Parliamentary Commissioner for the Environment - Te Kaitiaki Taiao a Te Whare Pāremata

Briefing on dairy farming impact on water quantity and quality

Briefing to the Primary Production Committee, Dairy Farming Impact on Water Quantity and Quality

Dr Jan Wright, Parliamentary Commissioner for the Environment

I understand that you have asked me here because of the Insight radio documentary

on the dairy farming boom in which I suggested that water should be priced.  Although you asked me to speak on the impact of dairy farming on water quality, the pricing issue is about water quantity, so I will speak about both quality and quantity.

The suggestion that water should be priced is not original to me so I have been somewhat surprised that it has been treated this way by the media.

I was rather amused by one report that said I had bared my teeth at the dairy industry, because it reminded me of Helen Hughes’ famous response.  Helen Hughes was the first Parliamentary Commissioner for the Environment and once when asked if the Commissioner had any teeth, she replied “No, but very big gums”.

There is no well-researched report sitting behind my comments on the radio documentary or behind this briefing.  I am not yet an expert on water – but I do know we have some problems.

In the Insight documentary, the first question I was asked was:  “Does dairying have an environmental impact?”  I responded “Everything does.”  That response was edited out.

Everything we do has an environmental impact.  What matters is its size and nature in deciding how serious it is.

On the one hand I am told that it takes 1,200 litres of water to make a litre of milk and on the other hand, that only 14% of the water in Canterbury is used by farmers.  These are factoids.  What is the basis of these numbers?  What is their significance?

They are the kind of factoids that seem to be fuelling an increasingly heated urban-rural debate.

I want to acknowledge the good work that is going on.  Much of it is taking place under the Clean Streams Accord.

·  The bridges and culverts over regular crossing points, the fencing of waterways and the riparian planting.

·  The use of nutrient budgets – keeping nitrogen and phosphorus accounts.

·  The proposed National Environmental Standard on water meters which will make metering compulsory at the first point of abstraction from the river, lake, dam or aquifer.  South Wairarapa is going further; it plans water meters in place for all users after 2009.

·  The increased enforcement by Regional Councils of those whose management of dairy effluent is unacceptable.

·  The use of nitrogen inhibitors that enable grass to take up more of the nitrogen that comes from urine, urea and clover – and in so doing, reduces both the outgassing of the greenhouse gas nitrous oxide to the atmosphere and the nitrate entering rivers, lakes and groundwater.  I understand there has significant take-up in Canterbury and Otago where it is currently profitable because of the increased grass growth and the high price of urea fertiliser due to the huge amount of maize being grown in the USA for biofuels.

And an environmental positive from the dairy industry is that from a global perspective the production of milk powder in NZ is a good thing for climate change.

We know from the work of Professor Caroline Saunders at Lincoln that we can get our dairy products on to UK supermarket shelves with a lower carbon footprint than UK farmers can.  However, the margin is not that large.

The much-quoted first Saunders report dealt only with carbon dioxide, and showed that the carbon dioxide emitted during the production and delivery of a kg of milk solids in the UK was twice that in NZ.

The second Saunders reports dealt with all the agricultural greenhouse gases -- methane and nitrous oxide as well as carbon dioxide.  The result of this more thorough calculation is that the ratio of the greenhouse footprint of a UK kg of milk solids to the greenhouse footprint of a NZ kg of milk solids shrinks from two-to-one to four-to-three.  This is not a comfortable margin.

I see the world as a scientist and as an economist.

My comment on pricing water arose from my economic view of the world.

From an economic perspective, the water problem is characterised as a Tragedy of the Commons.  Uncontrolled use of a resource – because it is free – leads to “tragic” results.

Climate change is a Tragedy of the Commons – because we have all dumped our waste gases into the atmosphere for free.

Water functions as a resource in two ways.

·  As a source – what we want.  This is the quantity issue.

·  As a sink – what we don’t want.  This is the quality issue.

The two are often connected.  For example, consider the situation where water is taken from a river for some purpose and pollutants are discharged into the same river.  The more water that is taken, the lower will be the flow and the higher the concentration of pollutants.

