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STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT
19/09/2008
Management of the Murray-Darling Basin system

CHAIR —I take this opportunity to welcome representatives from the Wentworth Group. Mr Cosier, do you wish to make a very brief opening statement before we go to questions?

Mr Cosier —Yes. Thank you very much. I would like to make a brief statement. I promise it will be five minutes. With your indulgence, I also wish to table our submission that we would like to present today. This submission is from the members of the Wentworth Group and other specialists whose names appear on the document. We have brought some of those people with us today to answer questions that the committee might wish to ask.

Our submission addresses two issues. First of all is the long- and short-term management of the Coorong and Lower Lakes. Secondly, we also wish to propose a way of quickly addressing the overallocation of water in the Murray-Darling Basin. These two are interrelated because it is impossible to secure the long-term health of the Coorong and Lower Lakes unless we also address the overallocation of water.

I will turn specifically to the Coorong and Lower Lakes. In their current condition, the barrages should not be opened with floodwater to flood the lakes with sea water. This would cause irreversible damage. Instead, the Commonwealth should guarantee 300 to 400 gigalitres of river flows into Lake Alexandrina and Lake Albert to secure a sufficient reserve to maintain lake levels at no lower than minus 0.4 AHD this summer and, thus, avoid any significant release of acids this coming summer and autumn. If it proves that such flows are not available, then as a last resort, a shandy process of allowing sea water into Lake Alexandrina should be undertaken. However, this should only occur once acid release is observed and is not buffered by existing lake waters and other techniques of coping with acids are shown to be ineffective.

Consideration should also be given to pumping out 50 gigalitres of hypermarine water from the southern Coorong. This will get us over this summer. But it would be a catastrophe if we wasted this opportunity provided by the recent local showers in the local catchments. We therefore also recommend that the Commonwealth establish a commission of inquiry into the Coorong and Lower Lakes to assess the scientific and engineering options for securing the long-term health of the Coorong and Lower Lakes, including engineering options for downsizing the system upstream and managing the entrance waters, recognising the likely prospects of permanently reduced end-of-river flows.

Our submission also addresses a second issue, and that is the gross overallocation of water resources in the Murray-Darling Basin, which is at the heart of our problems. We are proposing a pathway to radically accelerate the recovery of water for the environment by combining the existing $3.1 billion water buyback with the $5.8 billion infrastructure programs, subjecting all funding to a common environmental cost-benefit analysis and bringing forward this expenditure over two years. The institutional vehicle for doing this would be for the Commonwealth to adopt an interim basin plan, which we believe could be produced in a matter of weeks.

We understand the magnitude of what we are proposing, so let me put a case for why we believe it is necessary. In preparing this submission, we commissioned an analysis of the existing scientific literature and most recent modelling to establish just how much water is needed to achieve the objectives of the National Water Initiative and the Commonwealth’s 2007 Water Act. The magnitude of the adjustment is massive, beyond anything that has been contemplated in the Australian community to date. If we are to maintain healthy rivers and provide high quality water to produce food, our analysis suggests that we need to return over 4,000 gigalitres of water to the rivers, which will result in the consumptive use of water across the Murray-Darling Basin having to be cut by between 42 and 53 per cent.

We have sought to set out the case on social and economic as well as environmental grounds that it is in the public interest to quickly reset the allocation systems across the basin. Firstly, from a river perspective, it will allow a speedy downsizing of consumptive water use, giving rivers, floodplains, wetlands and the Coorong and Lower Lakes estuary the water they need. Secondly, it will quickly end the uncertainty in regional communities about when, how and where the government will intervene in the water market. Thirdly, it will provide an important social dividend by providing a financial opportunity for business to either upgrade and modernise their on-farm water use or, should they choose to do so, exit the industry.

In conclusion, our message is that circumstances now dictate that Australia has to make a choice. We can ignore the environmental and economic catastrophe across the Murray-Darling Basin or we can confront this issue head-on and put in place measures to correct the damage. The science says that if we spend the money that has already been appropriated by the parliament wisely and quickly, there is a high probability we will restore the rivers and floodplains to sustainable levels and be put in a far better position to confront the new challenges that are rapidly bearing down on us. Thank you very much.

CHAIR —Thank you, Mr Cosier. Before we go any further, we are joined online by Senator Xenophon. Are you still there?

Senator XENOPHON —Still here.

CHAIR —Senator Birmingham has also just dropped in.

Senator BIRMINGHAM —Good morning, everybody.

CHAIR —Senators, we have the Wentworth Group and others. We will go to questions. If you have questions online, please let me know that you want to ask them. I shall start with Senator Heffernan.

Senator HEFFERNAN —Thanks, boys and girls. With your calculations in that plan to combine the two funds, declare an emergency and send 400 gigs to the bottom, where is it going to come from?

Mr Cosier —I will let John Williams answer that question in detail. We are not proposing that the buyback would provide 4,000 gigalitres of water tomorrow because that just does not exist.

Senator HEFFERNAN —This committee is about what we are going to do now. We have been told in the last couple of days that we can possibly battle our way until March. If it does not rain, what do we do then? Where does the water come from?

Dr Williams —Well, the 300 to 400 gigalitres of flow to get the system out is what we believe to be needed. You really need to get the audit in place—we congratulate you on the fact that that is underway—to know where the water is. With the purchase, you purchase it so that it can deliver that. If it cannot, our submission goes to a shandying option to address the problem. At the fundamental—Bruce Thom can give more detail on it—the current bottom of the Murray system is not as it was. It was an estuary. We think there are ways of bringing it back to being a functional estuary, but that is a mixing of flow as well as ocean water.

Senator HEFFERNAN —But what you are talking about is buying water that is already contracted, surely.

Dr Williams —Well, it can be contracted. It will be contracted and available. We need the audit to know where it is. That is the problem.

