Future Trends in the Australian Water Market

Future Trends in the Australian Water Market

The Australian water market is being reshaped by three forces simultaneously: a drying climate, a wave of new regulation, and ongoing government water recovery. Here's what's changing and what it means for irrigators and investors.

Climate: Higher Baseline, Bigger Swings

The trend toward a hotter, drier climate in southeastern Australia is well-documented and accelerating. Average Murray River inflows over the last 20 years are nearly 50% below the long-term average, according to the MDBA.

For the market, this means:

Higher average prices — the structural floor has risen from ~$30–50/ML (2000s) to ~$80–120/ML (2020s). The current Zone 1A VWAP of $258/ML reflects both cyclical dryness and this elevated baseline.
Wider price swings — the range between wet-year troughs ($36/ML in WY2022/23) and drought peaks ($485/ML in WY2019/20) is enormous. Expect this volatility to continue, potentially from an even higher base.
Greater premium on high-reliability entitlements — as water becomes less reliable overall, HRWS values will hold up. These are the assets that underpin permanent horticulture and can't be substituted.
Carryover becomes more strategic — the ability to bank water in wet years for dry ones is increasingly valuable. This is already driving demand for LRWS entitlements, which provide cheap carryover capacity.

For the current climate outlook, see our article on drought and climate change impacts.

Regulation: The WMIC and Beyond

The Water Markets Intermediaries Code, enforced by the ACCC since July/October 2025, is the most significant regulatory change since water was unbundled from land in the 1980s. It mandates trust accounts, PI insurance, conflict of interest management, and good faith obligations for all brokers and exchanges.

But the WMIC is just the beginning of what the ACCC recommended in their 2021 inquiry. Future developments likely include:

Enhanced data reporting — the Bureau of Meteorology is expected to receive expanded powers to collect and publish a broader range of water market data, including pre-trade information. This would significantly reduce the information asymmetry that currently benefits well-connected traders.
Market misconduct prohibitions — Basin-wide laws prohibiting insider trading and market manipulation are on the regulatory roadmap, with the ACCC as enforcement body.
Centralised trade processing — the ACCC recommended a "backbone platform" for standardised trade processing across the MDB. This would replace the current fragmented system where each state runs its own register and approval processes. If implemented, this would be transformative for market transparency and efficiency.

For brokers and exchanges, the compliance bar is only going up. For clients, this means better protection and more market transparency — but also the possibility of longer processing times during the transition period.

Government Water Recovery

The Australian Government's "Restoring Our Rivers" program is working to recover the remaining environmental water commitments under the Basin Plan, primarily through voluntary buybacks from willing sellers.

The implications are significant:

Price floor for entitlements — the government is a large, price-insensitive buyer. Their purchasing activity provides strong support for entitlement values, particularly for the types and locations they're targeting.
Shrinking consumptive pool — every entitlement purchased for the environment permanently reduces the water available for irrigation. The Commonwealth Environmental Water Holder already controls approximately 2,750 GL of entitlements. Each additional buyback tightens the supply of tradeable allocations.
Long-term price pressure — the combination of reduced supply (buybacks) and growing demand (almond expansion, ~100,000 ha across the MDB reaching full bearing) creates sustained upward pressure on allocation prices over the medium to long term.

What It Means for Market Participants

The direction of all three trends is the same: water is becoming scarcer, more regulated, and more valuable. For irrigators, this means building a resilient water portfolio (mixing HRWS and LRWS, using carryover strategically, considering forward contracts) is more important than ever. For investors, the structural tightening of supply makes water entitlements an increasingly attractive long-term asset.

For an overview of the market's fundamentals, see our beginner's guide to water trading. For the history behind these trends, see the history of water trading in Australia.