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Impact of the Murray-Darling Basin Plan on regional Australia

CHAIR —I welcome the South Australian River Communities representatives to today’s hearing. I do not know if you were here when I gave the warning before. Can I accept it as having been read?

—That’s fine.

CHAIR —Thank you. We have received a written submission from you. Do you wish to make any additional submissions, or offer any additional material or make an opening statement?

Mr Haslett —We would like to make an opening statement. We do not have any additional material for you. I am one of the farmers that we have been discussing, so it was pretty interesting to hear myself being talked about. First of all, I would like to thank you for giving us the opportunity to come in and elaborate—and hopefully you have got some questions for us on this—on the submission that we have provided. For those of you who are now aware of who we are, South Australian River Communities is largely centred in the Riverland but moves down the Murray as well. There are some 48,000 people that we encapsulate in our region over some 50,000 hectares of land. There are 3,000 irrigators and over $1.5 billion worth of regional products. The people that we represent come from commodity groups—so the Australian almond growers association and the winegrape growers association, being the state based versions, and irrigators like the Central Irrigation Trust—so these are large irrigation water providers—private irrigators and irrigation bodies like the South Australian Murray irrigators organisation who represent irrigators—and local government. We even go down to the Lower Murray irrigators, so we are not just solely focused on the upper stretch of the South Australian section.

We really do support a Murray-Darling Basin Plan. We recognise there needs to be reform in the way water is used so we wholeheartedly support a change. We recognise the importance of water. In fact, because of where we live and what we do, our communities are totally dependent on it. In some ways that is for our communities more than others, although you hear lots of communities saying the same thing. For the last 100-plus years we have been set up in a region that has been focused on primary production and has not been focused on any other sorts of production that could be opportunistic uses of water. Our lands and infrastructure have been set up based on permanent horticulture in general.

I think there is a really good future in the basin. As a younger person that produces citrus, almonds, winegrapes and stone fruit and is involved in contract harvesting and exporting to Asia directly in my own capacity, I think there is a great future in the basin. We need some balance. We are not sitting here suggesting that there is not a position for irrigation in the north or that there is not a position for irrigation in the south. We think we need a balance. There is a position for opportunistic use of high river flows but there is also an important position, we believe, for permanent horticulture and permanent food production. Some of what the previous speakers said is true, especially in terms of permanent horticulture and permanent food production. We require security. Every time I plant a tree it is a 25-year bet. If I do not know what is going to happen on a legislative front in the next couple of years, I am not quite as keen to put out the money for that 25-year bet. So security as to what we face in going forward is a very important point.

We would also like to talk about that resource management. We are talking about large change, and in our document you will see that we think there are a number of mechanisms which we can utilise to achieve a healthy river system. Once again, we are not arguing for not having a healthy river system. If we do not have a healthy river system, obviously we do not have communities. We drink the water, we produce the water in our towns and we absolutely require it. So we are not arguing against a healthy river system; what we are arguing for is balance. We know that we are not just farmers but land managers too. My property abuts a Ramsar site: a wetland of international significance. In the last 15 or 20 years, the people who have been doing the work in that area have been the farmers whose land abuts the area. If we disappear, I think it will be detrimental to the management of a lot of those sorts of resources in those areas. So I think we need to make sure that we understand that the farmers are not necessarily just rapers and pillagers of the resource.

Lastly, before Gavin talks about a few other things—and I am hoping you have some questions so we can highlight some things further—I would like to say that, as we head towards an efficient use of our water resources for environmental, community and city needs as well as food production, we would be most concerned about disproportionate penalisation of an area that may well be one to hold up as an example of where we are headed for efficient water use. There are a lot of regions that irrigate well, but our region—South Australia as a whole—has worked under a sustainable diversion limit for the last 40 years, since about 1969 or 1970. We have not been using any more water; if we wanted to expand what we grew and the food we produced, we needed to become more efficient. So we have been doing some of the community change for the last 40 years. We had flood irrigation for permanent crops, and we transitioned to sprinklers: overhead sprinklers, under tree sprinklers and misters. Now we have transitioned to drip irrigation—a lot of our irrigators are state-of-the-art drip irrigation, and they have expanded based on that.

We also have a civilian industry that is reliant on the River Murray. Adelaide is proportionately more reliant than cities in other states, and that has a large effect on cutbacks to irrigators, because we do not think we are going to see Adelaide become less reliant. So what we are saying is that this region is very efficient at the moment—though there are other areas that are too—so do not make disproportionate cuts in a region that can be held up to say, ‘That is probably one of the areas we want to head in for water use in Australia.’

