The Australian Competition and Consumer Commission on Thursday released its interim report into the $1.5 billion-a-year trade.
It found market intermediaries like brokers and water exchange platforms operate in a mostly unregulated environment, which fosters conflicts of interest and dodgy reporting.
There are few safeguards against price manipulation and no body monitoring trading activities of market participants.
Information failures limit the openness of markets and favour better-resourced and professional traders, the ACCC found.
“The basin’s water rights markets have serious problems that have to be fixed now, to generate more of the potential benefits of water trade,” the report says.
“The current markets’ rules are deficient; enforcement of them is inconsistent and limited; and the overall governance of the basin’s water trade is troubled.”
The watchdog found market participants are denied an accurate picture of water trade including price, supply and demand because of different processes across states.
Irrigators and other traders have inadequate access to important information that significantly impacts water pricing.
ACCC deputy chair Mick Keogh said water markets had brought significant benefits to irrigators across the Murray-Darling Basin.
“However, these markets have significant problems,” he said on Thursday.
He criticised complex regulation across some areas and a concerning lack of oversight in others.
“This has led to a lack of trust in the markets among many water users and has undoubtedly reduced the benefits generated by those markets,” Keogh said.
“These problems exacerbate distrust when water is scarce or when demand is increasing. They make a difficult situation worse.”
Former water minister David Littleproud directed the ACCC to look at water markets last year after allegations of price manipulation.
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