Department of Agriculture, Water and the Environment is questioned over the Eastern Australia Agriculture buyback

 In Environment & Energy, farming, Senate Committees

Rural & Regional Affairs & Transport Committee on 23 March 2021.

Senator RENNICK: My questions are regarding the Eastern Australia Agriculture buyback, Mr Metcalfe. I want to quote a part of the actual valuation by Colliers. They summarise in one part of the valuation:

The Lower Balonne region as a water market does not have a mature trading market as the water rights are predominantly un-supplemented allocations, which are not traded as often or as easily as supplemented allocations. Secondly the volume of water … in the system is not large enough to see a reasonable turnover within the “market”. With regards to the OLF water licences there is no true market as trading is limited to sales only to the Commonwealth …

That tells me that the water market around the Lower Balonne and into the Condamine is illiquid. You often hear people say, of liquid markets, liquidity is very important for true price discovery. It’s fair to say that, if you’re going to have the Commonwealth step in to where you’ve got an illiquid market, a big buyer—and I’ll quote from further on in the valuation:

Land is not a limiting resource in the Lower Balonne, however, water is.

We know that water is fixed, the amount of supply is fixed. But the demand, when the Commonwealth goes in, is going to push the price up a lot, isn’t it? Would you agree with that, Mr Metcalfe?

Mr Metcalfe : I think I’d agree with that. I think that your characterisation was that this was not just like buying something off the stock market, where there’s a lot of it—

Senator RENNICK: That’s exactly right, yes.

Mr Metcalfe : but it was a quite rare and individual thing that was being purchased.

Senator RENNICK: Yes.

Ms O’Connell : I think also your statement goes to all markets. Where there’s intervention, it affects and impacts the market.

Senator RENNICK: That’s exactly right. If we go back to the valuation, a paragraph on page 15 says—

Senator PATRICK: Why don’t you just call the valuer and get their position?

Senator RENNICK: Actually, I’m about to read the valuer’s position, Senator Patrick:

The market sentiment is considered to be improving and, for many of the above properties, if offered on the market today an improvement in value could be anticipated. By our estimate this may range from only 10 percent to as high as 30 percent.

We’ve paid the mid range above the anticipated increase in market value by 20 per cent. Is that correct?

Ms O’Connell : That is correct, and the overall finding is that the price the department paid for water entitlements was equal to or less than the maximum price determined by the valuation.

Senator RENNICK: Yes, that’s exactly right. Interestingly, in the letter to Senator Patrick from the Auditor-General, it says, ‘At the time of the audit, the ANAO considered the department’s utilisation of the report reasonable.’

Senator PATRICK: They’re reconsidering that.

Senator RENNICK: Why the valuer decided to reconsider it after the event, I don’t know. Would it be reasonable, if you’re given a valuation, to act on it at the time you’re given the valuation and not for the valuer to come back later on and change his mind?

Senator PATRICK: The valuer didn’t change his mind.

Senator RENNICK: You guys can only act on what you’re given.

CHAIR: Senator Patrick, the questions are from the senators to the department.

Senator PATRICK: It’s an erroneous question.

Senator RENNICK: Senator Patrick, you don’t get to decide what’s right and wrong here.

Senator Ruston: All erroneous questions not allowed from now on!

Senator PATRICK: It’s erroneous in fact.

CHAIR: Senator Patrick, you don’t have the call. If the department would like to take that question, then we can—

Ms O’Connell : Senator, it is the case that, at the time of the purchase, the department relied on the written valuation report that you’ve spoken to.

Senator RENNICK: One of the ways you value properties is that you do it with a net present value discounted method. For example, if you want to do future cash flows—

Senator PATRICK: [Inaudible]

Senator RENNICK: Actually, Senator Patrick, I’m the one here with 30 years in finance. I don’t tell you how to drive submarines. Don’t tell me how to do valuations, alright? Since then, is it not fair to say that the discount rate—that is, the RBA rate—has reduced dramatically and land values and water values would have increased dramatically since 2017?

Mr Metcalfe : I think the best way to answer this is that my general knowledge is that land values have increased in many areas but not necessarily all. As I said to Senator Patrick and Senator O’Neill earlier, effectively the people who have looked most closely at this issue are with the Australian National Audit Office, and I’ll obviously be taking careful note of what they have to say.

Senator RENNICK: I can vouch for that, because I put an offer in for a bit of land just off the Condamine River back in April 2017 for $2,200 an acre. It’s now worth almost $4,000 an acre. So it’s gone up a lot since 2017. I should also add, as a concluding comment, that the Condamine doesn’t flow in a north-westerly direction until reaching Condamine. It flows in a north-westerly direction until it reaches Chinchilla, and specifically a place called Lankey Bend, which just happens to be my family’s property, where my first dog and my first horse are buried, so I know this land very well. It’s as scarce as hens’ teeth. If you want to buy land or water in that basin, you (a) need to wait for someone to die or (b) pay well over the market for it.

CHAIR: Thanks, Senator Rennick.

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