Big institutional investors are being encouraged to get a slice of the $1.6 billion market in annual water trading. Since water titles were split from property titles, irrigators have been trading water, sometimes for greater returns than growing a crop that year. But Australian superannuation funds have been very reluctant to get into agriculture.
For $100 million, a super fund could buy just a small number of farms, grow only a couple of commodities, and be exposed if prices collapsed. Or, for the same amount of money, super funds could invest in water, across 350 different irrigation areas from the Murray and Murrumbidgee, to the Burdekin in Queensland or the Ord in the Northern Territory, with a vast range of commodities - from rice to almonds, vegetables, cotton, dairy cattle, prime lambs and beef.
Blue Sky Water Partners managing director Kim Morison says because water is so scarce, and demand for food is growing, the investment is sound. "Tree crops that at the moment are performing extremely well are things like almonds and walnuts, with demand from Asia with higher per capita wealth. "The three-year drought in California, which produces 80 per cent of the world supply ,has enabled Australia to capture that market. "It might surprise you to know one of the best performers on the Australian Stock Exchange this year is an almond company. Water is being used efficiently to produce a high value crop."
Mr Morison says on current estimates almond growers are getting returns of $1,500 per megalitre gross margin for the water, while rice might be $120-150 per megalitre or cotton around $300-500 per megalitre. But despite promising a 10 per cent return on investment, per year, over seven years, Blue Sky Water Partners is still waiting for the flood of calls from superannuation funds. Blue Sky has raised less than its target of $100 million over the past two years to trade in water.
Mr Morison says it's early days. "What we've been working on at Blue Sky is tapping into passive long term institutional capital that exists in big pools in Australia and offshore and how to deploy it into agriculture. "We're looking at the ownership of a portfolio of water rights, so the water is then traded to farmers, so they can access it by leasing it or buying it, as another input in their business."
Tom Chesson, chief executive of the National Irrigators Council, agrees big super funds have been reluctant to get into the multi-billion water trading market. He says the price is high right now as farmers get their crops in. "We're in dry times at the moment. A lot of people are looking for water, but it could flood next month and water could be worth nothing. "Water trading allows farmers to manage that risk. "Agriculture is one of the growth industries. You can never be without a feed. "But if you're investing in agriculture or water, you need to understand the risks. "Super funds and anyone should look at agriculture and irrigation."