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Environment and Communications Legislation Committee - 08/11/2012

McKENZIE, Mr Mark De Lacy, Chief Executive Officer, Murray Valley Winegrowers Inc

[11:32]

CHAIR: Welcome. Thank you for talking to us today. The committee has received your submission for the inquiry into the water amendment bill 2012 as submission 10. Do you wish to make any amendments or alterations to your submission?

Mr McKenzie : No, not specifically, Senator. We continue to support a recommendation from the committee for the passing of the amended bill as amended in the second reading speech in the lower house. We believe that the amendments—

CHAIR: Mr McKenzie, I think this goes to your opening statement. Do you wish to make a brief opening statement?

Mr McKenzie : Just to that effect.

CHAIR: On you go.

Mr McKenzie : We continue to support the passage of the bill. We believe the amendments in the lower house have strengthened it in that there is greater oversight and transparency in the system, particularly as it accrues to the minister of water being able to reject an adjustment if he believes that is appropriate, and the science and the modelling does not support and adjustment to the SDL. We believe that it will go to reducing some of the political friction between parties and lobbies—environmental, irrigator and community.

CHAIR: So you weren't here for the earlier part of the hearing.

Mr McKenzie : Part of it; yes, I was. I was quietly biting my tongue—you are quite right. The committee secretariat indicated that, while we were not in a position, because of time frame and other commitments here on national industry business this week, to put a formal submission to the committee regarding the second bill, the special account bill, I am very happy to take questions on it.

Senator RUSTON: Mr McKenzie, one of the things that have come out in the last few couple of weeks has been the federal government's white paper on the Asian century, in relation to food production. What is your view in terms of the propensity of continuing buybacks as a mechanism by which to secure water in negating our ability to take advantage of the opportunities that Asia presents to us for future production and, obviously, for the economic viability of regional communities?

Mr McKenzie : As a representative of an irrigation sector, I think it would not be any surprise to the committee to say that we are against any further widescale buybacks. We understand that with the new bill there is provision obviously for the Commonwealth to acquire the savings from on-farm efficiencies and other efficiency programs. But, in terms of it overall, our view is that we reduce our capacity to meet that enormous opportunity for Australia if we reduce the capacity to effectively use irrigation water as it is currently used in the Basin. So we are pro irrigation and we are also pro a balanced plan. Yes, we think there are short-term imperatives that do not necessarily meld with what the government is saying at the moment about a long-term opportunity for us as to Asia in particular.

Senator RUSTON: On that basis then obviously you would support the securing of the additional water that we are seeking to get up to whatever the number may end up being through means other than buyback. Do you have a view on how we should be treating buyback from here on in? Do you think there should be any mechanism in either of these pieces, these legislative instruments, that would protect our ability to use our irrigation efficiency gains for greater productivity, as opposed to just returning water out of productive use?

Mr McKenzie : I think the devil is going to be in the detail around the shape of the on-farm efficiency programs as to what they can really yield. Quite clearly in flood irrigated areas there are still efficiencies to be had. I have to say, coming from northern Victoria, I know there has been a lot of work on laser levelling and that sort of technology in recent decades, so it is all a lot more efficient than it was. Clearly, the imperative will be to get the best technology to get the best use out of every litre of water. Our view generally is we do not support any further buyback. The reason for that is we are increasingly reliant on being able to purchase water for our permanent plantings—19,000 hectares of them representing 20 per cent of Australia's wine grape production—and on being able to access temporary water on the water market, from the consumptive pool upstream of the Goulburn, the Murray and the Murrumbidgee system and also from the Lower Darling. So our view is it is time to focus, in the broader term interests of the whole Basin community and of the Australian community, on getting the best use out of environmental water and really applying the same efficiencies that we are asking irrigators to apply over the long term to the delivery of environmental water to the targeted environmental icon sites. So we are not in favour of further widescale buyback. We support the Windsor committee's findings that there needs to be more strategic thinking in terms of that, and I think in the early days of the buyback there was perhaps not enough as we would have liked to have seen. But that may mean, if we cannot find the water in the gap, that there may be cause to relook at buying water back, and I think that is something that obviously the government and the irrigation industries and the communities need to think about at that time. Let us make the start with 2,750 as a starting point and see what we can do about recovering the additional water that is required for the system.

Senator BIRMINGHAM: Mr McKenzie, it is good to see you again and thanks for your time today. Can I follow on from where Senator Ruston was in terms of why you see a prioritisation of your infrastructure efficiency mechanisms as so important and what benefits you can see being attained for the social and economic sustainability of the communities that your growers come from by prioritising those types of mechanisms.

