The catastrophe is upon us—all Australians. Our incompetent leaders have sold off our water to interests that don’t own a square centimetre of land—ruthless water barons have their greedy mitts on our most vital and precious asset—WATER! Why are we not in the streets burning mongrels at the stake? Because they knew we wouldn’t be—that’s why! Read this and weep for your country!
They came from different parts of the world, and had for years enjoyed stellar careers playing the equity and derivatives markets for top international investment houses.
Source: Ean Higgins, News Corp
Funds flow fast as water barons tap opportunity
But a decade ago Edouard Peter and other high-flying investment executives at Deutsche Bank’s Singapore operations decided to strike out on their own. A few years ago they settled on a niche market recently opened up by Australian governments to skilled investment gurus such as them: water.
Peter, a sophisticated, well-educated American who created Duxton Water Ltd, now represents a new class of wealth in Australia: water barons who own tens of millions of dollars of a limited resource without owning agricultural land.
So highly priced is irrigation water that some farmers are taking the heartbreaking decision to let their grape vines die because they can’t make a profit if they water them. But in Peter’s mind, he and his colleagues are saviours for agriculturalists during dry times, taking on risk and engaging in complex trading so as to offer irrigators an affordable hedge against severe drought in the form of long-term water leases.
An irrigation farmer who leases water from Duxton, Russell Dabinett — who grows potatoes and grain and raises livestock in the southern Mallee near Parilla in South Australia — said the lease was invaluable, giving low-priced, secure water over a long period.
In the process of helping growers, Peter has made a large amount of money in a short time. As chairman of Duxton Water and owning 9 per cent of the company that listed just three years ago, the Peter family’s share of its water entitlement assets is more than $20m, built on the back of skyrocketing water prices in a severe drought.
After obtaining a degree in English literature at private university Carleton College in Minnesota, Peter worked for top-end financial institutions in different parts of the world. In 2009, having married an Australian, he moved to Adelaide and set up Duxton Asset Management as a funds management umbrella group that created a number of companies, some listed, some private equity, to invest in agriculture.
Joining the Duxton group were Peter’s former Deutsche Bank colleagues: Stephen Duerden, who the website says is a director and investment committee member of a number of Cayman Islands-based investment funds managed by Duxton; and Scott Jaffray, who holds a masters degree in economics from the University of Aberdeen and had worked as an equity analyst and portfolio manager.
Duxton Asset Management has operations in Australia, Asia and Europe. Its clients include leading global pension funds, sovereign wealth funds, insurance companies and asset managers, private banks and “ultra-high-net-worth individuals”.
A few years later, Peter and some of his colleagues saw an opportunity to apply their equity, derivatives, and investment management skills to the new, loosely regulated water market.
Prior to the 1980s, entitlement to irrigation water was linked directly to ownership of agricultural land. Over the years, state and federal governments relaxed the rules, removing in 2014 the last barriers to anyone buying, selling, leasing and speculating on irrigation water entitlements, whether they had any connection to the land or not.
Now water barons can trade water like farmers: they can buy and sell permanent entitlements, which provide a share of available water each year across a region, and trade what is known as temporary “allocation” water on the spot market.
Peter and his colleagues set up their dedicated water trading company separate from agricultural concerns. They described Duxton Water as “Australia’s only ASX-listed vehicle providing investors with direct access to water”.
Duxton has fulfilled its promises to its investors of capital growth and dividends, partly through a skilful trading strategy, partly through weather fortuitous to it. When Duxton Water listed, in September 2016, a huge amount of rain was starting to refill dams in the Murray-Darling Basin, after the millennium drought.
More than anything, the price of permanent water entitlements, and the spot market, depends on rainfall and how full or empty are state-owned dams. When Duxton started buying them, the price was near bottom. But they started to rise fairly rapidly from the start of last year as the big wet transitioned into the big dry.
Duxton kept buying, because its analysts saw a very interesting trend on the demand side. Big and small investors, including some from overseas, had planted permanent crops in the lower part of the Murray-Darling Basin — almond trees in particular, but also citrus and others. Unlike cotton, rice and other annuals that farmers can plant if there’s plenty of water and its price is low, or not if it’s dry and the water price high, farmers of almonds and other permanent crops have to irrigate no matter what, because in a drought their trees could die. And as almond trees age, they need more water.
Duxton saw the writing on the wall: the demand for water was going to rise based on the permanent plantings, and so were water prices. So it kept reinvesting profits and new share capital into more water. As it is allowed to do, Duxton “carried over” some water, building up its stocks, rather than selling or leasing its full allocations in the water year, which follows the financial year.
In its annual report, Duxton said water prices were headed to new heights. It was right. From a long-term average of about $135 a megalitre in the Victorian Murray irrigation region, water on the spot market is now trading at $800/ML. Duxton’s investors own 74 billion litres of permanent water entitlements, 12.5 billion of which the company obtained in the six months to June. That’s enough to fill an upper-middle-sized state-owned dam, and worth $256m as at June 30.
In the first six months of this year, during the height of the worst drought on record, Duxton Water more than doubled its profit compared with the corresponding period last year to $2.5m. It reported a total return for investors for the year to June of nearly 30 per cent.
There is no suggestion Duxton Water and its officers have done anything inappropriate. They have done what state and federal governments effectively invited them to do when they opened up the market to investors not tied to the land. But a lot of farmers and farm groups are furious. Twelve grower groups wrote to Water Resources Minister David Littleproud last week asking the federal government to impose a temporary ban on water barons from buying or carrying over water.
The most vocal critic of Duxton Water is Rob McGavin, head of the biggest olive grower, Boundary Bend, which owns the Cobram Estate and Red Island brands. He believes Duxton Water has been allowed to amass and keep too much water too quickly, and that since it can carry over water and has no crops to worry about, it can keep it until it reaches a price upon which it can make a killing.
Peter declined to be interviewed, but in a statement to the stock exchange after The Australian broke the story about water rights last Monday, Duxton Water denied any suggestion it was engaged in market speculation.
“Duxton Water is a long-term investor of Australian permanent water entitlements,” the company said. “The purpose of Duxton Water is to … provide flexible water supply solutions to our Australian farming partners.”
At present the company has just over half of its water leased out to farmers, and hopes over time to have 70-80 per cent on lease.
Dabinett said his gratefulness for the bore water leases he has with Duxton Water covering five, 10 or 15 years was “absolute”.
His own water entitlements are not enough to meet his total requirements, and leasing offers a flexible option at a time when it is almost impossible to buy more permanent licences.
He said the price per megalitre he paid Duxton was “less than a sixth” of the $800/ML the Victorian Murray irrigators were paying on the spot market.
“We need more options (such as Duxton) to get hold of water allocations in our region,” he said.