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WATER POLITICS

Courtesy of The Wall Street Journal, a report on Australia’s plans to require foreign investors to declare their interests in water rights:

The muddy river that flows through this farming town feeds both verdant citrus groves and a growing unease among some lawmakers and regulators over foreign ownership of water rights.

Australia—the world’s driest inhabited continent—plans to require foreign investors to declare their interests in water rights like to this river used by farmers in three southeast states. The proposed register, which for the first time would create a public record of the level of foreign ownership, comes at a time when the country is seeing a wave of deal-making in agriculture. Public submissions close Friday.

 

Demand for water is rising ahead of government plans to turn the empty expanses of northern Australia into a food bowl for the rising middle classes of China and India. Water is already a scarce commodity, but climate change is expected to make droughts even more frequent.

Since 2007, investors have no longer needed to own land to be eligible to buy and sell water rights. That’s allowed landholders to either use water on their property or offer it for sale—creating one of the world’s most advanced water-trading systems.

Some lawmakers and farmers see rising foreign ownership of water rights as a threat to food and water security, driving up water prices and making it too expensive for Australian farmers to irrigate crops. The number of agricultural water entitlements with at least some level of foreign ownership increased by more than half in recent years. Around 14% of farm water rights were partially foreign owned in 2013 compared with 9% in 2010, government figures show.

“The Australian people have every right to know exactly… who owns our most precious asset—the land we stand on, the water we use, and how many of them come from overseas,” Agriculture Minister Barnaby Joyce said in an interview.

The angst over water rights in Australia comes as places from California to northwestern India and Africa are running out of water.

A recent University of California study using data from NASA satellites found about a third of the world’s 37 largest aquifers are being used at unsustainable rates. Thirteen of those are close to being depleted with little or no replenishment. Climate change and population growth are expected to intensify the problem of water shortages, creating a potential political flashpoint like what has happened with mineral and land rights around the world.

Soaring global demand for food—much of the appetite from China and India—is fueling a rush of global deal-making in agriculture and water, seen by some investors as the new oil.

In Australia, which exports about 70% of its food produce, farmers worry they’ll be priced out of the water market by speculators.

The Murray River feeds irrigated farmlands in eastern Australia’s Murray-Darling food bowl. Soaring global demand for food is fueling a rush of global deal-making in agriculture and water.

In Queensland state– a target for new dam building as part of a plan to develop the tropical north—dairy farmers offering $250 Australian dollars (about US$190) a mega liter for water expected to flow from new reservoirs are being outbid by investors offering up to A$16,000 a mega liter to be pumped into higher-return crops like strawberries. It takes 2.5 megaliters to fill an Olympic swimming pool.

“We are very aware about sensitivities about the price of water,” said Mr. Joyce. “It has a very direct correlation to the profits you make from a product you produce. [The water register] is all part of getting that proper transparency.”

Last year, the government established a register of overseas farm ownership and lowered the threshold above which foreign deals would be assessed for whether they are in the national interest by the country’s investment watchdog to A$15 million from A$252 million. It also moved to cap a heated domestic property market, forcing the sale of trophy homes purchased illegally by foreign residents in Sydney and Melbourne.

After years of over exploiting the Murray-Darling basin —a vast system of interconnected rivers and tributaries in eastern Australia that feeds the country’s major food bowl—the federal government is spending A$3.2 billion buying up and cancelling some water entitlements, seeking to repair environmental damage stretching back a century. Critics say the program has triggered volatility in the water market, driving up prices and hurting rural communities that rely on irrigation.

Some say concerns about investors forcing up water prices are overblown, however.

“While there have been concerns in the community that water speculators are driving up prices, this does not appear to be currently the case,” Tim Cummins, a water market analyst said in a recent report into water use in Victoria state. Water ownership not linked to land has remained largely stable in northern Victoria between 5% and 7% since 2010, he said.

One way foreign investors gain exposure to water is by buying up farmland with water on it.

TIAA, a $900 billion New York-based retirement fund for many university professors, says roughly half its Australia farm investments have water entitlements, including Milo Farm in northern New South Wales, which produces cotton, wheat and sorghum across more than 21,000 acres and has over 26,000 mega liters of water.

“One of the of the primary ways we try to invest in water is by being smart about which farmland we buy and making sure we’ve got good water rights,” said John Goodreds, TIAA’s head of agribusiness. “That’s a very valuable subset under agriculture.”