Water trading: it’s time to flush out the cowboys

Australia’s competition regulator slams ‘band aid’ fixes of the past and pushes for new agency to oversee $1.8 billion water trading in the Murray-Darling Basin.

Men walk along the Darling Barka river, as a flow of water arrives from upstream. Picture: Getty Images

Australia’s $1.8bn water market is set for a major shake-up after a ­report by the competition regulator blasted previous “band-aid approaches” and recommended a new independent water markets agency to oversee trading in the Murray-Darling Basin.

Authorities had failed to ­ensure water-trading markets were working fairly and ­efficiently, and there were scant rules governing the conduct of participants, the Australian Competition & Consumer Commission found in a 700-page report released on Friday.

Market manipulation was not prohibited, insider trading prohibitions were insufficient, and information gaps made these types of detrimental conduct difficult to detect, the ACCC concluded.

“What started as an informal system for transferring water rights between neighbours has grown into a complex set of markets, but unfortunately the normal regulatory framework that would be expected for a market of this scale has not been developed,” the ACCC report says.

Many water users did not trust that water markets were fair, ­inhibiting efficient investment in agricultural production in the basin, according to ACCC deputy chair Mick Keogh.

“The ACCC’s recommendations will help to build trust and market efficiency by strengthening market integrity, improving transparency and information, improving trade services and better aligning market rules and ­arrangements with the physical characteristics of the river system,” Mr Keogh said.

The ACCC inquiry was ­ordered in 2019 as an investigation by The Australian revealed investors were hoarding billions of litres of water, ratcheting up the cost and cruelling food growers who faced a massive artificial price spike. Horticultural industries had complained that non-farm investors were playing the market, ­resulting in a “squeeze” that was pushing up the price of water for irrigation from a long-term average of about $135 a megalitre to $800.

The then water minister David Littleproud told The Australian at the time: “I want to be sure the water market isn’t being distorted — there is a lack of transparency.

“I want to make sure that family farming businesses are not locked out of the water market. I do not want to see traders, brokers or any major market players pushing up water prices.”

The ACCC report recommends new basin-wide laws to be enforced by the proposed water markets agency that would deal with harmful conduct and practices, including bans on market manipulation, stronger insider trading rules, and a mandatory code of conduct to apply to water market intermediaries such as brokers.

A new requirement would see all market participants providing a single identifier on trade forms, to allow the new regulator to trace and follow transactions and ­enforce rules.

The federal government welcomed the report but gave no undertaking to adopt its 29 recommendations, committing only to “engage with basin jurisdictions and key stakeholders to ensure that the response supports water users and communities, and that the reforms are feasible, cost-effective and achieve greater harmonisation across state borders”.

“The ACCC report highlights the importance of ensuring that water markets work effectively from information quality and ­access, to rules and governance, to trading behaviours and processes,” Treasurer Josh Frydenberg said.

Water Minister Keith Pitt said the government was already progressing reforms that addressed some of the recommendations, including investing $5.4m in a ­single-source water information platform to improve access to water information. “We will also be developing new legislation to strengthen compliance,” he said.