High water allocation prices likely to continue in the southern Murray-Darling

Water allocation prices in the southern Murray-Darling Basin are likely to remain high in 2019–20, according to the Australian Bureau of Agricultural and Resource Economics’ (ABARES) latest Water Market Outlook.

“Over the last 12 months, water allocation prices have increased dramatically from around $250 per ML in July 2018 to over $600 per ML,” said ABARES head of farm performance and resource economics, David Galeano.

ABARES modelling suggests a combination of low supply caused by drought, and growth in water demand in recent years explains the observed increase in prices.

The latest ABARES Water Market Outlook provides a range of possible allocation prices for 2019-20 under average, dry, extreme dry, and wet seasonal condition scenarios.

“Under the dry and extreme dry scenarios, total water availability in the southern basin in 2019-20 would be well below last year but still above levels observed during the worst of the Millennium Drought (2007 to 2009), with ABARES estimating average annual water prices of between $526 and $650 per ML.

“Of course, if we do see a shift to wetter conditions, prices are expected to fall quickly and substantially as they did in 2016-17.

“Water supply in the Murrumbidgee region remains highly limited and so we could see the region’s water trade import limit in force. If this occurs higher allocation prices would be expected in the Murrumbidgee as occurred during parts of 2018-19.

“While the current BOM climate outlook suggests drier than average conditions at least until October, it’s important to remember there’s still much uncertainty. Conditions better or worse than the scenarios tested are possible – and hence water prices higher or lower than those estimated in our latest outlook – remain a possibility.”

Read the latest ABARES Water Market Outlook here