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Impact of the Murray-Darling Basin Plan on regional Australia

CHAIR —Welcome. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We have your submission. Would you like to make a brief opening statement and then allow us to ask you some questions?

Councillor Fehring —Yes, thank you. Obviously we are going to do a tag team show here because this has been a cooperative effort on behalf of the community and we have ended up being the people who are going to present that. So we just want to make some opening comments. We are certainly pleased to be before the committee.

I think much opening statement is pretty relevant to this whole debate. I think the quality of any journey is far more important than the decision. What that really reflects is that we have faced a plan such as this one. The original plan came out on the books and was written in a language which excluded people and did not include people and it was a disgrace. So obviously the quality of this journey, which your committee hopefully are going to make a real impact on, is important because the decision which is being forced upon us is pretty disastrous to us in many ways, as our submission says.

Of course, bearing in mind what I have heard many other people say here today, we have been through a lot of reform in Victoria. I do not want to get into state parochialism, but I think Victoria has some of the best water legislation in the world and it has done a pretty good job since Alfred Deakin’s day. I would back that up. I am a Churchill Fellow and I have studied water and how we share it between cities, urban areas, the environment and agriculture; and I have produced a Churchill report on that. I have been to many countries—Israel, California, Mexico and a whole range of other places. Consequently, we saw this thing coming. The major problem with this report is, highlighting what somebody else said this morning, that it does not bring cohesion between states. There are only two things you can have with water: security or yield. And we need to understand what they mean.

Most cities in this nation take security because they have the political power and money to go out and get it, and that is what the north-south pipeline debate is about as much as anything else. When we come back to our community, we have always gone for security in Victoria in the way the water allocations work. Even if you adopted this plan or whatever plan you put up, the reality is that it still comes back to the states. So I am here before this committee today and I will have to go through another two years of debating that in Victoria because ultimately they will end up determining what the water entitlement or licence, whichever you call it, will be when it comes back down from this level.

Our report certainly highlights the socioeconomic change. It is not as though you take a little bit of water; the moment you increase that water exponentially, the figures go up quite rapidly. So 50,000 megalitres produces one figure; 100,000 megalitres merely produces twice as many job losses or loss of investment income. Sure, we have been through a drought in recent times and that has been an issue for us; but with the flexibility that we have in the market, which not everybody likes—but that is water trading and so forth—we have been able to cope with it. Our farm is not typical. In fact, we have just increased our farm. As I sit here, I have worked out that $5,000 an hour is being spent on our farm through reconfiguration under a NVIRP scheme and many other things. So there it is. But until we get this whole issue out of the road, we have an uncertainty with security, and that is really hindering all of us in what decision to go forward with.

But just to make that state issue a little more prominent, when we had trouble with the SDLs, we could not work out whether those states who did not take the amount of water they could have taken under the old rivers agreement of 1915 were going to be penalised greater than another state who worked on it. I do not want to get into a debate about allocation issues, because there are some principles behind those that suit each state and each region, and they have legitimacy in that. So that is where this whole thing started to fail.

Before I hand over to Rosanne and Hodi, I will say that the big issue, of course, is that we have had no understanding of what the environmental outcomes are. We have agreed to the Living Murray. We have lost 20 per cent of our sales water; that was a deal that we did some time ago. We took our water allocation from 200 per cent, which is water plus 100, under the Living Murray, which I chaired and brought together. It is a very good document; if you do not have it, I will certainly make sure that you get it. We said that farmers got water rights plus 60 in a number of years and their so-called water rights were 97 to use out of 100, and our sales could be about 83 per cent at that time. So farmers have been adjusting back for a long period of time. To have this come suddenly out of the blue on us really disenfranchised the community, particularly with the way in which we communicate.

I would like to make one other comment. Actually, Michael Taylor resigning was the best thing that happened, because I think Michael saw the inflexibility that had occurred and, because he did that, it triggered off your committee and a whole range of things, which we applaud. And hopefully it is meaningful and hopefully the journey this time will be better than the last one. I will leave it at that point. I have some closing comments, but I will allow Rosanne just to go through our report and we will answer any questions that you have.

