Tasmania: Betting On Water To Revive Its Fortunes

Courtesy of The Economist, a look at Tasmania’s new course around turning water into wealth:

FOR 27 years Yvonne and Noel Gerke ran a transport business, hauling logs from Tasmania’s forests to mills grinding woodchips for customers in Japan and elsewhere in Asia. Then came the global financial downturn as well as campaigns to protect Tasmania’s native forests (see article). It clobbered the timber industry. “We employed 45 people until it crashed and burned,” says Ms Gerke. Four years ago the Gerkes took a payout from Australia’s federal government to quit logging. They are now gambling on another commodity: water.

Australia is the world’s driest continent. Climate change is expected to make its droughts even more frequent. The country is still paying for years of overexploitation of its biggest river system, the Murray-Darling basin. The federal government in Canberra is spending A$3.2 billion ($2.2 billion) buying up and cancelling farmers’ water entitlements in a bid to reduce salinity and repair other environmental damage stretching back a century.

While mainland farmers are being paid to give up water, those in wetter Tasmania are being enticed to buy more. The island state accounts for just 1% of Australia’s land mass and 2% of its population. Yet it receives 13% of the country’s rainfall. Tasmania may be blessed with water, but most of it falls in the mountains of the west, making it useless to farmers elsewhere.

So the island has embarked on a project to capture more water for its drier east and north, shifting it through pipes to these regions’ farms. Almost 800 farmers have already bought into ten irrigation schemes that are up and running. They will allow farmers to do more than graze sheep and cattle; they will be able to grow fruit and vegetables, including more of Tasmania’s exotic stuff: cherries, grapes for the island’s increasingly fashionable wines and even poppies (the island is a big opium supplier for legitimate pharmaceuticals).

If another five planned schemes involving 200 farmers go ahead, Tasmania’s investment in shifting its water around the island will be almost A$1 billion. The federal and Tasmanian governments are putting up some of the money. But that comes with conditions. Farmers and other investors must first agree to meet at least two-thirds of the costs of each irrigation project before governments commit the rest.

The Gerkes have bought into one of the newer projects near Scottsdale in northern Tasmania (see map). Pastures in this dairy region are parched after Tasmania’s lowest spring rainfall on record. In recent years two timber mills and a vegetable-processing factory have closed. Jeremy Rockliff, Tasmania’s deputy premier, says the region is among those “most devastated” by the forest industry’s downturn. He reckons the irrigation projects will “future-proof” Tasmania against drought. Perhaps. But the prospect of water prompted the Gerkes to swap the known risk of timber for the unknown one of farming.

They bought 445 hectares (1,100 acres) of grazing land north of Scottsdale. “It was run down,” says Ms Gerke. A creek was its only water source, “and that dried up.” When Tasmanian Irrigation (TI), the public company that operates the irrigation schemes, proposed one for Scottsdale, the Gerkes and 91 other farmers offered to buy in. But that was not quite enough to secure public money for the scheme. So Dorset council, the region’s local-government authority, said it would invest A$1.7m in the water. Greg Howard, the mayor, argued it would help bring back jobs. TI designed a storage dam on a rivulet near Scottsdale, with pipes to start pumping water to each of the participating farmers’ gates in two years. It will flow through about 70 kilometres of pipes before it reaches the Gerkes’ farm.

Joining the scheme will cost them A$189,000. This entitles them to 135 megalitres of water a year; if other farmers want more, they will have to pay more. The irrigation company will charge the Gerkes another A$11,000 a year towards maintaining the network’s pipes and pumps. By the time they pay for their own infrastructure to distribute the water on their farm, they estimate their total investment in obtaining water at almost A$500,000.

They plan to use the water to turn some grazing land into vegetable plots. On the rest of their land, they hope to grow lusher grass for livestock. So they will probably make more money. And once the water reaches them, they can trade some of it each year with other irrigators in their scheme who need more. The Gerkes’ water will not be fixed at A$1,400 a megalitre, the price they paid: the market will find the new price. “Everyone in the area is quite excited,” says Ms Gerke. “We’ve taken such a hit recently.”

Tasmania’s new water market has already been kind to one of its biggest investors. David Williams, a Melbourne banker, owns no Tasmanian farms. But he put A$10m into two central Tasmania irrigation schemes after local farmers had bought in. Mr Williams likens the arrival of reliable water in such regions to technological change: “I punted that it would change the way land is used.” He calculates that trading his water entitlement with farmers in both schemes could turn his investment into A$16m.

Mr Williams compares water management on Australia’s eastern mainland, where he lives, unflatteringly with Tasmania’s approach, which looks more efficient. Small hydroelectricity systems have been designed to power three of Tasmania’s schemes. This will cut farmers’ energy costs, and even raise revenues from sales to the public grid.

In some mainland states Tasmania’s public-private partnership approach is seen as a model for mending old improvident ways with water. In Tasmania there are hopes that a water boom could make people think differently about the state’s economy. A mainland mining bonanza, linked to trade with China, enriched the rest of Australia but bypassed Tasmania. Instead, it boosted Australia’s currency and hurt Tasmanian exporters of timber and farm products.

Now that the mining bonanza is over, signs of a Tasmanian upturn are emerging. Attracted by a cheaper currency, more than 1m people visited Tasmania in the latest fiscal year, a record. Tourists are drawn to Tasmania’s clean air, natural beauty, good food—and increasingly hip image. A huge and provocative underground gallery, the Museum of Old and New Art, or MONA, opened five years ago just outside Hobart, the capital. With installations that include a machine that makes excrement, it has proved a hit with visitors.

Among the foreign tourists coming to sample Tasmanian Riesling, oysters and marbled beef are plenty of Chinese. When China’s president, Xi Jinping, visited Hobart in late 2014, he sent signals that China wanted more seafood, beef and other costlier food exports from Tasmania. China’s relentless pursuit of reliable food supplies is likely to do Tasmania a lot of good. Lu Xianfeng, a Chinese businessman, is bidding to buy a big dairy producer, Van Diemen’s Land, in north-west Tasmania. Mr Lu says he wants to tempt China’s newly affluent class with top-quality food from Tasmania.

In a recent report to the Tasmanian chamber of commerce, Saul Eslake, an economist, pondered a large gap that has opened between Tasmania’s economic performance and the rest of Australia’s. Tasmania’s gross state product per person was 27% below the national average last fiscal year. Mr Eslake reckons that making more niche goods of the type that attract Mr Lu (he highlights wool, wine and wagyu beef) offers Tasmania a better chance of closing the gap than the “bulk, undistinguished products” of old, like woodchips. Water can be turned not only into wine, but also into wealth.

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