There's a sense something is not right among the farmers of the southern Murray-Darling Basin.

Key points: Anyone can buy and trade water in Australia, and 14 per cent of trades each year are by individuals or corporates that don't own land

Anyone can buy and trade water in Australia, and 14 per cent of trades each year are by individuals or corporates that don't own land The Federal Government has promised a competition study of Australia's $2-billion water trade

The Federal Government has promised a competition study of Australia's $2-billion water trade Irrigators in the southern basin say the water market is having unintended consequences on their local economies and the river

It is not just drought, they say, that is testing livelihoods. It is the system.

The Murray-Darling Basin's $2 billion water trade — introduced to recognise the value of the resource and provide farmers with greater flexibility — is shifting economies and changing the landscape.

At the request of the Federal Government, the Australian Competition and Consumer Commission (ACCC) is about to study the trade.

Some say what is happening across the southern basin is simply the result of free trade and the commodification of water.

Others describe it as a failed experiment.

The Murray-Darling Basin Plan makes it clear that the river is a national asset to be managed in the national interest.

But on a recent trip up the river, the ABC found a growing number who believe the unintended consequences of water trading are challenging that promise.

The ACCC will study the Murray-Darling Basin's $2-billion water trade. ( Flickr: Michael Storer )

The young farmer

Our first stop is in New South Wales.

At Trentham Cliffs, not far from Mildura in Victoria, Ryan Marr pumps water straight from the Murray River to grow avocados, mangoes, citrus and wine grapes.

At times his farm employs 30 workers and depending on the season it will use up to 500 megalitres or about 200 Olympic-sized swimming pools' worth of water a year.

Mr Marr, 34, grew up on a farm and knows growing crops can be a gamble.

Ryan Marr says people are trying to make money by buying and selling water to others. ( ABC Rural: Kath Sullivan )

Now, he says increased competition for irrigation water is bringing new risks to his industry.

"If you're just buying water to then on-sell it to a grower to make money because they are suffering from drought, I don't think that is really the right thing," Mr Marr says.

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Early this century, laws changed so that water could be traded separately to land.

The result allows anyone — corporate investors, superannuation funds, green groups, even celebrities — to buy and sell water.

"Water is only worth something if you can grow food or fibre or meat with it," Mr Marr says.

"We have all these ticket-clippers who come along who are making a living from all the in-between. Is that fair and right when it is the grower at the end of the chain who has to do all the hard work to grow the crop, carry the risk, to actually make it worth money?"

The drive south-east and upstream from Mr Marr's farm passes countless roadside stands offering the latest season's mandarins and oranges in exchange for a deposit in the honesty box.

As the colour of the soil fades, homes surrounded by citrus groves and vegie farms give way to almond trees.

There are rows and rows of branches bare for the winter and noticeably fewer signs of human life.

And then come the olives.

Olive trees at Boort in northern Victoria. ( ABC Rural: Larissa Romensky )

The olive grove

The company Boundary Bend grows more than 2.2 million olive trees across two Victorian sites: at Boort, and Boundary Bend between Mildura and Swan Hill.

If you've bought Australian-grown olive oil, there's a good chance it had its origins here, where the brands Cobram Estate and Red Island are produced with olives irrigated from the Murray River.

Boundary Bend co-founder Rob McGavin says the crop uses about the same amount of water as wine grapes or "about half the use of almonds".

While the success of his business relies on the ability to trade water, Mr McGavin says the trade isn't working as well as it should.

Cobram Estate and Red Island olive oil are produced with fruit irrigated from the Murray. ( ABC Rural: Larissa Romensky )

"I think it set off with good intentions, but like any market, people work out how to bend the rules to take advantage of a system that was never meant to be like that, and certainly we're seeing that in this market in Victoria," he says.

"My biggest beef by miles is that non-irrigators can buy water and just hoard it, collect it and short the market of it.

"Every day that they are in the market bidding against the irrigator means the irrigator has got to pay more, which means they don't have as much to spend in town, which means they whole community suffers."

Mr McGavin argues the depth and importance of the market can't withstand the investment of those who don't use the water, or lease it, to farm.

