Farmers sold down the river

In 31 short, sharp chapters the reasons why so many of us thought we smelt a rat in the water markets are now revealed.

An excellent early chapter describes some fundamental principles that initially shaped Victoria’s irrigation for 100 years.

Deakin’s framework was based on an economic philosophy that stated without careful management and collective agreement, people would be likely to overuse or misuse shared resources such as water.

Consequently, the collective good had to be protected. This was done in part with water rights being attached to land, and for several reasons, to geographic areas.

Irrigators started to reshape this in the 1980s with the push to adopt temporary water trading at a local level. The much wider trading possibilities that followed are now history.

This move shifted the underlying philosophy and allowed the market to set the price of a resource. This was made legal with groups such as the Productivity Commission convincing politicians to validate a market approach for water.

The error in these recent times was that the water market confused maximising economic returns from agriculture with straight out financial returns. The latter attracted totally new groups to water. They foresaw that their sedentary places in the water markets could make much more money than irrigators who try to be inventive with water by growing things.

The water market soon grew a significant layer of people including traders, their corporate investors and bankers, and the market agents. The funds which made their livelihoods possible, and extremely rewarding, came from irrigators. This was money no longer available to farming families and to communities.

The authors describe the many factors that corrupt the water market, which in turn give bonanzas to traders at minimal risk. The path ahead also seems assured.

As family farms are sold, the water components will usually move to trader ownership with future farmers becoming more dependent on traded water.

The sophistication of water traders is now able to totally outsmart the ordinary irrigator. Water traders appear to be able to escape most of the constraints applied to traders on the share market.

Trader investment in computer systems and skilled programmers has been the key to ensure financial gains.

These computers monitor irrigators’ behaviour and the maximum prices different irrigator groups might pay, then use this to set threshold prices. Programs can govern automatic entry of computer trades in the market place. Likewise there is now split-second mastery for timing transactions when inter-valley trades are permitted.

Meanwhile one can only reflect on the pathetic calls from irrigators for transparency in the market place. While the Victorian Water Register can show the entity that owns a parcel of water, it does not have the resources to show who this entity is part of, or owner of, or when it last changed its name.

Trader involvement with some large land areas owned by corporate entities adds further flexibility to their trading options.

Computerisation has been the key to managing financial gains from derivatives in the water market.

Low-reliability water share was the product irrigators once thought would be the “bucket” that held their “sales” allocations. But the allocations never yielded actual water for the LRWS bucket and for many years after unbundling in 2007 this water product became relatively worthless.

In recent years traders spotted this opportunity and pay $500 to $700 per LRWS in order to carryover water with minimal risk using their well-established banking and investor links not ordinarily available to the average farm.

I conclude this review urging people who care about irrigated farms to read this book so they grasp the many reasons supporting the authors’ long-term prediction.

They believe big traders and their associated corporate investors will ultimately have the market power to wipe out irrigators above the Barmah Choke.

The authors claim irrigators have been submerged in a linguistic bog created by some government agencies, academics and most politicians This has hidden the main forces directed toward financial gain from the water market.

The reality of the actual game in the arena we call the ‘water market’ certainly opened my mind about the extent of activities that were never envisaged when the Murray-Darling Basin Plan was introduced.

Sold Down the River, by Scott Hamilton and Stuart Kells, is published by Text Publishing (Melbourne, 2021).

— Barry Croke