Water allocation prices likely to fall across the southern Murray-Darling Basin

The latest Water Market Outlook report from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) indicates that water allocation prices in the southern Murray-Darling are likely to fall in 2020–21.

ABARES executive director, Dr Steve Hatfield-Dodds said water prices at the start of 2019–20 were high compared to the historical average.

“This was driven by low opening allocation volumes, exceptionally dry and warm conditions across the sMDB and poor seasonal outlooks for 2020–21,” Hatfield-Dodds said.

“As a result, prices averaged $543 per ML in 2019-20 which is the highest level since the height of the Millennium drought in 2007-08.

The latest ABARES Water Market Outlook provides a range of possible allocation prices for 2020–21 under wet, average, dry and extreme dry seasonal conditions.

Under the wet and average scenarios, price are likely to fall sharply reflecting a significant improvement in the volume of water supply in 2020–21, with ABARES estimating average annual prices of between $207 per ML and $287 per ML.

Lower water prices across the southern basin would see production in industries most sensitive to changes in water prices, such as rice and cotton, rebound strongly in 2020-21, from the low levels observed in 2019-20.

“Prices under the dry scenario are modelled to decrease moderately to $450 per ML, reflecting a marginal improvement in water supply compared to 2019-20,” said Hatfield-Dodds.

“Under the extreme dry scenario prices are modelled to increase slightly, to $544 per ML, as most regions are modelled to have less water available.

“The promising Bureau of Meteorology climate outlook aligns most closely with the average scenario in the report, however it’s important to remember there’s still much uncertainty.

“Conditions better or worse than the scenarios tested are possible, which would result in prices higher or lower than those estimated in the latest outlook.

“Another significant determinant driving prices in 2020–21 will be where water is located, compared to where water demand is highest with recent increases in demand for irrigation water in regions below the Barmah choke.

“Inter-valley trade limits are expected to be binding, leading to higher prices in regions that import water.”

To accompany the Water Market Outlook, ABARES has prepared a dashboard visualisation, allowing users to explore the forecasts in dept

Send this to a friend