The $500 million Central Hawke’s Bay water storage scheme … a win/win or a dam(n) disaster? As public consultation gets underway, Tom Belford sizes up the project.

Since April 2010 I have served on the Ruataniwha Water Storage Stakeholders Group, as well as its smaller working party examining the implications of land use intensification on water quality in the Tukituki catchment.

During 26 separate half-day (and some full-day) meetings so far, our groups have been given extensive briefings and dozens of studies on many aspects of the proposed water storage project, as well as a proposed plan change for managing Tukituki water quality and allocation, which must proceed whether or not a dam is constructed.

Many of the most pertinent studies from an environmental standpoint have been ‘works in progress’ until literally the last couple of weeks. Indeed, some of the most critical science issues are still in dispute. And many operational aspects of the storage scheme (and the farming practices it will expand), which will ultimately dictate its environmental consequences, have not been disclosed and vetted.

So we have a paradox of seemingly extensive pre-consultation with stakeholders, which has left critical questions unanswered, and no public involvement to date. Nevertheless, the HB Regional Council remains bound and determined to sell the project on an accelerated schedule.

Given this unsettled context, what assessment can be made as the Regional Council embarks on six weeks of public consultation, focused on a set of “Tukituki Choices”?

The logic seems straightforward

The basic situation for the Tukituki seems straightforward:

  • The Tukituki catchment is over-allocated in terms of granting farmers rights for too much water extraction for irrigation purposes.
  • The result of excessive water extraction is steady depletion of the Ruataniwha aquifer (underlying much of CHB’s best farmland) and, with that, diminished flows in the Tukituki River, particularly in summer, with adverse effects on the river’s ecology and recreational values.
  • At the same time, nutrient runoff from existing farming, together with the dumping of effluent from the infamous poo ponds of Waipukurau and Waipawa, further diminishes water quality.

The remedies:

A) Make more water available to farmers and to the river in summer low-flow season when all demands are at their highest, by using ‘surplus’ water stored behind the dam during the winter; or,

B) Reduce (‘claw back’) irrigation allocations, requiring farmers to farm within the sustainable limits of the existing ecosystem.

C) And in either case, clean up the water by dealing – at long last – with the poo ponds and by improving farming practices and erosion control so as to mitigate environmental impacts.

Combining options A and C, the Regional Council promises a win/win
outcome. The solution seems straightforward, but raises these issues:

  • The dam option has an off-farm price tag of $230 million (maybe more) and an on-farm cost estimated (still quite loosely) at another $200-$300 million. How much more intensively must (and can) the land be farmed to generate the extra revenue to justify that enormous cost?
  • What are the environmental consequences of such intensified farming, and to what levels must water quality be protected so as to satisfy ecological and recreational values?
  • Can – and as importantly, will – farmers adopt ‘best practices’ that sufficiently mitigate the environmental impacts of their intensified farming?
  • Can farmers afford the mitigation measures? Which raises a larger issue: Will farmers in CHB actually join the scheme? And what if they don’t?

Let’s consider each of those issues in turn.

The value of intensified farming

Is the dam worth the candle? Unfortunately, as noted in my water article in the May/June edition of BayBuzz, the economics of the water storage option have been the least publicly discussed aspects of the proposal.

Here is what can be said. Obviously more ‘intensive’ farming must include some combination of added land being farmed, changes in farm types (most expect significantly more dairying), changes in crops grown, and more input-intensive farming.

Farming consultants to HBRC have theorized a new blend of farm types that would emerge after the storage scheme was in place. The predominant forecast is that a blend of more dairying and cropping would occur (up to 80% of the land under irrigation) – with dairying more than doubling from 3,825 hectares to 7,851 hectares, and mixed arable up to 3,101 hectares. Other HBRC documents estimate that dairying could account for as much as 48% of the farming under irrigation … more like 15,000 hectares.

The Regional Council projects the change in farming mix will increase gross farm income from $111 million per annum to $290 million, while increasing the area’s GDP contribution from $125 million to $348 million. All of this increase depends of course on willing markets, mostly abroad, for farm products whose production costs rise with the cost of the water scheme itself and the measures required for environmental protection.

The detail to support these projections is yet to be seen.

It should be noted that the entire premise of the HBRC case for water storage is that water is, in fact, the only limiting factor in increasing the productivity and value of farming in CHB. Other observers point to climate (e.g., too many spring frosts), mixed soil quality and farmer capabilities as critical limiting factors, even if more water is available.

