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Federal Minister for the Environment and Heritage
The Hon Dr David Kemp, MP

Deniliquin MVCAG Summit
21 November 2002

(Check against delivery)

"Water - What's it Worth"

Ladies and gentlemen

The first thing I would say is that the question you pose at this summit, whereby you seek to establish the true worth of water - not just in the local context - but as a national issue is - I think - one of the most complex and important Q and A's this country has decided to face.

At its most basic level, the simple, the fundamental, and the central answer is that the worth of water, the true value of water, is - ultimately - not less than life itself: It is that important to us all - and I fully acknowledge that the understanding of that, in this particular location, at this particular time, is clear, given the massive constraints that are currently placed on all livelihoods in the region by the drought, and the extraordinary cuts in allocations that have occurred as a result of it.

So the clear fact is that whatever other values we might place upon water, in terms of economic cost, economic worth, social worth, environmental worth - all efforts at a valuation, all efforts at a measure of worth, do come back to that truism.

That's why this issue is so important. Water is, quite simply, our most fundamentally important natural resource.

The human body is two thirds water. Our blood is 92% water. The water content of the fruit and vegetables we consume varies between about 75% to in excess of 90%. Milk is 90% water.

The meat of the animals we consume contains about 50% water. Chicken meat has about the same water content as our own and they developed that for the same reason we did: Survival.

Most breads contain around 38% water.

We can live for a week without food but we cannot live for a week without water and - if we can get it - we need around 2 litres of clean drinking water a day to maintain our health - something currently denied around two thirds of the world's population -- which was one of the major issues at the recent World Summit on Sustainable Development at Johannesburg.

Water is a crucial, basic, tool for us beyond the most direct survival requirements. We use vast amounts of it, in this country as is the case in most developed countries, to clean ourselves, and our trappings.

Water is fundamental to most livelihoods. It is a key component in just about every industrial process, somewhere along the production chain.

And we use water to grow the crops and husband the animals that provide so many of us with a livelihood - as we on-sell those water-based products to people who need or want the water and the protein and the carbohydrates and the other food values they contain.

This quintessential reality, of water as absolutely fundamental to life, is as true for every organism on the planet as it is for us - so that, one realistic way of answering the question of "Water - What's it worth?" is to say that it is priceless.

I really do believe that we go to this discussion from that point: That that understanding is the very real backdrop, the real nature, the true scale, the bottom line if you like, of the debate that's now been enjoined in this country on the future of the way in which we deal with water.

Our access to water - how we share it among ourselves - how we share it with all other life - governs - starkly determines - the sort of society we live in, the industries in which we engage, and the health of our environment.

The move, from that set of fundamental truisms, and that set of values for water, to the very vigorous debate that we are now having in this country - in many forums, and through many events like this conference - on the future of the way we handle water -- is therefore no real leap at all.

This is a debate, and a reform process, that we had to have in this country, and we are not alone. What we are confronting is simply the same urgent issue that is confronting most other countries in the world - developed or undeveloped - and that is: How we are going to better share our water in the face of rising demand, limited supply, and the overpowering requirement, the imperative, that we get it right - because we are dealing with the most fundamental of our natural resources.

If there is any surprise, at all, in terms of the challenge that we now are meeting over this resource, it is that we have come to this debate relatively late, in terms of our awakening to the need to address water issues in a coordinated and a sustainable way.

Early warnings - consumption patterns

The threat of dryland salinity, which is so intrinsically linked to the overall water issue, was first understood in the Australian context, in Western Australia, in the early years of the 20th century.

Salinity from irrigation, was recognized, in this district and in other areas along the Murray, in the 1950's and efforts to at least mitigate its impact on productivity have been with us since at least the 1960's.

Concern about the long term health of our river systems became commonplace in the 1980's - yet the strongest period of growth in our water consumption in our history has occurred since the mid-eighties.

In 1983-84 Australia consumed, on the best estimate, some 16,000 gigalitres of water - with around 9,600 gigalitres of that from the Murray-Darling system.