Mr McKenzie : It is really the other side of the coin, if I can take it that way, because, as I say, we are now very reliant on tapping into the consumptive pool to buy temporary water because, through economic circumstance, a lot of our growers have had to sell down their permanent entitlements and are now reliant for a quite significant proportion—up to 50 per cent or more, with in some cases 100 per cent—being on the open market. That has certainly caused the so-called Swiss cheese effect in our district. To take an example, the Merbein pump district in the Sunraysia is 42 per cent dewatered, 36 per cent of the Red Cliffs pump district is dewatered, 22 per cent of the Coomealla pump district is dewatered and over 20 per cent of the First Mildura Irrigation Trust district is dewatered.

We believe we are at a tipping point on two aspects. Firstly, the water authorities—Lower Murray Water in Victoria and Western Murray Water on the New South Wales side—are at a point where their capacity to deliver reasonably economically priced water which is not going to push those irrigators out of business through water charges is at a tipping point. Secondly, we need to be able to ensure that we do not continue to erode our underlying capacity in those irrigation districts to effectively have an economically sustainable industry. In other words, if we continue to buy piecemeal in those districts, we are going to end up with a situation where some people on some spurs, some people on some pipeline systems, are going to find that their water supply charges are astronomical and increasing—along with their power charges—and that is going to make it uneconomical for them. In that circumstance our view is that we would much prefer to have a look at investing the money in capital works, environmental works and measures, that can save money without eroding that economic base for our industries—and that is why the focus is on infrastructure, not buyback.

Senator BIRMINGHAM: Because of those Swiss cheese effects and increasing costs that are shared among a smaller number of producers and so on—which are felt in irrigation communities from Senator Ruston's right up to those that you represent and, indeed, beyond—do you see as much priority in the documents that are still to come through this process—namely, and most importantly, the final Basin Plan and what it actually says, and the document that will set out the water recovery strategy and also the works that the environmental water holder has been doing on actual water trading arrangements?

Mr McKenzie : All of that. That goes to the heart of the gaps that we have in the knowledge. I have given evidence in Mildura to a previous Senate inquiry and have said just that: it is very difficult for us to make that call on the final detail because so much of it is still a work in progress. From that perspective, we would have preferred that a lot more of that work be finalised so that irrigation communities and regional communities could make a better informed call on what the final impact would be for their communities and for their industries.

You pointed out a couple of things in your question. We do not have the capacity to fully assess the plan at this point for a couple of reasons. One is that we do not have a water recovery strategy and we do not have an environmental watering plan in final form. They are still works in progress. We do have a model. We know that the Department of Sustainability and Environment in Victoria have been using the MDBA model to have a look at impacts, and that shows some interesting outcomes about marginal improvement only over 2,750—if we increase the take to 3,200. I can talk to that if you wish.

From our perspective, we have always held that it would be better to do the work first rather than push on with a target which, with respect, is a political target, not a target to deliver a plan which the whole community in the basin can sign off on. That said, we are fatigued and we need certainty. That is one of the reasons why we have supported the first bill passing through the Senate: because it will please give us a transparent system with checks and balances on the MDBA. They have been appointed as the independent authority to run the system. We support that. We think it is appropriate. For obvious reasons, over the last 100 years or so, trying to sort it out between the states has not been particularly successful at times. So we certainly support that. But there is so much that we still do not know about it. We are being asked to take a lot of this on trust. Although we believe that, ultimately, we are getting there, I have to say that my community members are a bit light on for trust at the moment.

Senator BIRMINGHAM: I note that you have not made a formal submission or taken a formal position on the water for the environment special account legislation. I want to ask two questions about that. Firstly, related to what you just said about trust and the knowledge gaps that currently exist, are we in a sense putting the cart before the horse by looking at a bill which seeks to recover up to 450 gigalitres of additional water—and outline the means by which that recovery would occur—before we actually have the final regulation and final strategy to recover the first 2,750 gigalitres of water?

Mr McKenzie : I think the process has been largely cart before the horse. I would have preferred some of that baseline work to be done to know what our baseline requirement is as a first step, before we went down the path, particularly of wholesale buybacks in some valleys. That would have been a more appropriate way to go but, of course, with respect, there has been a political imperative to get this job done. In broad terms, we would describe the process as cart before the horse, as we have worked through. It has been extremely difficult, I have to say, in defence of the MDBA, to play catch-up all the way through this process in some ways. The process has been galloping ahead of them constantly. I think you will find that the reality around the 3,200 is that that work has to be done between the MDBA and the state authorities in the no-constraints scenario, and they have until 2016 to do it. We simply do not know at this point. Suffice to say, there will be very significant in-valley collateral damage if we try to run the system at those levels. The reality where we are, sitting on the South Australian border, is that, to get that water running at 80,000 megalitres a day, you have to generate enormous flows in the Lower Darling. The Menindee township has been flooded twice already this year at 16,000 gigalitres. They are talking about running the system at 16½ thousand gigalitres per day for a significant period of time.

