Water-markets reporting highlights problem with jargon

The Murray-Darling Basin is Australia’s largest river system. The water that flows through it is crucially important – for the environment, for agriculture and for Basin communities. Introduced gradually since the late 1980s, today’s system of water trading is intended to make the best use of scarce water in the Basin.

Annual trading of water rights is now worth $1.8 billion directly. The total market value of water rights is estimated at $26.3 billion, and the true value of trading and rights is much larger than these figures suggest.

Some recent academic studies have led people in the community, in government and in the media to conclude the market is working well. From the research findings and subsequent reporting, people have reasonably inferred, among other things, that ‘speculators’ are not driving the water market; that traders are not ‘hoarding’ water; and that neither foreign investors nor ‘water barons’ are dominating the market.

Investing is not hoarding

In the literature on water and finance, there is a lot of talk of ‘investing in water’. Michael Burry (who was featured in the book and film, The Big Short) had predicted the 2007 US housing market collapse and the ensuing global financial crisis, before reportedly shifting his entire investing focus to a single commodity: water.

But ‘investing in water’ can mean many different things, some of them routine and benign, some of them perhaps less so. For example, ‘investing in water’ can mean: (i) buying water and using it in farm production; (ii) investing in on-farm water management and water efficiency; (iii) buying into a farming business that is water-intensive; (iv) buying and holding long-term water rights; (v) actively trading short and long-term water rights; (vi) putting money into a fund that owns water rights as a long-term financial investment; and (vii) putting money into a hedge fund that actively trades water rights.

‘Hoarding’ water can also mean different things: accumulating water rights; buying rights and then holding them off the market until demand for them is highest; or buying water rights and not using or selling the associated water.

Linguistic swamp

Other water words, too, are key sources of confusion. ‘Speculation’, ‘efficiency’ and ‘brokers’ mean different things to different people. Water reports from bodies such as the ACCC, the PC and the MDBA are full of padding and jargon such as spoofing, scraping, parking, sweepers, sleepers, dozers, ‘chew’, dipoles, forwards, back-trade, carryover, IVT, MIL and SDLs. For these and other reasons, it is hard for outsiders (including politicians and policymakers) to get a clear picture of the market. The true and murky story of water is getting lost in a linguistic swamp.

Misunderstandings and misreporting about the water market are important. They affect water policy, which in turns affects Basin agriculture, Basin communities, and the health of our rivers. Some misunderstandings have led people to conclude water trading is working well, but it is emphatically not.

This is an excerpt from an article first published in The Mandarin (Premium) on 23 June 2021.

Read more: Always was and Always will be Aboriginal Water

Read more: How to undo Australia's epic water fail

Read more: The end of Murray-Darling bipartisanship means the end of our largest river system

Scott Hamilton and Stuart Kells are Melbourne-based authors, researchers and policy advisers. They are researching the history of bipartisanship and water markets in Australia.