Irrigation -A Heads Up For Rural Professionals

Irrigation Development – A Heads Up For Rural Professionals

Dr Terry Heiler, Chief Executive, Irrigation NZ Inc.

Paper presented to the LexisNexis Professional Development conference – Queenstown – August 2, 2007

WHERE IS THE MANAGEMENT OF WATER GOING?
We are in the process of changing the way in which water is managed. A new policy environment is being developed by Government and new policy instruments are already being promulgated . The background to this is as follows.

In April 2006, the Government announced an accelerated Sustainable Water Programme of Action (SWPoA) process in a Cabinet Paper and follow-up Ministerial briefings. Effectively, it has called for substantial progress to be made by 2007 on a number of important issues confronting the sector: National Policy Statement on Water Allocation Framework; National Environmental Standard on Water Measurement; identification and protection of iconic water bodies; protection of water quality from unintended consequences of urban and agricultural land use; role of water user groups in water resources management; and development of tools to assist regional councils to achieve the objectives of the SWPoA.

Government’s actions recognise that all is not well in the sector. In contrast to water resources management reforms in many other jurisdictions, the SWPoA is dealing with action, without yet any prior identification of the national interest in regard to goals and objectives in regard to social, economic and environmental issues. Elsewhere, these have been promulgated by Parliamentary consensus before the action plans were developed. It is to be hoped that the SWPoA is able to address some of these issues as it proceeds, but the immediate focus seems to be on environmental quality with little attention to social and economic matters.

At the same time, individual regional councils responsible for administering current policy under the terms of the RMA are in the process of developing regional natural resources management plans or modifying previous plans. There will clearly have to be a coming together of the local initiatives and any new developments from the SWPoA. At this time it is not clear when this will happen.

HOW WILL SUSTAINABLE DEVELOPMENT ISSUES AFFECT FARMERS? WHAT REGULATION IS IN THE PIPELINE?
It is clear that the current arrangements that control the use of water for irrigation will change in order to meet SWPoA sustainable development objectives. Some of the changes are already signalled under the SWPoA:
 Measurement of individual water use from water sources will be a requirement within 5 years under the National Environmental Standard being promulgated at the national level and perhaps sooner under regional plans. The investment required is currently proposed to be the responsibility of the consent holder, and individual costs will vary from $3,000 to $10,000 per installation depending on circumstances. This is a significant national investment, and a serious one for the consent holder.
 Individual resource consent conditions will be reviewed over time, with a typical set of conditions may include: a maximum seasonal volume; restrictions during periods of low surface flow or groundwater pressures; requirements for measurement and data transfer to regional authorities; commitment to best practice irrigation standards; regular evaluation of irrigation system performance; and restrictions on land use under irrigation.
 A greater proportion of regional council costs attributed to regional resource studies, monitoring and investigations will be sheeted home to consent holders, and away from the general rate.
 Systems will be developed to facilitate the temporary or permanent transfer of resource consents where this is compliant with regional council requirements.
 And so on.

All of the indicators are that the future will present more difficulties for consumptive water users than they have a present. And operating under the current regulatory environment is becoming more difficult, as described below.

WHAT IMPACT IS CURRENT REGULATION HAVING ON IRRIGATION DEVELOPMENT?
The impact of current regulations is most apparent in Canterbury, where we have the largest irrigated area and annual volume of consumptive water use consented. Two things are clear: current allocations and entitlements will be targeted for reduction as consent reviews are undertaken; and new applications to take water for irrigation will face perhaps insurmountable difficulties. Otago water resources are heavily over-allocated where traditional miner’s rights are in place, and when these expire in 2021, more water will probably be allocated for assessed in-stream needs.

It is not generally known that almost all regions in NZ will be into a full allocation situation within 5 years, and all drier regions within 10 years. The problems that we are seeing in Canterbury now, will be the general situation across the irrigated regions in the near future.

WHAT ARE THE ISSUES FOR NEW IRRIGATION OPERATORS?
Unless there are changes to current and planned water management scenarios, new irrigation operators will find it increasingly difficult to gain access to irrigation water with a level of reliability that justifies irrigation system investments.

New irrigation operators will be subject to more onerous consent conditions than are currently imposed, and these will be directed to improvements in water quality; more efficient use of water; more measurement, monitoring and reporting requirements; more constraints to the exercise of consents; higher charges imposed by regional councils; and probably a tougher environment in terms of penalties for non-compliance.

