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Australian water trading: a farming perspective. Address to the Third A-Z of Australian Water Trading Conference, Sydney, 2004

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Australian Water Trading - A Farming Perspective

Address by NFF President, Mr Peter Corish The 3rd A-Z of Australian Water Trading Conference, Rydges Jamison, Sydney 30 November 2004

• It’s a pleasure to be here again for this year’s A-Z of Australian Water Trading Conference.

• And if you will pardon the pun, there has been quite a bit of water under the bridge since last year’s conference.

• This forum serves as a timely reminder to key stakeholders, bureaucrats and politicians alike, that water security, for farmers, the environment and regional communities, is an Australia-wide issue which needs ongoing bipartisan support to implement the National Water Initiative.

• More than 3 years ago, NFF decided that resource security in regard to both water and land would be our number one priority.

• The two aspects - water and land - are inextricably linked.

• If farmers are to manage their natural resources in an environmentally sustainable way, they must have certainty about their long-term access to those resources.

• Over a long period of time, Irrigators have invested a considerable amount of money and time in undertaking actions that will not only make their farms more economically viable but which will also be beneficial to the environment.

• It is vital that farmers get the certainty they require to give them confidence to invest in the latest efficient and environmentally sustainable

management practices and to give banks and financiers certainty to support these investments.

• Advances in water efficiency will only be made if farmers have clear security and tenure over access to water.

• I understand that the risks associated with a lack of investment security of farmers, and the benefits that the NWI should deliver in this regard, were spelt out yesterday by Stephen Carroll from the Australian Bankers Association.

• The Australian Bankers’ Association has indicated that if farmers and their finance providers have no certainty of tenure, for example beyond 10 years, then loans being serviced by the product of a water entitlement would need to be paid out over that period. And they have warned that the cash flow impact of this change in farm financing would be a 30 per cent reduction in cash surplus on a typical irrigated farm. The scope of flexibility in droughts or during falls in commodity prices would also drop significantly.

• I would like to talk to you about four aspects of water management:

- Sharing costs enforces better risk management;

- Water Trading for farmers;

- Environmental Awareness and efficient farming; and

- Paving the way for strong sustainable agriculture.

Sharing costs enforces better risk management

• NFF has lobbied hard over the past 3 years to impress upon governments the need for water resource security.

• You would all be aware of the recent decisions by the States and Territories to suspend their involvement in the National Water Initiative

until the issue of funding is resolved with the Commonwealth Government. Let’s hope this is resolved quickly so that we can implement the NWI in a constructive and positive way.

• It is worth taking a little time to reflect on how the NWI came about especially given the difficult issue of how to address future risk assignment for changes in allocations arising from reductions to the consumptive pool.

• We were delighted that the Prime Minister, Premiers and Chief Ministers agreed to a comprehensive Communiqué on the development of a National Water Initiative at the COAG meeting in August 2003.

• But were alarmed by one significant principle in that Communiqué that:

"Water access entitlement holders should generally bear the risks associated with … bona fide improvements in the knowledge of water systems’ capacity to sustain particular extraction levels”

• We wrote to the Prime Minister the week after COAG and registered our significant concerns. We said:

“The NFF remains concerned that the risks associated with changes in knowledge of the capacity of water systems to sustain particular extraction levels should be borne by the entire community, not just the farmer or entitlement holder. If this risk is borne by farmers two of the key principles of the initiative namely investment certainty and further adoption of sustainable management practices will be compromised.”

• We continued to argue our case on this point in public forums and through the media.

• In the months after the COAG agreement to develop the NWI, NFF developed and presented to governments a clear framework for an Intergovernmental Agreement on water.

• In November 2003, we clearly outlined the position of farmers on all the key issues - best practice pricing, environmental water and infrastructure, urban water reform, water entitlements and markets, and water resource accounting.

• From late 2003, risk assignment emerged as the residual issue which needed to be resolved with both State and Federal Governments.

• The NFF position was clearly articulated in a response paper on risk assignment provided to governments and published in February 2004.

• Our position at that stage was that governments, not farmers, should bear 100% of the future risk for changes to water entitlements triggered by bona fide improvements in the knowledge of water systems’ capacity to sustain particular extraction levels.

• Farmers would accept the risk associated with climate change and seasonal fluctuations in water supply.

• NFF was greatly concerned that governments were using the proposed arrangements - where farmers accept 100% of the risk - to shift the risk and costs from their own treasuries to farmers. This outcome would have imposed unfair costs on Australia’s farmers and regional Australia.

• NFF viewed this as a very cynical attempt by governments to shirk their responsibility for previous decisions that have, in some cases, led to systems becoming over allocated.

