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According to Australia's biggest rural lender, the National Australia Bank, water reform has the potential to fundamentally change farm financing practices, place irrigation farmers under increasing cash flow pressure, and weaken irrigators' capacity to invest in water efficient technology. Speaking today at the Cotton Trade Show in Moree, General Manager of the National's Agribusiness Division, Mike Carroll, said that uncertainty and limited tenure for water entitlements could fundamentally change the financing of irrigation farms. "Where the new legislative regime explicitly signals reviews of water entitlements every ten years and the possibility of ministerial intervention at any time, there could be a direct impact on farm financing," said Mr Carroll. "If a farmer and his finance provider have no certainty of tenure, for example beyond ten years, then loans being serviced by the product of a water entitlement will need to be paid out over that period," he said. "This could lead to a major change to current farm financing practices where loans are commonly interest only or principal and interest over a 25 year term and significantly increases the annual servicing cost. The scope for flexibility in droughts or during falls in commodity prices would also significantly decrease," he added. According to Mr Carroll, the cash flow impact of this change in farm financing would be a 30% reduction in cash surplus on a typical irrigated farm. This would, he stated, significantly reduce the amount of cash available for investments in water efficiency gains. "Advances in water efficiency will only be made if farmers have clarity, security and tenure over access to water. "Investments in say a citrus orchard using the latest trickle irrigation technology only produce positive cash flows after five to six years. Such an investment would be extremely risky if the water allocation can be reduced at any time and expire after ten years," he said. The audience was told by Mr Carroll that reductions in water entitlements without compensation will force farmers to either plant less crop, purchase more water or invest significantly in more efficient irrigator technology – each of which either reduces income or increases expenditure. . "Given the marginal profitability of some farms, a significant reduction in water of say 20% with no compensation may accelerate the consolidation of the farm sector and impact rural communities," he said. Mr Carroll said the benefits of irrigation had largely been passed on to consumers in lower cost food and fibre. "Creating an efficient and secure water market will enable water to transfer between users without buyer or seller being disadvantaged," said Mr Carroll. "Such a mechanism seemingly provides the perfect means by which Government, on behalf of the broader community, can acquire water for the environment. This will allow the community to demonstrate how much it values environmental flows and to give back some of the benefits it has obtained from lower cost food and fibre," he said. We acknowledge the recognition by governments of the need for certainty over water rights and are encouraged by developments in this regard. "As Australia's major rural lender, the National remains absolutely committed to agribusiness lending. We will continue to work through this issue with water reformers and our customers."
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