New profit engine for speculators: water

New profit engine for speculators: water
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First Published: Mon, Sep 01 2008. 01 14 AM IST
Updated: Mon, Sep 01 2008. 01 14 AM IST
Canberra: On the cracked grey clay of an ancient lake bed on the edge of Australia’s outback, Guy Kingwill is at the frontier of a global rush to commercialize water.
Despite a long-running drought, Kingwill, who runs the Tandou farm, has just sold his property’s critical water in a national market rather than pump it into irrigated cereal crops. “The return on the water is higher, he said. “Where we are it’s broadacre cropping. But the market now is driving significantly more per megalitre from horticulture than you can get a profit margin out of wheat and barley.”
Speculators are increasingly looking to water as a new profit engine as supplies dwindle, caught between booming populations demanding more access and climate warming threatening its availability.
Australia, the most parched inhabited continent, has for 25 years had an internationally unique water market to better share supplies among farmers and reverse years of allocating more water than the country’s rivers and dams could spare.
That market last year traded $1.1 billion (Rs4,818 crore) in permanent and seasonal water rights, according to Mark Siebentritt, the operations manager for national water broker Waterfind, who says business last year grew by 20%.
With drought gripping some areas for a decade, prices for one megalitre of seasonal water—enough for an Olympic-size pool—are peaking at A$600 (about Rs22,650), while permanent water entitlements are less volatile, but still pricey at up to A$2,500 a megalitre. “You’ve got from the biggest financial institutions down to aunty Jane buying 10 megalitres of water ... It’s now an asset, just like a block of land, and people are buying on a daily basis,” Kingwill says.
While Australia has the most mature water market, it is complex, drowning in around 10,000 rules and the regulation of four states spreading over the huge food bowl Murray-Darling river basin.
Siebentritt’s firm has developed an electronic platform which matches buyers and sellers. But he does not see water making the transition anytime soon to a pure investment. “There’s some speculation, but people investing in water now are doing it as a way of investing in agriculture.”
“What drives the price is the value of the produce that can be grown with the application of that water, so really the price of commodities on international markets—whether it be food or rice or cotton—is having an impact on the value of water,” Siebentritt says.
Wendy Craik, in charge of managing food bowl water through the Murray-Darling Basin Commission, said there has been an “explosion” on the water market in recent years, with around 30% of all available water traded. “We’re seeing corporate groups getting together and purchasing water, and then having an arrangement with farmers where they provide the water to produce a crop,” she says.
“There are stories of some of the banks getting in there and buying water for agribusiness,” she says.
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First Published: Mon, Sep 01 2008. 01 14 AM IST