Water market: ACCC finds irrigators’ share of basin trade halved

A single regulator is needed to clean up the Murray Darling Basin’s murky water markets, says the ACCC. See the competition watchdog’s findings.

Dry run: Speculators are muscling into the lucrative southern Murray Darling Basin water markets, pushing aside irrigators. Picture: Yuri Kouzmin

IRRIGATORS are losing market share to institutional investors in the Murray Darling Basin’s most lucrative trading zones, says the Australian Competition and Consumer Commission.

The competition watchdog’s interim report into MDB water trade found “irrigators’ market share of allocation trade had declined most in the trading zones that have seen the largest growth in institutional investor trade.

Those zones include the most lucrative trading districts in the basin, the NSW Murray’s zone 11, Murrumbidgee 13, Victorian Goulburn 1A and Murray 7.

The ACCC found irrigators share of Victorian Zone 7 allocation trade (below the Barmah Choke) has fallen from 71 per cent in 2012-13 to just 32 per cent in 2018-19.

But murky markets make it almost impossible for the ACCC to determine if speculators are engaged in any form of price manipulation.

The ACCC’s 40-stong investigative team reported they found sourcing trade details “challenging” and had “not formed conclusions at this stage, except to observe the potential opportunity for various well-resourced market participants to exploit the complex market arrangements, and a lack of rules and oversight preventing such conduct”.

“There is no institution responsible for, or capable of, gathering the necessary data to effectively monitor trading behaviour in the Basin. Better data collection and co-ordination across the Basin would be central to better market oversight.”

However the ACCC did find “there are scant rules to guard against the emergence of conduct aimed at manipulating market prices, and no particular body to monitor the trading activities of market participants”.

There are also “information failures which limit the openness of markets and favour

better-resourced and professional traders who can take advantage of opportunities such

as inter-valley trade-transfer openings”.

“One example of this is that services for processing of inter-valley trades-transfers operate on a ‘first come, first served’ basis,” the ACCC reported.

“This has prompted a technological arms race between a limited number of market participants who have the expertise and resources to use digital technologies to help ensure they are at the ‘head of the queue’ and able to capture the majority of benefits from inter-valley trading opportunities.

The ACCC also warned there was a risk that the lack of market transparency “can create space for specific market misconduct — such as insider trading — to occur”.

Brokers could also be conflicted, where they provided services to both parties in a trade or taking a personal position in a trade.

Earlier this year The Weekly Times caught Adelaide-based broker Bill Koufalas trying to speculate on the Victorian water market, offering $200,000 of Victorian entitlements without disclosing he owned it.

SOLUTIONS

The ACCC has identified potential solution, such as:

LICENSING water brokers and other intermediaries, or extending the financial regulation framework to all water products.

APPOINTING a single regulator to oversee trade in Basin markets, similar to arrangements in place in the financial services or energy markets.

DEMANDING anyone who trades supplies their ABN (Australian Business Number) to boost market transparency, allowing all trades to be tracked and identified across the Basin.

ENSURING operational trading rules and limits across the basin are transparent and reflect physical realities of the river system (not a form of protectionism).

The ACCC is now seeking feedback on its interim report, which is available here.