Rob McGavin says traders who don't use water to farm are pushing up prices for irrigators. ( ABC Rural: Kath Sullivan )

"It's not like grains of sand or coal, it's the lifeblood of these communities and not very much money can buy a huge amount of allocation water.

"That tips the balance to everyone paying more and more and more.

"It's really having a huge financial cost to irrigators, which is eventually passed on to consumers."

About one third of the food Australia produces comes from the Murray-Darling Basin, and more than 90 per cent of water trades take place in the southern basin.

According to Water Minister David Littleproud, about 14 per cent of trades each year are by corporates and individuals who don't own land.

Mr McGavin estimates farmers here have paid up to $400 million more for water because speculators — those who trade but don't farm — drove up demand this past year.

Some critics might argue olives and other permanent plantings that require water year-round shouldn't be grown in such a climate.

Mr McGavin says the system works best when there is a mix of permanent and annual crops.

"The permanent plantings are what drives the most economic activity and I suppose sustainability for the basin because annual crops produce, in general, a lot less jobs and financial return or money from megalitres of water used.

"It's a stark difference, it's not similar.

"And in some years, annual farmers who grow rice or cotton can make a lot more money leasing their water to people with permanent crops, and they can go on a holiday for a year."

Permanent crops can depend on it.

The rice growers

Further upstream, annual farmer Michael Hughes grows rice and corn at Pretty Pine, outside of Deniliquin, NSW.

The road from the olive grove to Mr Hughes' place passes several empty paddocks. A few are littered with placards calling to Pause the Plan; others take aim at the Murray-Darling Basin Authority.

A protest sign in an empty paddock outside Deniliquin, NSW. ( ABC Rural: Kath Sullivan )

Mr Hughes does not blame the Murray-Darling Basin Plan, or the authority charged with overseeing its implementation, for the frustration in his community.

With kelpie Sam at his feet, he says there are issues with a lack of transparency about water trading, and farmers who can't keep up with rules that "change all the time".

"It feels like we've got a team of footballers and of the 18 on the field, we have about three or four who know the rules, and the rest are going along getting a bit angry and frustrated without understanding why the trade is the way it is."

Michael Hughes and Nick Morona say the ability to trade water separately to land has brought unintended consequences. ( ABC Rural: Larissa Romensky )

Mr Hughes says it is the way that water is moving through the system — as though the river was a channel — that is causing concern in his community.

"It's more the market and the appetite for water and scarcity for water that is driving real frustration this year. It's working as it was intended, but I don't think it's the way the river was intended.

"[It is as if the trading rules] have been authored by an economist and not vetted by a hydrologist and that's put massive challenges on the river system delivering water where the market's appetite is at the moment."

Part of the problem is the naturally occurring Barmah Choke, a point in the Murray River that narrows and restricts the flow of water, further complicating the trade.

An aerial view of irrigation channels at Michael Hughes' Pretty Pine farm in NSW. ( ABC Rural: Larissa Romensky )

Mr Hughes' neighbour, irrigator Nick Morona, is also concerned about water being lost from irrigation through evaporation as the market demands it is delivered further downstream from dams.

"The idea of the free market was the water was to go to the highest value for the least loss, but that hasn't happened," Mr Morona says.

Mr Hughes says water needs to be traded but he wants to see "a better balance of how water is consumed over the length of the river".

Mr Morona tends to agree.

"As water moves from one region to another, the economic consequences will flow. Where the water goes, the economy will follow," he says.

"A lot of Australians have invested a lot of money in this reform process, we want to get it right for the national interest — not just one area, or one state, but for all states and all irrigators, at the top and the bottom."

At Mr Hughes' place, with a cuppa in hand, and homemade salami curing on the verandah behind them, the neighbours acknowledge the toll that water reform has had on their community.

"Farmers have been able to, if they need to [have access to government incentives] to do buybacks or water efficiencies, but a lot of businesses in town haven't had the opportunity to reform and change," Mr Morona says.

"I think that is one of the biggest issues."

"Our community probably suffers more than the irrigation sector itself," Mr Hughes says.

The community

In town, Justine Keech, a former schoolmate of Mr Morona's, might agree.

Ms Keech is an insurance broker and vice-president of the Deniliquin Business Chamber.