By 1995-96 that had grown by a quarter - to 20,000 gigalitres, and the Australian Bureau of Statistics' estimate of consumption in 2000-2001 is 24,000 gigalitres.

That's a 50% increase in our consumption in less than 20 years, and most of it has gone to irrigated farming. Urban water use, by comparison, has stabilized and in some cities has actually declined over the same time-frame.

The clear message is that the trend in our usage, especially since the mid-eighties, points to a rate of growth in our consumption of water that is simply not sustainable - especially if a significant element of that demand is to be met from the same old work-horse that has just 6% of our water resources -- yet accounts for some 70% of total water usage in this country - which is the Murray -Darling system - and especially if that increase in usage continues to be restricted to the historical locations of growth.

A study by the Australian Academy of Technological Sciences and Engineering, and the Institution of Engineers, published in 1999, predicted that by 2020-2021 Australia's water consumption, if it continued to grow, simply in response to demand, especially from the irrigation sector, could reach, without constraints, about 33,000 gigalitres.

If the Australian Bureau of Statistics is right with its estimate of total water use in 2000-2001 of 24,000 gigalitres, then we have only 9000 gigalitres to cover growth in water consumption - over the next eighteen years - to reach a level of consumption that the Academy and the Institute said would be a level of unsustainable usage that would lead, by its very unsustainability, to an income collapse - particularly in the Murray Darling Basin.

So the warning signs, in terms of the viability of our appetite for water, have been with us for a considerable period of time -- but it is really only over the past decade, in particular, that we have begun, in anything like earnest, to address them methodically, and to determine a national approach to what water is really worth.

I know that in this region, which is the largest irrigation district on the Murray, and thus in this country, that the debate is a painful debate, and a debate that's full of uncertainties, and anxiety -- so -- early in this address to you today, I would like to make a few fundamentals clear - against the background that water is an issue we cannot shirk: We are dealing with a fundamental challenge, not before time, and we simply have to find the answers to achieve the imperative of sustainable use.

Irrigation prosperity must be maintained

The first point I would make is to reassure you that the biggest challenge, for all of us, but particularly from the point of view of the Commonwealth, and the States, in determining what water really is worth, and how we are going to share it, and deal with it for the future in this country, is that we cannot throw the baby out with the bath water.

There is no reason, with good joint decision making, that the thousands of families reliant upon the Deniliquin irrigation region - or the 2 million Australians directly reliant upon the basin - or indeed all families right across the country - cannot come through the processes that are now afoot, to put water use in this country on a sustainable footing, with increased prosperity and with enhanced confidence in a genuinely sustainable future.

That must be our goal. It must be the goal we achieve - and in my mind there is no doubt that such an outcome can be achieved and that we are, in fact, on track to do so.

COAG and property rights

The process, of really beginning the job of achieving sustainability in relation to water, I believe realistically, dates to the agreement by the Council of Australian Governments in 1994 to a range of water related reforms that are now beginning to bear fruit.

The very basis of that agreement, between all the States, and the Commonwealth was to begin providing the answer to the very question you have posed for this conference and that is at the heart of the entire issue - and that is the true worth of water.

The clear belief of the governments of the day was that we had, as a generalization, considerably undervalued water in this country, and that the extravagant, and more to the point, the inefficient, use of water that had developed as a result of that under valuation was a key threat to sustainable water use in this country.

COAG proposed a number of steps, and most are now well advanced, if not as advanced as we would all wish them to be.

On all of these major points, considerable progress has been made, and I think that's particularly so in the development of a property right in water, which is obviously a central concern to people at this conference.

The fact is that, prior to the reforms outlined in the COAG agreement of 1994, few water entitlement systems operating in this country could be said to have contemplated a property right to water, given that they were generally characterized by:

In implementing the COAG Water Reform Framework each state has now, to varying degrees, prescribed water entitlements as:

These three developments go a long way towards establishing a property right, as opposed to an access right, in water given that, at law, property is something that is:

These are some of the principles governing real property - and where the right to water has been enhanced under the COAG agenda to more closely reflect those classic identifiers as a property right, rather than an access right which has so typified water tenures in the past:

I don't say we're there yet, but I do say that there has been considerable progress on this central issue - and I hope that at the COAG meeting next month that the States will agree, with the support and the advocacy of the Commonwealth, to speed up their deliberations on clarifying this central issue -- so that we can get a genuine water market, based on clear rights, operating in this country, as soon as possible.

