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Water is one thing NZ has plenty of. So why don't we manage it better - for the economy and the environment? Nick Smith* reports.

Water is critical [and] its ownership, allocation, management, quality and storage are in play right now," said Federated Farmers chief executive Conor English in September. "The decisions that are made in the next one or two years will be felt for the next 50 years."

The Government will make its first decisions on water management next year and the resulting impact will be felt along the industrial belt that follows the Waikato River, among Taranaki's lush dairy lands, on the parched East Coast, the Canterbury plains and deep into Southland.

"If we get [these decisions] wrong our success as a nation will be constrained," English warned. "If we get the balances right, then our ability to harvest and benefit from one of our critical comparative advantages will be enhanced."

The stakes are high, as evidenced by the ongoing stoush in Canterbury over access to water and deterioration in the quality of this critical resource. A storm is brewing in the Waikato, too, where more than 96 per cent of the water is being reserved for hydro generation under a proposed scheme known as "variation six," raising the ire of other commercial users.

All round the country similar disputes are being played out or will soon come to a head. Each region features different combatants: dairy and environmentalists, agriculture and energy generation and horticulture and recreational users.

Underpinning these regional economic concerns is the overall deterioration of the nation's waterways, as the Land and Water Forum report shows.

"We've got to have better quality water in the country and allocate it more efficiently for both economic and environmental reasons," says Alastair Bisley, water forum chairman. "Water quality cuts to the heart of security of current investment because compromised waterways threaten a vast swathe of productive activity."

Investors need to have certainty about water limits and/or pricing (if the Government adopts a pricing regime) if they are to fully develop the primary sector's productive capacity, he explains.

Taxpayers aren't too happy either, he dryly notes, about having to foot the enormous bill for cleaning up the Rotorua lakes district and the Waikato, to name but two examples.

Bisley points out that this is not a new issue and quotes a New Zealand Farmer editorial penned by John Cornwell in 1959: "We have a wealth of water resources but they aren't inexhaustible. As our economy expands, we won't have enough to satisfy all of our varied and increasing wants if we continue the present extravagant and wasteful use of our water resources.

Are we therefore prepared to support a national policy designed to conserve and develop our water resources for the long term needs of the country? That's the challenge facing all of us now."

Nearly 52 years later, Cornwell and the country might finally get their national policy. It is, after all, the central recommendation of the forum's report, signed by 58 organisations representing a vast community of interest.

Environment Minister Nick Smith is keeping his powder dry - a decision will be reached after March, when public consultation ends - but it's fair to describe his reaction to the report as one of unbridled enthusiasm.

Like Conor English, Smith believes finding the right solution "is pivotal to our economic prosperity over the next 50 years."

The risk the Government took by handing the task to the warring stakeholders - who might have torn the process apart right at the get-go - has paid off in spades. Crucially, the issue of iwi ownership has been reserved for direct negotiations with the Crown, allowing Maori participation in the process.

"It would be easy to have a divisive argument around ownership of water and it would end up in a mess like the foreshore and seabed," the minister says.

Smith reckons just getting Federated Farmers dairy spokesman Lachlan McKenzie, who has a reputation for passionate defence of his sector's interests, in the tent and participating was an achievement in itself.

All they had to do was find common ground to devise a framework, to which they could all agree, for ensuring minimum water quality and sufficient quantity for business and recreational use.

"I was one who almost walked out," says Fish & Game chief executive Bryce Johnson, of hearing the news in March that the Government had just sacked Environment Canterbury. At that stage, some of the commercial lobbies were calling the conservation and recreational groups "Team Green," until "we started calling the other side Team Brown and they shut up quick smart".

"What took everyone by surprise," Johnson says of the decision to appoint commissioners to run Canterbury's regional council, "was [the Government] added an extra section in the legislation opening up water conservation orders for argument again.

"We were absolutely furious."

McKenzie gives Johnson a run for his money in the angry stakes; just ask him about Environment Waikato's variation six.

"That's all about stopping dairying expansion and intensive agriculture in the central plateau," McKenzie says. "If we took the water out and irrigated some dry pumice country and put dairy cows, not pine trees, up there, we'd make eight times the money than if we let the water through a turbine."

He argues the environmental impacts on the Waikato River caused by intensive agriculture would be significantly lessened by removing the dams and allowing free-flowing water in which algae could not grow.

That remark prompts a diplomatic response from Mighty River Power chief executive Doug Heffernan: "If you go back 30 or more years when the country was making these investment decisions in the Waikato hydro schemes, these debates weren't being raised. Maybe the country wouldn't have been prepared to commit as much capital into hydro generation [if they were]," he muses. "But you can't turn back the clock."

