Water availability remains core issue in Mildura in 2020: HTW rural

The overriding issue in 2020 in the horticultural sector in Mildura will continue to be the availability of irrigation water, according to the recent Herron Todd White (HTW) rural report. 

The property valuation firm suggests that there will be a widening gap between the balance sheets of irrigators who hold significant water entitlements and those who do not. 

The report was issued in early February before the heavy rains across some of NSW.

"Catchment dam levels have been gradually lowering since the start of 2017 and substantial rainfall is required to replenish supply", HTW reports.

Most irrigators have been able to provide for reduced allocations in the current water year through a combination of carry over and leasing water. 

However, the cost of doing this for another year will be tough for most producers. There is also uncertainty surround whether there will be enough available water to keep all the crops fully irrigated. 

The volume of water required to irrigate permanent horticulture crops in the region is 550 Gigalitres (GL) per annum, according to data from the Murray Darling Basin Authority.

"Of this, around 180 GL will hopefully once again be available from New South Wales Murray High Security Water Licences.

"The remaining 370 GL will need to be found primarily from Victorian allocations and so an allocation in the 2020/21 year of at least 35 per cent for Victoria Murray Zone 7 Water Shares will be required to meet this need. 

"The final picture will depend on the ability to transfer water between the Murrumbidgee, Goulburn and Murray River systems, with the restrictions on inter-valley trade during the past six months exacerbating the current shortage of water in the region."

The HTW rural report anticipates that some producers will inevitably elect to dry off their less profitable crops in 2020, such as white wine grapes, Valencia organs and dried vine fruits and also bring forward the decision to clear order, less productive plantings of other crops. 

HTW also expects a deferral of further expansion plans. 

This will have an impact on contractors, nurseries and irrigation design and supply businesses which all have enjoyed a period of strong activity during the past four years. 

The dried fruits industry will be vulnerable in the event of a reduced area of plantings.

In Mildura, there are currently three dried fruit processors, and the industry will be conscious of the production forecasts for 2021 to see whether there will be sufficient water to keep three processors going. 

Consequently, it appears that values of all horticultural property will plateau as growers take a wait and see approach. However, HTW doesn't expect to see a significant decline in values during 2020. 

The report suggests that commodity prices for many of the region's crops will remain high, which makes leasing water at current levels of over $800 per megalith economically feasible for some.

"Farmers tend to retire at a time of their choosing" so it is expected that "people will try to ride out the current drought rather than seen at a time of reduced demand. 

Unfortunately, the smaller, less efficient growers, particularly those who rely entirely on leasing water, will be vulnerable should dry conditions continue throughout 2020. 

"There are a number of reviews currently occurring into water trade and river management and while everyone hopes that this will result in improved transparency in water ownership and the trading platform, it is unlikely that we will see recommendations that will contribute to any significant reduction in the cost of leasing water."

"The cost will again be entirely governed by the supply of water, in particular whether New South Wales Murray and Murrumbidgee General Security Water Licences receive any allocation." 

Dryland farming success will also be dependent on rainfall leading up to the optimal sowing period in April and May.

"Producers were able to tap into stored soil moisture to grow a crop in 2019, however soils are bone dry at present." 

"Values of farming properties in the Mallee region have been increasing in recent years, however we expect that buyers will be cautious until the season improves."

Dryland farmers in the Mallee realise that they rarely benefit from years of both high yields and high grain prices and that a good season will inevitably coincide with an easing in grain prices.

Meat prices are expected to remain high for several years.

HTW reports that livestock producers in the Western Division are all optimistic about the future of their industry despite feed stays critically short, or even non-existent on some properties.

"All evidence suggests property values will remain firm in Mildura, in part due to an expectation that only limited number of properties will be offered for sale until the drought breaks."