Archive Article: 1997/07/19

19 July 1997




FOR years policy makers at the Environment Agency (EA) and the Governments environment department have been threatening to introduce economic instruments – measures to redress the imbalance between water demand and resource.

But demand for water is hard to forecast, not least because of the need to peel off the influence of weather to reveal the underlying growth rate.

Dr Joe Morris was one of the team from Silsoe College commissioned by the NRA, as it was in 1992, to prepare the report, Demand for Irrigation Water.

And now he is co-author of a new report by Cranfield University and Middlesex University looking at the implications of some of the alternative ways of allocating water which users might be faced with in the future.

"The study breaks ground by being the first to consider practical issues for a pilot site. The RSPB, which funded the work, hopes the findings will provide guidance for policy makers," says Dr Morris.

The report is a result of the RSPB needing to know its position should the time come when water is traded between growers, or possibly to and from other users.

The ultimate situation might be where the RSPB and other environmental organisations bid against irrigators for access to water.

For some time, tradeable permits for water abstraction have been proposed as an alternative to the existing licencing system. Tradeable permits have previously been most commonly used for control of pollution, especially emissions to air.

The Environmental Protection Agency determines a total pollution quota and facilitates the buying and selling of permits. High prices encourage participants to adopt permit saving strategies.

But the concept isnt new to UK farming. The best analogy, says Dr Morris, is the milk quota system. The introduction in 1984 quickly led to a brokerage market in the sale or lease of quota, with prices reflecting profitability in the dairy sector.

Under a similar scheme for abstraction permits, water would command a market value. "This would encourage water saving practices and more efficient use," suggests Dr Morris. "But it might also mean increased abstraction in some areas.

"In theory water would go to users who are willing to pay for it, that is, to those who can derive greatest value for every cubic metre. In practice, however, there is a danger that water permits be concentrated in the hands of existing large irrigators, who because of their size, are in a better position to pay."

Restrictions

While permit trade would always need to be within a hydrological water unit, transfer could be permanent or temporary. So crops with different critical periods could theoretically be covered by the same permit. Or agricultural production and wildlife interest could perhaps both be accommodated at different times of the year.

However, warns Dr Morris, restrictions would still be a likely condition of tradeable licences, so the risk of restriction or cessation would have to discounted.

Among growers in the Cambridgeshire study area, interviewed as part of the project, one of the main concerns was that water would run out sooner and that cessation orders would be issued earlier in the season.

While they believed tradeable permits could be made to work, in reality they didnt think there would be much trading. Because irrigation requires so much capital investment in equipment, growers would be looking for a long term arrangement, not annual or seasonal permits. And those with access to water would want to hang on to it.

But trade may not be confined to the farming sector. There could be an open market in which all sectors participate, with ultimately the same price prevailing across them all, believes Dr Morris.

This has been the experience in Spain and the United States. One of the most active markets is in Colorado where water rights continue to be purchased from individual irrigators for transfer to municipal and industrial uses.

A system of tradeable permits in the UK could also allow the EA to siphon a reserve amount. "This could feasibly be used to provide flexibility for new entrants needing access to water," suggests Dr Morris.

If youre not irrigating now and dont intend to, dont think that tradeable permits wont affect you. Currently only about 60% of licensed quantity is used, even in dry years.

The authors of the RSPB report estimate that redistribution of licences could increase total abstraction by a further 10-20%.

"This might mean levels fall faster and further than in the past. Lower levels in ditches could mean that sub irrigation is compromised across the catchment," warns Dr Morris.

"But nothing is going to change overnight," he says. "The introduction of tradeable licences would require a change in primary law and an Act of Parliament.

"I imagine the time-scale will be something like that for nitrogen vulnerable zones, certainly not less than two to three years."

The process is about to be taken a stage further with the imminent Government consultation report on economic instruments for water, though the change in government may have delayed publication, comments Dr Morris.

Tradeable

"At the moment, there seems to be interest in trading everything – the airwaves for example, alongside an opportunity for governments to raise revenues. Tradeable permits will probably come in due course, but there may be stages along the way."

In the meantime, he advises growers to prepare by establishing the true value of water on their particular farm. "Until now the influence of the price of water on irrigation decisions has not been significant.

"Access has been the key factor. But water is beginning to demonstrate characteristics of a scarce and very valuable commodity."

Put simply, water is underpriced, he states, representing just 6% of total irrigation costs. In the Eastern Counties, growers buy water at just over 2p/cu m, but will reap benefits in the range £1-£1.50/cu m for potatoes, for example.

And these benefits, adds Dr Morris, are fairly reliable year on year now that they are associated as much with quality as yield.

"Gains from each cubic metre of water are not all that much greater in a dry year than an average year. But in dry years you apply more water so gains per hectare are greater.

"Even adding fixed and running costs of irrigating of about 45/cu m, or 75/cu m where storage is involved, theres still plenty of headroom in the margin of benefit over cost."

While the growers who took part in the studys group interviews had a good understanding of the agronomic value of water, when it came to understanding its economic value they were, in some respects, "blissfully ignorant", said Dr Morris.

"The big boys might know the costs and they know that the benefits outweigh the costs, but there wasnt a good feel beyond that. Its hardly surprising – growers have never had to think too much along these lines before," he adds.

Theres still much that can be improved within the current framework, according to the RSPB report. Growers, not surprisingly, would prefer to see improvements to the existing licensing system, criticised as being administratively complex and bureaucratic.

In particular, theyd like to see variations in licences agreed faster, and the removal of conditions that tie source of abstraction to the actual location of application.

Theres further scope, suggests Dr Morris, for developing technology for more efficient and precise water placement and for more accurate scheduling.

"There are many ways to make more efficient use of the irrigation water we have," says Dr Morris. "Tradeable permits would just be a way of moving it around."

Whats the price of water? Tia Rund reveals the findings of a new report which shows where it might be pegged.


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