Smith says the Waikato River Authority, which meets for the first time next month, will "set the rules for how much water goes to hydro, how much for town water supplies and the amount available for irrigation."

But he concedes that "the Waikato is a warning shot" to the nation about looming battles over allocation if the system isn't fixed. As for removing dams, not "unless you've got a gigantic cheque book".

Another illustration of the inequality and disharmony water can cause can be found in the Waimea Valley in Smith's Nelson electorate. "Land in the Waimea that is irrigated is worth $80,000 per hectare; if you don't have water [permits], it's only worth $45,000," he points out.

The system of first-come, first-served is harming New Zealand's environmental and economic interests, creating unequal commercial opportunity and divisive relationships among the country's water stakeholders, he argues.

Tapping the Waimea River during winter to create sufficient storage to irrigate all the valley would double production to $80 million, says Smith, but, he then asks, who will pay?

"Should the Government pay for water storage when all the value is captured by farmers and improves their land value? Yet, it's good for New Zealand overall."

Who pays is a question exercising Tuwharetoa trust board chief executive Dean Stebbing's mind when he considers the amount of GDP generated by industrial activity based around the Waikato River that benefits all New Zealand. Yet the $300 million the Government will contribute to cleaning up the Waikato will undoubtedly be insufficient, he says. A Niwa report on what the river requires is due early next year.

Tuwharetoa owns dairy and forestry interests, so Stebbing knows all about the competition for water resources and the interrelated but competing issues around quality and economic development.

Look at Kinleith, he urges. "If local authorities had taken a tougher line with the mill, the owners might have called their bluff and closed it down, costing 300-odd jobs."

What would he have done? "I'm not sure I would have got it right either."

Intensive agricultural activity, and dairy expansion in particular, is the flashpoint on this issue. In 1995 the dairy herd was about 3 million; it's now 4.5 million and the biggest increase was last year.

McKenzie bridles at his sector being singled out when it is making substantive efforts to mend its ways; Johnson is scathing of dairy's inability to walk the talk. Yet both men managed to find common ground in forum talks and each say the collaborative approach forged by the forum is the way to solve the country's water woes.

Credit for this detente, says Stebbing, is entirely due to chairman Bisley's efforts to make the warring parties understand each other's need for water and their strategy for acquisition and management. Bisley also drew on some classic counselling techniques.

Role play is one of the most effective tools in marriage guidance counselling because it allows people who can't see beyond articulating their sense of grievance to understand their opposite's position.

Johnson recalls: "I had to say, 'Hi, I'm from Federated Farmers, I'm Lachlan McKenzie and I'm a keen advocate for the dairy industry." .

McKenzie says his turn as Bryce Johnson "demonstrates I do understand the issues of environment".

The two men sound a little embarrassed talking about the performance and both feel obliged to state the obvious - that neither has changed his position - in a way reminiscent of blokes at the pub discussing matters they worry might strike others as unmanly.

People who witnessed the pair switch roles say the striking thing about the affair was "the agriculture guy totally aced it".

"I understand because of my background and association with water and land, which I've had all my life," McKenzie explains. "I practice what I believe on my farm; I've retired some steep hill country and planted some trees and put in sediment traps, not because anyone told me to but because it made good sense."

When you hear McKenzie talk about his farm and what other farmers are doing on their farms, it becomes obvious that the crude caricature of dirty dairy is deeply offensive to him.

And in that sense, holding up dairy as public enemy number one is counterproductive, says Bisley, adding: "We're not going to play the blame game."

There are serious issues surrounding water quality in Taranaki, for instance, yet Whanganui Maori River Trust Board manager Nancy Tuiane is at pains to make clear that farmers are "real, genuine people who have practiced a certain way of life for a long time".

"We applaud the commitment to make it better," she says of plans for riparian planting on all Taranaki farms.

"In 50 years time," McKenzie promises, "you'll see this corridor of bush [lining the waterways] from the mountain to the sea."

Tuiane notes that "it's not going to be easy" but says the shared understanding established during the forum's deliberations will provide the basis for a managed solution involving all parties, including dairy.

Johnson rings the Herald back a second time to emphasise that the forum's collaborative approach to finding solutions is the country's best chance for ensuring water quality and continued economic development.

"Otherwise, you've got all the parties arguing among themselves, going to court and lobbying the Government, which puts the Government in the powerful position of arbitrating the competing interests," Johnson says. "Under collaborative governance, you've got a situation where all of the previous factions start coming up with the remedies themselves.

"That leaves the Government in an interesting, if not unique situation - it becomes responsible for implementing the outcome, rather than arbitrating between competing interests; it becomes the servant of the outcome."

While forum members hold public meetings around the country, government officials are beavering away on the "technical work" needed to give substance to the report's 53 recommendations.