WHY DO WE HAVE SUCH A DIFFICULT SITUATION FOR IRRIGATION DEVELOPMENT?
Since the enactment of the Resource Management Act in 1991, resource consents have been issued for the use of irrigation water – representing some 70 percent of all the water allocated for consumptive use in NZ. In accordance with the provisions of the RMA, these consents have been issued on a first come first served basis. Whilst appropriate (perhaps) in areas where water resources are not limited, this approach is inadequate where the summation of allocations reaches or exceeds resource availability, such as in Canterbury and Otago.

Quick fix solutions based on free water transfer markets with no controls – “cap and trade” -- are being promulgated at academic and government levels, without much experience down on the farm. Water allocation is a key topic under the SWPoA, and the results of any recommendations will be of long term significance to irrigator investors.

The way forward will clearly involve mechanisms to transfer resource consents on a permanent or temporary basis, based on market mechanisms, where this is appropriate. In Australia, where water trading is relatively mature, water markets operate under some internally imposed constraints – developed specifically for specific situations -- for economic, social and environmental reasons. We need to be very clear in NZ about the implications of any proposals that a completely free water market will meet all of our needs. Under inappropriate market arrangements control of key water resources could pass to players with deep pockets without regard to wider social and equity issues. The current lack of national direction as to the social and economic aspirations of the nation in regard to water resources use is not helpful.

But the thinking so far is pretty limited. The basic problem is that allocations based on 4 years out of 5 peak needs are not fully taken up in most years, and yet they constrain new entrants, even when resources are available. We need to think beyond the bureaucratic desire to fix things in concrete and see their main job as compliance policemen, and look to more adaptive ways to manage a dynamic water resource system subject to stochastic influences.

So a new road map is needed to get away from the idea that water resources are best managed by fixed resource consent entitlements, and get hooked on the idea of real-time management – to use the tools of technology to manage rather than monitor for compliance.

A major omission from the SWPoA as it currently stands is a complete lack of any consideration of the way in which improved water availability may be improved by harvesting and storage water, aimed at continued economic development and environmental enhancement. It is generally accepted that water storage has the potential to remove some of the current problems in the sector, albeit with the risk of introducing new challenges in regard to environmental quality. This is where the focus should be -- removing the constraints of water availability in water-short areas, and addressing the externalities involved using our best science and technology. Let us see why this is important and what might be required.

BALANCE SHEET FOR CURRENT IRRIGATION INVESTMENT
Various estimates of irrigated area in NZ have been prepared based on consented areas, census data and local surveys . The best estimate is that actual irrigated area is 80 percent of May 2006 consented area (970,000 ha) – which gives 776,000 ha. Based on estimates of on-farm investment for all systems ($3,000/ha); investments in the headworks and distribution systems of schemes (300,000 ha, $1,800/ha); and associated investments related to irrigation ($300 / ha), a balance sheet of NZ irrigation assets would look like:

On Farm assets: $2,328 million
Off Farm assets: $540 million
Associated assets: $238 million
Total: $3,106 million

Based on MAF estimates of the annual NET increase resulting from this investment in farmgate GDP, and a 2002/03 irrigated area of 475,700 ha, the current 2006 estimate of annual NET increase in farmgate GDP from 776,000 ha is $1,500 million. Using 2002/03 FOB prices, the annual NET increases in 2006 exports from irrigated lands are worth some $2,774 million FOB.

LOCATION OF 2006 CONSENTED IRRIGATION AREAS

Council 2006 consented area (ha)
Auckland
Bay of Plenty
Canterbury
Southland
Waikato
Gisborne
Wellington
Hawkes Bay
Manawatu
Marlborough
Nelson
Northland
Otago
Tasman
Taranaki
West Coast
3,732
20,310
647,006
7,053
8,832
4,366
21,200
39,978
12,149
36,590
87
8,205
141,275
18,271
2,590
1,011
Total 972,653

POTENTIAL FOR NEW IRRIGATION INVESTMENTS
The current and unrequited demand for new irrigation resource consents in Canterbury indicates that this area will dominate any new irrigation investments, unless constrained by water availability. MAF developed two scenarios for irrigation potential, as shown below.