Environmental consequences

On the plus side, the Regional Council originally promised that summer low flows would be enhanced 30%. That commitment, if met, would significantly improve the river’s ecological health and recreational value. But HB Fish & Game believes the dam project and the planned operation of the scheme has been so substantially altered since inception that this potential has been unacceptably eroded.

Other environmental impacts of the scheme include both habitat destruction by the dam reservoir itself and the downstream impacts of increased farm runoff of nutrients (nitrogen and phosphate) into the river system.

Over 90% of the Bay’s primary production leaves through the Port of Napier

Provisional plans for habitat restoration around the dam reservoir itself seem to largely satisfy Mãori and conservationists concerned about biodiversity, assuming those plans are ultimately adopted by HBRC and adequately funded.
The farm runoff issue is more problematic.

Modeling completed by the HBRC predicts a range of nutrient runoff caused by farming intensification. As with any modeling, the quality of and agreement around the inputs (in this case, the actual farming practices presently engaged in, livestock numbers, fertilizer use, etc) determines the credibility of the predicted outcomes.
In the case of HBRC’s modeling, a number of issues stand out.

Effectively, an intensification of irrigated farming covering from 22,500 to 31,870 additional hectares (HBRC is still not sure, only 6,000 hectares are now irrigated), which includes at least a doubling of dairying and far more cropping (which can involve even higher nutrient leaching than dairying) is projected to ‘only’ increase nitrogen runoff from the total affected area by 25% and phosphorus runoff by 20%.

However, the nitrogen runoff from farms actually using the increased irrigation would increase 50% (60% in high dairying scenarios); this projection has not been provided in modeling reports. Instead, the reports assume this more polluted water would be diluted by water flowing in from higher in the catchment and, more importantly, that various mitigation measures – measures assumed to be practiced by the “top 20%” of farmers (i.e., the best) – would be employed by all farmers, thereby justifying lower estimates of the nutrients in downstream waterways.

Here are some of the best practice measures cited in the modeling report:

  • Fenced and destocked waterways
  • Vegetated buffer strips along streams
  • No fertiliser spread in waterways
  • Nitrogen applied at a rate that can be taken up by the pastures and crops
  • Fertiliser applications made according to a nutrient budget
  • Careful cultivation to minimize soil loss by erosion and to reduce the breakdown of organic matter
  • Careful grazing management to minimize pugging and runoff
  • Irrigation management to maintain growth but minimize leaching

How many of these practices are being carried out today by the 80% of farmers in the potential irrigation zone who are not among the best. Unknown.

The modeling then assumes that if additional mitigation measures, beyond those listed above, are embraced by all farmers, the ultimate nutrient losses into the waterways could be further reduced, from the 25% N increase noted above down to 14%.

Aquatic species can relax

What is the environmental impact of these increased nutrient losses?

That depends on which environmental standards are used, a matter of unfinished debate within the Stakeholders Group.

HBRC data indicates that, at present, using existing guidelines for nitrate toxicity (ie. levels that protect 95% of species), the percentage of days when the pollution guideline is exceeded in the Tukituki River at Waipukurau doubles from 18% to 36% in the scenario described above that assumes “top 20” best practices are being employed by all (and increases to 29% if additional mitigation measures are taken).

In other words, with the best of farm management, under existing guidelines, species toxicity warning levels would be violated from 61% to 100% more often. Not exactly a ‘win’ situation for the environment.

But wait, says the HBRC, we’ve had new research conducted, and that research indicates that any standards we impose don’t need to be nearly as rigorous. Indeed, nutrient levels can be raised considerably without threatening species.

The Stakeholders Group has not seen this research; environmental representatives await an opportunity to see the final data and have it independently reviewed. Claims HB Fish & Game: “The Regional Council is attempting to increase the amount of nitrate it will allow to pollute the Tukituki system by increasing the guidelines; in effect creating more headroom for nitrate to enter the system from intensified land use.”
Thus, the water quality standards at the crux of the matter in terms of environmentalist support for the dam could well wind up in legal dispute.

Among the points of contention will be the toxicity standards required to protect fish spawning areas. Water quality in these most sensitive areas has not been systematically measured at all to date in this process, and therefore no modeling of nutrient impact has been done. A rather significant omission.

Nevertheless, the HBRC is proceeding with its ‘Tukituki Choices’ public consultation on the basis of embracing the new standards. The happy outcome (for HBRC and other dam proponents), the significantly increased farm nutrient runoff is not environmentally harmful after all. Aquatic species can relax!

