Australia’s water market is recognised globally as a water reform success story. Water users can either buy or sell their water rights permanently or temporarily. It encourages the best use of this scarce resource, while trading promotes efficient water use where it’s needed most.
Water rights refer to the legal rights of land or property owners to access and use water bodies near their lands. Different kinds of water rights exist based on the water forms that border or exist on land.
Individuals purchasing water rights must know what it entails and the common mistakes they can face. So stay with me and learn these common mistakes. It’s crucial, however, to first look into problems facing water trading first.
What Problems Face Water Rights Purchase?
Even the most important tradable natural resource faces problems. These include;
- Water market intermediaries, i.e., brokers and water exchange platforms, mainly operate in unregulated environments. It allows conflict of interest and an opportunity to misreport transactions.
- There is information asymmetry that limits market openness. In turn, it favors better-resourced professional traders who can take advantage of the opportunities.
- There are insufficient rules to guard against lousy conduct aimed at manipulating market prices. Additionally, there is no particular body that monitors this trading activity.
- Crucial information such as water allocation prices and policies revolving around irrigation operations are inadequately communicated. Consequently, it becomes hard to make business decisions.
- There exists a disconnect between the rules governing the trading system and the physical features of the river system.
- There exists a difference in trade processes and water registries between Basin states. It prevents the participants from actualizing a full, timely, and exact picture of the water trade, such as demand and supply.
- There are predominant governance arrangements that lead to the overlapping of the roles in different bodies. It contributes to many of these problems and prevents timely resolution of matters conveniently and effectively.
What are the Common Mistakes when Purchasing Water Rights?
The National Water Initiative mainly focuses on making the best use of our water resources. However, it did not envision market behaviour like speculative and calculated water trading with a view of profit-making. However, with time water market designers have made impactful decisions that have, in turn, affected investment in farming and water.
There are two common mistakes associated with purchasing water rights.
- There was no mention of irrigation water rights within the irrigation water cap as ‘water in use.’ Additionally, there is no specification of water in its irrigation or farm use.
- In the interest of liquidity in the market, policymakers have allowed external and non-user parties to buy and trade water rights. These non-user parties don’t intend to use the water for farming or irrigation.
These two mistakes greatly affect the market value of water for irrigation purposes. In addition, it has led to Australian water rights becoming a financial investment product. Ultimately, this resulted in high water prices. Also, there is a wider spread between farmers’ costs when they buy and sell water rights.
What is the way Forward?
There is a need for reforms in water trading. ‘Water rights for irrigation needs to be properly defined as water for irrigation. Also, water allocation prices should reflect the true value in use prices. Here is a summary of the best way forward for water markets reform;
- Restrict further external capital inflows and establish strict rules on who can participate in water trading.
- Ensure transparency and reliability of water trading
- Redefine water rights as just the simple water in use. It will ensure that the water market concept is redefined as a resourceful mechanism of water allocation and not a financeable market.
- Prioritize investment in water infrastructure for the food bowls in Australia; it will ensure a lift in the value-in-use of water, securing a place for the country in the global food supply chain.
- Implement rules that will phase out non-users by requiring them to sell their holdings over time. Also, the non-users can be advised on subsisting new holdings to help track water prices without influencing them.
Despite the common mistakes outlined when purchasing water rights, there exists a way forward and a solution to these mistakes. Australia continues to be at the frontline of the success story for water reforms globally. There is a lot that other countries can learn from this market and inculcate. Water remains a scarce resource and should continue to be protected, even when we face the current climatic changes.
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