Mr McMahon —There are two things I would like to talk about. One is to drill down into own local area and the second is to try to look at solutions across the whole basin. It is not until you understand the numbers and try to work out what impact that has on your area that you understand what it might do to your community. If you look at the Murray-Darling Basin Plan and you look at what they have said are its current diversion limits, convert that across to our entitlements and have a look at what their average diversion limits are into the future, our entitlements—or the number of entitlements that will have to be purchased out of South Australia—at the 3,000 gigalitre limit are 50 per cent of the irrigation entitlements. At the 4,000 gigalitre scenario, they are 60 per cent of South Australian irrigation entitlements.

I am happy to talk to you at any time about those numbers, but it is to do with our use of water in the past were we have not used all our water. So in their diversion limits they have said, ‘This is what your diversions have been over the last 100 years.’ Because we have not diverted all the water and our growers have happily seen that flow down the river, we are now penalised for that in this process. Also, we have a large urban area—Adelaide and urban water supply—that sits on the bottom end of our districts. It accounts for about 30 per cent of extractions in South Australia. The question you have to ask is, ‘Will Adelaide give up any water in the process’. Being realists, our answer to that will be no, and that means that that those diversion cuts that would be taken by the metropolitan regions then get transferred back to our irrigators. So a 50 per cent reduction in entitlements is quite significant for our areas. At what stage are our major producers—and when I talk about producers I mean our factories such as Berri Estates winery, Kingston Estate Wines, Angove’s winery, Riverland Almonds, Almondco and Nippy’s Fruit Juices—put at risk? Doing so puts our towns at risk, and I would suggest that the reductions that are suggested in the guide put virtually all of those producers at risk and put our towns at risk.

In our guide we have done some straight-line economics. We are not economists. We push water up a hill. We do that really well, but we just say straight line if you take 30 per cent of the productive water or 50 per cent of our entitlements out, that is equivalent to 8,000 people in our community; two of our towns—maybe Berri, the one that I live in. What you actually do is not just to the farmers in the town but to the people in the town that have got houses, mortgages and the like.

From our point of view, we see that it is unsustainable for our district and probably for a South Australian irrigator if you look right across the irrigation sector. It is the way that the plan has derived the numbers, and we think that we are probably worse impacted than most other districts—and I will not say all: there are a couple of others that suffer similar fates with towns that sit off their diversion limits.

The second thing I would like to say is let us go back a step and say, ‘Okay. We agree with change. What are the things that can be done?’ I think most of the communities and most irrigation communities say, ‘We support the Water for the Future program—an $8 or $9 billion program, pretty well structured, has buyback, has investment infrastructure across the basin; I do not think there are too many communities that said, ‘We don’t support that.’ That program will derive probably about 2,000 gigalitres of water for you. You have already taken 700 gigalitres off us from the Living Murray water for our rivers projects. That is already incorporated in the guide but it has already come out of consumptive pools and gone across. So you are looking for another 1,000 gigalitres across the whole basin to get to the lower limit in their SDLs. The question we are asking is: where are the savings that can be made from environmental works and measures? We have got the channel regulator at home, which is exactly one example of that. There are plenty of others that can be nominated by people more qualified than us.

The other thing is: can the operators actually run the river better? I think the SDLs are all predicated on: ‘Let’s do nothing with the river. So if we take 7,600 gigalitres, let’s all pack up and go home. That will give you the environmental outcomes.’ As you go down in the limits, you can run the river differently. You can coordinate floods or you can coordinate supplies so that you get the overbank flows that you require in each of the regions. By working the river harder, you may be able to provide again the outcomes that you require with less water. We think that you should set a task to the authority to say: ‘There’s a program that’s got 2,000 gigalitres of water. Come back with another program that yields another 1,000 gigalitres of water from environmental works and measures and from running the river harder.’

I would also implore you to look at the equity across regions because we believe that our region is probably more disadvantaged in the plan than most other regions just on an equity basis in the way that it is split up. Thank you.

CHAIR —Thank you. You have raised some interesting issues there. You support the need for change. I am not quite sure you support the guide to the plan because you spent a fair bit of time disagreeing with what it was saying. My question is related to buyback as against infrastructure spending, particularly in these regions where there has been very efficient water usage. What are your views of buyback being used in other parts the catchment?

Mr McMahon —We will talk to it from two different perspectives: Ben is a private irrigator and I run a community scheme. In terms of buyback, our company was one of the first ones to support it and one of the first that actually opened our doors to unfettered trade. We think our company can probably sustain the buyback in the volumes that are there across the basin. We have seen in our own company a transition from tree crops more into vine crops, which are lower water users, so in our company there is some excess capacity. We have seen the buybacks. In our company 20 per cent of the water entitlements have shifted from our growers to the environmental water holder. It comes back to a question that Tony asked before that I will answer as well.