• Governments, through the provision of licences, have provided water users with the ability to extract water from a particular water system.

• In some cases the licences have been held for many years and in many cases State and Territory Governments granted them on an ad hoc basis.

• Water users have subsequently invested large sums of financial and personal effort to best utilise their entitlement. Often this has required significant investment in irrigation systems. But the use of that water in

productive way has benefited the farmer and local communities and the national economy in terms of exports.

• In a nutshell, it is not the fault of farmers that too many licences were handed out and that some systems may be considered over-allocated.

• By early 2004 it was obvious to our members that the NFF call for the government to pay risk assignment was untenable.

• Consequently, NFF reviewed its position and proposed that there be equitable cost sharing of future risk between water access entitlement holders, State and Federal Governments.

• This is recognition by farmers that we are willing to bear SOME BUT NOT ALL of the responsibility for the cost of managing future risk.

• It is a practical solution which recognises that everyone in the community benefits from farmers’ efficient use of water and environmental restoration.

• Let me stress that this proposal is not a position that supports cuts across the board to irrigators. Our position is that the yield on an individual licence cannot be reduced unless fully compensated by government.

• The COAG decision in June 2004 on the NWI was viewed as a significant win for Australian farmers.

• The decision to share the costs of returning water to the environment between Federal, State and Territory Governments, and farmers would ensure the certainty that farmers need to plan and invest for the future.

• Clause 49 of the NWI states that “…risks arising under comprehensive water plans commencing or renewed after 2014 are to be shared over each 10 year period in the following way:

1. Water access entitlement holders to bear the first 3% reduction in water allocation under a water access entitlement;

2. State/ Territory governments and the Commonwealth Government to share one-third and two-thirds respectively reductions in water allocation under water access entitlements of between 3% and 6%; and

3. State/ Territory and Commonwealth governments to equally share reductions in water allocation under water access entitlements greater than 6%.”

• NFF has written to the Prime Minister and Premiers indicating that our support for this approach is based on the understanding that:

1. Existing State and Territory Government water management arrangements will remain in place until 2014; and

2. Governments will allocate funding to address currently over allocated and/ or overused systems.

• COAG accepted the undeniable fact that our watercourses do not recognise State boundaries, and that any decision made by one jurisdiction will have impacts on others.

• The decision in June represented a victory for leadership on the part of the Federal, State and Territory Governments over political agendas. We were delighted that the Prime Minister and Premiers were able to put politics aside to agree to an initiative which will have such positive ramifications for all Australians.

• However, NFF is extremely concerned at the recent decision by Premiers and Chief Ministers to suspend their involvement in the National Water Initiative (NWI).

• Their decision is potentially disastrous for the future of farmers, the environment and rural communities.

• NFF has written to all Premiers asking them to reconsider the suspension of the NWI.

• The importance of the NWI to the livelihood and future of all Australians, no matter where they live, cannot be overstated.

• I am afraid to say that if the NWI is not implemented in full, the confidence of many farmers and their financiers in the future will be severely damaged and this can only have serious consequences for Australian agriculture and for the entire Australian economy.

• Moreover, this lack of certainty could jeopardise the potential environmental benefits which would accrue under the NWI framework.

• NFF has also written to the Prime Minister seeking the Coalition Government’s commitment to have an urgent Council of Australian Governments (COAG) meeting next year to address issues surrounding the NWI.

• The Prime Minister has now indicated that a COAG meeting will be held mid-2005.

• NFF is calling on the Prime Minister, Premiers and Chief Ministers, as they did in June this year, to again put aside politics for the sake of the national interest, and get the National Water Initiative back on course.

Water Trading for Farmers

• NFF supports the development of a national water market that, as far as practicable, facilitates trade across and between districts and jurisdictions where water systems are linked.

• The NWI requires that the States and Territories will establish compatible institutional and regulatory arrangements that facilitate intra and interstate trade, and manage differences in entitlement reliability, supply losses, supply source constraints, trading between systems, and cap requirements by 2007.

• NFF supports the NWI position that compatible, publicly-accessible and reliable water registers of all water access entitlements and trades be fully implemented by the States and Territories by 2006. It is important

that this process ensures that trades are transparent and avoids duplication across jurisdictions.

• A set of enforceable national trading protocols should also be developed as a matter of urgency.

• The water market, as with any market, must have defined rules of operation. These rules should address the following principles:

- The limitations of the system and operational capacity need to be recognised (ie the ability to deliver water is a real constraint to trading);

- Individual rights need to be protected (ie no third party impacts);

- Environmental principles need to be protected; and

- Avoid any party or parties developing a dominant-market position.

