Irrigation water prices rose early last season but fell towards the end of the year, a new report by water market consultants Aither says.
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Dry conditions earlier in the 2023-24 year drove prices up but high allocations and good rainfall suppressed water demand.
According to Aither, the annual volume weighted average price for allocations across the southern Murray-Darling Basin was $76/Ml.
Aither reported that for entitlement markets, prices for most high-reliability and high-security entitlements decreased in 2023-24.
Irrigators, particularly wine grape producers in the lower Murray, sold entitlements to support broader business operations amid economic challenges.
During the 2023-24 water year, the Federal Government passed legislation paving the way for further government water purchases to meet its 450 Gl environmental target.
A key event in 2023-24 was recovering 10 Gl from the NSW Murray catchment as part of the Bridging the Gap Target.
Aither said this put upward pressure on Murray general security entitlement prices.
“The above two countervailing factors meant entitlement markets were volatile during the year. This created two different markets, one of softening prices among irrigators, and higher prices with Commonwealth water purchases.”
As a result of the market conditions, for the second consecutive year the Aither Entitlement Index (AEI) experienced negative growth, driven by continuing economic headwinds which maintained downward pressure on entitlement prices.
Meanwhile, 2023-24 marked a significant shift in water policy in the Murray-Darling Basin, Aither said.
The passage of the Commonwealth Restoring Our Rivers Act extended the Murray-Darling Basin Plan water recovery deadlines and enabled additional water purchases to meet water recovery targets.
Key to this was the anticipation of the Commonwealth recommencing buybacks to deliver the 450 Gl Sustainable Diversion Limit Adjustment Mechanism (SDLAM) target, which buoyed entitlement markets and reset price expectations.
Commenting on the outlook for the 2024-25 year, the Aither report notes the water year opened with high allocations to most entitlements, although the overall volume was lower compared to recent years.
“This indicates the potential for relatively low allocation prices, below the long-term average but higher than recent years,” Aither said.
“Should another La Niña eventuate, we could see a return to very low prices.”
Also in 2024-25, the Commonwealth will begin activities to deliver the basin plan, including those to meet its 450 Gl environmental target.
“Water purchases will be a key dynamic influencing entitlement markets this year and beyond.”
The Federal Government announced an initial 70 Gl tender in July, targeting southern basin entitlements, with additional expressions of interest announcements expected in the coming months.
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