Global capital eyes $50b water market, raising stakes
Australia’s $50 billion water market is growing rapidly, attracting global investors and offering flexibility to farmers; But ongoing famine and record permanent plantings increase the risk of the next drought.
National Farmers Federation water committee chairman and Finley dairy farmer Malcolm Holm said Australia had one of the few markets in the world where water rights could be separated from land, capped and traded, which still caused concern in some sections of the farming community.
“But at its core, what enables all of this to be done is actually giving flexibility to farmers and industries,” Mr Holm told AAP.
Selling water rights can relieve pressure on farmers’ and agricultural organizations’ balance sheets as they upgrade equipment, replace crops or plan for succession.
However, as water trading pushes growers toward higher-value permanent plantings and government buybacks significantly reduce the volume of water available, the next drought could leave some producers adrift and helpless.
“If we approach a scenario like 2006, 2007 or 2019/2020 there will be a lot of suffering because there won’t be enough water around,” Mr Holm said.
Australia’s water scarcity and the $50 billion market developed to manage it attract the attention of global capital.
So much so that this was the focus of Global AgInvesting’s last conference in New York, leading to the next event being held in Brisbane in June for the first time in the southern hemisphere.
These events bring together investors representing $10 trillion in total assets under management.
Jonathan Levin, portfolio director at GAI, told AAP that agriculture provides a very stable asset class for investors.
“Even if it’s a small percentage or portion of their portfolio, it represents a place where you can generate consistent returns over time and really protect your investments,” he said.
Returns in the Australian water and agriculture sector have delivered annual returns of 10 per cent over the last decade.
“This is pretty much comparable to commercial real estate investment in Australia,” said Kim Morison, chief investment officer at Argyle Group, a water rights and agriculture investment fund manager.
“This is about another way of investing in the agricultural sector, providing capital to agribusinesses and allowing them to transition to higher value uses of water,” Mr Morison told AAP.
“Ultimately, this provides a good return on investment for us… because the water then gets put to higher and better use.”
At Finley, Mr. Holm said water rights trading has been a positive, despite occasional suboptimal results such as wine gluts and almond overexposure.
“Irrigators are actually allowed to be flexible with the seasons,” he said.
“Essentially, water has become just another commodity, like buying diesel, fertilizer, or any input to your farm.”
The dairy farmer said he prefers water rights to be held by investor funds rather than the government because investors have to pump water back into the production system to get a return.
“They will either use it on their own farms or sell it at the makeshift water market,” Mr. Holm said.
“Agriculture still uses it.”
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