Consultants respond to Basin plan claims

By Geoff Adams

Melbourne based water policy advisory firm, Aither has responded to an opinion article by the Australian Dairy Farmers.

The article by ADF President, Terry Richardson,  referred to Aither ascribing high water prices to the drought.

Aither director Chris Olszak said the article had misrepresented their report:

"Yes, we have been saying for a long time that fundamental supply and demand side drivers are influencing water allocation prices. The most notable driver at the moment is drought. However Commonwealth water entitlement purchases also play a role. Such purchases can be characterised as an increase in environmental demand or a decrease in supply available for consumptive users. Whenever there is an increase in demand or reduction in supply, prices are likely to increase.

"In Aither’s 2016 report for the Commonwealth Department of the Environment we concluded that Commonwealth water entitlement purchases had increased water allocation prices. We estimated that government purchases increased water allocation prices by 27 per cent in 2014-15. This is consistent with other studies, albeit a smaller effect than reported elsewhere.

"The conclusions from our previous work are not sufficient for us to conclude that further buyback or other forms of water recovery are good or bad. Further work on the full economic costs and benefits should inform this question. One of Aither’s conclusions in 2016 was that the effect on water allocation prices is just one piece of the water policy puzzle. It is an important piece though. Understanding how government buy backs influence water allocations prices is critical to the design of any future programs. It is also critical for all market participants. While the current drought will end at some point, Aither is of the view that market participants need to be prepared for a new normal. While there will always be seasonal fluctuations, compared to historical prices, higher long term allocation prices are expected to be driven by a mix of increased irrigation demand, new development, and water recovery from the consumptive pool.''