THE boom in permanent plantation nut crops is driving water demand so high in the southern Murray Darling Basin that the price of water may become unaffordable for rice, dairy or even cotton irrigators.
That's the alarming finding of a report from water market adviser Aither, commissioned by the Victorian government to investigate the pressures on supply and demand in the connected Murray system.
Victorian Water Minister, Lisa Neville, reacted this week to the escalating situation by putting a freeze on increased water use in the lower Murray region of her state.
Nut plantations have risen to dominate the crop mix of permanent planted horticulture.
- Record crop to drive Australian almond exports
- Webster profits shrink towards break-even forecast
- Gympie declared birthplace of global macadamia industry
Around 95 per cent of the crop is located below the Barmah Choke - a narrow point in the river that restricts flow - in the lower Murray including Victorian Sunraysia, NSW Murray and South Australian Riverland regions.
Permanent plantings annual water demand is expected to hit a whopping 1555 gigalitres when all the existing and planned crops are mature.
That's 125pc more water than would be available during a very dry year to irrigation across the region.
Aither found that in future dry years (similar to 2015-16) or extremely dry years (like 2007-08) competition for water allocations will cause a lasting step change to water prices.
"It will be harder for non-permanent irrigation industries to access affordable water," Aither said.
Policy makers must take into account the potential for permanent plantings demand to outstrip supply and increase pressure on traditional irrigation industries, particularly in relation to water recovery under the Murray Darling Basin Plan.
"The recovery of additional environmental water from the consumptive pool would further reduce supply for all water users in the southern Murray-Darling Basin," Aither said.
"This will both exacerbate the likelihood of permanent horticulture water demand exceeding available supply and also reduce the volume of water available for all irrigation industries in all future years."
Addressing the emerging predicament in the past month the Almond Board of Australia supported calls for a moratorium on new water use and SunRice chairman Laurie Arthur said the proliferation of permanent plantings had become unsustainable.
Aither listed a couple of complicating factors which show it's unlikely that permanent plantings could actually suck all the water up in the southern Basin.
Firstly, permanent planting enterprises would likely carryover water for irrigation from wet years to drier years to avoid a short-term shortfalls and keep their trees alive. But to build their reserves they would need to buy water prior to the irrigation season in which it would be used.
Secondly, the location of 95pc of permanent plantings below the Choke means trade rules and river capacity would prevent their ability to buy and physically transfer all the available water and transfer it from upstream catchments.
But even with these limitations the soaring demand from nut crops will drive the price of water up in dry years, and even in years of average rainfall.
- Victoria freezes water extraction below Barmah Choke
- Calls for moratorium on new water licences
- Orchards eroding irrigation sustainability: SunRice boss
To highlight the predicament, Aither modelled two hypothetical scenarios for an extremely dry year.
Assuming there were no trade restrictions and permanent plantings in the lower Murray could buy in all the water they liked below the Choke, permanent plantings' thirst would leave minimal water available to other irrigators and there would be significant short and long term price increases.
On the other hand, assuming all trade was restricted, and water from above the Choke could not be bought in, Aither found that water demand in the lower Murray would exceed supply by 60pc.
Aither said the shift to permanent plantings had disrupted the traditional pattern of water use that is more able to respond to variable water availability through dry years.
"This is a significant change from a system that was historically characterised by a large proportion of annual and semi-interruptible irrigated industries like annual cropping and dairy that have more flexible water use requirements and a generally lower willingness to pay for water as an input to production."
So why hasn't this situation already come to fruition this year? Why can some traditional crops still manage (just) to buy water?
That's because of the 800GL or so that irrigators have carried over from a wet 2016 and is sitting in dams ready for irrigation.
But if the extended dry spell continues, the impact of permanent plantation demand will increase.
The demand from permanent plantings has taken the region by surprise, with Aither's estimate totalling 55 per cent more water the Australian Bureau of Statistics estimated in 2015.
The office of NSW Water Minister Melinda Pavey was contacted for comment.