We have already seen 20 per cent move across in buyback. There comes a stage where your business becomes uneconomical in that transition. Certainly at the ranges that are suggested in the plan, at 50 per cent for us, you really start to question whether your businesses are viable. So a targeted buyback we are happy with. We are also happy with the infrastructure spending. We realise that the vast majority of that is actually going to be spent interstate. That has all been done in our districts. That was done through the seventies, eighties and nineties, and the last one was done in 2000, with the help of federal and state government funds. But, again, if the money is spent interstate the water savings should then be shared right across all basin communities as a result of that. So we think that a buyback is fine. We think also that the infrastructure spending is fine.

Mr Haslett —As a private irrigator we probably look at it very similarly. To give a personal example, as I said, we expanded our business based on the known amount of water. Certainly if the buybacks are not compulsory then they are supported. If they are, then I do not have any room to move and most private irrigators—and they are guys who have expanded with the most modern irrigation types—do not either, simply because their water asset is a valuable water asset and they have expanded their production to utilise that water asset in the most efficient way they can.

We are supportive of the infrastructure program. I think some care needs to be taken with where we spend the money. Obviously, you do not want to spend the money in a place that ultimately will not be sustainable in the long term. But if we can make some large-scale savings with that infrastructure then well and good. As a community and as a region, we are well aware that that money is not being spent in our communities and so in some ways we are at some disadvantage because we do not have that stimulus, if you will, moving into our communities. But if it is the Australian taxpayers’ money, for the greater good and for the better national running of the system, and if we spread those savings across the basin, we are happy with that.

CHAIR —I am just trying to get straight in my mind the differences between the states in terms of how the guide has reduced their percentages. There seems to be an odd scenario in South Australia where the history of use has been used for the current diversion limit and the transfer across to the sustainable diversion limit. That seems to be an area where South Australia is being disadvantaged—and you hinted at that. Can you elaborate on the degree of disadvantage, how the authority has arrived at the percentages in other states and whether there is a gap there to do with the absolute history of use?

Mr McMahon —Yes. In fact, we had the authority across just last week to try and drill down into the numbers that they have. A lot of the reports talk about long-term cap equivalents over the cap that was set in 1995. So the question is: what is the difference between the current diversion limit that you have in your plan versus the long-term cap equivalents? We have by far the greatest gap between the long-term cap equivalents and what the current diversion limits are. I cannot quote the numbers off the top of my head, but we certainly are the most disadvantaged. They said they would take 2007 as a starting point. What happened prior to that is irrelevant. That is their starting point. They have modelled use since 1895. So if you were a state or a region that had exceeded your cap or continually gone right to your cap, your use figure for their current diversion limit would be higher than if you were a state or a region that had never broken your cap or had tried to live within your means.

South Australia has done that. It has done that since 1968. We forwent a lot of the production increases that you saw in other areas. You would certainly have seen it in your area, with cotton expansion in the eighties and nineties. We forwent a lot of that expansion to stay within our caps. That is a recognition of the fact that, being at the bottom end of the river, you understand the issues associated with river flows and the like. So, because our use was always constrained, we are disadvantaged in the current diversion limits as set by the Murray-Darling Basin Authority.

CHAIR —Could you supply some information in relation to that, just so that we are able to compare apples with apples in terms of how the authority is applying the history of use and the current diversion limit in delivering the sustainable diversion limit.

Mr Haslett —We could do that.

CHAIR —In that context, if you could.

Mr Haslett —The problem with that is that effectively, to put it really simply, we are being penalised for being efficient water users and, as a plan for a nation, that is probably not where we want to head.

Mr SECKER —You mentioned you already had 20 per cent cuts with the buybacks. The problem we have in South Australia is that in other states they will have capacity to do infrastructure upgrades, and we do not have a problem if that happens because we all benefit as a whole system, but in South Australia we do not have that capacity to make improvements. Therefore it is going to be buybacks. On your page 12 it shows that it actually has a greater effect on irrigators in South Australia because 3,000 gigs means a 50 per cent cut because the critical human needs will not change.

Mr McMahon —Correct. The issue of savings that you can get from changing your infrastructure, either evaporative or seepage loss savings, they are not there because it is pressurised and piped. So where those systems can actually achieve those and keep their critical mass around the outside of it, that has already happened in South Australia and that is not available to us. The savings you make in the infrastructure, you can make savings in water savings that then go to the Commonwealth but your productive use does not change a lot. Because that has been pressurised and pipelined in South Australia, those losses no longer exist. Once you put it in a pipe system they are fairly efficient systems.