Ms Kava —I will just add a couple of points. Obviously the need for a balance between the environmental and community needs is a very strong concern of our shire. Just to give you a bit of background, we have a population of about 11,000. About 30 per cent of our employment is in agriculture. In 2006, our gross value of agricultural production was about $225 million to $226 million and about half of that was from the dairy industry; so we are very dairy dependent.

Our document, I think, shows you that we have gone to some effort to look at the potential cost to our community of those SDLs. The appendix includes an attachment that looks at the 3,000- and 4,000-gigalitre figures and the impacts on our community. With that population of 11,000, the impacts on employment have been estimated at between a loss of 358 and 716 positions and an impact on our population of a reduction of just under 900 to a population loss of nearly 1,800. They are very substantial impacts on a small rural shire, so we are very keen to ensure that the final decisions that are made on SDLs are rigorous, that they take into account the environmental water requirements and that our communities are very confident that the absolute best has been done to ensure that they are necessary and that they are beneficial.

We have been a shire that has experienced quite a lot of trade over recent years, so we are very aware of the need for support for diversification of local economies, but we are also acutely aware that every megalitre that does leave the shire has a substantial impact on our community and on our future. Water is the lifeblood of our shire and we are very conscious of it, so we ask you to be very careful with that. Thank you.

Councillor Fehring —Perhaps we can open it up for questions. That might be the easiest way to deal with anything that you have, because obviously the submission is there and hopefully you have had a chance to read it. You get loaded up with paper, you people, just as everybody in public life does.

CHAIR —Thank you, Mr Mayor. Just to correct one error of history, we were formed before Mike Taylor resigned.

Dr STONE —Max, using that document ‘Where have all the dairies gone?’ and other data, you have shown in your submission a reduction in dairy farm numbers of 52 per cent and a reduction of land devoted to dairying of 55 per cent. This is for northern Victoria, is it not; not just Gannawarra shire?

Councillor Fehring —Yes.

Dr STONE —And a reduction of total rural production of 32 per cent. This is, as I say, for northern Victoria. You make the point that dairy farmer numbers reduced by 52 per cent and their reduction in milk production was 32 per cent, so obviously an enormous effort was going on there to keep up with milk production. But do you agree, then, with the Wentworth eminent persons, some of whom are scientists, who in their submission—and in fact the guide to the plan report itself reflects their submission—say that there is no relationship between less water access and productivity? They in fact suggest that during the drought, across the board, productivity in the basin increased and therefore a further reduction of water access would not lead to productivity losses. What are your thoughts on that?

Councillor Fehring —I will just say one thing. The thing I have learned is that the most dangerous place in the world is not Iraq or Iran; it is scientists and a bucket of money and them trying to get at it. I have got a bit of a query about some of these figures, but the reality is that we have done it on the back of some failed Mallee crops, which we made into hay and did it in a different way, but our cost unit on our farm has just been so high to get there. Next year, with the water we have got and the development that is going on, we will make that leap forward. I just think that is an erroneous way to say it. It is also a bit like they often say, ‘We should pick and choose winners in water.’ That is a real debate. The late Peter Cullen said that it should all be in wine grapes. What a hell of a mess we would be in now if that had been the way! We cannot have a monoculture in agriculture and irrigation; we have to have a whole mix. So I think that they just pick and choose the arguments to suit the debate and the master who is paying them, because there is somebody backing this group of people and I wish those things were put out. So I do not think it holds much water at all. Sure, the constant thing in this world is change, and agriculture continues to change—we know that. Our farm is a classic. We have bought the two properties next door because of the ageing of those farmers, but that farm will exceed the production of those three in the very near future because that is where we have decided to go and that is an ability we have.

Dr STONE —Do you have any calculation of the levels of additional debt load that came out as a consequence of the decrease in water during the drought?

Councillor Fehring —No, I do not. Personally, on our farm—and ours is not a classic case—we have roughly gone up a million dollars, but that is because we have bought some other land, an asset, in a sense. But most people are struggling at the moment because of the EC coming off—I think it comes off tomorrow—and because of such flooding in our area. We are having discussions with the state and the federal governments but particularly with the state at the moment because we think that is the quickest way to try to resolve it. We have a lot of farmers who will make some big decisions in the next 12 months. They will be given that grace, but I think we will see further amalgamations because the debt load is just too high. The Australian dollar is having a fair whack at us at the moment but, thankfully, milk proceeds have been very good so we are getting away with it at the moment. But, gee whiz, if the milk price was to fall, I do not know what would really happen. But that is the same for many commodities.

