Water markets and trade

Water in the Murray–Darling Basin can be bought and sold, either permanently or temporarily.

This water is traded on markets – within catchments, between catchments (where possible) or along river systems. This form of trading allows water users to buy and sell water in response to their individual needs. Water trading has become a vital business tool for many irrigators.

The majority of water traded in the Murray–Darling Basin is surface water, however some groundwater also trades.

Key facts

Water trading helps Murray–Darling Basin farmers to make more productive use of water and contributes to sustainable water management.

Irrigated agriculture in the Basin consumes about 60% of Australia's available water.

Water markets create incentives for water to be moved to higher-value uses.

During the year, water is distributed (or 'allocated') against entitlements in response to factors such as rainfall and storage levels.

When water is allocated to an entitlement holder, they are able to use it as needed – this is their business decision to make.

There are more than 150 classes of water entitlement in the Basin.

Water trading in the Basin is worth about $2 billion annually.

Water markets encourage more efficient water use throughout the Murray–Darling Basin as a range of water entitlements and allocations can be bought and sold on these markets.

For both sellers and buyers, water trade can increase productivity, allow choice and flexibility in business decision-making and reduce risk.

The New South Wales, Queensland, South Australian and Victorian state governments are primarily responsible for managing water markets, and each state has its own process and rules for allocating water.

Irrigation infrastructure operators create and maintain trading rules within their networks.

Water trade

Water trade allows water holders to decide whether they need to buy or sell water at a particular time. There are two types of water trade:

• Permanent trade is the trade of water entitlements (known as 'entitlement trade'). For example, if an entitlement holder sold their water entitlement permanently.
• Temporary trade is the annual trade of water allocations (known as 'allocation trade'). For example, an entitlement holder can trade their allocation in any season, based on their own business model.

Anyone holding water rights/entitlements may trade these freely, except where restricted by physical constraints (such as geography or lack of connections to the system) or water supply system considerations.

The price of water reflects supply and demand factors. It differs across regions and type of rights, and with time.

The Murray–Darling Basin Authority (MDBA) facilitates fair, consistent and transparent water trade across the Murray–Darling system. It provides information on water trading and works.

Water entitlements, allocations and usage

Water entitlements

Water entitlements are rights to an ongoing share of water within a system.

The financial value of a water entitlement is determined by the water market (which operates like any other free market) and is subject to change.

Water allocations

Water allocations are the amount of water distributed to users (water entitlement holders) in a given water year.

Allocations against entitlements change according to rainfall, inflows into storages and how much water is already stored. Allocations can increase throughout the year in response to changes in the system.

This method provides people with knowledge about when they will receive water and how much, while allowing Basin state governments to manage water availability through varying climatic conditions.

Water usage

Water usage is how much water is actually used from the water that is allocated. When water is allocated to an entitlement holder, they use it as needed – sometimes they only use a proportion of their allocated water – for example sometimes they will use 30%, sometimes 95% and sometimes they'll carryover to the next water year (depending on the state's rules).

This is an individual business decision, where entitlement holders consider climate and rainfall, their cropping cycle, and their own business plans.

Roles and responsibilities

Irrigation infrastructure operator (IIO) rules

Irrigation infrastructure operators (such as Murray Irrigation) create and maintain trading rules within their irrigation network. These rules ensure the operation, maintenance and accounting of trades that occur within their networks. An irrigation infrastructure operator owns or operates water service infrastructure for delivering water for the primary purpose of irrigation.

The Basin Plan water trading rules require IIOs to provide their trading rules to us, to ensure they are consistent with the Basin Plan.

Murray–Darling Basin Authority

The MDBA facilitates fair, consistent and transparent water trade across the Murray–Darling system.

Inspector-General of Water Compliance

The Inspector-General of Water Compliance (IGWC) is a regulatory role. It aims to improve trust and transparency in implementing the Commonwealth’s Basin water reform agenda, deliver greater consistency and harmonisation of water regulation across the Basin and strengthen Basin Plan compliance and enforcement. One of the main responsibilities of the IGWC is enforcing compliance with the Basin Plan water trading rules.

The Australian Competition and Consumer Commission (ACCC)

The ACCC has monitoring, enforcement, advisory and price-setting roles (in some cases) for water market rules and water charge rules. Under the Water Act 2007, the Australian Government Minister responsible for water makes or changes these rules.

The water market rules and water charge rules:

• reduce barriers to trade by regulating Irrigation Infrastructure Operators' transformation arrangements, maximum termination fees and some trade-related charges
• improve pricing transparency by requiring the publication and provision of information about charges to water users
• regulate how infrastructure operators' charges are set, in certain circumstances
• restrict the ability of infrastructure operators to discriminate against particular customers.

The ACCC also considers complaints about anticompetitive conduct in the water industry and water markets and enforces the Competition and Consumer Act 2010.

More information on these rules is available on the ACCC website.

Basin state and territory governments

Basin state and territory governments are responsible for:

• determining water allocations
• developing policies and procedures for trade
• monitoring water use
• developing water resource plans that set the rules for sharing water between users and the environment
• day-to-day trade operations such as trade applications and approvals.

Basin state governments set trading rules within their respective states. These rules need to be consistent with the Basin Plan and generally outline:

• where trade is allowed between different locations
• how trade transactions need to be conducted within the state.

This arrangement with state and territory governments provides a consistent water trading environment across the Basin, while still recognising states and irrigation infrastructure operator's (IIO) ability to restrict trade where necessary.