Senator HEFFERNAN —But we have been told in these hearings that there is nothing left in the system that is not contracted other than the contingency for urban areas.

Dr Williams —Yes. I understand that. That is what the crux of the issue is. The purchase of that contracted water is the bottom line.

Senator HEFFERNAN —Okay. Can you advise the committee whether the climate conditions that we have experienced in the last three or four years are like those going back to the federation drought?

Dr Williams —Yes. I think so.

Senator HEFFERNAN —Do you think it reflects the science we are being told about regarding what the future holds for the Murray-Darling Basin? This is about where it will be over in 30 years.

Dr Williams —Well, I think so. Our analysis of the long-term data—it is 120 years of data—suggests that the current allocations that we have made in the Murray-Darling would have failed in the federation drought just as it has now and would have failed in the 1930-40 drought, just as it has.

Senator HEFFERNAN —So if the science is telling us that this is the way it may well be permanently, we definitely have to go back and redraw the whole game.

Dr Williams —That is my view. I think it is prudent for any society to be able to build a sustainable system that can cope with what we know we have had. From any estimates—the CSIRO work is what we base our analysis upon—our current system would fail if we had our first 50 years of federation rainfall pattern.

Senator HEFFERNAN —Against the science of the future—I am trying to get people to take ownership of the future rather than dream about the past—if I were a big old Murrumbidgee cod laying in a deep hole along a river that looked like it was going to stop running, I would love that 75 gigs of savings in the Goulburn River to come down and give me a drink. Have you got anything to say against the science of the future, not against the experience of the past? Would that not be vital water?

Dr Williams —It is critical. One thing is that at the moment our current system means that, under the pressure of the drought time, we are actually consuming upwards of 85 per cent of the river system. In higher flow times, it drops to 25 per cent. That consumption at such a high level that we have now is absolutely detrimental to the functioning of the river as a living entity.

Senator HEFFERNAN —So it would be better used surely against the future rather than be flushed in dual flush toilets in Melbourne and to give my poor old Murray cod a drink, would it not?

Dr Williams —Well, I reckon that is what society has to decide. The science says yes. Society may choose to water the lawns in Melbourne and let the river die. That is a societal decision. But the science says that that water will keep the river living.

Senator HEFFERNAN —I will go back to the present strategy, which scares the hell out of me, of spending money on Tooralie. In the present emergency, where that is some sort of a plan for entitlement for the future, are there some dangers for the government in, as it were, symbolically buying properties to somehow be seen to be doing something which is actually in effect a waste of time in the present circumstances?

Dr Williams —Well, the water from that station will certainly do good things to the Darling wetlands and systems—there may be some of your Murray cod mates who will benefit—but it will not address the problem. The Darling system is the Darling system and the Murray system is where our crisis needs to be addressed.

Senator HEFFERNAN —We are only talking about 8,000 megs. The Darling has actually stopped flowing. I know it is in the storage. There is a bit of dreaming in the papers about 90 gigs or something. Thanks very much. I will come back.

Senator SIEWERT —I want to address some of the big picture issues and then Senator Hanson-Young will specifically address the Coorong. If I understand what you have just said and in your submission, which you have just circulated, what you are saying is that we need to cut water use by 50 per cent, if you take the average?

Mr Cosier —What we are saying is that if you acquire the amount of water that is required to keep the river systems healthy, given what is likely to be our future climate change, the impact of that would be a reduction in the amount of water used for consumptive use of between 42 per cent and 53 per cent. It does not mean that is a reduction in food and fibre production, but it does mean that those systems need to become far more efficient users of water.

Senator SIEWERT —You are saying that that has to happen sooner rather than later?

Dr Williams —Absolutely.

Senator SIEWERT —I am not trying to put words in your mouth. The basic point is that the plan the government has in place now, which is the same as the previous government’s plan, is 10 years. If I understand what you are saying correctly, it has to happen much more immediately than that. It should start now?

Mr Kowalick —I will comment on that. It obviously implies that if you cut diversions for irrigation use substantially, there is a huge adjustment that is going to have to happen in the whole basin. The adjustment pain is happening now. I think people do not understand just how desperate people are all along the Murray. They need information. They need the action now. Doing it based on a plan by 2011 and then beginning will be too late. The adjustment process will be disorderly and there will be a lot of unnecessary pain.

Senator SIEWERT —This adjustment is going to happen anyway because we are having a reduction of rain and then inflow. We have already had evidence from CSIRO that our inflow is in fact reducing much more rapidly than predicted. In other words, this adjustment will happen. It can happen either in an organised and structured way or it can happen where people just go out the back door over the next period of years.

Mr Kowalick —Yes. That is the basic proposition.

Senator HEFFERNAN —That is what we call the market.

Senator SIEWERT —Yes. I would rather have it structured. Therefore, what you are saying here in your submission is, ‘Let’s get on the front foot and invest the money that we are talking about over a 10-year period much more rapidly in a much more structured way.’ I think I heard Mr Cosier say you combined the two big pictures, which is the water buyback and the efficiency into one to buy water but over a couple of years. Do you then need more money for restructuring?

Dr Williams —In our submission, we say yes. We say we need to get the social trauma issues separated from the free working of the market. The social trauma issues, as Ian has said, are huge. What we are saying that we are confronted with is that we can do a lot better with the water if we reduce it by 50 per cent. As you see on page 12 of our submission, there is simple evidence that there is quite a scope for putting that water to a more effective economic outcome. But what we do recognise is that to do that we need the buyback scheme running coupled with facilitating structural adjustment of the irrigation sector, as we set out on page 15.

