environment

When the river runs dry: The true cost of NZ water

The Government says nobody owns the water, but that hasn’t stopped people making hundreds of thousands of dollars selling it, reports Eloise Gibson

The message trickled down from Bill English a month ago, albeit in watered-down form.

New Zealand will probably not start charging businesses to use fresh water, English told the AM Show, because it is too difficult and would upend a century-old convention of letting people have it for free. "You'd have to work out pretty basic things like who owns it? What would you charge them?” he said.

But in the absence of a Government price tag, the market has put a value on water in some of our driest regions: between 70c and $1.60 for a thousand litres - a cubic metre - and most recently about $1.

That’s about a tenth of 1 cent per litre, but the real price is less because buyers pay once for permits giving them annual rights lasting years, or decades.

The money is going to farmers selling surplus water permits they no longer need for tens or hundreds of thousands of dollars (sometimes more).

And the trading is happening in catchments where councils say streams and rivers are already stretched beyond capacity.

The farmers did not pay councils for the water in the first place, though they pay application and assessment fees for processing their permits.

One river near much of the trading is the Selwyn, near Christchurch, which ran dry in places over summer, though the council says irrigation for farming was only one added factor on top of years of very low rainfall.

The amounts being traded far exceed the controversial 9 million litres the Government says is being bottled and exported from New Zealand every year. Yet the trading has been largely ignored in the water debate.

Water, water everywhere except where we most need it

New Zealand has plenty of water, we often hear, but not in the places we need it. While Manawatu is flooding, Otago and Canterbury have more demand for water than their rivers can cope with, and Tasman district has a waiting list for people who would like new water permits.

Climate change will make matters worse, scientists say, likely dumping more rain in places that least want it and withering already-dry areas. Meanwhile, councils are under pressure to reclaim some of the water permits they doled out decades ago, now that a new-found environmental awareness reveals they didn’t always leave enough behind to support clean waterways and healthy wildlife.

The OECD and green groups like the Environmental Defence Society want water bottling companies, farmers and others to pay for consuming public freshwater resources, saying this would incentivise people to use water more efficiently and help fund a major clean-up of waterways. But the Government has baulked at the idea, with both Environment Minister Nick Smith and English seeming to reject it.

But in the absence of charges from central or local Government, a market for water has sprung up anyway. One consultancy, Hydro Traders, is helping landowners sell water from the Selwyn-Waimakiriri and Selwyn-Rakaia areas in amounts usually ranging from 50 million to 500 million litres a year (50,000- 500,000 cubic metres) for prices of roughly $50,000 to $500,000 (based on the ten most recent sales).

One particularly large trade in 2015 allowed the buyer to take more than 2 billion litres of water annually from the Hurunui River, with a daily limit of 15 million litres. Wellington City, by comparison, uses 30 billion litres of water a year for household and industrial purposes.

The sales are often happening in catchments where councils have belatedly realised they have given out more extraction rights than rivers can stand, meaning a landowner’s prospects of getting a new permit, or increasing an existing one, are slim to non-existent. Most of the confirmed trading is happening in Canterbury, although Otago also has high numbers of water transfers between landowners (though not necessarily trading for money) and there are anecdotal reports of water sales from Marlborough.

The man facilitating much of the trading in Canterbury — Hydro Traders’ managing director Anthony Davoren — believes water should be selling for more. “$1 a cubic metre I think personally undervalues what the water can produce. If you look at what each cubic metre of water can produce and the long-term average of various commodities, whether it’s wheat or barley or potatoes or milk solids or red meat protein, that water is probably a little undervalued,” says Davoren. “Of course, if I could bottle it and sell it, it would be worth a hell of a lot more than that. $1 a cubic metre gives you a thousand litres of water and if I go and buy a Pump bottle it’ll cost about $3 for 700ml.”

But Davoren doesn’t believe the Government should step in with a water charge. “I don’t think you can set a price on what the water is, because if you look at the variation we get in a single year, there’s no particular factor its driven by and when you start to regulate trading of water you could be inadvertently picking winners,” he says. “We don’t know what we’re going to be growing in five or ten years’ time. You need to supply flexibility for farmers to move from one income source to another without being restricted by the unavailability of water for irrigation.”

