Deficient rules, poor enforcement and troubled governance: ACCC slams water market management

30 July 2020

The ACCC Murray Darling water markets interim report, made public today, confirms the Morrison Government’s lack of leadership and failures to manage water markets.
After seven years of Liberal and National government, Australia’s precious water resources are being traded on markets that are riddled with problems.
It is clear from the interim report that the Morrison Government’s current approach is deficient, lacks transparency and integrity, and has lost the trust and confidence of the Australian people.
The report says “the current markets’ rules are deficient; enforcement of them is inconsistent and limited; and the overall governance of the Basin’s water trade is troubled.”[1]
In an acknowledgement of widespread concerns about so-called “water barons”, the report makes clear that “the gaps and opportunities created by the complex web of rules, challenges accessing clear and transparent information, and the time and cost needed to identify and pursue trade opportunities”[2] means that big traders can use the markets to their advantage in ways that others, like small irrigators, cannot.
The report also makes clear that current market rules are not adequate to deal with the physical realities of water trading – that is, how water is stored, and how it is moved from one place to another.[3]
Disturbingly, the interim report found that there were limited rules targeting trading behaviour of market participants that specifically aim to prevent market manipulation and that many of the issues that the ACCC views as harmful to open and efficient water trading are grounded in failures of governance.
The report also found that:

  • Water market intermediaries such as brokers and water-exchange platforms operate in a mostly unregulated environment, allowing conflicts of interest to arise, and opportunities for transactions to be reported improperly.
  • A lack of obligations on brokers and inadequate oversight can harm market participants and damage confidence in markets.
  • There are information failures which limit the openness of markets and favour better-resourced and professional traders who can take advantage of opportunities such as inter-valley trade/transfer openings.
  • The Basin’s markets need decisive and comprehensive reform and that to make real and lasting improvements, there is a need to change the Basin’s ‘governance’ arrangements.
  • There are scant rules to guard against the emergence of conduct aimed at manipulating market prices, and no particular body to monitor the trading activities of market participants.

Labor has been calling for action from the Government for some time to address the disastrous lack of water transparency that is paralysing farmers in the Murray Darling Basin, damaging our economy and crushing public trust, particularly when it has occurred during one of the worst droughts on record.

Labor has highlighted before that information asymmetry is a classic source of market failure.  The lack of transparency in this market is failing farmers, communities and the nation.
This report follows the Keelty Report which was a scathing review of the Coalition Government’s mismanagement of the Murray Darling Basin which found an absence of leadership, transparency, and "a single point of truth" across the Murray-Darling Basin.
Instead of ensuring transparency in the use of our nation’s water, this Government has no plan to restore confidence in water markets and management in Australia’s most important river system.
The buck stops with the Morrison Government.
It must ensure that Australia’s water is used well and effectively in the public interest, for current and future generations of Australians.