Senator HEFFERNAN —I want to ask a question about the buyback. I think Senator Xenophon would be alert to this. Doctor, if we go into the market with a buyback—and there has been some talk that it ought to be double the market or something, and you are buying entitlement—and if I am a farmer and the bank says, ‘Brother, you’ve had it. Sell your water’, and I sell my water and then I say, ‘Well, I’ve got this water at this generous price’, I go into the temporary market and then I distort the temporary market and then everything is out of kilter.

Prof. Young —Let me try and talk first about structure. The structure which is wrong is the sharing regime. The most important thing to get right is to restructure the sharing regime. That is what buying entitlements is about. That will induce many more changes. Those changes have to come quickly. The thing, as Ian Kowalick has said, the community lacks is information about what is really happening and information about where the system is going. If we restructure the system and say with clarity there has to be a share for the environment, we have to commit to a minimum amount of water for conveyance and maintenance of the system—we take that out first and share the rest—and then communities can plan and bank managers can plan. But until we have that clarity, we confuse everybody. We make many, many investment mistakes of the type you are talking about—

Senator HEFFERNAN —Hear, hear!

Prof. Young —because nobody knows where we are going. The critical thing that Australia needs to know now is: how are we going to deal with this problem in black and white? That means we have to compress the planning process and tell people what we have all been talking about. It is not a secret. It is simple language. We know the direction. We know the intent. We have to flow with the decisions as fast as the river is changing its flow.

Senator HEFFERNAN —Because what we are talking about is a reduction of at least 50 per cent in the water that is available for work. Simple.

Prof. Young —That is right.

Dr Williams —But our submission has made the case that with a proper restructuring of our irrigation industry, where we get the best soils in the best place and all that sort of stuff, we can turn that water into producing using the market signal to make sure that water produces the most dollars. Bear in mind that resilience is as important as efficiency in doing that analysis. Then I think we do not necessarily have to take a cut in wealth generation. The analysis that Mike has done—and I will quote him, because it is simple; I will give a simple version—is that, done well with water use efficiency gain, there would be very little reduction in wealth generation from regional Australia if we reallocate that water wisely and cleverly with a proper structure and readjustment process.

Senator SIEWERT —That implies that just leaving it to the market will not work because the market is not necessarily going to do what you have just said.

Dr Williams —The market has to be freed up so it works. So this issue of four per cent caps on trading out of irrigation companies has to be addressed. The issue of states putting legislation in that restricts trade with water and land has got to be addressed. When you have efficient markets, that will be a very powerful driver for innovation and change coupled with a structural adjustment approach that makes sure we generate the maximum wealth and resilience from the water we can afford to take out of the system.

Senator BIRMINGHAM —I am sorry to cut across whoever is asking questions at present. The efficiency of the market is also behind advocating the government getting in and out of the marketplace as quickly as possible rather than it being the major player in the marketplace for a 10-year period.

Prof. Young —Yes. Precisely. That is exactly what we are saying. There is a role for government to reset the system. The government has to get out of it. It also has to be very, very careful in terms of how it invests in infrastructure. If there is a major change to be taken and the tendency of governments is to favour one area over another area—this is difficult—the reality is, and the Australian experience over all of these difficult periods, is that governments have made massive mistakes and caused a lot of harm by trying to structure change rather than to facilitate it and expedite it. There are some very important welfare issues to be dealt with and some towns which are very worried. That needs to be done through a separate process. Our submission highlights and draws attention to the fact that it is important to get water management right and then get the adjustment process right but not to try and use water to solve social problems. There is a nexus between the two, and it is important—

Senator HEFFERNAN —Hear, bloody hear!

Prof. Young —that we get the water accounting right. Once we get the water accounting right, we know what we are managing. Everybody knows what we are managing, and we can plan the future. If we do not do that, the counterfactual—as economists talk about, which is what happens if we do not do this—is an absolute disaster. Communities are now starting to realise that. That is the big shift in Australia in the last six months. Communities are now understanding.

CHAIR —Senator Siewert has the call.

Senator SIEWERT —I have one more question. Then I want to throw to Senator Hanson-Young specifically about the Coorong. I just want to get the sequencing right here. The story is 10 years is too long because it is going to be death by a thousand cuts, basically. You do it quickly. You come in. You are reshaping your sharing regime and making sure you have a chunk for the environment. Then the market takes over once you have reshaped the playing rules. Then you do your readjustment on top of that. Have I got the story right?

Prof. Young —With one qualification. The market takes over, but the environmental managers take over as well, because they will then have an allocation which is there. They will have to take some very difficult decisions too. It is not just the irrigation community. Both sides are facing a crisis. Both sides need to be empowered to solve it.

CHAIR —Mr Cosier, I know you were trying to get someone’s attention. I just urge, gentlemen, as the time is short, we have a lot of questions to ask and you have a lot of answers to provide, that we coordinate. Mr Cosier, I will go through you and look for your lead, although all your points of view are valid and very important. Mr Cosier, do you want to add something?

Mr Cosier —Yes. In answer to Senator Siewert’s question, I think Mr Kowalick has some experience in both the banking sector and in structural adjustment which might be useful in answering your question about the advantages of pulling forward the 10-year program into a two-year buyback.

Mr Kowalick —I think the first point to make is that we are not short of information. There is a huge amount of information in state government agencies. There is a lot of information in the Murray-Darling Basin Commission. There is a lot of information in CSIRO. We can know what to do. The problem we have is that if we just leave it randomly to the market, it will be suboptimal. I will give you an example. I know something about the Riverland area of South Australia, having grown up there. We have got in some of the old soldier settlement irrigation areas things that were suboptimal in the 1970s. They have turned from being commercial properties now to well below minimum economic scale. They are a part-time occupation and they have a very inefficient use of water. The South Australian government and the Commonwealth are already doing some things to address it. That is an example where lots of consolidation can make big improvements. These people are not bankable. In the current environment, with the pressure on banks about credit, they are not going to be bankable in that form unless somebody intervenes to facilitate it.

