Over the past few weeks, the Qld Competition Authority (QCA) has held a series of consultation meetings to discuss the Qld Government’s review of SunWater water supply prices.
The Premier and the Treasurer have directed the Authority to recommend irrigation prices to apply to SunWater water supply schemes from 1 July 2011 through to 30 June 2016.
There are a number of aspects of concern which are critical to a thorough and comprehensive review and to practical, fair and transparent outcomes.
The true efficient cost of Sunwater must be established to ensure transparency of all costs and operations and relativity to world best practice. This is essential for the responsible operation of any monopoly supplier. The argument that some elements are commercially confidential must not be allowed with respect to a monopolist. Only after establishing the relative efficiency of Sunwater and how that efficiency can be improved can we establish an agreed cost base.
The review time frame is unacceptable. There is not sufficient time to make a comprehensive review of each of the states schemes, making thorough consultation and reviewing submissions. All major work and consultation will be during the crushing season and the ACFA believes that in order to do the job properly there must be a12 month extension of the review.
The impact of rate of return on industry has the potential to increase costs to unsustainable levels. Current costs, for some, are around $100 per mega litre plus pumping costs which is already uneconomic in most years, let alone low price years.
Water costs can affect the economics of other farmers in a scheme. If farmland is lost to sugarcane due to the high cost of water, the remaining farmers must absorb the increased cost of water which in turn could cause further areas to go out of production, resulting in mill closures and other negative follow-on outcomes in the local economy.
ACFA has been informed that ABARE has been requested to calculate farmers’ capacity to pay. Capacity to pay is highly variable and ABARE would need to accurately understand the cost structure of the range of farming businesses that use each particular scheme – a massive undertaking in itself. Farmers are price takers, receiving the world market price. They can’t simply add a margin to cover costs.
The review requires investigation of “… a return of, and on, prudent capital expenditure on existing assets or for constructing new assets.” If the Qld Government is to operate an infrastructure investment fund, that too must be transparent and not available to be syphoned-off to other uses. The ACFA suggests that it would be better to discuss the cost of new infrastructure on a case by case basis, when there is a clear need.
The scale of water storages in central Qld which were built for agricultural and urban use means that agriculture provides some assurance and drought-proofing to urban water supply. The risk to agriculture is that over time, competing interests may result in water being physically or economically unavailable to the sugar industry.
Industrial and urban water users pay more for a more reliable supply. When water is scarce farmers are allocated nothing and when water is plentiful, farmer must pay up to 80% of the total cost even if they don’t use a drop. It is important that the cost of water be kept as low as possible for agriculture, in line with the variability of supply, the variability of agricultural demand and the variability of agricultural revenue.
Farmers need to understand the implications of any water price review and let the Government know this could be devastating for them and their local communities.
07 3303 2020