• Where practical all available water and entitlements (including the environment) should be part of the trading system. Stock and domestic water supplies should not be tradeable.

• The market should facilitate the trade of entitlements, annual allocations and supply delivery capacity on a permanent or temporary basis. There should be no constraints on the development of new products for trading.

• Social impacts (including loss of employment, services and facilities), especially on stranded assets, need to be understood and taken into account when moving to a free trading environment.

• Traded water should comply with management and accounting arrangements that are in place in the area where the water is going to be used.

• NFF supports the adoption of water access entitlement tagging so that when water is acquired it should retain the characteristics of its origin.

• National protocols for tagging need to be developed. This may include losses and gain factors as well as supply delivery constraints.

• Trading should be able to occur via a range of mechanisms including the internet, telephone, facsimile, face to face etc.

• The environment is a legitimate participant in the market, and it should be subject to the same governance arrangements and processes as other market participants.

Environmental Awareness and Efficient Farming

• I would like to turn my attention to environmental awareness and efficient farming.

• Farmers will continue to be the primary vehicle for the delivery of many of the nation’s major land and water conservation initiatives.

• With Australian farmers responsible for the management of more than 62 per cent of the Australian landscape and more than 80 per cent of our water resources, farmers are central players in natural resource management.

• For example, farmers have been at the vanguard of Landcare activities over many years. Landcare and stewardship activities have become core business to many farmers as they recognise the importance of constantly improving natural resource management to ensure the environmental and economic sustainability of their farms, for this and future generations.

• We need to return the responsibility of managing our natural resources/ landscapes to landholders who are the stewards of approximately 80 per cent of productive land.

• ‘Natural Resource Management’ is today's buzz phrase and is about managing our natural resources for not only environmental outcomes but also to produce profitable, fresh, safe food and fibre for all Australians.

• We need to secure greater recognition from governments and the general community of the role farmers play in the sustainable management of our land and water resources.

• While new agricultural market opportunities are emerging, there is no doubt that producers are, and will continue, to face increased scrutiny from overseas and domestic markets and consumers over their environmental performance, animal welfare credentials or other practices that underpin food and fibre production.

Paving the way for strong sustainable agriculture

• Finally, I would like to touch on the need for an overall strategy to secure agriculture’s fut ure in the long-term.

• There is no national blueprint that outlines agriculture’s ongoing place in our environment and the economy in the next 25 and 50 years.

• Australia needs a long-term vision for agriculture so that our future is not solely determined by short-term political agendas.

• The NWI was developed despite the politics, not because of them.

• An integrated, national vision which anticipates our resource needs can ensure that we can deliver the ongoing sustainable production of clean and fresh food and fibre into the future.

• It is time we sit down and develop a strategy to plan for the future of our next generations, our industries and the rural and urban communities.

• NFF has called on the Federal Government to work with industry, state governments and all stakeholders in agriculture to develop a framework for the future.

• Agriculture cannot be looked at in isolation. It is important to ensure that we take into account all of its impacts on the rest of the nation. Farming has linkages into many other sectors and issues which need to be included in the development of a national vision, things such as:

- Environment;

- Finance;

- Labour markets;

- Transport;

- Trade;

- Regional and Rural Communities;

- Telecommunications; and

- Research and Development.

• For Australian farmers to survive and prosper, we must not shy away from change, but ensure we continue to develop a strong, informed and responsive farming sector capable of managing risks and capitalising on opportunities. This is exactly the approach taken by farmers in developing the NWI.

• We developed practical proposals and recognised the governments’ need to deliver a framework which gave the environment, farmers and the community long term security.

• We worked hard to make sure that all stakeholders were aware of our position on important aspects of water management.

• It is now vital that the Federal and State Governments re-commit to the NWI and NFF is working hard to ensure that they do so.

• In relation to land and native vegetation, NFF will be following through with the Government on its commitments during the election campaign regarding an Intergovernmental Agreement on land and native vegetation resource security and in relation to NFF’s proposal of a National Environment Management Program.

• NFF also called last week for the Howard Government to convene a speedy independent review into the efficiency and effectiveness of the $1.2 billion Natural Heritage Trust Extension and the $1.4 billion National Action Plan for Salinity and Water Quality.

• Farmers have raised concerns about the extremely slow process, particularly in relation to the NAP, in allocating funding to deliver tangible ‘on the ground’ environmental improvements. There are also concerns about the amount of funding being absorbed by bureaucratic structures.

• More broadly now that the Federal election is behind us, there is an opportunity for governments and industries to commence a process of consultation with a view to developing a long-term vision and framework for Australian agriculture.

• We look forward to meeting with the Government to discuss this approach.

• Thank you and I hope you enjoy the rest of the rest of the Conference.