The value of water entitlements in the southern Murray-Darling Basin has surged despite plenty of rain.
The record value of $30 billion in 2021/22, up 13 per cent, was due to heightened long-term interest in water rights and a lack of sellers, research group Aither said in a report on Wednesday.
Aither advisor Erin Smith said wet conditions across the southern Basin had increased water supply and reduced irrigation water demand, depressing prices.
"This double whammy saw water allocation prices tumble for the second year in a row," she said.
Meanwhile the market value of entitlements held by environmental water holders rose to $7.8 billion, up 12 per cent on a year earlier, the report said.
Prices held up in the first half of the water year, but decreased quickly at the end of summer.
Looking ahead, Dr Smith said strong allocations, a favourable rainfall outlook, and very full dams mean low water allocation prices are set to continue in 2022/23.
"The good times for irrigators look set to last at least two years," she said.
Commodity prices, particularly for cotton and rice, are strong, and the trend towards higher-value horticultural production continues, the report found.
About $2 billion worth of water is traded in the Basin each year between catchments and along river systems.
But while water trading has become an important business tool for irrigators, it has also been an attractive long-term investment for big climate-savvy funds, including Canada's Public Sector Pension Investment Board.
Across Australia, foreign ownership of water entitlements by investors and business interests is 10.9 per cent.
But the report questions how much higher water entitlement prices can go, given the current low return on investment and with rising interest rates making other markets more attractive.
Federal and state governments remain the largest owners of water in the Basin, with a quarter of water entitlements earmarked for the environment as climate change threatens species and wetlands.
Critics say more should be released and entitlements bought back from corporate irrigators or the river system will be irreparably damaged, putting a further squeeze on the highly prized water resource.
Australian Associated Press
