I read “Making hay in the dry: farmers turn water into profit” with interest. I had just sold this year’s entitlement to a small allocation of water at what seems to be a dreadfully high price — nearly $1,000 per megalitre. I asked the broker who would be buying water at such prices, assuming it would be some major entity controlling Managed Investment Schemes.

“Not a bit of it,” she replied. “It will be bought by a Shepparton orchardist.”

Further questioning revealed that almost all sales were to such people. This year in the Murray system, where before now entitlements have been higher and have usually been delivered, the orchardists have been joined by people such as citrus growers and tomato producers. By contrast, entitlements on the Goulburn have been reduced for several years.

In 2001 when we first became entitled to irrigation water, the rate per annum, for those who didn’t wish to use it all, was about $60-$80 per mega litre. I’m told that many farmers simply sat on their entitlements, didn’t use the water and didn’t sell it. After the 2002 drought, that all changed. From memory, the price escalated to $600. This was a horrifying figure, particularly for the dairy industry, then in the process of restructure, with many dairy farmers quitting the scene. (We felt so concerned about their plight, we offered to a grateful dairying family our modest entitlement for half the going rate.)

In the next few years the rate returned to a much lower figure but the droughts of 2006 and 2007 may have changed the picture irrevocably. I asked the broker whether dairy farmers are active in the market. The answer is that they are not: those that have an entitlement are selling it. But are they “making hay in the dry?”

Of course they’re not. They’re using the funds received from the sale of their water to buy feed to keep their cattle alive and, in some cases, producing. For some, the year is a write-off but they still want to have a herd when conditions improve, and without feed they won’t. For the orchardists, citrus growers etc, it still makes sense, to some at least, to borrow money to buy water, just to keep the trees alive, or they have no future.

For people such as me, the dominant need is also to be able to afford the huge prices for feed for our carefully built up beef herd. Some examples: Grain is now $400 per tonne, compared with $150 two years ago. Bales of silage and hay have tripled in cost, largely because we can’t produce our own as we would normally do. So, we won’t be offering the 20% of water entitlement for a reduced sum — we can’t afford to. And we’re the privileged ones. Your readers can only imagine what many farmers without water entitlements will do. They simply can’t afford to feed sheep or cattle at these rates and the markets are already flooded with culled stock, much of it of excellent breeding.

Two final points. All the water is now being used. If you don’t use it you sell to someone who will. Thus a greater proportion is being lost from the system. And secondly, the effects of this will become clearer in time, when the glut of cheap cattle and sheep have exited the system. Already total numbers in Australia are way down, and we’ve been living in a fool’s paradise as to price.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey