What do you do when the price of water nearly triples? For olive grower AAP, it’s been a disaster
Food & Agriculture
Food & Agriculture
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While storms raged in Queensland, a 186 per cent rise in water prices in Victoria has wreaked havoc on an olive grower’s finances.
Australian Agriculture Projects (ASX:AAP) says its dip into negative cash flows in the December quarter was due to spot water prices rising from $175 a megalitre in June, to $500 – just short of triple the price in six months.
The company hadn’t budgeted for such a jump and said it didn’t make sense: why was the price so high if 90 per cent of water allocations been let — indicating that there was plenty of liquidity in the Murray Goulburn river system?
They noted, without specifically blaming, “new investors and speculators” as behind the rise in prices.
In last year’s annual report they forecast water prices to be around $170 a megalitre in 2023.
The company was responding to an ASX question about the dip into the red of $273,000, after prior quarters of positive cash flow.
“It is expected that the March 2019 quarter will be neutral to a small net outflow depending upon the price of water and the timing of payments,” Australian Agriculture Projects told the ASX.
“While management are of the view that these inflated prices will return to more normal levels in the longer term, they are currently assessing the short and medium term implications.”
The company manages olive groves in the Boort region of Victoria, to make into olive oil.
As Cyan Investment Management boss Dean Fergie said about grapes in Mildura last week, Victoria is relatively secure from drought and cyclones and so long as farmers have access to irrigation, dry-tolerant fruit is less risky than other crops.
The risk comes, as Australian Agriculture Projects has found, when prices for water begin to climb.
The company buys water on the spot market and via contract.
The company’s very lightly traded stock was flat at 1.8c.