The forum will report back to the Government in early March with supplementary advice as a result of public consultation and that is when, says minister Smith, the Government will make its first decisions around water.

It's difficult for Nick Smith to say what's going to happen next," explains a Government insider. "The Government could have said, 'we liked these bits, not these bits'. But that would have caused great political difficulties for all the participants; they would have felt that the conditions for joining a consensus had disappeared, so it was a deliberate choice of the Government not to do that."

"In Canterbury, the Waimak [Waimakariri] River in full flow [produces] sufficient water in one day to irrigate all of Canterbury for a full year," Smith says, citing one of a plethora of reports on the issue. "New Zealand doesn't have a shortage of fresh water, it's just that we're managing it poorly.

"The real problem in Canterbury is the incentive has been to take the water out of those systems that are most fragile - the aquifer and local streams - rather than the big alpine rivers," he continues. "It was cheaper for farmers to bung a well down and suck the water out of the aquifer than spend up to $100k on lawyers fighting the regional council.

"The incentives have been all wrong."

Hydro generation such as Canterbury's Coleridge and Highbank power stations "use the altitude of the water" to create energy, notes Mighty River's Heffernan. "But it's available at the head of the plains and can be diverted toward irrigation."

"There's a good dialogue going on around that and we'll see something happen in that space in the next five years or so," he predicts. "It will be an adaptive use and an integration of hydro and irrigation."

Suggestions of tapping the alpine rivers for irrigation storage have traditionally provoked opposition from conservation groups but Johnson says he supports the proposal "in principle".

"As long as they deal to the adverse environmental effects, no one can have an argument with that," he adds. "We're not hammering dairy that hard now. We're just saying dairy needs to do what it says it's going to do in a formal way and it should be mandatory, environmentally sustainable best practice."

It's not just dairy; horticulture is also a big part of Canterbury's water problem. One of the more startling statistics to come out of the water review is the revelation that New Zealand is the largest producer of carrot seed in the world. In carrot seed, we're behemoths. Who knew?

Of course, it's hard to allocate water when most regional authorities don't know how much has been taken. Smith asks, "how can you ensure people are meeting the terms of their resource consent when two-thirds of them aren't metered? We have no damn idea."

This month the Government introduced mandatory metering for allocations of more than five litres per second. "Within two years, that will have us up from 34 per cent to 92 per cent water take measured and within six years up to 90 per cent by volume of water will be measured," says Smith.

User pays means "it's going to cost the cockies about $40 million".

As for the Waikato, the river "is a classic example of where things have got away on us," Smith says. "We don't get to undo what's happened over the last 40 years but in the new year - watch this space."

The environmental quality of the waterways is vital to New Zealand's economic interest as the country trades on its clean, green brand, asserts Heffernan.

Equally important is a stable regulatory regime.

"We depend a hell of a lot on investment flows into the country and those investors want to know they're putting their money somewhere where it's safe and predictable," he says.

"We've just raised US$200 million [$262 million] in the US debt markets and we know first hand that those investors' confidence in the stability of the environmental regulatory space is critical."

Heffernan, too, is a believer in the forum's consensus approach but notes that talking "generalities is easy; when you get down to specifics it gets harder. There's no silver bullet leading to 'Eureka' solutions but as you get people talking from the same hymn sheet and starting to create something that's more than just sharing around what already exists, then you start to create interesting stuff for New Zealand."

Bisley agrees, saying there will be "a lot of devil in the detail".

"The report doesn't set out in detail the way in which all the instruments that it discusses can or should be designed - that requires careful expert thought," he says.

But more important, he says, the report has created "a set of relationships between the various parties that are active and are changing the way they are behaving towards one another."

Tuwharetoa's Stebbing says it will take many years to remedy the polluted waterways and create a new framework for environmentally sustainable economic development.

"Iwi are a patient people," he notes. "Even if it's 30 years, that's an okay outcome. We believe that not one water body is irredeemable."

Fresh approach

What is the Land and Water Forum and what does it do?

* Set up last year to find ways to resolve problems with pollution and allocation of freshwater in New Zealand

* Involved nearly sixty organisations representing dairy, beef and lamb, horticulture, energy, irrigation, forestry, tourism, recreation, conservation, iwi, science, universities, regional authorities and government

* Spent more than a year researching, receiving reports, sharing views, listening and debating the issue of water management

* In September all parties signed a report sent to government setting out 53 recommendations to change the way water is managed

* The forum is conducting public meetings to gauge reaction to its report and will deliver a final set of recommendations in March

* Government will then decide whether to implement all or some of the recommendations

* Nick Smith is a freelance journalist and is not related to the Environment Minister.