a concerning lack of regulatory oversight and robust enforcement in important areas.”

Keogh said these issues had impaired the market’s ability function as effectively as it could. 

“This has led to a lack of trust in the markets among many water users and has undoubtedly reduced the benefits generated by those markets,” he said. 

“These problems exacerbate distrust when water is scarce or when demand is increasing. They make a difficult situation worse.”

The ACCC has identified problems in several key areas, particularly governance arrangements, which Keogh said operate in a fragmented system, with roles and responsibilities overlapping in some areas, while leaving significant gaps in others.

“The Basin’s water markets, and the bodies that oversee and interact with them, operate in a complex, fragmented and inconsistent system,” Keogh said.

“To make real and lasting improvements, we need to rethink how these water markets are governed.”

Insufficient oversight

The ACCC also found there is insufficient regulatory oversight for some participants, including brokers and investors.

The report suggests implementing a licensing scheme and appointing a single regulator to oversee trade in Basin markets, similar to arrangements in place in the financial services or energy markets.

This lack of transparency in the markets is also an issue for water users, the report states, with varied record-keeping methods and trade processes resulting in participants not getting a full, timely or accurate picture of water trading. 

And information that is crucial to the decision-making of irrigators and traders is not always well communicated or easy for users to access.

Market transparency could be boosted through practical measures, such as the use of standardised identifiers across the Basin, similar to ABNs.

Keogh said it was clear that the Basin’s markets need decisive and comprehensive reform.

“There are many problems, but we do not believe that dismantling existing water markets is the answer,” he said. 

“This would mean farmers, communities and the Australian economy would miss out on the substantial benefits these markets provide.

“The Murray-Darling Basin’s water is a precious and often scarce resource. Water trading has the potential to ensure this resource is used to its greatest benefit, particularly for irrigators, but this can only happen if markets are efficient and fair and are underpinned by an environmentally healthy river system.”