High value crops to drive water prices

High value crops drive water demand


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South Australian irrigators and investors have been told demand for water for almond crops, planted in the Southern Connected Basin, could eventually rise by 250 Gigalitres (GL) a year.

South Australian irrigators and investors have been told unabsorbed, additional demand for water for almond crops, planted in the Southern Connected Basin, could eventually rise by 250 Gigalitres (GL) a year. 

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Marsden Jacob principal Simo Tervonen made the comments at a Murray Bridge workshop, facilitated by the International Centre of Excellence in Water Resource Management (ICEWaRM) and Primary Industries and Resources South Australia (PIRSA).

“The story there is that the continued demand coming from high value crop growers will drive the market over the next three to five years,” Mr Tervonen said.

The seminars covered water trading basics and licencing, capital deployment to achieve desired water security, protection of water quality and salinity levels and an update on the 2017/18 seasonal outlook.

Mr Tervonen said high value crops would continue to drive irrigation demand, with estimates of 15,000 hectares of new almond plantings planned between 2016-18.

“High value crops continue to drive the demand in the Southern Connected market,” Mr Tervonven said.

The figures were based on numbers published by the Almond Board of Australia.

“The 250GL was my estimate of additional demand coming in the next six to eight years, for almonds, based on the amount of plantings and the amount of trees not yet bearing a crop.”

Higher permanent prices would make it harder for investors to achieve high returns, which may result in a change in business model, he told seminar participants.

Mr Tervonen said almond crops’ water requirement could be between 12-16ML/ha at full maturity.

He said the main constraint to growth was finding suitable land to grow high value crops, such as almonds.

“I am not presenting a doomsday scenario that there won’t be enough water, because the almond growers will take it all,” Mr Tervonen said. “There is confidence the water markets will work.”

He said the maturing water market meant irrigators and investors were looking at the longer term. “It’s no longer a one year game were you only think of your requirements for the next month.

“It’s not so ad hoc, it’s more strategic and there is more preparation, regarding water requirements.

Much more planning was now in place to allow a longer term view, in the purchase of water.

“People are buying water many times a year, instead of just once – all in all, they are being more savvy and strategic.”

There was a limited amount of water, which would not increase.

“There are environmental water holders, both State and Federal, who have a significant proportion of entitlements,” Mr Tervonen said.

“The markets work based on supply and demand, based on that water will flow to the highest value use. If you compare almonds to some annual crops that can use the same amount of water per hectare, gross margins per megalitre on nuts can be up to 20 times higher.”

He said the market had matured a great deal, over the last 10 years.

“People have become savvy about managing the asset, they are no longer just owning an entitlement in their home catchment,” Mr Tervonen said.

“You might own permanent water in all three states and you can get water delivered to your property from those three entitlements.”

But he said while there was more and more information available, which could be used to make informed decisions, there was still a demand for better co-ordination.

“The problem with the current information is you can’t access that in a central place, you have to collect different information from different sources,” Mr Tervonen said.

“It’s not detailed enough, for instance water market data and state registers don’t separate spot market allocation trades from forward market trades.

“Assessing forward or lease trades, off the temporary market, is quite difficult to do.

He said other areas of concern were in relation to wet and dry permanent trades, property transfers with water, water usage data and price information for unregulated water and groundwater trades.

“There is room for improvement in terms of market information,” Mr Tervonen said.

MARKET DRIVER: Simo Tervonen, Marsden Jacob, has told a South Australian seminar high value crops would continue to be a major water market driver.

MARKET DRIVER: Simo Tervonen, Marsden Jacob, has told a South Australian seminar high value crops would continue to be a major water market driver.

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