Whilst you have to avoid getting involved in the handout mentality in structural adjustment, there are examples in Australia in the past where we have done it well. In the 1970s in the dairy industry, there was a very radical change in parts of Australia. It was done not trying to give handouts to accelerate the process and bring some fairness into it. So we have the expertise. We have the information. We just have to have the will to get on with it because it will be too late if we delay.

Senator HANSON-YOUNG —I will bring it back to the Lower Lakes and the Coorong, if I can. How long do you think we have before we have to put this 300 to 400 gigalitres back into the lower system?

Prof. Thom —That question is a very difficult one in the sense that we have to manage the levels of water in the Lower Lakes, particularly Lake Alexandrina, which, as you are well aware, has now dropped below mid-sea level, or AHD. If it continues to drop substantially below its current level and stays low for a substantial period of time, particularly during summer months, the risk of release of acids from those areas where the acid sulphate soils have been shown to exist creates a problem for the release.

Senator FARRELL —Are there any proposals to actually do that—to turn Lake Albert into an ephemeral lake where that will create the acidification problem that you are talking about?

Prof. Thom —Not necessarily. What we first of all want to approach, in answer to Senator Hanson-Young’s question, is to try to have sufficient water in the systems to enable the water levels to not expose those areas of acids. We have some great uncertainties here, as I am sure you had explained to you by Dr Fitzpatrick from CSIRO, with respect to the acid sulphate soil issue. By maintaining water levels around their current level, it appears now that we will not get that release of acids. The difficulty is that if it gets much lower, then, as I said, you are likely to get over time a release. A lot of that depends on the nature of those soils. The sandier they are, the faster the release. The more clay they are, the slower the release. What we have learned from the science is that if you start flooding those soils with seawater, the changes to the chemistry of those soils can be catastrophic. I think Dr Fitzpatrick outlined that to you. Work that has been done in the New England area of the United States—I can give you the reference—indicates the difficulties of rapid flooding of freshwater marshes with salt water. What we are suggesting, in the absence of getting 300 or 400 gigs down the system, is to have some input from the sea to give you a shandying to just maintain that level but only doing that after you have observed damage to the environment through the release of acids.

Senator HANSON-YOUNG —Thank you. Do you think that the government’s current water audit is going to be able to find the water we need for the Lower Lakes in the Coorong in terms of saying, ‘Okay, we need to find storages or water released into the Murray section as opposed to further upstream in the Darling?’

Mr Cosier —Senator, we have welcomed the audit. Until we get the audit, we cannot answer your question. But we believe that if the audit is an audit not just of how much water is in each storage system but what water might be available to be released to get to the Lower Lakes, if it answers that question, we will be in a far better position to do it. So we have welcomed the audit. But until we have it, we cannot really answer your question.

Senator XENOPHON —I have a supplementary question. Further to what Senator Hanson-Young has asked, does the panel, in particular perhaps Ian Kowalick, given his role on the commission, consider that the scope of the audit and the nature of the audit are forensic enough to get the answers we need?

Mr Kowalick —Well, I am not wearing my hat as a commissioner but as a private individual. The audit could go further. But I think we have to be a little careful about the accuracy with which you can do the audit anyway. If you are talking about buying water, the availability of water is a bit like the availability of natural gas. It depends on what price you want to pay for it. The size is a function of how much you are prepared to pay. The current audit is a starting point, but you can keep on refining it, if you wish to.

Senator HANSON-YOUNG —Are you aware of public or private storages in the southern parts of the Murray that could be used if we were able to acquire them?

Mr Kowalick —There is some water outside the regulated system that is around that I am aware of, but the quantity I could not say.

Senator FARRELL —I want to take up that comment you made earlier. You are really saying that there is plenty of information around at the moment. I am just wondering whether we really need another interim plan. The government does have a plan at the moment. The plan at the moment is to try and buy back water. Senator Heffernan has been critical of it today, but that is the plan that the government has got. We have started the process. Is not the government’s plan—namely, buying back water to try to get into the Lower Lakes—the quickest way of solving the immediate problems in the Lower Lakes?

Mr Kowalick —The government’s plan to do those things is fine, but if you accept that the structural adjustment issue is a problem, the plan that we need is the plan that gives information to people making key investment decisions right now. People are faced with, ‘Do I go out and borrow a whole heap of money to buy water? Do I sell my water rights? Do I go out of business?’ What we need is a basin plan that gives people enough knowledge of where the basin is likely to be. You can make your choices. If you know that there is a reasonable probability that we will have diversions 40 per cent less than we have now and if you are not well-capitalised et cetera, you may take the choice of selling your water. You may make the choice of trying to get extra capital and make investments. That is where the information gap is.

Senator BIRMINGHAM —Well, the key problem that is highlighted—

CHAIR —Sorry, I have to interfere there. Senator, you are coming across the top. We had a quick meeting this morning in which we decided that that is acceptable if it is all right by the questioner. I urge you, if you do speak, to say who is on the line for the purpose of Hansard. Your colleagues are all shaking their heads intently waiting to hear the answer and another question from Senator Farrell. Who is it out there anyway, sorry?

Senator BIRMINGHAM —It is Simon.

CHAIR —Between your colleagues, you will have a go later as we get further through the morning on this same topic. Senator Farrell.

Senator FARRELL —I am not sure whether Mr Kowalick—

Mr Cosier —I could perhaps add to Mr Kowalick’s comment. Yes, a basin plan is an essential ingredient for the long-term management of this system. It will be a plan that will be amended and adapted and adopted probably for the next 500 years, because that is how you need to manage the system. What we are arguing here is that if you put some new structure around the money already appropriated for the buyback—some cost-benefit analysis structure and change the rules for buying that water and spending money on infrastructure—that can be done through an interim basin plan, which can be done in a matter of weeks. You would get a far greater cost-benefit outcome by doing so as well as all the social and economic benefits that come with the acceleration of the buyback.

