Thursday, 23 June 2011 09:14

Low water prices scupper Govt buyback scheme

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A NEW report on progress of the Commonwealth water buyback for the Murray Darling indicates that the two tender rounds that were held in Queensland's Lower Balonne have been undersubscribed, leaving most of the budget of $140 million unspent.

Water market specialist Waterfind prepared the report, but found that there has been insufficient progress with the implementation of the program in the northern basin to provide any useful analysis. It concludes that the low water price of around $1430 per megalitre – set by the Federal Government – is the reason both tender rounds in the Lower Balonne have been substantially undersubscribed.

Clearly, with such a low subscription at this price, irrigators are sending a message to the Government that farmers place a higher value on their water than $1430/ML.

Analysis conducted in the southern basin has found that the Commonwealth has increased its prices by up to 3%, reversing the trend up to the 2009-10 season. This upward trend is expected to continue for at least the next 12 months, but the longer term outlook is uncertain.

Waterfind also concludes that Budget allocations will be insufficient to meet the targets for water recovery proposed in the Guide to the Basin Plan released last year. It estimates that an additional $1.6 billion will be required to achieve a 3000 gigalitre reduction and an additional $5 billion to meet the 4000 gigalitre target.

Nonetheless, irrigators and communities will be holding the Government to its promise of fully meeting sustainable diversion limits (SDL) by purchasing water from willing sellers.

Water recovery initiatives include the buyback program and water use efficiency measures implemented on-farm and in irrigation schemes, which shares water between irrigators and the environment.

The Federal Government Budget, released last month, indicates that an additional $310 million will be made available each year from 2014-15 to bridge the gap between the level of water recovered under existing initiatives and the level required under the final Basin Plan.

The Budget papers note, however, that the application of this additional funding to continue buying back water entitlements is 'subject to the availability of water for purchase from willing sellers'. The total cost of this commitment is to be confirmed when the Basin Plan is finalised.

QFF welcomes this additional budget allocation. However, there remains significant uncertainty about the progress being made with the buyback program for unsupplemented water in Queensland. Purchases in the Queensland catchments remain at just 6.8 gigalitres, whereas total purchases for the Basin are 967.7 gigalitres.

Irrigators are questioning the Government's interest in setting prices that will encourage willing sellers. This is particularly the case if the prices the Federal Government will accept for water harvesting entitlements in areas such as the Lower Balonne remain around the $1430/ML level.

The Lower Balonne is a nominated priority area for the buyback program, but as Waterfind concludes the prices being offered are resulting in tenders being significantly undersubscribed.

The absence of a functioning water market also makes it difficult to determine a value for water. The lack of feedback to entitlement holders, in regard to unsuccessful bids, is adding to the level of uncertainty and concern that Queensland irrigators are not being given an even chance with southern irrigators to soften the blow of future entitlement reductions.

Irrigation communities in Queensland recognise the importance of the buyback program to achieve water recovery targets for the environment. They also recognise the need for water buyback to be successful in areas such as the Lower Balonne if the SDL targets expected in the draft Basin Plan are to be met.

They do not believe that other recovery measures can make up for any significant under-recovery from buybacks. However, if prices set by the Commonwealth are insufficient to encourage willing sellers will the Commonwealth reduce entitlements without any financial adjustment?

That is exactly the type of concern that saw public anger boil over at public meetings on the draft Guide last year. This is a situation that must be avoided.

Gary Sansom is president of the Queensland Farmers Federation.

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