Mr SECKER —Have you had figures at CIT to show what impact the 20 per cent reduction due to buybacks has had on the cost of delivery of water?

Mr McMahon —This is an approximate figure. With the buybacks our prices would probably be about $10 a megalitre, 20 to 25 per cent higher.

Mr SECKER —So pretty similar to what we had with the other things that were quoted earlier. Another 10 per cent would have an effect of 10 to 15 per cent?

Mr McMahon —It is probably close to linear. The fixed costs in our business are about 50 to 60 per cent.

Mr SECKER —Have any of your groups discussed the idea of a 10 per cent fully compensated cost totally across the basin, whether that would be a viable situation for all the people you represent? It is a tough question.

Mr McMahon —The first position is buying from a willing seller. If the plan went ahead in its current format and you had to secure 50 to 60 per cent of our entitlements, you will not get them. Everything we hear is that it will be bought from willing sellers. The question is whether there are enough willing sellers at that value. Yes, there are, at what price. You have to test the market and find out.

Tony Zappia had a question earlier on that I listened to and I was not quite sure that it was answered correctly. You asked about net trade into South Australia. That is quite difficult to actually find out now, but prior to tag trade arriving, which is if you buy water permanently from one state it stays as an entity in that state and then you transfer the temporary water into your state, prior to tag trading, which was introduced about two or three years ago, about 32 gigalitres had been traded net into South Australia. Since that time the best method to find out what has actually moved is to look at what has moved from the consumptive pool to the Commonwealth environment water holder’s licence. In our business we have lost 20 per cent of the water and 99 per cent of it has actually gone to a government of one form or another, be it the SA government, SA Water or the Commonwealth environmental water holder. But if you want to see what has transitioned from agriculture to the environmental water holder you would look up their licences and that will give your that number. So it is not necessarily now a trade into or out of the states, it is actually a trade from private to public, and that has been quite significant in South Australia.

CHAIR —It should be possible for the secretariat to actually find that information. I think that could be important.

Mr McCORMACK —Are there any projects as part of the $5.8 billion set aside for water-saving infrastructure on the go in South Australia at the moment? Are there any re-plumbing projects that you could see as being of benefit to this end of the basin?

Mr McMahon —Yes, there are. There is $120 million set aside for re-plumbing in the South Australian component of the Murray. I believe that about five projects were successful. Our own company has one of those in its own right. The difficulty is that because they are efficient it is really hard to generate big water savings, so to get a reasonable benefit for the cost of a project can be very difficult. I do not see a mass uptake of that program in South Australia. There will still be people and companies that will want to take it up. But the water savings just are not there to transfer across, so I do not see that moving greatly. The things that have been taken up well both in our state and interstate are the on farm programs and the conversion of on farm components. That is a smaller part of the total parcel. The first round was very well subscribed to. The second round is out now and will probably be well subscribed to again. There is probably some fine tuning to be done. Upgrading some of those problems might be looked at, with more money going into those.

Mr Haslett —I would like to support, because effectively it is very hard to find those savings in the off farm component, as has been mentioned. In a region like ours that has been towards the front of technology the way to make those savings is through how you monitor, how you deliver and whether or not you have variable speed systems—things that are on farms. The biggest capacity to save is on the farm as opposed to through improved delivery to the farm.

CHAIR —In relation to some comments that you made earlier, the authority’s report identifies 2,000 gigalitres as the amount that they believe that they can save through infrastructure and buy backs. You made the point that there is 705 gigalitres in that mix at that moment, so there is 1,295 to go to get to that 2,000. Given your knowledge of the system, how confident would you be that that 2,000 will be achieved? Putting it into context for those in the audience, if that 2,000 was achieved through those means, there is no reduction in an individual’s water entitlement included in that 2,000.

Mr McMahon —I will make a couple of points to clarify. It is my assumption that this 2,000 gigalitres will come out of the Water for the Future program. That is not an MDBA assumption. I believe that those figures will be fairly close.

CHAIR —They have in the document that they can achieve that by 2014.