Senator HEFFERNAN —It would be fair to say that the $23 million or $24 million spent on Tooralie would buy a damned lot of water under that plan down the bottom along the Murray.

Mr Cosier —But, Senator, you might find under the cost-benefit analysis done under the interim plan that the purchase of water at Tooralie provides a very important environmental benefit for the Warrego River.

Senator HEFFERNAN —All that is in the long-term future.

Senator FARRELL —I will come back to that topic. We have a crisis now in the Lower Lakes that we need to fix immediately. All of what you have been talking about is a longer term plan to solve the problem. What I guess I am saying is that the government has an immediate plan to try to fix the problem. It may not work, but we have a plan to try to fix it. That plan is to buy water and get it back into the river system. Is that not the best plan that we have right at this very point in time?

Mr Cosier —Well, we have two issues. You are absolutely correct. We have an immediate crisis in the Lower Lakes and Coorong and we have an immediate crisis in the Murray-Darling Basin system. We have tried to address both of those in our submission. Going to the Lower Lakes, we actually do not have a plan. The reason that the communities are fighting each other up and down the river and the reason that you have had, as I understand it, hundreds of submissions on how to fix the problem in the Coorong and Lower Lakes is that there has been a lack of leadership in South Australia on how to deal with the short-term issue of the Coorong and Lower Lakes. It is not like we have been surprised that all of a sudden the lake has dropped half a metre. This has been happening over a decade. We have had dredges trying to—

Senator FARRELL —With all due respect, the federal government does have a plan. The plan is to buy water to try to get it back into the system to see if we can revitalise the Lower Lakes.

Senator BIRMINGHAM —I think, with all due respect, that is action, not a plan. Worthwhile that action may be, the witness is highlighting that there should be a plan.

Senator FARRELL —Call it action; call it a plan; call it whatever you like. But—

CHAIR —Sorry, Senator Farrell. A senator has asked a question of a witness. It is up to the witness to answer, not other senators.

Mr Cosier —I will just give a brief response. Perhaps Ian Kowalick would also like to add to that. We absolutely welcome the Commonwealth’s acceleration of the buyback. In the last 12 months, there has been a dramatic acceleration of the buyback program in Australia. We greatly welcome that. With respect to the—

Senator FARRELL —I appreciate that comment.

Mr Kowalick —I can add to that. I think that everything that is being done is good. We just need greater urgency about it because the damage will be so significant, it may be irreversible if we do not accelerate the process. To be able to accelerate the process, we actually have to give a lot more information to people making decisions.

Senator FARRELL —But if we can find the water to purchase to get to the Lower Lakes, that is the quickest way to solve this immediate problem we have in the Coorong, is it not? This inquiry is about the Lower Lakes. I appreciate that we have heard lots of information about—

Senator SIEWERT —The first bit of our inquiry is about the Lower Lakes.

Senator FARRELL —What we are dealing with at the moment is about the Lower Lakes.

Prof. Young —I want to make a very important distinction. I stress that it is important, in talking about water, to understand when we are talking about buying water entitlements and when we are talking about buying volumes of water which are in the system now. What we have been talking about so far is buying water entitlements. There is a short term and there is a long term.

Senator FARRELL —We do appreciate that distinction. I think every speaker has made that distinction. I think the committee is well aware of the differences between buying entitlement and actually getting the water down the river. But it seems to me that if you do not start buying the entitlement, you have no chance at all of getting the water into the river.

Mr Cosier —Ilona Miller might also have some thoughts on the impediments to the current buyback scheme.

Ms Millar —In terms of the buyback, obviously we welcome the buyback. But there are impediments to getting the volumes of water that might be necessary to meet environmental flows and to provide environmental values. So the four per cent limit on trade out of irrigation districts and the issue of unbundling water licences within Victoria, they all provide hurdles, which means that, for example, you need to buy back over a much longer period of time because of those impediments rather than be able to buy the water back more quickly.

Senator SIEWERT —Which licences in Victoria? I missed the first word you said.

Ms Millar —From the irrigation corporations.

Senator SIEWERT —The four per cent. You said the issues in Victoria are the four per cent and then something about the licences.

Ms Millar —Sorry, the unbundling of the licences.

Senator SIEWERT —Unbundling. Sorry. I missed that word.

Senator FARRELL —I have another question. I am not sure quite who to address it to. It relates to this issue of purchasing water on the temporary water market. Do you view that as a good way of solving the immediate problems we have of getting environmental flows down the river?

Mr Cosier —I will try to give you the short answer. If I get it wrong, I am sure my colleagues will assist me.

Senator FARRELL —We will go for the short one.

Mr Cosier —They will correct me in the error of my ways. The circumstance, as I understand from evidence you got yesterday and the day before, is that the lake levels are coming up a little more. We are now at about minus 0.1 AHD.

Senator FARRELL —That is actually a bit higher than we heard yesterday.

Mr Cosier —Sorry. I misheard yesterday.

Senator FARRELL —I think it was 0.18.

Mr Cosier —When this inquiry first started, we were looking at levels far below that. If we did not have those local catchment showers, we would have been in serious crisis. It appears that the likelihood of that happening is now lower in terms of this summer’s risk. But as Senator Heffernan has pointed out, that gets us through this summer. Then we have to worry about the next summer. What our submission suggests is that there is a concertina of decision-making that needs to be done in the next few months to make sure that we do not get those lakes turning into battery acid. First of all, that is to secure the volumes you need. But you may not need them. We do not have the information on the audit, so we cannot go any further than that, on our advice. If we find the audit does not have that water and it is needed, do not drop the barrages and fill those lakes up with water, which is where the community was two months ago when this inquiry started, because that would be catastrophic to then start shandying the water. We believe, on the advice we have, that there is sufficient scientific evidence to allow us to manage our way through this crisis over this summer. But it would be very prudent to secure 300 gigalitres in case things go bad.

Senator FARRELL —This is the question I asked Dr Thom a moment ago. Part of your submission for the urgency is, using your words, to decommission Lake Albert. Does that not create the acid sulphate problem that we are trying to avoid?

Prof. Thom —Not necessarily, Senator. What we have done here is put forward a number of options. One concern I have is the link between the present crisis and the future crisis when we are looking at the conditions that are going to emerge under climate change scenarios that we have studied and which CSIRO has articulated. There will be the continued reduction of freshwater flows into the Lower Lakes and into the Coorong. What are the options available to us to manage the situation in the longer term? We know that, since the barrages have been there, we have had a significant increase in shoaling inside the entrance, which has substantially reduced the capacity of tidal exchange. So we have the possibility of a number of engineering type options before us to look at. The idea of decommissioning Albert is just one of those ideas that we believe should be looked at carefully by a commission of inquiry, particularly if it is done in a sort of a slow, monitored way, to make available the possibility of 200 gigs. But it may not be the preferred option for that area, given a better understanding of the nature of the soils and the conditions of the two lakes.

Senator HEFFERNAN —Which is what they wanted to do in 1906, by the way.

CHAIR —Senator Farrell, Senator Hutchins has some questions, as do others. Do you have any more questions?

Senator FARRELL —No.

CHAIR —Senator Hutchins. Then we will go to Senator Adams.

Senator HUTCHINS —Thank you, Mr Chairman. Mr Cosier, you are not a South Australian?

Mr Cosier —Well, I—

Senator HUTCHINS —You are, then, are you?

Mr Cosier —I am a South Australian living in Sydney at the moment.

Senator HEFFERNAN —He is a café latte bloke.

Senator HUTCHINS —Dr Williams, you are not a South Australian, or Professor Thom?

Dr Williams —No. I am not a Monaro boy, yes.

Senator HUTCHINS —Ms Miller is not.

Mr Cosier —Professor Thom is not.

Senator HUTCHINS —But all the rest of you are. You are from the University of Adelaide, are you not?

Prof. Young —No. I am an Australian. Everything I do in the basin is carefully—

Senator HUTCHINS —I am going to ask my question, if you do not mind.

Prof. Young —No, Senator.

Senator HUTCHINS —No.

CHAIR —Senator Hutchins has the call.

Senator HUTCHINS —We heard from Professor Kingsford from the University of New South Wales this morning that there are other environmental priorities along the Murray River system apart from the Lower Lakes. He used the term ‘robbing Peter to pay Paul’. Do you see in some of your proposals that that might be the case, particularly with Menindee Lakes and how vital ecologically they are?

Mr Cosier —Perhaps it would be best if a non-South Australian member here spoke to that. I might pass it to John Williams and Bruce Thom.

Dr Williams —As for New South Wales and Queensland—I am never quite sure who to barrack for in the State of Origin—to me, there is truth in what you say. The whole ecosystem—the floodplains and the wetlands—of the Murray-Darling system are having serious problems. They have not got sufficient water. That is the basis of our fundamental submission—that we have to reduce allocations by 50 per cent. Yes, along the Lachlan and Murrumbidgee systems and the Darling and the whole lot there are wetlands that are seriously degrading under the acid sulphate conditions. The refugia that are there have been essentially filled by erosion sequences in the past. Therefore, the refugia for our wildlife is being reduced in these dry times whereas in past dry times they may well have been adequate. Yes, there is.

The point is, I think, that in the first instance it is a symptom that the whole system is under stress. There is some case for recognising the whole. But we believe that it is possible to find water at that time and do it in a way that does not necessarily lead to robbing Peter to pay Paul. That is why we would argue for a rapid reassessment of the whole thing. You have really got to reset the Murray-Darling Basin. Thank you.

Prof. Thom —I may just add that we recognise that we have 15, I think, Ramsar wetlands in the Murray-Darling Basin system, of which, of course, this is one. It is one where the international scientific world and environmental world are looking very closely at us. We do not wish to create a delisting situation for this, being a Ramsar site, and create Australia’s version of the Aral Sea. Hence, as the canary in the mine, as it were, looking at the lowest part of this interconnected Murray-Darling system—this being the estuarine part—the crisis for me and my colleagues is what we can do to manage that very important ecological system.

Senator HUTCHINS —Thank you. I want to ask a second question. I took notes. You said somewhere between a 42 and 53 per cent reduction. Could you paint for us the socioeconomic consequences of that? I know you have mentioned it a few times. Are you able to tell us whether a town like Deniliquin will probably have to pack up and go home or whether Wentworth or Murray Bridge will have to stop operating?

Mr Cosier —I might ask Mr Kowalick and then John Williams to answer that question for you.

CHAIR —Sorry, we are very short on time. There are a lot of questions to be asked.

Senator HUTCHINS —I just have one more.

CHAIR —Senator Hutchins has the call. There are no worries.

Mr Kowalick —With the various estimates that have been done, and with the sort of change that that brings out, it is not a question of a particular town going. But it will affect areas that are specialised in particular crops that have not the highest and best use of water or an ability to get efficiency gains. But the figure being bandied around is about 30 per cent of people will disappear from the industry of farming because the scale of those needing to be efficient will be higher and the capital requirement will be higher. So there will be a significant transformation both in terms of the number of people and the scale and capital intensity of the industry going forward.

