Investments That Work: Australia’s Water Market by Rich Cocovich of Global Star Capital

• Australian water entitlements have become valuable commodities in recent years following the introduction of the 2007 Water Act.

This legislation grants the commercial trade of water licenses in the country’s largest agricultural area, the Murray-Darling Basin. Covering roughly 14 percent of the continent, the Murray-Darling Basin is home to about 40 percent of Australia’s farmers and produces $9 billion in annual agricultural output.

• Conservatively, the basin holds about $20.5 billion in water entitlements, which accounts for approximately two-thirds of Australia’s total water market value.

Experts estimate that the Murray-Darling Basin’s water trading has experienced 15 percent compound annual growth within the last decade, which has helped fuel foreign interest in the market. In addition, the price of water increased dramatically following a $3.1 billion buyback plan introduced by the Australian government in 2007.

• While the government purchase may be one of the single largest investments in the basin’s water entitlements, foreign investors have been quick to buy billions of dollars in the market as well.

For example, Singapore’s Olam International had spent $130 million in water entitlements as of last year. In September 2010, American-based Summit Global Management owned $20 million worth through its Australian subsidiary.

• Purchasing water entitlements in Australia should be approached as a long-term investment, as the market does possess some volatility.

For instance, plentiful rain in 2010 caused prices to drop as much as 40 percent. In turn, however, this temporary decrease made buying into the market a much more attractive investment.

•About the Author: As the founder and an executive director of Global Star Capital, Rich Cocovich works with entrepreneurs, government entities, companies, and nonprofits to determine whether their projects could benefit from private investment and then connect them with potential backers.

One of his past successes included serving as a consultant on a $400 million water rights project in Australia.