Developing wealth from water

Current controversies about exporting water, be that in bottles or in bulk tankers, draw attention to New Zealand’s key resource.  Yes, that resource is indeed water. In a world that is chronically short of water, we in New Zealand are greatly blessed.

It is because we are so blessed that until recently we have taken the presence of water for granted. Essentially it has been a free resource.  As a consequence, water law in New Zealand is real messy. And that leads to major impediments to water being used efficiently, and in ways which the different groups in society can agree on as being ‘fair’. 

Water that falls as rain on private land has de facto use rights. But once that water runs off into a stream, or permeates below the level where plants can extract it, then it belongs to the Crown – in effect the people of New Zealand.

Throughout our farming history, the right to abstract water for irrigation has been on a first-in first-served basis, more recently legitimised by formal water abstraction consents. These consents are typically for periods of about 35 years.  Throughout the 20th century, obtaining a water right and subsequent renewal thereof was almost automatic.

It is only in the last 15 years that there was been widespread recognition that water use rights have been over-allocated in some parts of New Zealand, particularly the Canterbury Plains. Submersible-pump technology now allows water to be lifted from depths of 200 metres and beyond.  Those aquifers do recharge via the porous braided rivers draining from the mountains, but abstraction rates have gone well beyond these renewable volumes to create non-sustainable water mining.

It is this recognition of non-sustainability that has led to the current development of big storage facilities such as extensions to Lake Coleridge in Mid Canterbury and large down-country storage south of the Rangitata.  In the South Island, the rivers peak in early and mid-spring when the mountain snow melts, but the peak irrigation demand is not until late spring and summer.  Hence, the role of storage.

The cost of water for irrigation includes the costs of storage and the costs of distribution, but not a cost for the water itself. The water itself is a non-priced resource. Nevertheless, the cost of irrigation is very substantial.

In Canterbury, the newer irrigation schemes typically have annual charges to farmers of about $800 per hectare. This includes the cost of servicing the capital to build the off-farm facilities.  Even where existing pumping costs from aquifers are less than this, such as Stage 1 of the Central Plains scheme, most farmers have been willing to invest in the new storage schemes. This is because they provide a secure long-term source of water for which the ongoing cost has effectively been fixed in nominal terms; i.e. the debt-servicing cost will go down in real inflation-adjusted terms over time.

The economics of irrigation schemes are always controversial in advance. I recall one Mid Canterbury farm consultant saying to me several years ago that he had never seen a scheme that seemed cheap at the time of investment, but that they had all been worthwhile in retrospect.  In part, that has been because the investing farmers figured out better ways to use the water than the economists had assumed in advance.

Those debates about economics are going to continue over the coming years in relation to future schemes. My own perspective is that, without more irrigation along the east coasts of both the South and North island, we are going to be constrained in terms of the increased wealth that we can draw from our land. And with an economy that depends on agri-food exports, and the need to spread that wealth across a population that is rapidly increasing, driven by immigration, then we need to do some hard thinking.

That does not mean that we should ignore the environment. Indeed, environmental issues have to be paramount. But the beauty of irrigation is that it does give us a lot of control over nature, and the capacity to manage nutrient issues within a managed system.

Late last year I was invited to a workshop which posed the question: ‘what would our agriculture look like if we had been colonised from Asia?’  That ‘source of colonisation’ question stirred some good debate about the impact of our cultural heritage, both in relation to farming systems and market perspectives. Arising from that, I am now part of the steering committee for a ‘future foods’ project.

Only time will tell where that project leads, but an underlying driver is that irrigation is expensive and struggles to be economic when used to produce commodities. It needs to be used for value-add activities.  Along with this, if properly managed, it creates capacity to manage nutrient flows. It also allows us to build soil carbon levels and soil fertility, which are themselves environmental benefits.

Whether or not our ‘future foods’ project will address the issue of water itself as a consumer product I do not know. It may be outside our remit. But it is certainly something that I often think about.

When I travel overseas, one of the most important issues for me is obtaining quality drinking water. Even for cleaning my teeth, I prefer the bottled stuff to what comes out of the tap. And so I pay whatever the vendor asks, as long as it is an established brand, preferably imported from a developed country.

Even here in New Zealand, bottled water sells for at least $1.20 per litre and often up to $5 per litre. The premium brands, even when locally sourced, are more than the price of milk.

By my calculations, milk produced on an irrigated farm requires about 330 litres of irrigation water per litre of milk (or about 5 million litres per hectare to produce about 15,000 litres of milk).  Rainfall is additional. One can argue over the fine details but the big picture is irrefutable. The potential export returns from bottled water relative to milk from a  given quantity of irrigation water, are huge.

If we sold one litre of water per day to 10% of the Chinese population at an export value of $1 per litre, then we would be an extremely wealthy society. The annual export income returns would be $55 billion per year.   The amount of water required (55 billion litres) is trivial – about 1% of the water we use on irrigated agriculture.

The problem in New Zealand is that we do not have the institutional systems in place to capture these benefits, and to share those benefits across the people of New Zealand as the fundamental owners of that resource. Instead, we get into debates about whether individual groups are exploiting our fundamental birth-rights.

If I could wave a magic want to move things forward, it would be a legislative system where the Government could sell pristine drinking water at a good healthy price from designated sources on behalf of all New Zealanders. Private firms could tender for the abstraction right, with the minimum price set by Government. I would legislate that all such water could only be exported from New Zealand in consumer-ready form – none of this export in bulk tankers, as one group is currently proposing.

I have no specific view on the best source thereof, but pumping from deep water aquifers at say 200 metres has lots of appeal. The soil that the water has passed through on its journey to ‘deep down under’ acts as a marvelous filter of any bugs, and the water is even more pristine than from mountain streams. Why can it not happen?


About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Agribusiness, China, Dairy, Water. Bookmark the permalink.

7 Responses to Developing wealth from water

  1. Paul says:

    Great article Keith. We need to start valuing the resource that creates the value – water. Need to truly decouple water & land rights like Australia has done. Current first in, first served is so last century.

    If you don’t value the resource that creates the value it us just exploited.

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  3. trlahh says:

    All those plastic bottles… how about partnering with companies in (say) China to supply into retail chains that sell direct to the consumer in refill containers. We can still leverage off NZ brand and include carbon footprint accounting.

  4. How long (do you know) does it take for our aquifers, deep ones, to be replenished after all that
    is taken by farmers etc? In Canterbury our rivers and streams are drying up and concerning us.

    • Keith Woodford says:

      Mary, There is no simple answer to that question. In parts of Canterbury the extraction and renewal are in approximate balance, but in other parts (the so-called red zones) there is excess extraction. In the case of the Selwyn, which has been receiving publicity recently, the major cause (as understand it) is ‘nature’ rather than extraction, as a consequence of several years of low rainfall in the foothills. There have been previous periods when the Selwyn ran dry long before the advent of significant irrigation.
      One of the key points I am trying to make is that currently a lot of water is extracted for low value activities. We need mechanisms to encourage water to be allocated for high value activities. And we need mechanisms to ensure that the benefits are shared amongst everyone, not just a small group of ‘elites’.
      We also need to acknowledge that big improvements in irrigation efficiency have been occurring as a result of the shift from surface to spray (mainly pivot) systems. Also, that the issues with the big alpine rivers are very different to the smaller foothills rivers. Also, as with every scarce resource, not everyone can take as much as they would like.
      Keith W

  5. Pingback: How do we get a rational debate about water? | Posts from Keith Woodford

  6. Rick Cameron says:

    Very thought provoking and enlightening. If only we could be totally honest with ourselves, how simpler it could become.

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