Farmers and best practices

Setting aside the standards dispute, those concerned about protecting the environmental health of the Tukituki catchment must assess the capabilities and commitment of the fewer than 200 farmers in CHB whose practices will translate into ‘win/win’ or disaster should the water storage scheme proceed.

Dairying will at least double with the water scheme

Already noted above is the ambitious suite of measures farmers would need to adopt to have any hope of mitigating the impacts of intensified farming. One might think of these as the bottom line of ‘best practices’ in conventional farming terms.

However, some farming advocates would say ‘unconventional’ practices are required – and available – that would help the situation. There are ‘biological farmers’ in Central Hawke’s Bay who are using more natural farming methods that require less fertilizer inputs, increase farm output and animal health, yield food higher in taste and nutrition value, and revitalise the soil and its water retention at the same time.

For instance, CHB dairy farmer Kevin Davidson uses biological methods, which translates into 80% less nitrogen fertiliser, 95% less phosphate, and more milk production per head. There is no examination in HBRC’s $5 million of studies of more ‘radical’ approaches like biological farming, let alone any consideration of requiring these as part of any mitigation strategy.

But even without considering the likes of Kevin Davidson and the definition he brings to ‘best practice’, there is a huge gap in practice (and profit) between the average and poorly-performing farmer and the best of breed. No different than any other occupation or pursuit.

This performance gap is well-known and vexing to the farming community – from bankers to farm consultants and advisers to industry spokesmen to researchers to farmers themselves. The farming trade publications speak often of the issue.

Speaking at a recent farmers’ science day, Mike Petersen, chair of Beef & Lamb NZ talked about the laggards who were “content to stay home and do what they’re doing.” He continued: “Engaging with that group is still the biggest nut to crack. We talk to farmers about this all the time and to our farmers’ council and ask, ‘how do we change that?’ In the end we have to accept that many have no desire whatsoever to change and that’s their prerogative.”

But is it “their prerogative” when the long-term health of the soil and the water catchment is at stake? Environmentalists think not.

The HBRC’s proposed scheme assumes very significant behavior change on the part of individual farmers, each of whom has their own attitudes about what to grow, how to grow it, and whether to adopt the most effective mitigation measures.

Not long ago, Farmers Weekly cited CHB farmer (and Stakeholder Group member) Hugh Ritchie: “There are limits we have to manage our business to. Ignoring that message is going to ignore increasing public concern around catchment quality. As agricultural managers we will be in the firing line if that is not taken on board. We have to upskill ourselves and our managers to deliver on our obligations. That will be a critical factor.”

Is that merely talk? Will farmers upskill? How will farmers respond if and when more stringent environmental protection measures are required? Indeed, will they be required? At what stage or trigger points? As measured and enforced by whom – farmers themselves, industry auditors, independent parties, Waterco, the Regional Council?

None of this has been articulated by the Regional Council, even to the Stakeholders Group. And yet this upgraded performance regime and enforcement of it is one of the key promises that the Regional Council is asking the public to buy.

None of this is say farmers are malevolent. Rather, it’s a fact that serious change for the better must come, and not all farmers will embrace it. Some might simply not be able to afford it.

Affording the dam

According to Phil Journeaux of AgFirst, the top 10% dairy farmers are two times more profitable per hectare than the average farmer, and five times more profitable than the bottom 10%. In sheep and beef, the top 10% are two times more profitable than the average, but 32 times more than the bottom 10%.

That’s quite a financial spread, indicating that affordability will be a key issue for the water storage scheme. Anecdotally, as stated repeatedly in meetings, interviews and to the media, many CHB farmers simply cannot afford what they understand to be the ‘farmgate’ costs of the scheme, let alone the costs associated with environmental mitigation, which they have yet to hear about.

For example, studies done for HBRC indicate that strategies to reduce nitrogen losses from irrigated dairy farms could progressively reduce farmers’ profits by up to 29%, and for an intensive arable farm, up to 40%.

One HBRC study concludes:

“The probable higher capital costs and lower profitability resulting from nitrogen loss reductions will be reflected in a lower return on capital for the irrigated arable and dairy farm systems and in turn a reduction in the rate of return for the proposed irrigation scheme.”

The estimated costs of the modeled mitigation regime reduce the return on capital from the scheme as a whole from 7% down to 5.7%. For the individual farmer, from 8.6% down to 6%.