Dr STONE —What is your view on the most recent rolling tender—in fact, it was announced yesterday or the day before—or what I will call the non-strategic buyback or buyback from willing sellers policy? Do you have any views on that?

Councillor Fehring —Yes, I have plenty. I think while you have the federal government lumbering around like a gorilla in the water market, you are distorting it entirely. The classic case is this: we bought the two properties next door and we bought the water with them, because I am not selling one megalitre to the government while I am alive, if I have my way, because it is the greatest asset I have at my bank for the development we want to do. One farm I bought at $800 an acre and the water was $2,400. The next time it came around, that set the market. The water in normal times, and if I had squeezed, should have been less than that because that was not reflective of the true market. The next property we bought at $1,100 an acre but I bought the water for $2,000, and I bought the sales component, of course, because it has advantages in carryover. So the market is distorted while the Commonwealth is there, and to say otherwise is a load of rubbish. It continues to have this effect in many ways. I am not against somebody if that is the only option out, but the downside to us is that we are going to have absentee landowners galore in our community, and that is another environmental issue to deal with in itself, but the major problem is it then weakens the rest of the community wishing to stop irrigation. Hence the debate about NVIRP, as we call it—the Northern Victoria Irrigation Renewal Project—which has become such an issue because as irrigators and a previous submission said, if you end up with isolated pockets, they are going to cost you an arm and a leg and you have to do something about that. The federal government causes other issues which they do not want to know about, and hopefully your inquiry will look at that social consequence. So the trouble with the free market is that there are winners and losers. That is the dilemma that we continually face in this market.

CHAIR —What would the price be if the government was not in it? What’s your guess?

Councillor Fehring —I know I could have bought water some months ago, prior to this tender, for $1,400. Obviously I was taking advantage of a distressed family in that case, because the trouble when you go through the Commonwealth is that it takes a long time and you have heard about the paperwork. I do not know how we ever got out of Botany Bay with the red tape we have in this country now. Consequently, in water it is the same. At times we could have bought quite a bit of water at $1,400 to $1,500. But I paid the farmer the price that came out of the tender, and I was trying to be fair and reasonable, because that is where he saw it was at. So that set the market. It was not the market setting it; it was that that set it at the time, and that is how it worked out. But you can buy water under $1,800 at the moment, and that is high-security water. As you would realise, water across the basin has got different values. There are two lots of water. South Australian water and our water are roughly the same in that sort of security value.

Ms LEY —Thanks, Max. You mention in your submission the possibility or the advisability of natural gas between Echuca and Mildura. What sort of industry might that support?

Ms Kava —That is certainly something that we are very interested in as a shire, as indeed are all the Murray River Group of Councils. As you may be aware, there was a Murray-Goulburn factory at Leitchville until quite recently. It closed down—again, an impact of the drought. We are certainly very interested in attracting industry back to that particular facility and other facilities in our shire. We know that our neighbours in Echuca, Swan Hill and Mildura all have the need for additional natural gas. It is a regional need and we are very pleased to support that.

Ms LEY —We are just trying to get a handle on some—

Councillor Fehring —It is about the potential to add value to the food.

Ms LEY —So food processing would be something that would be in your sights.

Mr McCORMACK —Have you had any investments stalled because of ongoing uncertainty over the water debate?

Councillor Fehring —The simple answer is yes. I could find plenty of farmers who have not submitted here but who have put that off or have not made the decision. The trouble is there are two things. There is obviously the reconfiguration process, which is going through section by section. That is under an inquiry in Victoria, but obviously it will continue. Whether it springs back into Goulburn-Murray Water is another issue. That sits on the table, because farmers have entered into the discussion. Most farmers like to deal with things in about three or four months. When you get beyond that, the uncertainty creeps in. We have gambled by buying the properties, knowing we could lose at the stroke of a pen—if you took the original plan, I could lose a third of my water. That is a pretty terrible way to operate, but we have gambled that way on the basis that the minister made a statement which said, ‘We’re not going to compulsorily acquire anybody’s water.’ That is not the greatest thing to rely on, because political decisions do change. But it is affecting a lot of people. The people who have been bold enough to go ahead are really making some significant changes across all irrigation communities.

