Farmers flood Commonwealth with offers as basin buyback tender closes
Farmers have inundated the Commonwealth with so many offers to sell water entitlements in the Southern Murray Darling-Basin that it should have "no problem" in reaching its target of 70 gigalitres to be returned to environmental flows in the current tender round.
Ruralco Water general manager Phil Grahame said he was surprised by the number of water holders that had approached the brokerage prior to the tender closing at midnight on September 11.
He said that the vast majority of would-be sellers were small-scale family and retiring or retired farmers seeking a premium for their private diversions in the range of at least 20 per cent to 30pc above current permanent water market values.
"We had more sellers than I originally thought we would and indications are that the Commonwealth have received a significant number of tenderers, who have tendered more volume than they indicated they were looking for," he said.
Australian Water Brokers Association president Andrew Martin agreed that early indications pointed to the Commonwealth being offered at least 50GL and likely up to 100GL worth of entitlements.
"The issue then is what price the entitlements are offered at and what price the Commonwealth is prepared to pay," he said.
He added that a "very rough guide" to what will be ultimately paid for the 70GL could range from $300 million for general entitlements, based on current market prices plus around 20pc, to about $700m for high security water.
The government opened the tender process on July 15 to buy 70GL of water from willing sellers in the New South Wales, South Australia and Victoria Murray catchments, the lower part of the Murrumbidgee catchment and Victoria's Ovens catchment.
In Approach to Market documents it said it would only consider licences of 10 megalitres or more, while it is expected most volumes offered will be from about 80ML to 300ML.
ACM Agri believes around $610m was set aside in the recent federal budget to make the purchases, as well as to develop water-saving infrastructure and mitigate constraints.
Mr Grahame said producers who had tendered were an across-the-board mixture from those with permanent plantings, with struggling winegrape growers particularly from South Australia being the largest cohort, to dairy farmers who had purchased entitlements to plant cotton or rice as a side hustle.
Sellers were also geographically consistent but zone seven in Victoria and zone 11 in NSW, along with zone 10 in the Murrumbidgee, are likely to be competitive, with many retirees or retiring farmers putting up an entitlement they are, or were intending, to use as superannuation.
"A lot of them have already sold the property and bought a house in town but kept their water as an investment and trade the allocation for income," Mr Grahame said.
"It has worked well for them but the spot market has been quite low over the last four years and they have not received a great return, they are taking the opportunity to perhaps sell at a significant premium above market value and redirect those funds into shares, stocks or real estate."
The voluntary buybacks are part of Labor's Restoring Our Rivers reforms, negotiated with the Greens and cross bench late last year, that revamped the Murray-Darling Basin Plan to return 450GL a year of environmental flows to the nation's largest river network by 2027.
It is believed the number of willing sellers in the current round will clearly supersede the 250 that had raised their hands for the Bridging the Gaps purchasing program in NSW that closed in May 2023 but failed to receive enough tenders to divert 44.3GL a year to environmental flows.
This significantly relates to the current round being open to more valleys and including both Victorian and South Australian water holders, while holders this time were also allowed multiple tenders on the one entitlement by splitting offers to nominate different price points.
Some farmers also took advantage of the buybacks to swap entitlement types, for example farmers may have properties below the Barmah Choke but their entitlements are above and they do not receive adequate flows, so are selling above to buy entitlements below the Choke.
Meanwhile, there will also likely be a significant number of offers from holders after the Commonwealth announced a particular interest in buying the opportunistic and insecure class of licence called 'Lowbidgee Supplementary'.
Mr Grahame said the offers will mainly come from sheep and cattle producers who had not developed a great deal of irrigation.
However, the class is cheaper and does not have much market demand outside environmental purposes, particularly given the entitlements restrict an owner's access to certain times, such as periods of high flows, and can ordinarily only be traded to other 'Lowbidgee owners.
While this makes it good value for money for environmental purposes, it is likely not all of the tenders will sell given the Commonwealth's desire to balance its portfolio across the Basin.
Farmers seeking a quick cash injection also mostly avoided the tender process given they could settle in six weeks, rather than wait until next year to find out firstly if their tender had been accepted and then for contracts to be drawn and settlement to take place.
The next two Commonwealth "expressions of interest" processes will specifically target corporates with significant holdings and entitlement owners who were not eligible to tender this time around.
The ATM process means that the price nominated by licence holders when tenders closed on September 11 is locked in until the process is decided as the documents stipulate there will be no negotiations or counteroffers.