Murray-Darling Basin water markets need comprehensive and focused reform

A new independent Water Markets Agency should be established to oversee trading and ensure water markets in the Murray-Darling Basin operate fairly and with integrity, the ACCC recommends in a major report released today.

The creation of the new agency is among 29 recommendations, in the final report of the ACCC’s Murray-Darling Basin water markets inquiry. The recommendations are grouped across four themes: governance of the Basin water markets, market integrity and conduct, trade processing and water market information, and market architecture.

“The Basin’s water markets are critical not only to the farmers and businesses that use them, but also to the wider Australian economy and the consumers who rely on the Basin’s agricultural produce,” ACCC Deputy Chair Mick Keogh said.

“The Murray Darling Basin’s systems and governance have been designed for water management with a focus on important objectives such as protecting the environment and efficiently delivering water through rivers and irrigation infrastructure.”

“However, until now, there has been a lack of attention to ensuring water trading markets are working fairly and efficiently. With an annual average value of more than $1.8 billion per year, water markets in the Murray Darling Basin are now of a scale that warrants serious and focused attention.”

“What started as an informal system for transferring water rights between neighbours has grown into a complex set of markets, but unfortunately the normal regulatory framework that would be expected for a market of this scale has not been developed. A new independent Water Markets Agency, backed by appropriate legislation, should prioritise making markets work for water users, traders and the economy to deliver the benefits of water trade.”

Mr Keogh also said many water users do not trust that water markets are fair.

“Inevitably this lack of trust will inhibit efficient investment in agricultural production in the Basin, to the detriment of all Australians. The ACCC’s recommendations will help to build trust and market efficiency by strengthening market integrity, improving transparency and information, improving trade services and better aligning market rules and arrangements with the physical characteristics of the river system.”

The report recommends new Basin-wide laws to be enforced by the proposed Water Markets Agency that would deal with harmful market conduct and practices, including bans on market manipulation, stronger insider trading rules, and a mandatory code of conduct to apply to water market intermediaries such as brokers.

A new requirement would see all market participants providing a single identifier on trade forms, to allow the new regulator to trace and follow transactions and enforce rules against misbehaviour.

“The ACCC report also recommends that Australian and Basin State Governments work with market service providers to establish and implement new digital technologies to improve the quality and flow of water market data, and provide a hub for water trade applications, data storage and access to information,” Mr Keogh said.

“Problems with the design and operation of the Basin’s ‘market architecture’ should also be addressed to make sure market settings and trade impacts relate more closely to the river system’s physical characteristics.”

In particular, the ACCC recommends improving intervalley trade mechanisms, enhancing hydrological modelling capabilities, continuing work to improve metering and monitoring of water take, formalising and communicating plans for managing delivery shortfall risks, updating guidance to address how river operators should manage trade-offs between different objectives, and improving information and transparency to help water users better understand influences on supply.

In compiling the final report the ACCC:

  • held 10 public forums throughout the Basin;
  • received over 130 submissions in response to its issues paper and over 90 in response to the interim report;
  • held over 100 meetings with interested parties;
  • obtained information from various large water users, investors, market intermediaries, irrigation infrastructure operators and government entities; and
  • analysed wide-ranging water market data from 2012 onwards.

“The ACCC gathered and integrated detailed trade, usage and allocation data from the Australian and Basin State Governments and their agencies, irrigation corporations, water exchanges, water brokers, and institutional investors. The resulting database, consisting of over 8 million transactions in the Basin since 2012, is the most comprehensive compilation of Basin water trading information to date, providing an objective basis for many of our findings, while also highlighting major weaknesses in current market arrangements and information systems,” Mr Keogh said.

“Our extensive consultation made it clear that most stakeholders desire reform and want to see concerted action taken to address persistent problems rather than a continuation of past ‘band aid’ approaches,” Mr Keogh said.

“We have listened carefully to these concerns, and this report and its recommendations aim to deliver comprehensive and focused reform for the Murray-Darling Basin water markets.”

The ACCC will conduct public forums at five locations across the Basin in Mildura, Renmark, Griffith, Deniliquin and Shepparton next month, where stakeholders can hear directly about the findings and recommendations in the report.

For more information visit www.accc.gov.au/waterinquiry.

Background

On 8 August 2019, the Federal Government directed the ACCC to undertake a public inquiry into the Murray-Darling Basin water markets.

The ACCC was asked to recommend options to enhance markets for tradeable water rights, including options to enhance their operations, transparency, regulation, competiveness and efficiency.

The Murray-Darling Basin Inquiry Interim Report was released on 30 July 2020.

The ACCC sought further feedback from stakeholders in response to the issues raised in the interim report, including through seeking submissions.

In August 2020, the ACCC extended the due date for submissions to the interim report from 31 August 2020 to 30 November 2020 in response to requests from stakeholders.

On 3 September 2020, the Treasurer directed that the date for the ACCC to provide a final report to the Treasurer be extended to 26 February 2021.

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