If we can get this uncertainty out and if we had the water price—and we are going to see further amalgamations of property and everything else—it means the community will benefit because they will need to have employed labour with it and they will hire skill. We are finding in our community that those who sell out become the skilled labour for the next operator on a different basis with fixed hours, and they enjoy that sort of life. So I think if we are clever about it we can do a whole range of things in that way.

We are going to see some changes in irrigation communities; that is inevitable. Doing nothing was not an option for us, and I think we accept that. What really gets up the craw is that we have got this debate on and we do not know what the environmental outcomes are. We are wedded to the sharing of the Murray, which are the six icon sites. I live next door to the Gunbower Forest, so I know it like the back of my hand. But what really annoys us with this whole issue is that no account or no knowledge seems to be taken of the states. The states have the greatest level of knowledge, be it in the CMAs, the state departments and everything else. The thing that I think we have done well in Victoria, and I cannot speak for the other states, is the northern Victoria 50-year water plan. I have been very much a part of that. I am the guy that goes back and tells the community what the good and the bad is, or the changes in it, to a certain extent. That is what we have done extremely well. That is why there is so much resentment to what is currently before us at the moment, because it just creates so much uncertainty. If you try to read it, unless you have knowledge in water, as I have to some degree, and I do not know it all, you just cannot make head nor tail of it. Therefore, the committee said, ‘Oh, well, the Commonwealth doesn’t give a damn for us.’ I may as well use the literal words: ‘Bugger off.’

CHAIR —Are there any other questions?

Ms LIVERMORE —You talked about some of the local planning processes that you have had under way. We have heard a lot of evidence about moving away from ad hoc or open-ended water buyback processes and replacing that with a more strategic approach. In your view, at what level and within what structure should those decisions be made, in an ideal world?

Councillor Fehring —Perhaps Rosanne or Hodi can answer that. There are a couple of answers to it. What they miss out I will tell you, or give you my stand on it.

Ms Kava —We have had some investment in our region by companies such as Kilter, which are associated with VicSuper. They have certainly brought some new perspectives and potential in terms of planning outcomes. We are very supportive of opportunities to look at planning means in terms of better use of our land area, whether that is a combination of utilising some land for environmental purposes, because that is the best use—if that is what is in mind by the new owner. We are working with groups such as that that are looking at innovative ways to use some of the flood plain area as well as some of the land that is more suitable for productive use and some areas that perhaps have a potential for recreation. We are very happy to utilise those opportunities with interested investors.

Councillor Fehring —I think it says in our report that an average irrigator farmer, if he has somewhere between 200 to 250 hectares, is pretty viable in most soil types. The trouble when you take the water right away is that you have got to move to nearly 2,500 hectares. So you can see the huge cultural change. Kilter have shown us that they seem to be committed to do it. But what if we end up with a lot of absentee landowners? The quickest way to get money at the moment is to sell to the government—you can get it fairly quickly—whereas to try and sell the land and package, or the land, is a different issue. There is plenty of land around. There is no trouble putting that together. But it is this water connection issue. So that is what really changes and it has a big impact.

That is not going to happen too easily. Kilter are not going to buy everything. They have stuck to a strategic area where they are operating with a certain set plan. In our region we are going to end up with huge pockets of land, potentially, because of an ageing farming population and other things, which will end up being a haven for vermin and every other thing and it will not be that productive.

Ms Beauliv —We are also working with Strengthening Basin Communities—it is a federal government funded program—to look at alternatives for new dryland, to come up with some strategic approaches to put towards those farmers about what their options are so they can weigh up all that information and make an informed decision, rather than just making an ad hoc decision based on some money being available at the moment and not knowing the long-term effects of what will happen to that land.

Ms Kava —If I could just add: we do need to emphasise that the gross value of agricultural production from dryland is much lower than that from irrigated land, which has flow-on effects in terms of the community, both in terms of, obviously, employment and ultimately population.

