FARMVIEW Episode 7.0 transcript
Episode 7 - Water trading to manage risk
The water market has been a very new thing for a lot of irrigators so we have only really needed to start buying water, I think, from 2007/2008 and when we needed to do so the water price hit, I think, $1,100/ml then and since then it has sort of come down. As irrigators it was a game that we did not really know how to play and that is why a lot of high prices were paid for water when days clearly were not sustainable at that price. The market has matured and now we have seen prices at the beginning of this season starting at around $300 and now that we are on 100% allocation, they are below $100 per mega litre. It is a difficult one to get your head around because you do not really know what is going to happen with rainfall and water allocation.
It is a market based system to allocate scarce resources and it allows growers to, as I said, in times of when their entitlement has a low allocation, they can buy in additional temporary water as they need it to keep their enterprise going.
In 2002 when we were establishing a property up the road, we had more water there than we were using and that enabled us to sell a little on the market, but now the boot is on the other foot. Now we do not have enough water usually to get through the season. Now we need to enter into the market place and buy water to irrigate our crops, but having that facility to be able to buy water is a saviour because it is much more palatable to be buying water and producing your full crop than what it is to go without and have a reduced yield, because our game is turning the water into fruit. Without the ability to trade water then if we were stuck on the allocation that was provided, then certainly we would have to either abandon sections of vineyard or under water them and receive a lower yield off our property and have a detriment to our vine health. So water trade has been quite important to us because we simply need water to grow our vines.
In terms of permanent water entitlements, it is now being unbundled from land so growers or irrigators who want to a permanent water entitlement have their own title and it is similar to a land title in a lot of respects. It is registered at the state registry and so on and growers can raise money against it and use that entitlement as security to obtain funds from lenders. They can lease the annual allocation from that entitlement out on a long-term basis. So if they do not have a particular use for their annual allocation, they can set up a long-term lease to another grower who may need it. So it creates an income stream in that way. There is a range of new water products developing where growers will have flexibility with their permanent water entitlements to suit what their real business needs are.
Its another market that we have got to adjust to and it is like watching the share market, I guess. You are watching the price of water and you try to determine when you think you may need to buy. It is a bit of new thing that we need to adjust to. All the information that we have been provided for is the water price was lower on the second half of the year, but you are never quite sure.
Growers can get information about the water trading and the water markets from the various state government websites. So the Victorian Water Register has a lot of information about what the current temporary price is, what volumes are being traded. Similarly they record every sale of permanent water entitlements. So you will see what the current permanent water entitlement is. That is obviously a good source, but also in terms of the most current up-to-date information, it is best to contact their local broker or their local water advisor and they can tell them the very latest trends and what factors are currently influencing the market and what the outlook is.
If you want to know more about this programme, contact your industry grower association or the DEPI customer service line - 136 186.