15 Sep 2017

Fact or Fiction: Running the numbers on water

From Election17 - Fact or Fiction, 9:14 am on 15 September 2017

Despite a walk-back on some of its tax plans, a water tax for commercial users is still part of Labour's policy. Fact or Fiction checks some of the claims about its cost to farmers.

Updated 15 September - Dairy NZ has contacted RNZ to point out what it believes are incorrect assumptions about how Fact or Fiction has calculated the cost of a water tax. An alternative answer is provided at the bottom of this page, after the original answer.

"I just don’t want to hit them with a $50,000 or $100,000 tax just because David Parker and the Labour Party think so."

- National Party finance spokesman Steven Joyce, referring to a water tax, TVNZ's Q+A, 13 August

Labour's tax could cost farmers up to $50,000 a year.

- National leader Bill English, RNZ report, 13 September

Fact or Fiction has run the following answer past a Lincoln University source to ensure our assumptions and calculations are correct. The examples are based on averages - it is important to note that irrigation requirements will vary from region to region, and even between farms.

We have used Dairy NZ's figures on both farm size and irrigation water requirements, here and here. Two dairy farmers - one from the Waikato, one from the Wairarapa - confirmed to Fact or Fiction that they would use a little less water for irrigation than Dairy NZ suggests, but we have stuck with the Dairy NZ figures.

Labour has suggested a charge of one to two cents per 1000 litres of water used - we have used two cents. If Labour went with a one-cent tax, the following costs would halve.

First up, a dairy farmer, farming on 144 hectares (the average size), requiring 4mm of irrigation a day over a 120-day irrigating season (assuming it's particularly dry).

For every hectare of land, you need to use 10,000L of water to get 1mm of coverage - a cost of 20c/mm, per hectare. For 4mm of coverage, the cost would be 80c per hectare, per day.

Over 120 days, assuming full irrigation for every one of those days, the cost for the entire farm would be just over $13,800.

Based on an average herd size of 413 cows, each drinking 130L of water a day, you'd pay another $391 each year.

To get to a figure of $50,000, you would need to have a very large farm - well over 500 hectares - or be irrigating at three to four times the suggested rate.

For a produce grower, with an average 20-hectare farm, requiring 17mm of irrigation each week over an irrigation period of 13 weeks, the cost per year would be $884, or thereabouts.

Verdict: Fiction - but the cost is still in the thousands

Alternative answer

Dairy NZ says there are about 2000 irrigated dairy farms, out of a total of 12000 dairy farms. The irrigated farms tend to be bigger South Island farms, with an average size of 200 hectares.

The organisation says RNZ's assumption of 4mm of irrigation is "very efficient" and a more realistic assumption to use is 6mm. Dairy NZ also allows for 180 days of irrigation, rather than the 120 days in RNZ's model.

Based on research, 97 percent of the 4.8 billion cubic metres of water used on dairy farms each year is for irrigation - a total cost of $90m - or $45,000 for each irrigated farm.

Under this model, one out of six farms (those that irrigate) would pay this amount.

The remaining 3 percent of water used on dairy farms is 144 million cubic metres - a total cost of $2.88m. Split between the 10,000 non-irrigating farms (assuming they're using all the remaining water), the annual cost of a water tax to each of those farms would be $288. Split between all 12,000 dairy farms (assuming all farms are using the remaining 3 percent), the water tax cost would be $240 a year (on top of any irrigation water tax costs).

Verdict: Fact for one in six farms, fiction for the remaining five in six farms.

Fact or Fiction is a joint initiative between RNZ and the University of Auckland's Public Policy Institute