Senator HUTCHINS —We had representatives from Murray Irrigation Limited here earlier. They said they have within their area nearly 2,500 farming businesses and nearly three-quarters of a million hectares with a regional population of 30,000. Under your proposal, specifically are you able to give us advice about what would happen to them? Generally, is it that 30 per cent of 30,000 people will have to find somewhere else to go, or is that unfair?

Mr Kowalick —I think that is unfair because you are going to have to look at particular areas, what industries are involved, what markets they cater to and what the opportunity of efficiency is. You can have broad rules of thumb, but they are not going to be meaningful for any particular location until a lot more work is done.

Senator HUTCHINS —Thank you.

Senator HEFFERNAN —Surely we will go to higher tech farming.

Senator HUTCHINS —I have one final question. Mr Cosier, you said in your comments that there was a lack of leadership in South Australia. In a number of our submissions there has been reference to South Australia needing to do a bit more. They are my words. Do you want to expand on that for us, please.

Mr Cosier —Just very briefly, as I said earlier, people should not be surprised at what is happening with the Coorong and Lower Lakes. We have had dredges put into that to keep the mouth open for probably a decade now and we have had declining river flows as a result of the drought, which has kept getting worse and worse. This issue has come up on us slowly. We are in a situation where we seem to be managing. I take it that is why we have a Commonwealth government Senate inquiry into the Coorong and Lower Lakes—because there was no other process from which people could channel their proposals. We seem to be managing an international wetland, one of the great wetlands of the world, by press release. We have planning processes in this country where companies and businesses such as, say, BHP in South Australia, are spending hundreds of millions of dollars on prefeasibility and environmental impact statements to dig a hole in the middle of the desert and yet we do not have any formal process for evaluating the long-term options for managing one of the world’s great estuaries. That is why I made my rather impassioned comment.

Senator HUTCHINS —Thank you very much.

Senator ADAMS —I want to ask a question on the increasing amounts of salt coming down the river. My question is really about the new weir. How is that going to affect the amount of salt that is being dispersed into the lakes?

Mr Cosier —There are members of our group who have not been able to be present today who are the wisdom on that. His name is Professor Keith Walker. We could give a general answer, but it would not, I do not think, satisfy your question. Perhaps we could take that on notice.

Senator ADAMS —Thank you.

Senator FISHER —I think my question is probably for Professor Young but is open to all of you, obviously. You have talked about the wisdom of quick access in the market in terms of offering to purchase water. Have you considered proposals currently being mooted, for example, to more than double the price offered per megalitre of water from some $2,000 to some $4,800? Firstly, there is the increase of the price and, secondly, the prospect that, for example, that might be offered to the marketplace for a compressed period of, say, 90 days. Have you considered those specific sorts of options? What is your view of them?

Prof. Young —Yes, we have considered them. In fact, there has been quite a lot of work done on it. Particularly Professor Grafton, who was also part of our submission and is unable to be here today, has done considerable work on that. Clearly, if you want to have a compressed, very fast buyback, you are going to have to pay well above market price.

Senator FISHER —The aim of that will be to provide incentive, will it, to people to relinquish their rights?

Prof. Young —Yes. If you are in a willing buyer, willing seller environment, clearly you are going to have to offer to pay a price which is sufficient to convince people that now is the best time. Part of that is also dependent on how the government puts a package together. At the moment, we have been moving slowly. The important proposal that we are really putting on the table is to move quickly. That means the government will have to be able and willing to pay above market price. How much above market price is something that we can work on in a lot of detail. But the first thing is to get the principle established that we need to accelerate this buyback process, which means putting a lot of money on the table and then very quickly working through the detail of the best way to do that. Yes, it could be done very, very quickly.

Senator FISHER —So more money for a compressed period of time. What is your opinion of the likes of the 90 days mooted, that being the period for which the offer of the increased money might lie on the table?

Prof. Young —It is an option. I would not in this room come up with a recommended solution. The principle is what we are trying to convince you to do. Whether it is 90 days or 100 days or whether it is done in two, three or four steps is something that needs to be carefully analysed. There is also a big difference between making an offer for a 90-day period and the time in preparing to do that and getting it right. Corporate experience is that that is the sort of period it is done for each time you go around, if you are doing that.

Senator FISHER —I accept your point. In principle, a compressed time period. Be that the period or not, are you of the view that the government could forecast to the marketplace that this is the plan and that would help set the marketplace for the implementation of the plan and for some transition period afterwards in terms of those who decide to relinquish their rights?

Prof. Young —I think that is part of the whole interim planning process that we are suggesting. There needs to be an interim plan deal with the problem that can be put together very quickly. The detail then is something that must be communicated and particularly conveys to everybody the information that they need to make a very, very difficult decision. It is information to irrigation companies, to towns and to local communities.

Senator HEFFERNAN —Hang on. With great respect, I want two minutes before we finish.

Senator FISHER —I have one final question on this issue.

Senator HEFFERNAN —Well, hurry up. Quick!

Mr Cosier —I could also take the rest of your questions on notice.

Senator FISHER —Thank you.

Mr Cosier —As Mike mentioned, Professor Quentin Grafton has been helping with this. In very brief summary, he and Mike—you can also look at information from the Productivity Commission’s work—argue that there are tricks and rules by which you can constrain a blowout of the price. You create crafty, clever rules for doing that. The market is not dumb. The market knows that if the Commonwealth went in over the next two years with an $8.9 billion buyback, it is not going to come back in 2010 with another $8.9 billion buyback.

Senator HEFFERNAN —Surely part of the deal is that if you are going to take them out of the market, you would not let them go back into the temporary market and continue the productivity of the farm because you would absolutely distort the allocated market.

Mr Cosier —That is another example.

Senator FISHER —That is right. However, my final question is: if the government were to forecast and implement a plan on the basis of those principles, would the market be distorted in perpetuity, or would the market deal with it and would the program achieve its end?

Mr Cosier —Ian is a businessman, so we can ask him. Quick.

