Australia’s $2 billion water market needs a major overhaul, according to the Australian Competition and Consumer Commission.
- The ACCC has made 29 recommendations to overhaul the water market
- It recommends a new, dedicated regulator
- The Water Minister won’t commit to a timeline for implementation
An 18-month study by the competition watchdog found it was not illegal to manipulate the Murray-Darling Basin’s water markets, but recommended water deals be subjected to greater scrutiny and transparency.
The ACCC said the market had evolved as a by-product of decades of reform aimed at recovering water from the environment and was now in desperate need of its own dedicated set of reforms.
It found a lack of attention by federal and state governments had led to widespread mistrust in the market and a belief that it was rife with manipulation and corruption.
The anger and suspicion boiled over during the recent drought, prompting Prime Minister Scott Morrison to commit to the ACCC inquiry ahead of the 2019 federal election.
“It is not surprising that the requirements of a well-functioning market have not been front and centre [over the last two decades],” ACCC deputy chair Mick Keogh said upon the release of the 700-page report.
“So what we are saying is that if you want people to be confident in the market, to invest appropriately, to maximise water efficiency, then you really need people confident in the fairness of the market, and that will require some work.”
Not fit for purpose
At the heart of the ACCC’s 29 recommendations was the establishment of a new “Water Markets Agency”, which would function in a similar – though scaled back – manner to the Australian Energy Market.
Through Basin-wide legislation, the new agency would have the power to oversee and regulate the market, as well as the traders, brokers and other intermediaries that operate in it.
It would impose a mandatory code of conduct for brokers and intermediaries — at the moment only a voluntary code exists.
“It would be a single source of truth, so all the information on water trades would be reported to the agency,” Mr Keogh said.
In addition, the report said, the quality of that data would be improved to “enable trades to be traced and traders to be identified across regions and multiple accounts”.
The ACCC report was deeply critical about the state of data availability across the water market.
It found that data on water prices and trades was currently spread across multiple Basin state registers and the Bureau of Meteorology.
The complexity made it nearly impossible for irrigators to make confident decisions about when to buy or sell water.
“We analysed eight million transactions between 2012 and 2019 and we found them incredibly difficult to string together in a way that gave you a clear picture of what was happening in the market,” Mr Keogh said.
“Forty per cent of them did not have a price associated with them, a lot of them don’t have a date associated with them, and many occurred across multiple jurisdictions.”
Attempts made between 2010 and 2014 to address the problem and harmonise the collection of data failed, but the ACCC believed there were a number of low cost technologies available that could to fix the problem.
“I cite the example of the single-touch payroll system, where businesses can use a range of accounting software systems that can each report the required information to the Australian Tax Office,” Mr Keogh said.
“We see a similar model applying here, where all the existing registers and irrigation infrastructure operators would continue as they are now, and the only additional requirement would be to regularly report that information to a central repository.”
The report also recommends state governments work together the rules and processes they use to announce water allocations for irrigators.
‘No law against manipulation’
Mr Keogh said it was untenable for the market to continue without major reform.
“It will just destroy the confidence of the participants and all the benefits that it brings will be quickly eroded,” he said.
The lack of clear, digestible market information led many to suspect that large corporate agribusinesses and non-farming investors were manipulating the market during the drought.
The ACCC found that in 2018-19, “institutional investors” accounted for about 11 per cent of the water allocations purchased and 21 per cent of the allocations sold.
A single big investor was the largest trader of water in that period.
But ultimately the ACCC found no evidence of market manipulation and said large movements in price were not the result of trader misconduct.
“There is no law against market manipulation in the Murray-Darling Basin water markets,” Mr Keogh said.
Road to reform
Water Minister Keith Pitt would not commit to a timeline for implementing the ACCC’s reforms.
But he said the government was concious that Basin communities were “exhausted” by the slow pace of reform.
Constitutional responsibility for water management rests with state governments and implementing 90 per cent of the recommendations would require them to cooperate with the federal government.
“The report took two years to complete,” Mr Pitt said.