Kimberley's irrigation land market picks up in 2020: HTW rural
Eastern Australian irrigators now appear to be more willing to bear the increased risks and costs of farming in more remote locations if the trade-off is simply a far more secure water supply, according to the recent Herron Todd White (HTW) rural report.
The property valuation firm suggests the irrigation land market is picking up over in the East Kimberly (Ord River Irrigation Area or ORIA) with building confidence that GM cotton may be the next mainstay crop of the ORIA, particularly into the 7700-hectare State Two (Goomig) expansion area.
HTW notes that the ORIA sale has significantly superior water security compared to the Queensland sale properties.
"After three farm sales in the original 15,100-hectare Stage 1 area during 2018 which showed between $10,500 to $11,000 per 'green' hectare (inclusive 17ML/ha pa surface water allocation) there has been another transaction, late in 2019, that confirms such value levels and also confirms the growing belief by farmers from the south-east that cash flow can be underpinned by having irrigation country in the ORIA given its secure water supply.
"At this stage, the details of the transaction remain confidential, but like two of the three buyers in 2018, this buyer is also from down south and was chasing a large, secure supply of irrigation water.
"In the same theme, the Mirriwoong Gajerrong Corporation (MG Corp) who are the second largest landholder in Stage 2 of the ORIA, in its pursuit of commercial agriculture ventures on their land, signed a Memorandum of Understanding (MOU) with cotton giant Cubbie Farming.
"The organisations will work together to investigate the feasibility of cotton by growing trials on around 290 hectares of leased land in the Goomig area. The first crops will be sown by February (2020) and once harvested, later in the year, will be sent to Cubbie’s Dirranbandi-based gin in Queensland 3500km away.
"If trials are successful MG and Cubbie will consider making a joint application to the Northern Australia Infrastructure Facility to secure federal funding to build a cotton gin in Kununurra."
An industry commissioned feasibility study early in 2019 considered whether a gin, which could cost in excess of $30 million to build, would be financially viable in northern Australia.
Cubbie Farming report that “diversification” was the impetus for the MOU which has been under negotiation for the last twelve months following an expression of interest process in 2018.
"The drought and low to nil allocations and no Reservoir supplies back at Dirranbandi, have reportedly encouraged Cubby to search for diversification opportunities.
"This agreement is further evidence that eastern Australian irrigators (particularly cotton growers) now appear to be more willing to bear the increased risks and costs of farming in more remote locations if the trade-off is simply a far more secure water supply.
"At present, many of these farmers currently have expensive, high quality irrigation assets back in eastern Australia that have nil water available and therefore have significantly reduced cash flow. Cubby Farming would have considered the known cost of transporting raw cotton from Kununurra to Dirranbandie for ginning, however they have committed to this MOU in order to potentially develop more irrigation country in the ORIA to sure up production.
"Cubby will also have been aware of the debate on water reform in the ORIA which has been ongoing now between the Ord Irrigation Cooperative (OIC) and W.A. Department of Water and Environmental Regulation (DWER) now for nearly four years.
"What is potentially at stake here is a thirty per cent reduction in the OICs water entitlement. I note that each irrigator in the ORIA has a shareholding (which equates to their annual entitlement) in Water Services Provider: OIC who control water allocation in the valley. The OIC holds a single, large, surface water licence (SWL) by virtue of the Water Services Licensing Act, subsequently water licences and renewals are at the discretion of the DWER.
"The SWL is for 335 gigalitre per annum which is ultimately sourced from Lake Argyle, Australia’s largest dam (twenty times the volume of Sydney Harbour). The OIC currently distributes its allocation to irrigators through entitlements that equate to 17ML per hectare of their developed farm area.
"However, the OIC’s licence is currently only in place due to a standing injunction which is preventing DWER from enforcing their 2015 decision (at the time of OIC’s last licence renewal) to reduce the SWL by around 30 per cent back to 246.3 gigalitres per annum."
The OIC objected to the department’s decision and won the injunction to maintain the previous allocation whilst the matter was dealt with under the State Administrative Tribunal (SAT) process.
In its decision to order the 30 per cent reduction, DWER claimed that since gaining its first water licence, at most, the OIC had used only 60 per cent of its entitlement, down to as little as 42 per cent in some years and that under the SAT process, experts from DWER and the Department of Agriculture had worked together with two independent experts to calculate current and future crop requirements and that the new 246.3 gigalitres would be more than ample.
HTW's discussions on this matter with the OIC, indicated that there was a possibility that the 30 per cent reduction could be imposed if the 2015 decision to enforce the reduction is upheld in the final SAT hearing scheduled for March 2020.
"This is therefore likely to have the flow-on impact of reducing entitlements to irrigators. However, the most recent negotiations between OIC and DWER at the SAT hearing in Kununurra in December 2019 were reportedly promising from an OIC/entitlement holder’s perspective.
"The case put forward by the OIC is based on a mounting argument that DWER are operating outside logic or good government with a ‘use-it-or-lose-it’ mentality which is inconsistent with the National Water Initiative (to which WA is a signatory) and also that the current 335GL allocation gave irrigators the necessary flexibility they need to overcome their remote location and the tyrannies of distance by achieving economies of scale given their current ability (with 17ML/ha pa) to interchange between a variety of crops with different water demands depending on market prices. This is the single greatest advantage that farmers in the ORIA have.
The value that buyers of irrigation land in the ORIA appear to be placing on high security water combined with comparatively high allocation rates compared to the rest of Australia.
"The dollar per irrigable hectare rate for properties in the ORIA tends to be toward the lower end of sale rates in Queensland due mainly to the higher underlying land values in the Queensland locations, but this is countered to a large extent, by the value the market is currently placing on the much larger and more secure annual water entitlement in the ORIA (subject to the SAT outcome of course!)."
For instance, if the added value of the water entitlement only is analysed on the basis of a $/hectare rate as well as a ML/hectare basis, then the Queensland sales compared to the ORIA sales show (approximately):
◗ Sale 1 (2018, Central Queensland) $7000/ha (water value only) for a 7ML/ha pa entitlement
◗ Sale 2 (2018, Central Queensland) $11,000/ha (water value only) for a 6ML/ha pa entitlement
◗ Sale 3 (2018, Southern Queensland) $13,300/ha (water value only) for a 11ML/ha pa entitlement
◗ Sale 4, 5 & 6 (2019, ORIA, Kununurra, WA) $7,000/ha (water value only) for 17 to 19.4L/ha pa entitlements.