There has been a great deal of contact between the Commonwealth and the States on developing such an approach - and I believe that we can see national agreement on a set of principles for water entitlements and allocations, and a set of guidelines for the provision of adjustment assistance where changes are made to entitlements.

I also believe there is now a broad recognition, across all jurisdictions, of the need for equity in the arrangements that will emerge, hopefully out of the first COAG meeting next year, for both consumptive and environmental use of water, for the holders of entitlements and the wider community - including the inter-generational community. The resolutions we achieve have to be long term resolutions. They must be flexible - but they have to be long term.

We will need allocation processes that are well defined, publicly known, and not subject to arbitrary change, and I believe we can achieve that as well.

We need planning processes for increased environmental flows that are open and transparent - and we need to develop a water market reflecting the principles I have outlined as soon as possible, and, as I have said, I would hope that we could see at least broad agreement on these principles in the next few weeks, and see action in the first half of next year.

The CAP - and environmental flows

The second major development in the debate on the worth of water in this country, particularly in terms of the Murray-Darling Basin, of which this region is such an important part, was the establishment of a CAP on water extractions from the Murray system from 1996.

That decision, taken in 1995, to limit future extractions from the Murray system to what could be extracted at 1993-94 levels of infrastructure development, was an extension of the concerns that led to the COAG agreement on water reform under the National Competition banner.

And it is important, for the conduct of the debate on the value of water, for us all to clearly understand that, at its foundation, the plan set in place by COAG, through the water elements of National Competition Policy, had joint, and interlocking aims in developing that assessment of worth.

The motivation was in part economic: If water use was going to be rational, in terms of sustaining production in the context of competitive markets, then we had to ensure water was established as a commodity - a tradable commodity.

The second, and equally explicit, element of the COAG process, was to ensure that water use was not only economically sustainable, but environmentally sustainable.

I will come back to those environmental issues but I wanted to emphasise, at this point, that the debate we are now having about environmental flows, as an extension of the CAP, has been an explicit and significant aspect of the development of a sustainable water policy for this country from the beginning of this relatively new process: Environmental health, in terms of our assessment of the worth of water, has been as fundamental an element of the process as economic issues - from the beginning of this process.

The CAP is now operating in the context of a further consideration of our need for an environmentally sustainable Murray, which is known the subject of study, by the community, of three reference points for the potential return of environmental water to the river - determined by the Murray Darling Ministerial Council in April -- with one discussion point at 350 gigalitres, the second at 750 gigalitres, and the third at 1500 gigalitres.

Let me say that I fully recognise and understand that this discussion - on environmental flows - at a time when property rights in water are not yet clear, and at a time when a full market does not yet exist, has added considerably to the anxiety and the stress being experienced by many people - in this district - and right across the basin.

That's particularly so given the current, very severe, national drought, which must be adding to that stress, in that you are being asked to consider the issue of environmental flows against a back-drop of massively reduced water allocations.

Having said that I would again stress to you is that it is not only appropriate, it is necessary, to deal with these matters in parallel - because they are each elements of an overall, interlocking, set of circumstances - all built around the concept of sustainability - and all built around our need to develop an holistic view and set of policies concerning the worth of water.

We cannot consider one element of water use, and water's value, without considering all of the elements, and the time to do so is right. It's time to do so in relation to property rights, it's time to do so in relation to market forces, and it's time to do so in relation to the environment.

The fact that it is difficult, with a number of difficult decisions yet to be made, is not a mystery given the scale of the challenges we have to confront, and one of those cornerstone challenges will flow from the worth placed on water by the market as the clear property rights in water sought by irrigators comes into play.

