Water What can the nut industry learn from Australia? Peanut and Tree Nut Processors Association Convention Bahamas, January 2009 Prof Mike Young Executive Director, The Environment Institute Research Chair, Water Economics and Management The University of Adelaide

Water Many nut crops depend on access to irrigation Adapting to change –Urban and industrial demand is drawing water away from agriculture; and –Supply may be decreasing Nut industry prosperity will depend in part on rapid access to water in an ever changing world.

Some Australian mistakes Climate shifts –We forgot to plan for long drys Rights, policy and governance –We embraced water reform without establishing a property right system that was designed for trading

River Murray Inflows (GL) In 2006/07, we broke the month by month inflow record for 11 months Inflows have been well below evaporative losses Managed by running down stocks and reducing evaporation by closing off wetlands and not replenishing lakes

Symptoms - The River Murray Over-allocation –Dredges in its mouth since Oct 2002 –Level below the sea –Rising salinity –Serious acid- sulphate soil problems –Bottom in strife! –High security allocations in SA on 18%

Long drys DRY WET Total River Murray System Inflows (including Darling River) 8 yrs 12 yrs 52 yrs

Insufficient planning for step changes - 1% - 3%

With half as much water Users Environment River Flow Environment River Flow Users

Water needed to ensure conveyance EntitlementsEnvironment Flood water Shared Water Entitlements Volume of water available Environment with a fully-specified share A robust sharing system Now buying back water for the environment $3.1 billion

With half as much water Users Environment River Flow Environment River Flow Users River Flow Environment Users

Which nut industry future is best? One that gets water fundamentals right, now? A system that can be confidently explained as one that will enable the nut industry to cope -- whatever future arrives One that facilitates autonomous adjustment and change One that creates opportunity One that is always behind, always playing catch up? No guarantee of resolution of current problems Lots of impediments to change

Australian water policy and reform Share rather than seniority system –In rivers, usually two surface water pools High security pool Low or general security pool Formal volumetric allocation systems –All use is metered and use limited to allocation Minimal role for courts and lawyers –Allocations and rules decided by government of the day –Right to trade held by individual water users not districts

Water Rights & Reform in Australia Water Tradable Right Price Land Single Title to Land with a Water Licence Entitlement Shares in Perpetuity Bank-like Allocations Use licences with limits & obligations Delivery Capacity Shares Delivery Capacity Allocations Salinity Shares Salinity Allocations National Competition Policy 1993/94 Plus Cap National Water Initiative 2004 Now trying to fix the problems created by the naive introduction of markets bolted onto an entitlement regimes that lacked hydrological, environmental & economic integrity

Scarcity and Trading  Source: Murray Darling Basin Commission, Trading has been good for the Australia’s nut industry Water Reform Trading opened up

Reform Outcomes Positive –Facilitated considerable greenfield development Grapes Almonds –Massive innovation –Massive wealth creation –Many more irrigators survived the current long dry –Movement of water out of areas with salinity environmental problems Negative –Over-allocation still not solved

Water reform created Wealth Psi-Delta 2007 Bjornlund and Rossini 2007

Water reform Driven by political realization about the importance of getting water right States have referred MDB planning powers to Federal Government –New independent Authority of 6 people to produce a new Basin Plan Buying water entitlements for the Environment Investing in water efficiency Trying to remove remaining barriers to trade Taking climate change risk seriously

CSIRO Sustainable Yield Project, 2008

Advice from the lessons we have learned Regime arrangements 1.System connectivity – manage GW and SW as one 2.Capped the wrong thing – cap entitlement potential not use 3.Return flows – account for them 4.Unmetered uses – include them 5.Climate change – plan for an adverse shift 6.The environment’s share – define it and allocate to it 7.Storage Management – include in trading regime Individual licence arrangements 1.Registers – validate them early 2.Entitlements - define entitlements as shares 3.Trading – forgot to get the costs and time to settle down 4.Not enough instruments – needed to unbundle 5.Inter-seasonal risk management – allow markets to optimize carry forward 6.Exit fees – Need to allocate to individuals or allow trade out of districts 7.Trading risk – develop tagged trading

Water reform and the nut industry 1.Encourage discussion of and planning for very long drys 2.Encourage transfer of ownership to individuals 3.Encourage replacement of seniority system with a share system 4.Encourage integrated management of ground and surface water 5.Encourage preparedness for a different water future and need to trade water on a daily basis Embrace water reform – trial it It will be good for your future!

Contact: Prof Mike Young Water Economics and Management Phone: Mobile: Download our reports and subscribe to Jim McColl and my droplets at