"The community is the one that has really missed out because I don't think we've had an active voice and I don't think as communities we understood what the impact would be … it's such a complex issue," she says.

Ms Keech came of age when Deniliquin was a hub for the booming wool industry and the town buzzed with jackaroos.

Justine Keech says Deniliquin prides itself on being an agricultural town, but water reforms are changing the town. ( ABC Rural: Larissa Romensky )

She speaks of how when the bum fell out of the wool price, more of the region's farmers shifted to growing rice.

Two years ago, this district grew more than 600,000 tonnes of rice, but this past season it fell to its second lowest level of production since the 1930s and the local rice mills, which employed 100 people, closed.

"It is part of our DNA, agriculture in Deni, that's what we are, we're a country town and we really pride ourselves on that," Ms Keech says.

"It gives this pervading gloom when we can't be an agricultural town when no-one can farm."

The lowest inflows since the Millennium Drought, and the Murray-Darling Basin Plan, have reduced the amount of water available for farming, at the same time that thirsty, higher-value crops are demanding more water downstream.

A map of the Murray-Darling Basin in Australia. ( ABC News: Ben Spraggon )

"I can't say I blame the farmer because he's not taking a punt on having to grow something — he's got a sure bet by selling his water," Ms Keech says.

She knows that a farmer growing a crop will spend more in the district than one selling water.

"If you grow a crop you use local contractors, local providers of chemicals, seed, agronomy, accountants, you contribute to wages and that money goes around [but] if you just take your money from trading water, that money doesn't go around," she says.

"From a community point of view, perhaps we need to consider maintaining water in the regions, but then as a business person would I like to be restricted to sell my water only within my region when I might be able to earn double for it downstream? It's about having your cake and eating it too."

Reform could be on the cards following the release of the ACCC's interim report. ( ABC Rural: Larissa Romensky )

The dairy farmer and the grain grower

Back in Victoria, the road to Paul Gill's Kerang farm takes a single-lane trestle bridge to cross the Murray River at Barham.

Mr Gill has been a dairy farmer for 40 years.

With his boots at the door, he sits at the kitchen table and says this past year — three years on from a major collapse in the Australian milk price — has been most difficult.

"Without being alarmist, it would be the lowest morale I think ever — lowest morale in the dairy industry since I've been here.

A farmer for 40 years, Paul Gill says he can't remember a season this tough. ( ABC Rural: Larissa Romensky )

"The amount of pressure this year from costs and water availability, just the mental pressure of being under so much pressure for so long, it's really starting to take its toll," Mr Gill says.

In a wet year, dairy farmers can pay as low as $40 per megalitre for water in northern Victoria.

Today, it is more likely to be $600.

During the last drought it reached $1,100.

Mr Gill fears farmers can no longer afford to produce milk in northern Victoria. ( ABC Rural: Larissa Romensky )

Also here is Tyler Nelson, a grain grower from Boort — about half an hour down the track.

He relies on the dairy farmers like Mr Gill to buy his crops to feed their cows.

"In the Cohuna region, since Christmas, there have been 38 dairy farms that have shut down or are in the process of shutting down," Mr Nelson says.

"The ones that are left, are downsizing," Mr Gill adds.

"Heaps of people are walking away, and probably in the next six months we'll find out what's going to happen [to dairy] in northern Victoria," he says.

Tyler Nelson wants the ACCC inquiry to consider the fixed costs that some irrigators pay. ( ABC Rural: Larissa Romensky )

Mr Nelson is particularly aggrieved by the fixed costs that some irrigators must pay to authorities, irrespective of whether water is delivered.

"You can have an irrigator that has either no water or can't afford to pay for the water, yet they are paying for infrastructure," says Mr Nelson, referring to what in Victoria is called a delivery share.

The pair irrigate from the Goulburn River, which feeds into the Murray.

"The idea that we can send it all down the river for the environment or all permanent plantings, the Murray is at capacity, the Goulburn is at capacity or over… we can't just keep sending it down the river with high losses [in evaporation]," Mr Nelson says.

Mr Gill says the Government needs to rethink what it wants from irrigated agriculture because he believes the current system isn't working.

"Those unintended consequences are really starting to bite now."