Water What can the nut industry learn from Australia?

1. Water What can the nut industry learn from Australia? Prof Mike Young Executive Director, The Environment Institute Research Chair, Water Economics and Management The University of Adelaide Peanut and Tree Nut Processors Association ConventionBahamas, January 2009

2. Water • Many nut crops depend on access to irrigation • Adapting to change • Urban and industrial demand is drawing water away from agriculture;and • Supply may be decreasing • Nut industry prosperity will depend in part on rapid access to water in an ever changing world.

3. Some Australian mistakes • Climate shifts • We forgot to plan for long drys • Rights, policy and governance • We embraced water reform without establishing a property right system that was designed for trading

4. River Murray Inflows (GL) In 2006/07, we broke the month by month inflow record for 11 months Inflows have been well below evaporative losses Managed by running down stocks and reducing evaporation by closing off wetlands and not replenishing lakes

5. Symptoms - The River Murray • Over-allocation • Dredges in its mouth since Oct 2002 • Level below the sea • Rising salinity • Serious acid-sulphate soil problems • Bottom in strife! • High security allocations in SA on 18%

6. 8 yrs 12 yrs 52 yrs Long drys Total River Murray System Inflows (including Darling River) WET DRY

7. - 1% - 3% Insufficient planning for step changes

8. With half as much water Users Users Environment Environment River Flow River Flow

9. A robust sharing system Flood water Entitlements Entitlements Environment Environment with a fully-specified share Volume of water available Shared Water Now buying back water for the environment $3.1 billion Water needed to ensure conveyance

10. Users Environment River Flow With half as much water Users Users Environment Environment River Flow River Flow

11. Which nut industry future is best? • One that gets water fundamentals right, now? • A system that can be confidently explained as one that will enable the nut industry to cope -- whatever future arrives • One that facilitates autonomous adjustment and change • One that creates opportunity • One that is always behind, always playing catch up? • No guarantee of resolution of current problems • Lots of impediments to change

12. Australian water policy and reform • Share rather than seniority system • In rivers, usually two surface water pools • High security pool • Low or general security pool • Formal volumetric allocation systems • All use is metered and use limited to allocation • Minimal role for courts and lawyers • Allocations and rules decided by government of the day • Right to trade held by individual water users not districts

13. Single Title to Land with a Water Licence National CompetitionPolicy 1993/94Plus Cap Water Land Tradable Right Price Entitlement Sharesin Perpetuity Use licences with limits & obligations Bank-like Allocations Delivery Capacity Allocations SalinityShares SalinityAllocations Delivery Capacity Shares Water Rights & Reform in Australia National Water Initiative2004 Now trying to fix the problems created by the naive introduction of markets bolted onto an entitlement regimes that lacked hydrological, environmental & economic integrity

14. Water Reform Trading opened up Scarcity and Trading • Source: Murray Darling Basin Commission, 2007. Trading has been good for the Australia’s nut industry

15. Reform Outcomes • Positive • Facilitated considerable greenfield development • Grapes • Almonds • Massive innovation • Massive wealth creation • Many more irrigators survived the current long dry • Movement of water out of areas with salinity environmental problems • Negative • Over-allocation still not solved

16. Psi-Delta 2007 Bjornlund and Rossini 2007 Water reform created Wealth

17. Water reform • Driven by political realization about the importance of getting water right • States have referred MDB planning powers to Federal Government • New independent Authority of 6 people to produce a new Basin Plan • Buying water entitlements for the Environment • Investing in water efficiency • Trying to remove remaining barriers to trade • Taking climate change risk seriously

18. CSIRO Sustainable Yield Project, 2008

19. CSIRO Sustainable Yield Project, 2008

20. CSIRO Sustainable Yield Project, 2008

21. Advice from the lessons we have learned Regime arrangements • System connectivity – manage GW and SW as one • Capped the wrong thing – cap entitlement potential not use • Return flows – account for them • Unmetered uses – include them • Climate change – plan for an adverse shift • The environment’s share – define it and allocate to it • Storage Management – include in trading regime Individual licence arrangements • Registers – validate them early • Entitlements - define entitlements as shares • Trading – forgot to get the costs and time to settle down • Not enough instruments – needed to unbundle • Inter-seasonal risk management – allow markets to optimize carry forward • Exit fees – Need to allocate to individuals or allow trade out of districts • Trading risk – develop tagged trading

22. Water reform and the nut industry • Encourage discussion of and planning for very long drys • Encourage transfer of ownership to individuals • Encourage replacement of seniority system with a share system • Encourage integrated management of ground and surface water • Encourage preparedness for a different water future and need to trade water on a daily basis Embrace water reform – trial it It will be good for your future!

23. Download our reports and subscribe to Jim McColl and my droplets at www.myoung.net.au Contact: Prof Mike Young Water Economics and Management Email: Mike.Young@adelaide.edu.au Phone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au