• Tradeoffs loom as agriculture intensifies.
• More central government control likely.
• Gambling on collaborative approach.

Environment Minister Nick Smith is hanging his hat on a collaborative and carefully paced water management reform process he hopes can overcome NZers’ inherent suspicion of hidden privatisation agendas. At the heart of issues to be considered by the newly formed Land and Water Forum will be how to ensure greatest economic value is extracted from water resources deemed available for industrial uses such as farming and electricity production. While the Cabinet paper on freshwater reform Smith has released does not say so, the key issue is likely to be how to introduce price signals for water users.

Industry observers say tradeable water rights will have to be a feature of a future regime, but it may be necessary to restrict trading so it only involves those parties which have an established right to take water from a particular catchment. A “closed” system of this sort would ensure there is competition for water without creating a free-for-all which could attract speculative investors and unnecessary volatility in water allocation. A further key issue will be how Maori interests are represented in any such system. The approach being adopted by key iwi such as Tainui, Tuwharetoa and Ngai Tahu is understood to be agnostic as to whether such a tradeable rights scheme is introduced. However, there is a bottom-line expectation any revenue-generating regime will share revenue with Iwi.

Smith’s Cabinet paper envisages a two-step process emerging for water allocation. Stage one would establish public values through a largely plan-based process. Stage two would use “other tools (which may include economic instruments) to provide for the allocation and transferability of the available water to its most valued uses.” This will require a carefully designed regulatory framework. The paper notes this process could lead to difficult trade-offs, including the claw-back of over-allocated resources and a need to move away from the first in, first served approach which currently focuses on environmental effects rather than most valued uses. While the paper says one of the aims of water reform is to get the greatest possible productivity from primary agriculture, it also clearly implies there will be parts of the country where agricultural intensification will not only be constrained but may also need to be unwound.

Smith told Cabinet “this is likely to be contentious if there are winners and losers.” Public understanding and buy-in will also be critical “as there is some public apprehension about price-based measures or anything which resembles privatisation of water.” It is also likely market-based options simply won’t work efficiently for many small catchments and aquifers. Based on a Scandinavian model, the Land and Water Forum brings together the existing Sustainable Land Use Forum and some 54 bodies representing recreational, Maori, private and public water users. Smith is at pains to stress while radical reforms may prove justifiable, “major changes made at speed … are unlikely to be durable.”

Smith also identifies a potential stumbling block for the reform process - a serious lack of scientific and technical expertise at all levels of central and local Govt, and in the private sector, when it comes to water issues. While not insurmountable, these shortfalls will hinder progress in most areas.

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