Mr McMahon —The 700 that they have already accounted for is the Living Murray water and the Water for our Rivers water. So that is already accounted for. All I am saying is that that has already moved across from productive agriculture. To get from 2,000 to 3,000 is 1,000 gigalitres. That is the lower bound that they have set. Are there the projects to get there? The first thing that I would be doing is scouring all the state government and environmental agencies to ask: ‘How much water have you got? You guys created the problem. Maybe that should go in the bucket.’ I am sure that there are fairly substantial quantities there. I do not know. I am good at pumping water up a hill. I do not know how much water we can save across the basin. But I have read reports from the Menindee Lakes and Lindsay Island. Even our own sector of the river, from the border to the mouth, has massive evaporative losses. Can anything be done in that area? I do not know. There are probably plenty of people who can assess that. I am saying what we believe. Maybe you should task the authority to go and find that 1,000 gigalitres. We spoke to the authority about the drains in the south-east. What can come back into the Coorong from the drains in the south-east? The figure was between 50 gigalitres and 100 gigalitres. They said that it was too small an amount or too hard. I would say that we will take the 50 gigalitres and take it off our reduction. Even those small amounts can build to bigger amounts. I think that there are plenty of people better qualified than us to comment on that. I know the National Irrigators’ Council has been working with the states to try and build the profile of those who are there but we are not really qualified in that area. I would be tasking them with that and saying, ‘There’s one thousand; you go and find it.’

Mr Haslett —That is a really key point. Highly metered, regulated irrigators are an easy target for some of that stuff. I think that if we are looking at a whole plan we need to look at all of those areas. They need to be given a directive to make sure that they look at the whole system.

Mr McMahon —Even the farm damn scenario is interesting. If you look at the plan the farm damn scenario is: ‘We’ll take the farm damns as they sit right at this point of time, yet we will reduce irrigators back.’ Why isn’t the same philosophy used for farm damns? Again, there is an avenue for water there. We think that there is a solution to this. It is not an easy-work solution; it is a hard-work solution. It is a compromise but I am sure that it is a compromise that everybody could live with.

Mr ZAPPIA —Thank you for your submission, which I find very constructive. I ask this question because I am somewhat perplexed. How come Riverland growers were able to carry over such a significant amount of water from an allocation that was made when they were, in fact, being given water under a cap?

Mr McMahon —That is a good question. We could talk for days on this issue. It is a little bit of a sideline issue to the plan. I guess the issue that we, as an irrigation community, have is that we thought carryover water was water that you purchased, put in a bucket, it slid from one year to the next, and then you got to use it. In fact, people purchase water towards the end of a season with that in mind. We did not understand what happened in a transition period, when we transition from drought through to full flows in the river. Our community spent a lot of money—I have heard about communities being resilient—to be resilient in a drought, to ensure that our community survived the drought and beyond, not understanding that it is not a bucket that goes from one year to the next. As the rules changed in the Murray-Darling Basin—you go back to the Murray-Darling Basin agreement—we did not understand that in that process the bucket of water would then get counted in our allocation or our cap for the following year. That is where the issue resides. Consequently, we are the only state in the basin that is still on restricted allocations. Rivers rising across the flood plains and the mechanics of the agreements are the things that have put us in that predicament. Our lack of understanding comes from communication with the decision makers in that process as to what the outcomes would be as we transitioned out of drought.

Mr ZAPPIA —Could I perhaps ask the question in a reverse way: in a normal year would you use the 545 gigalitres, or whatever it is, that has been allocated?

Mr McMahon —The Murray-Darling Basin Plan shows you that that was not the case over the life of it. We would tend to use probably about 70, 75 or 80 per cent of it in a normal year. The last few years certainly have not been normal. South Australia has never had a carryover product. We have had a very reliable allocation. In fact, for 97 years in 100 we actually received our entitlement because our entitlements were based on a minimum flow across the border. However, the agreements were put aside in the drought years to allow the states to negotiate positions so that all states could make the best use of that resource. It was in those negotiations and discussions that carryover was introduced for South Australia. And it was in those discussions that there were mechanics for how that works in a drought year and also coming out of a drought year. I am happy to have that discussion outside of this forum.

Mr ZAPPIA —Sure.

Mr Haslett —That point just highlights, though, how important it is for us to have a water plan set up nationally because we are in a ridiculous situation where we are sitting on 67 per cent when we have floods all over the country. That is, once again, a severe disadvantage for those permanent horticulture producers in our region.

CHAIR —Okay, you have made your political statement! Thank you for appearing. You have given valuable evidence. If you could follow up on some of those issues, which involved the carryover issue in terms of current diversions and sustainable diversions et cetera, that material would be very handy—and the question Tony asked, as well. Thank you for your evidence.

While we are waiting for the next witness, at one o’clock there will be an opportunity for people to have a brief say in terms of their particular views. Would those who are interested in availing themselves of that let the secretariat know their names so that we can expedite the process.

[12.06 pm]