If I could just add, perhaps, to Dr Stone’s question earlier about debt levels: I think one of our source documents certainly indicated that the average debt level per cow in northern Victoria is about $2,000, whereas for the rest of Victoria it is about half that. The equity position obviously changed through the drought with the extra expenditure that farmers had to make.

CHAIR —What is the value of a cow?

Ms Kava —It is about $2,000. Max will tell you that.

Councillor Fehring —The price shaping the thing in the spring looks good. It will be about $2,000 for a freshly calved cow. Heifers at the moment, perhaps in calf, for export are $1,100 to $1,200. I was trying to put a value on it yesterday for the bank. That is roughly what it will be. A dry cow now will be about $1,200—a cow that is in calf but is not going to produce for another three or four months. But if you buy it at the point of calving, obviously it is dearer.

Ms Beauliv —We also referenced in our submission a document by Adrian Rizza—The potential effects of changes to water allocation policy on financing the agricultural sector and businesses in the Murray Darling Basin. That should have some additional information on the financing.

CHAIR —Max, earlier you said that Victoria was the world leader in water policy. Would you prefer not to have a national plan? Would you prefer to go back to the Victorian government doing its own thing?

Councillor Fehring —I do not want to end up being hypocritical. I am a great believer that states should go and we should have local government and a federal system.

CHAIR —We will be dealing with that next month!

Councillor Fehring —So I have to be careful. I just think about the way in which Victoria has gone about its water legislation. I give a lot of credit to the way in which Alfred Deakin set that up and how we have done it. It is continually done on the basis that the communities come with it. I heard a question before. I think the original River Murray agreement was actually quite good, considering the time in which it was done and so forth. In amongst that we have taken a course which is security over yield. In other words, we could have used a lot more water for a long time. I was at the original Murray-Darling Basin cap meeting on the day that it was announced and I understood what that meant. I said, ‘Okay, Victoria should able to work with that pretty well.’ I think it has and it has shown that.

I just think that it has got into a bit of a problem with separating water from land. I think it has got too bureaucratic—unless you are a bloody Rhodes scholar—the lawyers cannot even work it out at times. Those sorts of things I think we could improve. But, in general terms, we have moved pretty well with it with the community. In other words, the quality of the journey has always been there in the policy decision making.

CHAIR —You are not answering my question. Would you prefer that the six governments did not come together in the first place?

Councillor Fehring —No. I would like to see the six governments come together. The Commonwealth has not got the knowledge. Therefore, it has to rely on having much more cooperation with the states to do it. I do not think the Commonwealth should be empowered to make water policy for every state under the current jurisdictions, otherwise it is going to socialise water and that is going to be a disaster.

CHAIR —To be fair, I do not think that is exactly what is happening. The authority is working under the jurisdiction of the group. If, in fact, a plan does come through, it will go back to the states through their water resource management arrangements.

Councillor Fehring —Yes, but it is how that plan comes through. Does it take into account some of the things I raised before of how water allocations have been up until now? Or will it just say, ‘No, we’ll ignore all those and go back to the way that the SDLs are being proposed’? It talks about water at the end of the stream, but it says nothing about what the environmental outcomes of any of that will be.

We have taken account of that in the way in which our allocation system works and the way in which we have got the environmental account. If the Commonwealth end up with a lot of water, I want to know how they are going to not cause artificial flooding. I think the water in that account should be tradable because for the next two years all the water they have really is not going to add much value to anything in the environment because of the river systems and everything else.

All you can ever do with stored water that the Commonwealth own in the dam is add to what is happening in that part of the basin at that time to achieve the outcomes of an extended flooding, or whatever. If you think you are going to store water in any of these reserves and pull the plug when you want it, you had better have a big bankful, because you are going to get unanticipated flooding or cause flooding events. The lawyers will love every moment of that. The Commonwealth have got a lot more work to do.

We have already done a lot of that. Why reinvent the wheel? We know a lot of that stuff. We just need to integrate it better and make sure everybody abides by the rules. I will not get into all that debate. Sometimes some people oblige and other times they do not. There are a whole range of things we need to sort out. We also need to know that environmental water has got several uses. You can start at one end in the Gunbower Forest and you can do a lot at Hattah-Kulkyne at the same time with the same water. We do not seem to have worked any of that out within that plan.

