Water and Money: the case of Tasmania

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Australia is the world’s driest continent. Climate change is expected to make its droughts even more frequent. The country is still paying for years of overexploitation of its biggest river system, the Murray-Darling basin. The federal government in Canberra is spending A$3.2 billion ($2.2 billion) buying up and cancelling farmers’ water entitlements in a bid to reduce salinity and repair other environmental damage stretching back a century.

While mainland farmers are being paid to give up water, those in wetter Tasmania are being enticed to buy more. The island state accounts for just 1% of Australia’s land mass and 2% of its population. Yet it receives 13% of the country’s rainfall. Tasmania may be blessed with water, but most of it falls in the mountains of the west, making it useless to farmers elsewhere.

So the island has embarked on a project to capture more water for its drier east and north, shifting it through pipes to these regions’ farms. Almost 800 farmers have already bought into ten irrigation schemes that are up and running. They will allow farmers to do more than graze sheep and cattle; they will be able to grow fruit and vegetables, including more of Tasmania’s exotic stuff: cherries, grapes for the island’s increasingly fashionable wines and even poppies (the island is a big opium supplier for legitimate pharmaceuticals).

If another five planned schemes involving 200 farmers go ahead, Tasmania’s investment in shifting its water around the island will be almost A$1 billion. The federal and Tasmanian governments are putting up some of the money. But that comes with conditions. Farmers and other investors must first agree to meet at least two-thirds of the costs of each irrigation project before governments commit the rest….

Tasmania’s new water market has already been kind to one of its biggest investors. David Williams, a Melbourne banker, owns no Tasmanian farms. But he put A$10m into two central Tasmania irrigation schemes after local farmers had bought in. Mr Williams likens the arrival of reliable water in such regions to technological change: “I punted that it would change the way land is used.” He calculates that trading his water entitlement with farmers in both schemes could turn his investment into A$16m….

Among the foreign tourists coming to sample Tasmanian Riesling, oysters and marbled beef are plenty of Chinese. When China’s president, Xi Jinping, visited Hobart in late 2014, he sent signals that China wanted more seafood, beef and other costlier food exports from Tasmania.

Excerpts from Tasmania charts a new course: Water into wine, Economist, Feb. 11, 2016

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