Size of Water Market Investors

By | 10/08/2018

Money Man

Water markets in the Southern Murray-Darling Basin are unbundled. That means ownership of water entitlements is not tied to a parcel of land. This has enabled investors to buy water entitlements and sell the temporary allocation water every year, without owning a farm.

In this article, “investor” means investors in water entitlements who are not intending to use their entitlements for farming. This article gives an up to date estimate of the size of investors in the water markets.

Size of Investors

Victoria has the most easily accessible statistics. The Victorian Water Register entitlement statistics page can generate reports that show which entitlements are associated with land. Water market investors will generally own entitlements not associated with land. However, to get the size of investors, it’s not as simple as summing the not associated entitlements. The governments’ large water entitlements are also not associated with land. These reports don’t distinguish between government and private owners.

To get the total volume of entitlements owned by the private sector, there is another tool on the Water Register. You can work out the volume of private high reliability entitlements from the seasonal allocation.

Putting it all together, here are the results for private sector entitlements:

High Reliability
Volume [GL]
Associated [GL] Not Associated [GL]
Goulburn System 714 589 125
Vic Murray System 879 685 194

Many not associated are also farmers

In 2015 the Victorian government commissioned a report which investigated the impact of investors (PDF). The author looked into what the private not associated owners were doing with their allocation water. Only 60 % were selling it commercially, 34 % transferred it for $0 to another water account, 4 % carried over and 2 % lost it.

Furthermore, of the 60 % who sold commercially, some are still farmers. The author gave examples:

For example, the people interviewed for this report suggested that water shares might be held by an irrigator’s self-managed superannuation fund, with the farm buying the allocation each year and treating that cost as an operating expense. Similarly, aged parents may have given a farm to offspring, but still be holding onto the water shares that provide water for the farm.

So in 2015, over half of private not associated water shares were owned by farmers. A lot has changed in that time and I think it will be less than half today. In the 2015 report, 175 GL was private not associated and today it has almost doubled. I think most of the increase has been from investors buying water shares instead of farmers converting to not associated.

Since there isn’t more recent data, I will guess that 60 % of private not associated is owned by investors. Then this is what investors own in each system:

High Reliability
Volume [GL]
Investor Volume [GL] Investor %
Goulburn System 714 75 11 %
Vic Murray System 879 117 13 %

Size in the Temporary Market

Let’s look at the size of the temporary market in 201718. Here are the figures for water traded where the seller was a privately owned water account. Figures were sourced from the tool at the bottom of this page.

High Reliability
Volume [GL]
Volume
Transferred [GL]
Volume
Sold [GL]
Goulburn System 714 856 339
Vic Murray System 879 853 401

Volume transferred includes $0 transfers and outliers. Almost half of the water allocated in 201718 was traded commercially. For investors, we can assume all of their allocation water was traded commercially.

Assuming all of the investor volume is temporary traded, here is their size in the temporary market:

Volume Sold [GL] Investor Volume [GL] Investor %
Goulburn System 339 75 22 %
Vic Murray System 401 117 29 %

Not necessarily the spot market

Water can be traded on the temporary market under various terms. While some of the investor water is traded on the spot market, an even larger volume is locked into forwards and multiple year leases.

Conclusion

There has been growing interest in investing in water over the past ten years. Many investors have taken advantage of this opportunity. The largest category of investors is retired farmers. I don’t have figures on the exact breakdown between different categories of investors.

Overall, water market investors have bought a noticeable stake. Their size is difficult to get exactly right, they are still a minority player in the water market, but their influence is growing.

 

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