Water Markets Help Farmers Facing Scarcity in Australia

Water markets are a tool that can help growers cope with increasing water scarcity. While California has been slow to adopt water markets, Australia's water markets are much more developed. We spoke with two experts-Flinders University Professor Sarah Wheeler and grower Sandy Iosefellis-about what lessons the Murray-Darling Basin might hold for California's growers.

What is the Murray-Darling Basin water market, and how does it work?

Sarah Wheeler: The Murray-Darling Basin is a very large river basin in Southern Australia, which covers four states and one territory. Much like California, the area experiences regular droughts and floods. Markets evolved informally there in the 1940s because of water scarcity, with farmers agreeing to swap water and send excess to other farmers. Growing water scarcity problems and over-allocation led to formal water market pilots, which worked and were then implemented from the 1990s onwards.

There are two main ways to trade in the Murray-Darling Basin water market. Permanent water right holders can trade their right, or they can sell their allocation in a temporary water market each year while retaining their right.

Sandy Iosefellis: From 2001-10, the basin experienced what we called the Millennium drought. Flows reached historically low levels. As a farmer, our allocation was significantly restricted, and we had to turn off irrigation on a section of the property. Everything we'd invested in-branding and market access and supply chains-was at risk. We couldn't supply the market with our crops.

How has the water market benefited you and the community? What challenges have you faced?

SI: We decided we'd use markets to reduce risk, so we invested in water and built a portfolio of water products available to increase our resilience during drought. Water is now an asset with a management plan.

We have permanent plantings-fruit trees-which need many years to mature. It takes a long-term commitment to invest in these plantings. We were growing wine grapes, which are a luxury product but also a low-value crop. Transitioning our plantings to a high-value crop reduces risk during another drought, because we need to have enough revenue coming into the business to lease temporary water in the event restrictions are placed on permanent water. Now we're growing Fuyu persimmons and jujubes.

Two other things benefited us. First, the balance sheet looked great, because water became an asset rather than just an input. Second, we could lease out water we didn't need and use that revenue to invest in the business. We even sold permanent water to the environment through a funding program with the federal and state governments. This enabled us to make significant investments over 10 years; without the water market, that wouldn't have happened.

We had the capability and skills to embrace the water market, talk to people, and build networks. However, within our region, some farmers and irrigators were left behind. We wish there had been an education program to help them build skills and see water as an asset that's critical to the business and that requires an asset management strategy. Land in this area isn't worth much without water; your water portfolio is everything.

SW: One benefit of markets is that they allow farmers to sell permanent water separately from land, which enables farmers to exit farming more gracefully. Farmers don't like talking about it, but it's a fact of life that farmers exit every day, and it's better to leave with more money rather than nothing at all-and to be able to remain on the farm if desired.

How did Australians overcome their concerns about water markets?

SI: That's the big question. Have we, or have we just stopped talking about it? I think because there's been water in the system for the past five years, we've just gone on with business, but a lot of things have gotten better. The skill sets are now there. There's more transparency and access to real-time data on your own water use and water in the basin. There are lots of websites and platforms for this.

There was a time when brokers came in and owned the water market space. Farmers are wary of middlemen-now we can manage the systems and processes to trade ourselves. In South Australia, our government worked hard to put rules around key announcements such as allocations and carryover. This created a lot more certainty for farmers and helped the market mature.

SW: No market is perfect. All markets need some form of regulation and ongoing scrutiny. Could Australia do it better? Sure. But we have set up systems to regularly review how markets are operating and regularly improve them. A recent review into water markets alleviated some concerns, but those concerns will never be wiped out.

Closing thoughts?

SI: We've always heard, "Get big or get out"-and that's worried us. But as a farming family, we've shown that you can stay in the market as a small farm. Water isn't the issue-it's the ability to ensure reliable crop production so we can get our products into big supermarkets. A water market, combined with our water portfolio, has allowed us to be at the table with large chains and other big companies.

SW: Water markets are just one adaptation strategy, but they can help in so many different ways. To be successful and resilient, a farm needs various adaptation strategies, and water markets can be a key part of that toolbox.