Clearly, a key aspect of a property right is that it is a tradable right.

And water, as a tradable commodity, will find its value - its worth at one level - on the market.

Since the commodity is a scarce commodity, and a desirable commodity, with a great capacity for value-adding, water as a commodity will inevitably go to the highest bidder.

The highest bidder will logically be the irrigator who can best afford it, and that person will logically be the person who is generating a high rate of return on his crop.

That reality is obviously going to lead to dislocation for some irrigators.

Some crops, with a low value added by water, will inevitably be replaced by crops with a higher value.

Adaptability, and efficiency, are therefore going to be key attributes as we determine the worth of water, and I'm sure the opportunity to express both - in this district and right along the Murray - will mean that the worth of water will be enhanced very considerably.

The Triple Bottom Line

From that enhancement will come greater productivity, greater cash flow, more prosperous communities - and an improved environment as an element of water savings goes back to the environment.

In business, that combination -- of social, economic, and environmental bottom lines - is known as the Triple Bottom Line -- and one measure of the worth of water, emerging from the current reform process, could well be that it will deliver the Triple Bottom Line to those elements of Australia's irrigation industry which have not already engaged it.

And there are already some shining examples of the Triple Bottom Line at work in the irrigation industry.

There are indeed many examples, along the length of the river, of significant reductions in water usage, associated with higher production, and thus increased cash flows and local wealth.

There are apple orchardists in the Lower Murray who have reduced their water consumption by between 30% and 40% - and who have doubled production - by shifting to drip irrigation -- and to watering schedules that concentrate watering at the periods of maximum productive benefit - when fruit is flowering, and filling out.

There are grape-growers who have boosted not only the volume, but the quality of their production even though they have cut their water consumption from nine megalitres per hectare to seven - and who are now experimenting, with some success, with applications below six megalitres per hectare.

At Mildura the shift towards more efficient use of water has reduced drainage in the district by 40% so that some former salt lakes, formed in the not too distant past by highly saline irrigation drainage, have not now had seepage water in them for a decade.

Water tables are clearly dropping - in that area - which is reducing the salinity threat to the productivity of land, reducing the cost of pumping the water away to drainage ponds, and reducing the salinity levels in the Murray -- while the cause of that reduction in drainage water - the shift towards more efficient irrigation practices - is delivering major production benefits.

This is the Triple Bottom Line at work. A specific case, near Mildura, involves the winemaker Southcorp - which now has all of its six and a half thousand hectares of wine grapes on drip irrigation - and which will require, in future, that its suppliers also go to drip irrigation.

Tonnages will be better and, in some of the company's markets, labeling that identifies product as having been sustainably produced has become a pre-requisite to entry. That trend is likely to grow, and grow strongly, particularly in Europe in the shorter term and in other markets in the medium term.

So I would genuinely urge you not to be dispirited by the challenges now underway: Not to feel that it's all too hard, or that it's unnecessary.

There will be more change, and there will be more cost, but there will also be great rewards for those who are prepared to meet these issues head-on, and maximize the benefits for their businesses and their communities by increasing the efficiency of water use, while expanding production.

They are just some examples of the production based issues which I think show clearly that reform, while it has a price, also has great rewards.

A major area of the Triple Bottom Line - also requiring our deepest attention - is the environment.

The environment

There is no doubt, as I have indicated, that it was concern for our environment, as much as concern for the economy, that was at the root of the move by COAG in '94 to begin the water reform process.

And that environmental message is deeply linked, especially in terms of irrigation, with the economic imperatives of what is occurring.

We now know, very clearly, that the clearing of massive areas of this country to establish land for primary production has been too indiscriminate, on our current knowledge and, in many places, too complete.

The principal impact of that has been on the threat of salinity to primary producers --and anybody who doubts the potential of that impact needs only to look to the Western Australian wheatbelt, where already some 1.8 million hectares of formerly highly productive land has either been forced out of production, or is delivering much reduced yields, with concern that three million hectares could be affected by no later than 2015.

By 2050 the estimates are that almost 9 million hectares could be impacted.