Ms Kava —Can I just add: in summary, we certainly support the need for discussion amongst all levels of government. It is essential. It may be a difficult discussion, it may be uncomfortable and we may have different starting points, but I believe we have no alternative but to work through those issues along the lines that Max has suggested.

CHAIR —I do not mean to be provocative, but I will be the devil’s advocate, when we are constantly being told that no-one wants any water removed, why do you want something to happen?

Councillor Fehring —The simple answer is that if we had got The Living Murray experience up and gone through that we all agreed to and then we made sure we did the evaluation and the environment was subject to the same level of evaluation, independent of the environment, as we are doing on the other side. We seem to want to be accountable on water. You say, ‘We’ve got to account for every megalitre that comes through a regulator and everything else.’ When the environment flows water it has a loss of water as well, but we do not seem to want to worry about that. You treat two different things differently. If we had got through that experience and had been prepared to adjust—we adjusted in Victoria, as most other states have done over time as well.

I just think this has got a lot of politics in it, in a sense. It is a very nice thing for Green votes in the city; that is okay. There is a lot of NIMBY attitude here: as long as it is not in my backyard and as long as I do not have to be affected by it, but that is exactly how I want the environment to be. We are the carers for it. I do not see anybody come up from the city at weekends helping me out to be the carer and looking after the river creek frontage, which I have got a lot of, and all those sorts of things. The simple answer is: let’s do what we are doing now and get that sorted out. But buying the water with an unknown end use of it, which I think the environmental flows have yet to prove to us, seems to me to be folly.

CHAIR —Any other questions?

Dr STONE —Being a bit parochial, I tend to agree that it was Alfred Deakin who first vested the water in the Crown in Australia and that that is still a problem for other parts of the country. There were a lot of things that flowed from that. The other thing we did in Victoria was a salinity program during the 1980s, which went on for about 10 or 15 years or so, which I think was a model of community engagement—state, local government, and other agency involvement. So we do have models of similar complex types of systems at work, and we need to learn from that. Perhaps, Rosanne—you would have been around in those days, too—and Max, may reflect on that. It is not rocket science. It has been done before.

Councillor Fehring —It is amazing what people will absorb if you do it in the right way, but often you have to take steps. Going back to what I will be buried with on my headstone—I keep talking about it—the quality of the journey is far more important than the decisions. Hence the carbon debate which you are involved with at the moment.

CHAIR —I think you are trying to get into the document, Max. It is not a bad comment.

Councillor Fehring —If you want a quick summary, the way the original plan was going, I would consider it the greatest social engineering project this nation has seen since the gold rush finished—that is the potential mishandle of what it was. Every man and woman on these properties has always operated on the rules that have been in place for the last 100 years. Nobody has gone outside them. I get sick and tired of hearing that they are pinching water and all that rubbish. It is minuscule in the whole scheme of things. Everybody has operated within the rules. If society wishes to change them—and society has the right to do that—it will be about how we are looked after and compensated and how communities are cared for in this whole process.

That was what was wrong with the way the Basin Plan came about originally. It seemed to take no account of that. I have broken no rules. My sons and my wife, Denise, have broken no rules. We have operated within the rules that were set by the allocation we got and that has been encompassed within the properties that we operate, as it has for everybody. We need to put that on the table. I hate this adversarial nature that we get into in our country so much; it is just shocking. We should say, ‘If we’re going to make a change in the community, how do we do it?’ We are saying we want greater community involvement. We are saying there is a huge amount of knowledge within our community that can contribute to working that out. If we have to sell some tough stories then you send a silly bloke like me out to stand up in front of farmers, because nobody from federal government will ever do it.

CHAIR —Thank you for coming along and thank you for your submission. If there is any other information we can have, please let us know. A transcript will be made available; if you have any concerns with that, please let us know.

Councillor Fehring —I will make just one final comment. As Mark Twain once said, ‘Whisky is for drinking; water is for fighting over.’ How we handle this will determine the social cohesion of communities, states and nations. You only have to look at the Middle East and a few other places where there is a lot of fracas about things. If Turkey was to cut the water off to Iraq and Iran now, you would just see what would happen in the Middle East. That is how vital this subject is.

CHAIR —Thank you very much.

[2.38 pm]