In the Goulburn we have 16½ thousand megs a day. In the Goulburn we currently have a constraint, a capacity in channel, of 20,000 megalitres a day at McCoys Bridge. The proposal is to run it at 40,000 megalitres a day. The local authorities say it will blow every levee bank in the Lower Goulburn. Between Yarrawonga and Hume, it is from 25,000 megs a day to 40,000, and below it is from 26,000 to 40,000 megs a day. One of our concerns is: what is going to happen to the icon red gum forest, the largest eucalypt red gum forest in the world, in the Barmah-Millewa area, upstream of Echuca at the choke? It will drown. In reality, there is a lot of bunkum around about running the system at 3,200 for what are only marginal gains if you look at the MDBA model.

Senator BIRMINGHAM: Obviously, from all of that, you have indicated there is a lot of uncertainty as to whether those constraints can be removed and, if so, what the impacts of them are, and what the cost of removing those constraints would be. There has been some criticism this morning that the legislation before us provides some flexibility as to how the appropriated money—the $1.7 billion—might be spent, with environmental groups arguing that it should be very clearly spent, wholly and solely, on water recovery, with no flexibility to address the economic or social impacts that may stem from the removal of the constraints or the recovery of the water. Do you think it is important to keep that flexibility so that, if the government is going to try to achieve these targets, whatever government it may be, they actually have the capacity to address the whole range of impacts that could occur in communities, not just those that are specific to recovering the actual water volume?

Mr McKenzie : I would agree with that proposition. I believe that it would be appropriate to continue to have that flexibility because we have a changing environment in terms of how we are going to manage this water. We are going to gain a lot of knowledge over, hopefully, a fairly rapid period of time and it will change the game plan, if I could put it that way. My view is that where that money is best spent is also likely to shift in time.

Senator XENOPHON: The last time I heard you give evidence was in Mildura in April, so welcome back. I go to what you said about Merbein. I have been there. You said that 42 per cent of the area has been shut down. What is the tipping point in your view? Is it 50 per cent—that it makes the whole area unviable because the rest of the community has to bear the cost of infrastructure?

Mr McKenzie : I think that is right. It probably needs to be looked at by a branch-by-branch system. Currently there is consideration by the department, by SUPAC, of the Sunraysia modernisation package. That is still in play. We do not have an answer yet, but, quite clearly, that is going to allow us to do a low-pressure mainline to replace the channel system in Merbein and upgrade the infrastructure in Red Cliffs, which would be a huge step forward. The uncertainty around this is: what might happen if continued buybacks were on offer that those irrigators could avail themselves of? You may design a system and then find that part of that system is redundant before you actually commission it, if you allow those blocks to continue to be dewatered.

Senator XENOPHON: At the risk of getting the chair's blood pressure up I will mention the Productivity Commission. In its report on water buybacks and mechanisms to deliver water back into the system the Productivity Commission has said that water buybacks are more efficient than water efficiency programs. Is there a compromise or a hybrid model whereby if you are going to have water buybacks you look at those specific areas as a whole rather than in a Swiss cheese approach? Do you think there is some merit in that rather than the current way the water buybacks have operated?

Mr McKenzie : Clearly, the Productivity Commission looks at value for money as the first priority, and from the irrigation community point of view we have to take other things into account in terms of the triple bottom line. That needs to be said. I think that goes to the heart of the Windsor inquiry recommendations to be more strategic with buyback. If we cannot find the water from the Victorian side of the river, for instance, I can see only two scenarios: (1) allocations against water entitlements will be squeezed to fit under the SDL; or (2) the government will be forced into looking strategically at retiring partial districts or whole districts as they have done, for instance, in the Campaspe irrigation district in northern Victoria.

Senator XENOPHON: One of the complaints made by South Australian irrigators is that they have had enormous difficulty in accessing the water efficiency fund—the $5.8 billion fund—because they are already too efficient to qualify by virtue of the fact that they had to put in pipes and pressurised systems many years ago. Do you see that there is an equity argument there for your colleagues 1½ to two hours down the road who cannot access that fund because they did the hard yards much earlier?