Council Most Likely (ha) Potential (ha)
Auckland
Bay of Plenty
Canterbury
Southland
Waikato
Gisborne
Wellington
Hawkes Bay
Manawatu
Marlborough
Nelson
Northland
Otago
Tasman
Taranaki
West Coast
2,506
3,536
129,460
2,445
5,061
795
2,292
10,883
7,648
11,923
-
5,663
16,910
1,904
-
- 2,506
3,536
322,560
2,445
5,061
795
32,292
10,883
7,648
15,423
-
5,663
54,010
7,205
-
-
Total 200,996 469,997

Investment
Net annual Farmgate GDP
Net annual FOB export value $ million
804 (a)
388
718 $ million
1,881 (a)
908
1,776

Note (a): Does not include cost of major storage works. Costs would increase to $1,000 and $2,200 million respectively.

NEED FOR RURAL WATER INFRASTRUCTURE INVESTMENTS
It is clear that irrigation investment – private and scheme – has clear national and regional economic benefits, but there are indications that the annual increase in irrigated area (about 6 percent over the last 10 years) is slowing and will stall within 2 to 3 years . The reasons for this are related to full allocation of major groundwater resources in Canterbury and restrictions on river access through National Conservation Orders. It is well accepted that any further developments will require infrastructure investments for headworks – storage facilities in most cases – an in distribution systems – open channel or piped.

There has been no public investment in rural water infrastructure since the 1980s and the three completed community schemes in the period – Downlands, Waimakariri and Opuha – have depended on local government assistance or keystone investors in one form or another. A number of attractive community water resource development investments have stumbled and failed to proceed because of the financial difficulties associated with the large upfront investments required .

The need is not just for irrigation development. Much of the rural eastern seaboard is serviced by community water supply schemes that are now inadequate in terms of water quantity and cannot meet the recently promulgated Ministry of Health water quality requirements. In addition, significant water-related environmental restoration and enhancement opportunities will require investments in infrastructure.

The logic of commencing a new round of rural water infrastructure investment is clear, but the implementation and financing mechanisms are not in place. Instead of the single focus initiative being left to farming communities, the developments need to be planned with clear community objectives in a multiple purpose framework, with appropriate cost-sharing.

THINKING WITHOUT PARADIGMS -- OPTIONS GOING FORWARD
Government has the opportunity and the associated problems on the radar and MAF officials promote the opportunities, but there are serious barriers within the bureaucracy to getting any initiatives identified, let alone implemented. The 1980s paradigms related to economic rationalism and political concerns about environmental externalities have effectively prevented the rational consideration of opportunities. There are a number of useful initiatives identified that Government could take without any long term cost – in fact, appropriate short term investments are likely to be financially rewarding to Government, if the initial share value increases in recent schemes are any indication.

If we pursue the opportunities for water infrastructure investments, there are a number of issues that we need to resolve:
 they require significant up-front capital investments, often outside of the communities to arrange without support
 they are long-term – with appropriate maintenance, they will operate successfully over periods that cover a number of generations of the communities they service
 they have a restricted direct-user market – it is difficult to involve wider beneficiaries in financing the schemes
 they generally involve multiple objectives – but rely upon single interest financing
 they are a catalyst for significant land use and social changes
 they require access to private land for associated infrastructure, which may present as much of a problem as resource consenting.

To move forward, some of the features that we need to recognise are:
 These projects must be seen as multiple objective interventions for the good of the whole community, and be designed to attract wider community support.
 Without sustainable development of large scale water infrastructure many regions have hit the wall in terms of maintaining economic primary sector growth and in addressing current environmental and social well-being issues. Climate change predictions will exacerbate this situation.
 They result in social transformations of rural communities, and have the potential to correct the unintended environmental consequences of past land and water use.
 Without a strong and clear position of central government, the much needed infrastructure will not be developed.
 These are very long term projects – 100 years plus – and implementation modalities need to reflect the inter-generational issues.
 Properly designed and implemented, they will generate multiple economic, environmental and social benefits.
 Ideally need to be community driven in partnership with Government, not identified with single interest groups such as irrigation farmers – but without involvement of a strong economic contribution from irrigation development they are not bankable.
 Farmer participation needs to be financially affordable for the projects to be sustainable, and allow a mix of farming enterprises to be viable to avoid limited land use focus that may be environmentally unsustainable.
 The “in the national interest” development opportunities that are now being developed in the energy and transport sectors, with central government involvement, are urgently needed in the rural water sector.

ENDS

© Scoop Media