Australia has a variable climate and as such has always sought to appropriately manage this valuable resource. The supply products and the market mechanisms today have been developed over the last 15 to 20 years.
In the past, irrigators received a permit to access water based on their plantings; permanent crops like vines or nut trees needed a higher security of supply than annual growers who could scale their production up or down each year dependent on the available resource. In the 1990s, it was realised that further issue of water permits was not sustainable, so a cap was placed on the further issuance. To allow water-users to continue to develop, grow and change their production, the Government developed a trade capability, by recognising the permit as a perpetual right to the resource, and by separating this asset from the land. So, one can own water without land and land without water.
Today these rights are called water entitlements; these are a perpetual right to a particular volume of water. Each year, the entitlement holder receives an allocation based on their entitlement and its particular characteristics. In some years it may be a full allocation (i.e. they receive 100% of their entitlement) and in other years it may be as low as 0% for some entitlements. Exchange platforms and brokers were introduced to facilitate trade of these two assets; entitlements, and the annual usable volume of water (allocation).
Duxton Water’s engagement with the irrigation community and the water market aids the continued maturation of the products available to producers. This encourages more sophisticated water strategies and proper pricing of the resource, which in turn encourages efficient use, with the resource moving to its highest and best use.
In the Southern Murray Darling Basin Region where the core of Duxton Water’s portfolio lies, there are roughly $20 billion worth of entitlements on issue. Following the realisation from government in 2008 that the volume of entitlements on issue was unsustainable, they begun executing on the “Murray Darling Basin Plan” which included investment in infrastructure, on-farm technologies, and a direct a “buy-back” program, where the Commonwealth and State governments recognised the property rights and used the market to buy back water entitlements from willing sellers. These entitlements, now managed by government, receive allocations each year and this usable water is put to environment and conveyance needs.
It is estimated the government now owns 28% of the entitlements on issue in this region. Duxton Water and other institutional investors collectively own around 6% of the remaining 72% on issue (available for consumptive use). The rest of the market is very fragmented, and entitlements remain held mostly by the irrigative community.