Mr McKenzie : Yes, we are pretty sympathetic with that. There should be other ways around it. For instance, we were asked recently about the third round of the on-farm efficiency program funding. We are 96 per cent under dripper—we have a lot of people who have high-pressure pipeline systems and access to it already, so in a lot of ways we are partially down that track. It is in the interests of the whole community and, clearly, of the environment to be able to return the maximum amount back by making all irrigation as efficient as you can. But there needs to be some flexibility for, say, Riverland irrigators to be able to do computerised water monitoring. That is one of the things we would be looking at trying to use those sorts of funds for as well. You are absolutely optimising the use of water, and every litre is used as effectively as it can be.

Senator XENOPHON: But you can see their complaint, can't you?

Mr McKenzie : Yes, I can. I acknowledge it.

Senator XENOPHON: Earlier this morning we heard from Liz Tregenza from the River Lakes and Coorong Action Group. Her argument is that there ought to be local input rather than—and she did not say it in these terms—a decision being made at some office in Canberra about how to maximise the benefit of environmental assets. I am not sure whether it was you or another witness in Mildura back in April who talked about ways to maximise environmental benefits. It might have been an example that you gave—I do not have the Hansard in front of me. Is there some common ground between environmental groups and irrigation groups so that you can maximise your bang for your buck with environmental water flows by having that local knowledge built into the system?

Mr McKenzie : Going to the last part of your question, I think we will find more common ground with environmental groups, particularly regional environmental groups, once we have a start point that is somewhat set and once we have some certainty around that. We know what we have to deal with.

It was me, and I was talking to the Lindsay Island example—

Senator XENOPHON: Thank you for reminding me.

Mr McKenzie : I have recently lodged a question on notice from you regarding that, and I have more information around that. For instance, the Mallee Catchment Management Authority has carriage of the Lindsay Island project which is currently in planning. It is not measured against the 650 potential offsets for environmental works and measures in the current rendition of the plan. It is hard to measure a full effect, but it is something between 400 gigalitres and 1,000 gigalitres in potential savings by using checkpoints and regulators.

Senator XENOPHON: That is a huge amount.

Mr McKenzie : It is potentially a huge amount, but it depends on the level of the river when you start doing the irrigation work in the wetlands. It is only for the wetlands and not the surrounding flood plains. In fact, the CMO indicated they would not want to water some parts of the flood plains because of saline inflows and damage to the flood plains themselves.

A regulator in Lindsay Creek can effectively mimic a 10,000 or 20,000 megalitre-per-day flow at the border to an 80,000 megalitre-a-day flow for that particular site. It is an icon site.

Senator XENOPHON: So why the hell aren't we doing it?

Mr McKenzie : It is currently in planning, and that is where we would like to see the flexibility to allow the $1.77 billion special account to be used for projects like that with local knowledge in play.

Senator XENOPHON: Finally, and supplementary to that, could you suggest, perhaps on notice, how you build into the legislation that sort of maximising the use of water for environmental return, such as the Lindsay Island measure. Can you perhaps reflect on that, because what you have just outlined is quite important.

Mr McKenzie : I would be pleased to do so.

Senator XENOPHON: Thank you.

Senator McKENZIE: Thank you very much, Mr McKenzie, for appearing before us today. Just in terms of your membership, could you comment on the opportunity within your membership to take up the on-farm efficiency grants, which will be funded by the water for environment investments.

Mr McKenzie : That is currently under carriage of the Mallee CMA on the Victorian side of the river, and the Murray-Darling CMA has just been dismantled by the New South Wales government, so we are not sure who will have carriage of that going forward. There will be new administrative arrangements in place. Our sector are very efficient already. We have 96 per cent at either low level, mini sprinklers or drip irrigation. From our perspective, the best ways to access that funding would be, as I said, water monitoring, irrigation monitoring for timing purposes directly linked back to computerised programs and also the delivery systems—to have a look at being able to change your delivery systems on-farm to allow differential watering for different soil types or different crop types. At the moment in wine grape plantings there tends to be one system used and you do it in batches. There might be some engineering solutions that would give better effect by linking water efficiency monitoring and needs monitoring back to the way that you can deliver that water differentially across wine grape properties.

Senator McKENZIE: So although we heard this morning from other witnesses that there is very little scope, with respect to your growers, for increased efficiencies to be found—I think that was in there in supporting their argument for buyback over efficiency measures—you think that with the science we still have some technological engineering type give to find additional savings.