Foggy figures

Davoren says his clients are selling water they would have used anyway, so there’s no environmental damage caused by the sales. “It’s not that councils have allocated more water than farmers need. Almost all the water we have traded has come about because farmers have made efficiencies in their system … putting in much better-designed, more uniform irrigation systems and making better management decisions, so you … don’t apply more water than you need,” he says. “None of the water we have traded has gone from an irrigated property to a totally dryland property, so it hasn’t increased the total area being irrigated.”

Forest and Bird is not so sure. It says landowners are making “windfall” profits from selling a supposedly free public resource, and it wants the money channelled towards managing and cleaning up struggling waterways, costs it says are largely being borne by ratepayers and taxpayers.

As for the cost to river and stream health, the environmental group doesn’t buy the argument that all the water would have been used anyway. “The Government likes to say that nobody owns water. That may be the position they like to take when negotiating rights and interests with iwi but clearly it is not true. People are making huge sums of money selling something they obviously own,” says Forest and Bird advocacy manager Kevin Hackwell.

“With the Selwyn/Waimakariri this year, there’s been really severe problems with the river system and yet there’s been these sales of water that was surplus to the permit holder’s needs,” he says. “The regional council should have full control over that water. If it’s not being used, the first priority should be helping the river system and not the private profit of those who got the water free.”

Information from Environment Canterbury seems to confirm that some of the water was never used by the original permit holder. The council says some landowners transferred parts of permits they never fully exercised, for example because they built only half the irrigation infrastructure that was originally planned for the land.

Legally councils are allowed to transfer water permits between landowners under the Resource Management Act. They will usually do so if the buyer’s land is in the same catchment as the original permit holder, and the environmental impact — and impact on neighbours (for example, effects on bores) — is no different to the original spot. Typically, councils weigh up the effects by assuming the original owner was already using the maximum amount of water allowed under their permit, whether they were or not.

It’s not easy finding out how much water is being traded, because neither regional councils nor the Ministry for the Environment keep figures on commercial sales. Councils say any cash payments for water are a private matter between the seller and the buyer, and they can only look at the environmental impacts.

In the last 10 years Environment Canterbury has transferred 494 water permits between properties, 290 of those in the last five years. Since June, 44 people have applied to transfer some or all of their water rights to a different property. Those numbers include some short-term transfers lasting only a few days or weeks, for example brief arrangements to help a neighbour during a particularly dry season, says Nadeine Dommisse, a senior manager at the council. Neighbouring Otago has only been tracking resource permit transfers since August 2010. Since then, the regional council says it has allowed 1090 transfers, most of them of water permits.

If we could start again we would probably allocate water in a very different way but we are sort of stuck with what we’ve got. Try and take away a consent someone has held now for 50 years for their farming operation.

Davoren says not all of the transfers will have involved exchanges of money. “Probably not all those transfers are traded water, they could be farmers moving water from one of their properties to another,” he says. His own consultancy lists on its website roughly a dozen sales a year, mostly in Canterbury. Davoren says the number of sales has stayed relatively constant in the decade since Hydro Traders started helping farmers make trades, though the trend has moved from leasing water to selling it. The water business is small and, based on what he hears around the place, he guesses his company might be doing about 80 percent of the trading, with the rest being carried out by other water consultancies.

The thirst is not just coming from dairying, he says; uses for purchased water range from truck washing, to onion seed growing, to dairy irrigation. “Often we’re talking about people with small needs. The days of the really big consents being traded are long gone,” he says.

Still, his business is facilitating sales of amounts large enough to irrigate about 100 hectares. The published list of trades for the previous year shows several bestowing rights to extract hundreds of thousands of cubic metres.

Filling a need

Davoren says the idea arose in 2007, when farmers were asking him and his business partners how they should price the ad hoc transfers of water they were making to other farmers. “We were faced with people asking us, ‘So how much should I charge this guy for accessing my water? It’s a pretty important commodity to me and I want to make sure I get some recompense.’…The market then decided what the value of that water was and what people were prepared to pay, mostly to just top up consents they already have,” he says.

Over the years, the price has ranged from 70c a cubic metre to $1.60c, he says. The last 10 trades averaged about $1, and, since water permits can run for 35 years, the buyer gets the right to take the same amount annually for many years or decades.