The National Land and Water Resources Audit tells us some 5.7 million hectares across the country have a high potential to develop dryland salinity problems, and it predicts that by 2050 some 17 million hectares could be at risk.

In terms of irrigation land, the threat, within the Murray basin, is estimated to be to 869,000 hectares - or to virtually half of all land under irrigation in the basin -- by 2015.

Obviously the drivers of salinity in terms of dryland pursuits within the basin, and irrigation, are different - but the impacts are ultimately the same: Rising water tables bringing highly saline water within the root zones, which renders land economically, as well as environmentally, unsustainable.

And there are a combination of economic and environmental impacts downstream as a result of salinisation, through saline discharges from drainage water - whether from dryland farming or from irrigation - into the river so that the motivations of reducing salinity in the irrigation districts, in order to protect the economic viability of the land, also has an environmental spin-off: Less drainage through more efficient water use means less salinity in the river.

A similar sort of synergy exists in relation to some of the other environmental threats that have become central to establishing the true worth of our water.

The way in which we have regulated the river, principally to service the irrigation industry, has had very dramatic impacts on its environmental sustainability.

The "snapshot" of the health of the system undertaken by the Independent Audit Group for the Murray Darling Basin Commission last year showed that the biota of the system has been significantly impaired for over 40% of the river's length.

Over 95% of the river's length has suffered some degree of environmental degradation and 30% has been substantially modified.

Sixteen of 35 fish species in the basin are listed as threatened, and fish populations are in a poor to extremely poor state throughout the Murray.

There are at least 35 endangered birds and 16 endangered mammals.

Twenty mammals are extinct.

Riparian vegetation for the length of the river is rated as poor.

Wetland quality has been significantly reduced.

Most recently, we have had to confront what is, symbolically, perhaps the ultimate symbol of degradation of a natural river, which is the impending closure of the Murray Mouth.

That last happened in 1981 and currently the Murray Darling Basin States, and the Commonwealth, are spending millions of dollars to keep it open, in order to avoid very major environmental degradation of the Coorong, which relies for its health on the interchange of sea and fresh water.

The cost of these forms of biota degradation, to people along the Murray, are not difficult to nominate.

Some of the costs are economic - and a clear example of that is in terms of fisheries. A system where native fish populations are estimated to now be at some 10% of their undisturbed levels is clearly not a sound basis for viable fisheries -- and indeed in some of the lower sections of the River commercial fishing is now banned.

The cost in amenity, in terms of recreational fishing, principally to the people who live along the river, but also as an important element of tourism traffic, of degradation of stocks on the scale we've seen, is also a clear and current outcome.

A longer term issue is the wider cost to the river based tourism industry.

The desirability of a river boat cruise, or a house-boat hire, or a river bank camping holiday, will steadily lose more and more of its attraction if more and more red gums die because of unseasonal or permanent flooding, or insufficient access to water, and as the associated riparian bird life and marine life is further reduced.

These environmental issues are clearly of great importance, even where there is no immediate economic impact, and they have to be taken into account as we determine the worth of water.

Obviously, regulation of our one great river system has brought with it massive economic and social worth and benefits, on every scale, to this country.

The Murray Darling basin is home to one in ten Australians.

It is responsible for a third of our national agricultural output.

The worth of its water to the many major communities that have been built, is, literally, their very existence - so the answer to the question -- of what water is worth -- has many answers, some of which are clear cut, and others which are not.

The worth of water, in terms of its price per megalitre, in the market based structure now in development, is impossible to predict, but it will certainly be within a range that enhances the productivity, and the value, of the irrigation districts of the basin.

I repeat that I regard that outcome as an essential outcome of the reform process.

Ensuring that outcome is a great responsibility for all of us as we tackle the responsibility we hold to determine what water is worth.

Water must be worth a sustainable economic future for the industries and the communities of the Murray Darling basin.

It must also be worth a sustainable environment.

We can achieve both - and I believe that with determined hard work and goodwill we will achieve both.

Commonwealth of Australia