Reaping the benefits of water trading?

National Water Commissioner Laurie Arthur today released a new report Strengthening Australia's water markets and called on governments to continue to work on opening up access to trading and improving market performance.

Trade in various water products has grown substantially in recent years, with the combined value of markets estimated to be $3 billion in 2009-10.

According to the National Water Commission, water markets provide an example of successful national micro-economic reform, ensuring that scarce water resources are most effectively and efficiently allocated amongst competing uses. At the same time, the ability to trade has delivered real benefits to individual water users, water-dependent industries and the environment.

In releasing the report, Mr Arthur said:

Australia's water trade is a centrepiece of national water reform and has become a multi-billion dollar market since the first reported trades in the 1980s. The ability to trade water, largely in the Murray-Darling Basin, has delivered real benefits to irrigators, regional communities and the environment. It has provided individual water users and water dependent industries with much needed flexibility to adjust to commodity pressures and climatic variability.

But there are opportunities to deliver further benefits, especially in areas where markets are developing or are yet to be developed.

Improved transparency and information are needed to reduce complexity and speed up trade approvals. Faster trades are critical for many producers, as it enables them to get water when they need it most.

Better information about prices would encourage market participation and deliver more efficient transactions.

The report suggests that market confidence would be boosted by improving the business practices of water market intermediaries and the way that conflicts of interest are handled.

There is also scope to develop new water markets outside the Murray-Darling Basin and to encourage the developing trade in groundwater.

More needs to be done to identify where and how groundwater trade can work, and ensure these areas are prioritised for reform.

However, staying the course on market reforms will extend the benefits of water trading to even more individuals and communities.

The Commission recognises that significant work has already been undertaken on water market reform and the actions suggested in this report will require further effort and resources. Given that strong leadership will be needed to drive these reforms, Mr Arthur called on the support of the Council of Australian Governments.

The Commission has also released a companion report, Australian Water Markets: trends and drivers, 2007-08 to 2009-10. This publication analyses market trends as well as the drivers influencing market outcomes, based on three years of data contained in the annual Australian water markets reports.