How farmers can pay for irrigation without public money

Gareth MorganEnvironmentLeave a Comment

Irrigation New Zealand and Federated Farmers are calling for public subsidies for irrigation projects. In their view, this year’s drought, and the prospect of more in the future given a changing climate, has underlined the need for increased water storage. In their view it is no different from building roads and other infrastructure, which benefits everyone. Do they have a point? Who should pay for water storage and irrigation in this country?

The short answer is yes and no. They do have a point, but only so long as water users and polluters paid for the costs of the water they access and the environmental damage they wreak.  This consistency – which is purely the logic of the industry lobbyists extended – would yield enough money to improve water infrastructure. But no way should Average Joe and Jo Kiwi pay a cent for someone else’s pipes and dams – which seems where the lobbyists are bludging for handouts.

Great to hear Fed Farmers accepting climate change!

First up, it is great to hear Federated Farmers acknowledging the impact that climate change is having on farming – that must mean they are waking up to the science. Better late than never we suppose, pity they’re not so convinced however to be part of the Emissions Trading Scheme like the rest of us. Must be hard to wean one-self off handouts and subsidies.

Why should government pay?

The arguments from Irrigation New Zealand and Federated Farmers covered three points:

  1. Irrigation is like roads – it is basic infrastructure that brings prosperity to an area,
  2. Irrigation suffers from coordination failure during start-up, and
  3. There are environmental benefits from irrigation.

Let’s look at each in turn.

Is irrigation like roads?

No.

Sure, irrigation can bring wider economic benefits, albeit to a localised area. Look no further than Ashburton on that count. However, that doesn’t justify it for public subsidy. We can get into the nitty gritty, but lots of private ventures have positive economic benefits – doesn’t mean at all they should be subsidised so the lobbyists’ logic there is a fail.  Like roads, irrigation often primarily, even exclusively benefit the user, which is why such roads have a toll attached and others are funded by petrol levies.

Further, roads can be used by everyone, at least until traffic jams start appearing. While the water infrastructure could technically be used by everyone, the water running through farmers’ pipes cannot be used for any other purpose. In that sense, irrigation is privatising a public good. Therefore user pays thanks very much.

Commercial water users should also pay for the water they use

The analogy that water infrastructure (dams, storage, pipes) is like roading infrastructure would ‘hold more water’ if that water that flowed though that infrastructure was actually paid for. At the moment, it is not, the public gains nothing from the private use of a public resource.

And yes, before you ask, the same goes for all commercial users of public water. In other words, let’s charge water users for the water they use. Some of that revenue could potentially go back into improving water infrastructure as Irrigation NZ and the Feds are asking for. But neither are stepping up to the plate to pay for their usage – that’s hypocrisy.

Irrigation requires herding cats

The second argument is that irrigation projects are difficult to get going, a bit like herding cats. There is a need for a critical mass of investors in the area willing to put up the money before the investment can go ahead. Finding enough investors is hard, and you only build the pipe once so it can be difficult to expand a scheme to fulfill demand once it is built.

But this is no market failure

Welcome to the world of business, gentlemen. This is no different from any deal that gets done, but we don’t go pleading poverty to government as a result. Irrigation is apparently often a ‘cooperative’ venture, but this sounds like an excuse for a poor business model. In most deals those that take the plunge early and invest get rewarded when the deal comes off. Those that delay have to pay more, which provides an incentive to get in early.

Irrigation should be no different from any other business. So again the lobbyists are on shaky ground claiming their sector can’t get its act together and invest so therefore the government should help out. Time to grow up.

There can be environmental benefits from water storage

This is perhaps the best argument from Feds and Irrigation New Zealand. Shock, horror, there are actually environmental benefits from water storage – for example by ensuring a minimum flow of water in dry months, or allowing for a flushing flow when algae builds up. This has been seen recently with the Opuha Dam on Canterbury’s Opihi River.

So yes, there can be wider benefits from water infrastructure, and the government should pay for that. The question is where should that money come from? This is where things get tricky, because water storage doesn’t improve a pristine environment, it only improves things in an environment that is already stuffed. For example, when trees have been cut down, leading to greater extremes in water flow and erosion in hill country, or when the nutrients from sewage or intensive farming is causing algal blooms.

The simple fact is that we wouldn’t need water infrastructure to fix our environmental problems if someone hadn’t caused them in the first place. And who do you think is doing that in spades?

So who should pay to fix these problems?

At the moment this is falling to taxpayers and ratepayers to pick up the tab, with hundreds of millions already invested in fresh water clean ups around the country. This is not fair, given that the average Kiwi has done nothing to create the problem.

It would make much more sense if those that had created the pollution paid to clean it up. Sometimes this would be councils with their wastewater plants, but often it would land on businesses, particularly farmers. This creates its own fairness questions, as the farmers that caused the damage may have long since retired and sold, leaving the clean up cost to a heavily indebted young farmer.

Resolving such issues can be difficult, but one thing is clear – now that we know the impact of farming and other activities on our fresh water, any new activity should face the full cost of their actions. This means charging new conversions for the impact that they will have on water quality. That money could help contribute to cleaning up the problem – including water infrastructure projects.

So the Feds and Irrigation NZ are less than partly right in their call for subsidies to support water irrigation. If all parties paid their true costs, then the benefits they point out could easily be funded. Theirs is nothing more than the same old farmers call for a subsidy. They should be sent packing.

How farmers can pay for irrigation without public money was last modified: December 15th, 2015 by Gareth Morgan
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Gareth Morgan

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.