Davoren says the real cost to the buyer is higher than the sticker price. For example, someone buying a “small” permit to take 50,000 cubic metres at $1 a cubic metre would end up paying anything from $60,000 to $100,000 by the time they paid administrative costs. “They bear the cost of the transfer and the issues of satisfying regulatory requirements, they will have to solve all the effects of adding more water to their bore and they may have to do a full aquifer test to show they are not having any effect on anybody. If it has an effect, the sale does not occur,” he says.

In the past, people have sold their land to realise the value of rights to take water; or purchased more hectares so they could use the full amount. But sometimes selling the water is easier, says Davoren. “They have some water they would have otherwise used, so their options are, do they go and buy some more land? That’s becoming more difficult to do because you have to meet nutrient limits, so as soon as you intensify that increases your nitrate (run-off). You then weigh up the cost of buying dry land and going through the consenting process and some farmers can’t be bothered doing that so they just say, ‘I’ll trade off whatever you guys think is sensible amount,” he says.

“We do that on a reasonably regular basis. We have a list of people looking for a quantity of water … we anonymously put the two together and once a price is agreed their consultants sort out the regulatory requirements.”

Davoren estimates the amount being traded accounts for just a few percent of water in the tightest catchments — too little to be blamed for drying out the ecosystem. Hackwell disagrees. “In many cases we are talking about hundreds of thousands of cubic metres. That’s a lot of water and if you have a lot of trades going on...further down (a river) where a lot of irrigation is occurring that could make a big difference.”

Scourge or symptom?

Councils trying to improve their waterways are grappling with their own past histories. Permits lasting decades or even centuries were handed out at levels councils now acknowledge some streams and rivers can’t sustain. In Otago, perpetual permits were granted to mining companies in the 1800s to suck more water than exists in some waterways – a legacy the council now has to deal with by getting people to give up some of their water rights. These ancient permits can’t be traded, but they illustrate how hard it is to claw back water once it’s allocated. Already, says Davoren, those who applied later get given the least reliable water and all farmers have to cut back in some catchments during dry days or weeks of the year.

Rather than the current system of first-in, best served, councils in places like Otago are trying to get water users to agree on a system where all landowners take a hit during times when rivers and streams are too low. Davoren fully supports the idea, but says it will be fraught in practice. “Yeah, good luck with that. It’s going to be pistols at dawn,” he says. “If we could start again we would probably allocate water in a very different way but we are sort of stuck with what we’ve got. Try and take away a consent someone has held now for 50 years for their farming operation. While people might point the finger at councils, they have done a reasonably good job,” he says.

Around Selwyn, the epicentre of water trading, the regional council has another solution. Recognising it has given out too much water in the Selwyn Te Waihora zone, Environment Canterbury now requires anyone transferring water in the area to give up 50 percent of their water take. The Hinds-Hekeao Plains area has a very similar rule. Other over-stretched areas in Canterbury have less stringent surrender rules, saying anyone transferring water must give up 20 percent or less of their permit, depending how over-allocated the catchment is. Davoren says the recent rules have not put people off trading. “Not at all, in fact our demand is higher than our supply,” he says.

But Hackwell’s view is that surrendering up to half the water fixes at best half the problem.

He readily acknowledges the core problem is not the trading, but past management decisions. However, he says trading is worsening things. “Fundamentally it comes down to too many permits in the first place. No question, we have quite a few river systems over-allocated. But the trouble is a lot of these things have already happened and when you have trading happening on top of that it makes it worse.”

Any water that isn’t needed should be handed back to the council, he says. While he appreciates that would make things more uncertain for farmers, he says climate change will render water availability uncertain for all of us. Councils need the power to adapt, he says. “If it’s not being used the first priority should be the river system not the private profit of those who got the water free,” he says.

“The idea of putting a price on water and encouraging people to use it more efficiently is not a bad one, but it needs to be done properly,” he says. “We are not opposed to these guys who are selling the water, it’s perfectly legal and at one level you go, good on them.” But: “We want regional councils to have full control of how much water is being used and how much can be traded. It’s a valuable commodity and we give it away free.”