Dr Trevor Le Lievre: A chance to avert dam disaster

Dr Trevor Le Lievre.

During a recent Radio New Zealand interview with Social Housing Minister Paula Bennett, the elephant was briefly let out of the room when she was asked, "Isn't it time to accept that market forces aren't working and some social engineering is required?" Unfortunately, Ms Bennett's response left the question unanswered.

The reality is, markets do regularly fail. New Zealanders, having had the benefit of 30 years of market-based economic policies, are now in a position to confirm this simple truth.

Sometimes markets fail because of their flawed structure, such as a dairy sector model where a vertically integrated monopoly places partially processed product into a global auction reliant on constant growth in demand to absorb unchecked supply.

Sometimes environmental factors thwart the market, as with the South Island's Opuha dam which has not received sufficient rain for the last two seasons, forcing the company administering the scheme to restrict water supply and, last month, to implement more stringent monitoring alongside incentives for on-farm storage.

Sometimes a market fails because of its inherent contradictions. Waikato sharemilkers Cam and Tessa Hodgson last month lost 49 cows due to nitrate poisoning. Federated Farmers warns that this "freaky event" occurs frequently after a drought when there are high levels of nitrogen in the soil and humid, cloudy conditions - a typical Kiwi autumn. A market which is encouraged to perpetually increase supply by applying ever-greater volumes of fertiliser, water and livestock is clearly unsustainable in the long-term.

The lesson is that unfettered markets fail both economically and environmentally and, by implication, socially. Casualties of our failed housing market are now too evident to paper over: families sleeping in temporary and substandard accommodation, young first-home buyers locked out of the market, and a bubble barely avoiding the inevitable pin.

As New Zealand endures increasingly lower levels of home ownership within an economic system founded on property rights, inequality and commensurate societal dysfunction arise.

Similarly, it is wider society who bear the environmental brunt of National's Business Growth Agenda which seeks to increase our ratio of exports to GDP to 40 per cent by 2025, in large part by promoting and funding increased irrigation uptake and intensification of the national dairy herd.

Our waterways are only just beginning to feel the effect of nitrogen buildup, which takes from 30 to 60 years to travel through groundwater catchment systems. The Parliamentary Commissioner for the Environment reports nitrate levels in Canterbury waterways this old, dating from the increased use of fertiliser post-World War II. The legacy of increasing nitrate groundwater levels from contemporary farming intensification is termed "the load to come".

Environment Minster Nick Smith's solution appears to be business as usual for the destructive practices causing this degradation, and to advocate for a minimum freshwater quality no better than "wadeable".

This analysis begs the question, what contingencies are in place to manage the risk of market failure for the Ruataniwha dam? On the supply side this might occur in the event of an earthquake compromising the integrity of the dam structure or successive years of low rainfall. On the demand side, try a sustained global slide in key commodity prices or an inflated dollar due to high interest rates intended to counter runaway housing prices.

Farmers locked into 35-year take-or-pay contracts would have to walk away, but the banks will still want to be paid.

The regional council was recently called in this paper on the questionable figures underpinning their "cash-flow positive" claim. It is telling that no response has been forthcoming. If the dam is not cash-flow positive on the basis of a reported 43m3 water sales and there are negligible additional sign-ups - a real possibility given that the business case underpinning full uptake of 100m3 is "build it and they will come" - who underwrites this market failure?

Hawke's Bay ratepayers now have the answer. HBRIC chairman Andy Pearce, fresh from getting Canterbury's Central Plains Water Scheme off the ground, knows something about water markets. Mr Pearce has confirmed under questioning that the port would be used as collateral in the event that the Ruataniwha dam puts the HBRIC into liquidation.

All Hawke's Bay ratepayers, and especially those living in Napier who believe that the dam will not affect them, should be mindful of this prospect when voting in the regional council elections this October. The fortunes of the dam teeter on a 5-4 majority, with dam advocates Pike, Scott and Dick holding all three of the Napier seats.

- Dr Trevor Le Lievre lives in Waipukurau and works as a legal researcher. He holds a PhD in political science, has published work on resource management issues and is keenly interested in local and central government politics.

- Views expressed here are the writer's opinion and not the newspaper's. Email: editor@hbtoday.co.nz