Mr McKenzie : Yes, we do. Quite clearly, moving from furrow irrigation, which is the example, to drip irrigation is a huge step. We do have marginal gains to be made, and obviously new technologies are going to have an impact on that in terms of managing the irrigation timing. I think in the broad, in the southern basin that I am most aware of, there are certainly significant on-farm gains to be made about delivery systems, about computerised programs, about telemetry in channels or in pipeline and about your timing of delivery of water for maximum effect along those spurs and those sorts of things, as well as what you might do with laser levelling and further improvements in getting water flow as efficiently down those bays in the case of flood irrigation. In the broad, there is an enormous amount to be gained.

Senator McKENZIE: Thank you for correcting the record on that. On another issue that we heard about this morning, which particularly goes to the upper catchment issues of constraint removal's likely impacts on moving that body of water through the system, we heard that the modelling was done in a way that took account of existing floodplains et cetera. The assumption made and the perspective being given was that this will not actually have the damaging effect that some people think it will. I would like some further commentary from you around your perspective on what will actually happen with the no constraints modelling.

Mr McKenzie : The only way you can get the required water down the system to produce a moderate-sized flood at the South Australian border of the Murray at 80,000 megalitres a day or more—

Senator McKENZIE: The type of flood, just to clarify, to give the watering that is being—

Mr McKenzie : Yes, floodplain water.

Senator McKENZIE: Yes.

Mr McKenzie : Effectively, it is for floodplain watering at sites like Chowilla, north of Renmark, which is currently going through environmental works and measures, so I do not quite know how that is going to impact on that. It would negate the money spent there to some extent were you to do that.

It is effectively a funnel. You have to take an enormous amount of water and funnel it through a very narrow system. A lot of that water in the Murray system has to come out of Dartmouth into Hume and then down Hume, and it has to go through Yarrawonga and through the Barmah Choke. To get it through the Barmah Choke, you have to flood those forests. People who think red gums need constant wet feet are absolutely incorrect; you will kill them if you have a system where their feet are underwater too long. We would not want to see a situation where effectively we are delivering water to one icon site at the expense of another.

Senator McKENZIE: Finally, do you have an opinion on putting into the objectives of the bill the need to assess socioeconomic impacts.

Mr McKenzie : We welcome that. We would have liked to see it in the water act, obviously, but that was not possible, and for a whole range of reasons in terms of jurisdictional issues. We welcome that, because the bottom line to us is that it has to be a balanced plan; it cannot be 'just add water'. We do have a regulated system. We do have communities there. I represent one that dates from the 1880s as an irrigation colony—Australia's first irrigation colony. We cannot ignore the fact that we have a populated basin, that we have well-developed industries and that we have an awful lot of our food production and economic output in rural Australia linked to effective use of irrigation water. We have a regulated system and have had it since the turn of the century before last. So, to think that we can run a no-constraints system and not have impacts with communities living in the basin is, as I said, bunkum.

CHAIR: Mr McKenzie, are you aware that before any water releases were going to take place there would be local consultation?

Mr McKenzie : I would assume that, yes; absolutely. We also understand from the chairman of the authority that he is still very committed to localisation. So quite clearly, other than environmental works and measures and running the system locally, there quite clearly will be capacity for feedback from local communities.

CHAIR: I am interested in your submission on the Barmah Choke and the red gums. We have had all these environmental experts here this morning, and none of them have raised that as a problem. In fact, predominantly they have said we need more water.

Mr McKenzie : With respect to my fellow citizens in the environmental lobby, they do have a very simple approach to this: just add water, and more and more of it. The reality is that we have a constrained system, through natural constraints like the Choke and through weirs, reservoirs and locks.

CHAIR: But these are professors of environmental science. They are studying this continually, and they say you need more water.

Mr McKenzie : That is why the plan is there—to deliver more water to the environment. I think the issue, if you look at the difference between 2,700 and 3,200, is: what is the marginal improvement there? If you look at the modelling that I am aware of, using the MDBA model, the peak flows are going to be achieved by lengthening the interval between dry periods. So you are not necessarily, with 3,200, going to deliver the outcomes that some of the environmental groups would want. I know the minister has said it will hit 17 of 18 targets. It may be at some cost to some of those sites. But I think the issue is, again, that we do have a constraints system, naturally and man-made. And we have communities that were built on flood plains over the last 150 years. Whether we like it or not, they are there, and the cost of mitigating collateral damage to them through generating floods down the system is going to be very significant.

CHAIR: Thanks, Mr McKenzie, for your evidence today.

Mr McKenzie : Thank you.