Listener 23 August, 1997
Keywords: Environment & Resources;
Under the plains of New Zealand run great rivers, aquifers flowing through permeable gravels carrying the rains from the back country to the sea. Although unseen, they can be tapped for humankind’s benefit with artesian bores for household, industry, and agricultural use.
Regional councils regulate this water resource. Typically they assess the necessary flow to prevent salt water incursion from the sea if the flow is too low, and divide the residual water among the potential users. For farming the amount is usually allocated in proportion to farm area, irrespective of how much water the farmer or the soil needs, whether they are growing low water using corn or water intensive cucumbers. The amount available varies over the year, as does the demand, with low flows and peak demand in summer. Often there is some criteria (such as the flow in a surface river), which allows the restriction of the takeup if the aquifer is drying up.
The hydrologists’ work is subject to a margin of error, but who can count the fish in the sea? In the case of fish we have a system of tradeable quota which set the amount the holder may catch, and which are meant to ensure the stock of fish is sustained. There can be mistakes (and the odd dishonesty) but the system of individual tradeable fishing quotas has not only worked reasonably well, and is considered internationally to be successful compared to the ad hoc regulatory regimes used elsewhere and in our past. By being able to trade quota fishers can develop the most efficient way to deploy their boats, including the less efficient boats selling their quota to more efficient ones, to the mutual benefit of both (while, hopefully, sustaining the fish).
Should the artesian water rights be made as tradeable too? Currently the farmer has use of the available water irrespective of need, although it can be piped across the fence from the corn to the cucumber grower in the peak season. If the water rights were tradeable, the water could come directly out of the well. Those with expertise, preferences, or soils for low water using crops would sell or lease their water allowances to those with opposite needs. Temporary leasing gives the farmer flexibility farmers to respond better to new crops, seasonal or unexpected circumstances. Or a farmer might calculate that greater security of supply could be obtained from dam on the property (storing winter water for which there is a surplus), and sell the water right to fund the dam.
The overseas experience is that there will not be massive productivity gains from this liberalization. In many regimes the annual turnover amounts to about 3 percent of the total flow. On the other hand, the cost to the public of freeing up the water right usage is small, so why should we worry?
Those who are sceptical of the efficacy of the market are suspicious. This columnist’s doubt is, however, that liberalization is based on theory, and we need experience to be sure it will work. Some Regional Councils are exploring the idea. The Ministry for the Environment should commission a monitoring program so we can all learn from experience. (I would also use a little bit of public money to assist in the development of the first legal contracts between users. Getting those right will be crucial.)
A more serious concern at a meeting of users in the Tasman District Council was that water was life, and separating the water from the land one could destroy the value of the farm. There were even suggestions that speculators would buy up all the tradable water rights and screw the farmers. This requires farmers to be stupid enough to sell their water rights to a single purchaser. But there is no requirement they must sell their water rights, the change merely gives them that possibility. In any case given that a very small proportion will be traded in any year (and many of those would be only on short term lease), it will take a long time (and very thick farmers) for a speculator to corner the market.
Would the monopoly provisions of the Commerce Act might apply? Probably not, because farmers thwarted from access to the artesian supplies could use other sources such as winter rainwater storage for their summer needs. That would discourage any speculator, and also put a cap on the long run price of water at the cost of this alternative supply. (In severe droughts the traded water price might go temporarily above that level.)
Is this not privatizing water? It is certainly not the privatization advocated for town supply, which involves a private monopolist provider. The reason tradeable water rights should work is because the market is competitive. But yes there is an element of privatization. Somewhere between the clouds and the cucumber the water becomes privatized. Tradeable water rights involve the shift of that line, from the ground at the top of the artesian bore to the aquifer at the bottom.