Senator HEFFERNAN —Take it on notice.

Mr Kowalick —Yes. I will take it on notice.

Senator HEFFERNAN —I want to go to the question of this buyback. I am alarmed that we might set a precedent where, to get the water, we have got to buy the bloody land. If I am an irrigated farmer and I am a willing seller and I have 400 acres with 18-inch rainfall that I grow rice on and the bank says, ‘Son, you’ve got to get rid of your water’ and they offer twice the entitlement price, I will say, ‘I’ll take that, thanks very much.’ Then I will be cunning and go back into the allocated water market or I will say, ‘If you want my water, you’ve got to take my farm.’

Mr Cosier —The very short answer, Senator, is that the states agreed through the National Water Initiative to separate land and water title. The only reason the Commonwealth has had to buy land in Queensland and New South Wales is that the titles have not been separated.

Senator HEFFERNAN —It is the most inefficient way to deal with today’s problem.

Mr Cosier —Yes, it is.

Senator HEFFERNAN —It is a great thing for over the horizon.

Mr Cosier —Yes, it is.

Senator HEFFERNAN —It is a garbage, bloody panic decision.

Mr Cosier —It is an inefficient way to do the job that needed to be done.

Dr Williams —My understanding, and analysis we have done through the New South Wales commission, shows that the first thing you have to do is free up the market before you go into that exercise. While ever you try to do what you are saying, without removing those caps and the fact that water and land are bound, you will have corruption of that market.

CHAIR —Before we go any further, Senator Hanson-Young has one very quick question.

Senator HANSON-YOUNG —I want to touch on the four per cent cap as an imperative to getting more water into the system in terms of the market. Would you see that this needs to be lifted in order for us to acquire the urgent 300 or 400 gigalitres for the Coorong?

Ms Millar —The four per cent limit is definitely an impediment to trade. It is an impediment to access to that water.

Senator HANSON-YOUNG —Obviously in the medium to longer term we need to tackle that anyway. But in terms of getting the urgent water we need for the Lower Lakes and the Coorong, which is part of the terms of reference for this committee, you would see the four per cent cap as an imperative that would have to be tackled ASAP?

Prof. Young —Can I add that there is another cap as well. Part of the process of unbundling in parts of Victoria is that there is a limit on the proportion of entitlement that can be separated from land. That is 10 per cent. The Commonwealth’s environmental water holder would not want to own land. It would only want to hold entitlement. So, in fact, I think you will find it is not the four per cent which is the problem. When you start the process, it will be the 10 per cent limit which will very, very quickly pull the system up.

Senator HANSON-YOUNG —So in order for the Commonwealth to purchase the water needed, if we can find it and if the audit says it is there, in order for us to secure the 300 to 400 gigalitres for the environment, we would actually need to tackle those caps?

Prof. Young —No. By ‘cap’, there are differences here. There is four per cent on entitlements, which is different to the allocations.

Senator HANSON-YOUNG —To the allocations. So we need to do both?

Mr Cosier —And it is not only to get the 300 to 400 gigalitres. It is impossible for the Commonwealth to do an accelerated buyback program under the current institutional rules that are put in place by the states. If the Commonwealth were to choose to go this way, we would have to bash a few heads in the states or exercise some constitutional powers that have not been tested before.

Ms Millar —Just to add to that, in terms of the four per cent limit, recent studies have shown that it has not been triggered in New South Wales. But in Victoria at least seven irrigation districts have refused trades on the basis of the four per cent limit.

CHAIR —On that, Senator Siewert just has one clarification.

Senator SIEWERT —Mr Kowalick, you were talking about the 30 per cent of people who will go out of the industry with restructuring. From the comments you made earlier, I understand that we will see most people leave sooner or later. Can I interpret your plan to say that it will result in 30 per cent of people leaving the industry? They are going to leave anyway. What the group is saying is that you do it in a structured manner and not see them go out the door gradually. Is that a correct interpretation?

Mr Kowalick —If you have just disorderly change, it has all sorts of impacts and often ends up as a cost to government. It impedes the achievement of the objective because there are all sorts of distortions along the way. If you do it in an orderly way, and that is not necessarily big handouts, you can facilitate structural change to bring it about. It is like any problem. It is better to face up to it in a timely way. While I have some faith in markets, have a look at international finance markets. They are not perfect.

Senator SIEWERT —I just want to make sure that people do not run around saying, ‘Your plan means this many people are going to leave the industry.’ The point is that they are going to be anyway and we need to do it in a more structured, less traumatic way.

Mr Kowalick —Yes.

Prof. Young —If it is properly structured, it might mean that fewer people leave. There is the potential to get this very wrong by procrastinating.

CHAIR —I have one question to the professors, doctors, visitors and other members of the group. I do not want an answer now. Please take it on notice. In your submission, you talk about a variety of options under consideration for the long-term strategy of the Coorong and the Lower Lakes. Could you come back to us with what you see as the positives and the negatives. A photo is being taken. Put on your best faces. You have 10 seconds. I am going to thank you very much for attending today. It is good to see you. No doubt we will be seeing a lot more of you as we go through the calendar year. I now call the representatives from the Department of Water, Land and Biodiversity Conservation in South Australia. To the senators who are online—Senator Birmingham and Senator Xenophon—I am sorry about that. Before we do start with the next witnesses, do either of you wish to ask any specific questions?

Senator XENOPHON —I guess it depends on the information.

CHAIR —Thanks, Nick. No worries. Simon?

Senator BIRMINGHAM —I will reserve on these ones, depending on what we get out of them and what questions the others are asking. There is only half an hour.

CHAIR —You will have to share that time of your coalition colleagues. I would prefer it that, if you want to ask a question, you come in when I call one of your Liberal colleagues. Thank you.

 [10.37 am]