As one CHB farmer put it, the conservative farmers with no current debt are mostly old guys who won’t want to start now to take on debt, and the ambitious guys already have too much debt and can’t take on any more.

The largely unspoken assumption is that the high financial cost of the storage scheme will cause a substantial ‘weeding of the garden’ in Central Hawke’s Bay. A major change in farm ownership will occur – in the range of 50-70% say dam advocates familiar with experience elsewhere in New Zealand.

So, if current locals don’t buy in, then who are the customers for the water storage scheme?

A scheme looking for customers

Given that the Regional Council’s new Long Term Plan only provides $80 million from HBRC, where will another $400-$500 million in investment for the proposed scheme come from? A smart new breed of younger, entrepreneurial farmers? Corporate landlords? Iwi? Overseas investors like Shanghai Pengxin?

Obviously there are a plethora of issues arising from the ultimate control of the scheme and its water rights, including philosophical and strategic arguments over foreign ownership of New Zealand’s productive soil and water. Those are bigger issues than this article can explore, but clearly the debate must be had … and the HBRC is avoiding it like the plague.

Here we’ll only consider the implications of ownership from an environmental perspective.
Assuming that mitigation measures will be needed – and are assured by scheme proponents – farm by farm, farmer by farmer, how responsible (and accountable) might various owners be about discharging their environmental obligations?

The HBRC paints a picture of local model farmers like some of those currently operating in Hawke’s Bay becoming the norm. If every farmer were a biological farmer like Kevin Davidson, or an ecologically committed Greg Hart, or a progressive Bruce Wills, maybe environmentalists would be comforted. Local farmers might be expected to be more responsive to local community norms.

But where is the local investment capital to come from? Most of the nation’s farm debt of $48 billion is held in the pastoral sector and two-thirds of the total aggregate is in the dairy sector already. Is there a single CHB farmer ready to write a cheque to secure his water rights under the proposed new scheme? Let’s see the hands raise!

More likely, the new owner would be a corporate profit-taker, like Crafar. Or a foreign speculator. Farmers Weekly recently reported that a Chinese company, Shanghai Zhongfu, is bidding to buy 30,000 hectares of new irrigation land to be watered by Australia’s largest man-made storage scheme, the Ord. If successful, the bid would secure two-thirds of the region’s irrigated land and a yet-to-be-determined amount of permanent water in the region.

Maybe they’d like to hedge their bet with an equivalent morsel in New Zealand?

What commitment would owners like this have to the ecological integrity or recreational value of the Tukituki catchment? And how would we hold their feet to the fire?

Dam or Damn?

At this stage, it’s impossible to confirm that the proposed water scheme would deliver the win/win promised by the Regional Council.

While yes, the project has been undergoing feasibility analysis for two years, too much of the most critical information has been delivered at the 11th hour, and it is still unclear how the pieces fit together. Key elements of the environmental science remain under challenge. Critical operational and financial aspects, which might provide the confidence farmers and environmentalists – as well as all ratepayers – deserve, are still to be set forth, let alone scrutinized.

Indeed, confidence is the missing requisite ingredient here. Given a $500 million price tag, the environmental health and economic sustainability of a major region at stake, and the inherent irreversibility of the decision once made to proceed, the public confidence level must be very, very high.

The Regional Council wants to make its political decision to proceed by the end of October, giving the project unstoppable momentum. It would leave fundamental operational issues and mitigation measures to be negotiated afterwards, during the formal consenting process. Financial viability would be determined later still.

From a conservation standpoint, achieving the environmental half of the win/win is still a risky proposition, requiring a huge leap of faith with only the vague reassurances from a distrusted Council that historically has not been a champion for our region’s waterways, and acts more like an economic development agency each day.

HB Fish & Game concludes:

“We would support the dam if the flows promised could be delivered and water quality was improved; however it appears unfortunately that neither of these two outcomes can be delivered.”

The Bay’s environmental groups have been meeting on the Tukituki water issues, and plan to present a united view to the Regional Council – namely, that the water quality and land use protections signaled so far are inadequate to the need.

The water storage scheme is the greatest gamble ever for Hawke’s Bay. This project might in fact prove sound when – with all necessary information in hand – it is more completely and impartially vetted by those without a direct personal, institutional, or commercial stake in it. But right now, lacking that review, the gamble is too great.

The Regional Council should not be advancing the scheme at this time or at this pace. If ultimately approved, the dam will last 100 years. A few more months of gestation will not wreck the Hawke’s Bay economy, and can only improve the outcome.

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