Treating water markets like stock markets: Key water market reform lessons in the Murray-Darling Basin

Water markets are well known for improving the efficient use and reallocation of water, and the southern-connected Murray-Darling Basin water market is recognised as the most advanced water market globally. In recent years, the market has matured considerably with new water ownership and trading strategies emerging, along with increased participation from non-landholders (i.e. environmental water holders and financial investors, such as pure traders and superannuation companies). This study draws on a quantitative survey of 1000 southern Basin irrigators plus qualitative interviews with 63 water experts from banks, environmental water holders, investors/agri-corporates, financial investors, property evaluators and water brokers to illustrate the different water ownership and trading strategies employed. Findings suggest that many stakeholders, including non-landholders, prefer to own most of their water needs in higher security water entitlements and use temporary trade to mitigate water supply shortfalls. However, some own no water entitlements (or land) at all, while financial investors and large agri-corporates are more likely to use/supply highly sophisticated temporary trading products, such as water forwards and parking contracts. In addition to the need to reinforce the fundamentals of water institutions in the Murray-Darling Basin (i.e. robust accounting of water extraction and use, and continual monitoring, compliance and enforcement of water extraction), we suggest three major reform areas: 1) data reform: improving the quality and availability of trade and water data plus standardised water market and water forwards terminology; 2) rules and regulation reform: increased transparency of trade and allocation/carry-over restrictions plus increased water market regulation and enforcement; and 3) new water market institutional development: a central exchange and clearing house.