Water Trading 101: How Does Water Trading Work?
Water trading is a profitable commodity-based industry that many people haven’t heard of! It’s not as glamorous as some of the trading industries you hear about in the media (Dogecoin, anyone?) but it’s also a tangible, generally reliable industry with excellent growth prospects as Australia’s (and the world’s) population steadily increases and predominantly lives in cities (in other words, population growth and urbanisation); climate change is also expected to impact water prices in future years. As such, water is generally considered a safe investment with solid returns.
Fundamentally, water is life, so there will never not be demand for this most importance resource. Water is seen as an agricultural commodity, and indeed it’s the commodity that makes agriculture possible, because farmers couldn’t raise crops or livestock without it. Water trading takes places worldwide, with water being sold to purchases who use it for irrigation, aquaculture, industrial purposes and much more.
As we all remember from chemistry class, pure water consists of molecules with two atoms of hydrogen and one atom of oxygen; H2O. However, most water will generally containother impurities, and water is not considered potable unless it is treated. However, there are many purposes that water is used for that do not require water treatment.
Why invest in water?
Diversification is widely considered to be a very smart choice when it comes to portfolio management; trading a vital natural resource is a great place to start, since the factors that impact water prices are different from those that may affect your other investments.
How to trade water
Water can be traded domestically (i.e. within Australian borders) or internationally. Within Australia, water share trade and allocation trade is governed by respective State or Territory Governments, who will set local trading rules. For convenience, this article will focus on the legislative environment which takes place in Victoria, where trading rules set by the Minister for Water apply.
Water trading can take place either through (permanent) water share trading, or (temporary) water allocation. Water share trading involves purchasing ownership of a certain percentage (i.e. a share) of the source of a water entitlement; for example, whatever the particular amount of water there is in a water entitlement in any given season, the ownership of that water is divided in accordance with whoever the owner or owners are of the shares of that water entitlement (i.e. body of water). How many ML of water this equates to in practice will depend predominantly on rainfall. In the case of a temporary water allocation sale, rather than buying ongoing ownership rights to a set percentage of water from a permanent water entitlement, the purchaser will buy from the seller a certain ML of water on a one-off basis; while there may be an ongoing deal to purchase a set amount of water from one seller every season, what is being sold is water by the ML, not ownership in shares of that water entitlement.
Why would I buy or sell water?
Whether you’re buying water as a temporary allocation, or buying water shares to own permanently, water can be purchased either for usage or for resale. In particular, businesses such as farms or industrial enterprises which have water needs may choose to purchase water either by the ML or as an ongoing share of ownership.
Conversely, if you are the owner of a water entitlement, you may find it to be much more profitable to sell temporary allocations or even permanent shares in that water entitlement rather than holding on to water which would remain unused otherwise. By doing so, you’re participating in an economic process which allows Australian farms to remain fertile and which enables industry; a true win-win for everyone.
Where to from here?
If you’re interested in purchasing water either as a temporary allocation or permanent asset, there are four things to consider: how many ML of water you need, whether you want to own a water share permanently or a water allocation temporarily, where the water entitlement is located, and what price you are willing to pay. You’ll then need to find a water supplier who is in an area that suits you, has enough water to suit your needs and is willing to sell a water share or allocation within the price you’re willing to pay.
As a seller, you’ll want to get the best (highest) price for your water; as a buyer, you’ll want to purchase water at the best (lowest) price; this is a classic case of supply vs demand that can often leave both parties vexed and can lead to a lot of back and forth before finding the right buyer/seller and agreeing on a transaction. Often, many of these challenges can be overcome by finding a water brokerage like Gordon Water Trading who has extensive experience in brokering water sale & purchase transactions, has in-depth understanding of the market, and has the networks to find buyers and seller and match them together for mutual benefit.
So whether you’re a buyer or a seller, and whether you’re new to water trading or experienced in this industry, Gordon Water Trading can streamline the water trading process and apply our expertise and connections to get you the best price with the least hassle, so you can harness this exciting opportunity stress-free. Feel free to contact us to discuss the water trading opportunities we have available and so we can answer any questions to make this experience as simple and pleasant for you as possible; there’s a good reason so many of our customers are return customers, and we’re looking forward to getting you the results you’re looking for.
Let’s talk about water – get in touch today!