The Tragedy of the Commons is one characteristic that makes water management so challenging. Another is variability.  There is so much variability in the amount of rain and the time of year when it falls. And while our general understanding of aquifers is good, we lack understanding of particular aquifers.

An economic perspective on environmental problems leads to so-called Blue-Green instruments – like a carbon cap-and-trade market.  Blue-Green solutions involve pricing what has previously been free.

Quantity – user pays

Quality – polluter pays

That said, economic Blue-Green instruments are not always the answer, but are increasingly likely to be part of the answer.

I will be presenting some slides that are mostly about water quality.

But before doing so, I will make a few comments about water quantity.

Comment 1

Pricing may be part of the answer for allocating water where it is scarce.  Other parts of the answer may be regulation, voluntarism, or investment in capture and storage.

Comment 2

There is no case for putting a price on a resource which is in plentiful supply.  There is no national water shortage.  Sir Geoffrey Palmer famously said “new Zealand is an irredeemiably pluvial country”.

But we don’t always have rain where and when we want it.  So there is a scarcity problem in some areas at some times of the year in some years.

Comment 3

Pricing is the normal way in which society allocates scarce resources.  And water is becoming increasingly scarce in our dry East Coast areas.  About 70% of the consumptive use of water is in Canterbury and there the easy water has gone.

Comment 4

It is important to distinguish between paying for infrastructure (and consent charges) to abstract, store, and deliver water -- and paying for water itself.  Sometimes the infrastructure is charged for on a cubic metre basis, so it looks as if the water itself is being paid for.  It is not.  These payments are cost recovery.

Comment 5

Our consenting system for allocating water is first-come first-served.  Where water is scarce, first-come first-served is inefficient in two ways.

The first kind of inefficiency is that no farmer gets enough in dry periods.

This is because the consented amount is subject to availability.  As water in a catchment is over-allocated, the actual take will sometimes be less than the potential take.  The consent gives the right to take so many cubic metres but it may not be there to give.  This suggests that a consent to take water would be best expressed as a percentage of a cap rather than a set number of cubic metres.

The second kind of inefficiency is that the water doesn’t go to the highest value use.

First-come first-served is allocation by time, not by value.  Pricing is the mechanism that leads to allocation by value.

Comment 6

Some are concerned that pricing water is privatising water.

But it already is effectively privatised through the consents process.  A property right has been established because water users can trade consents.

Consider two hypothetical farmers who own identical land in a dry area, one with a consent to take water and the other without such a consent because he applied later and the available water was over-allocated.  If they sell their farms, the former will get a much higher price – simply because he got in first.

Comment 7

The catchment needs to be the fundamental management unit.  I understand that Environment Waikato are re-establishing catchment boards.  In some catchments, the water available for commercial use needs to be capped to preserve certain uses of water.

·  Ecosystems in surface water need to be sustained.

·  There is public use of surface water.

·  Water for stock does not require a consent.

·  Water is required for diluting pollutants – preserving its assimilative capacity.

I have talked a good deal about the potential use of pricing instruments for dealing with the water quantity problem because it was clearly my “pricing” comment that caught your attention.

Pricing can also be used to address the quality problem.  For instance, the right to discharge 1 kg of nitrogen per year into certain water bodies could be traded.

But I don’t want to leave you with the impression that Blue-Green instruments will solve our water problems.  They make a lot of sense in theory.  But practice is another matter – the devil will be in the detail.

I also do not want to leave you with the impression that dairying is the only land use that has impacts on the environment.  Market gardening, for instance, can cause serious water quality problems. But the environmental impact of dairying is particularly important because of the sheer scale of the change that is occurring.

The slides show that we have a water problem.  Some of this is due to historical practices.

But these are problems that will not self-correct.

It is easy to find fault with proposed solutions.  But the challenge is to find solutions that are workable and to do it reasonably fast.

Finally, the Business Council for Sustainable Development is doing excellent work on water and I suggest that you watch out for their report.