An economic analysis of water use in the Scotland river basin district

Water Framework Directive: Economic Assessment of Water Use
Agriculture Sector: NFU Scotland

1. The EU Water Framework Directive obliges consideration of water use by identifiable classes of user. However, in creating operating rules and controls on those users - to sustain or improve ecological quality of water bodies - it also says that the economic and social consequences may justify mitigation of those measures.

2. In summary, the position of NFUS which it wishes to have taken into consideration in the economic assessment of the industry’s water use are:

3. Agriculture’s principal economic use of water is to add value to precipitation. This statement of the obvious needs careful consideration, because there are two important implications.

- Firstly, if rain falls at a suitable frequency, at sufficient volume and in the right place, agriculture should, in general, have little or no call on water resources from the water bodies which are the subject of the Directive’s attention. In an ideal situation, it will not have much need of water supplies from water bodies and it will not impact on these bodies’ ecological quality.

- Secondly, rainfall conditions are often less than ideal.

(a) To cater for low rainfall conditions, some demand for crop irrigation and for stock watering should be expected and accommodated, subject to the ecological quality objectives of the Directive. Irrigation, when needed, is a high value water use. Stock watering from abstraction, when needed, or by direct access to watercourses, is a low value water use because farm incomes are not directly affected. However, it presents an important ethical issue because animal welfare is affected.

(b) To cater for high rainfall conditions, any controls on agriculture’s impact on water bodies through diffuse pollution should be proportionate to the risks of ecological damage and to the risks of economic damage to farm businesses and their associated activities.

4. These considerations underline the variability and uncertainty of weather with which farmers, growers and crofters have to cope. It would be helpful to have this reflected in the economic assessment of water use. In that assessment’s contribution to River Basin Management Plans, there should be a range of uncertainty attached to each class of water user. Agriculture may be able to claim the widest range of circumstances. Under ideal conditions, it could claim the lightest of regulations. Conditions are not always ideal and the sector’s potential to pollute can be significant. Also, the sector has suffered from a long period of very low incomes. Therefore, regulation needs to be sensitive to both variable circumstances and to the fragility of the businesses concerned.

5. Because the Directive requires the categorisation of waters and a risk assessment of potential damage to ecological quality from reduced water quantity, there must be consideration of abstraction by agriculture. The potential for diffuse pollution from farming operations means that there is also a potential economic use for “waste” disposal, albeit unintentional. Additionally, agricultural businesses will have more conventional demands for water supplies, especially in the dairy sector. These supplies will be from both public and private sources.

6. The economic importance of agriculture to the Scottish economy, and to rural areas in particular, is understated by estimates for the sector’s contribution to Scottish Gross Domestic Product. Absolutely, the understatement arises because a principal factor determining variation of value-added through time from market returns is relative exchange rates. Also, there are public benefits of agricultural land use that are not reflected in returns from selling products. Relatively, the contribution is understated because it takes no account of other sectors’ dependence on sales to agriculture or of processing industries’ input requirements from the sector.

7. About 60,000 full-time equivalent jobs are attributable to agriculture, including self- employment. To this should be added the employment multipliers that account for the effects of supplier firms and in sectors that process agricultural output. This adds a massive 140,000 jobs - to produce a total that accounts for one in ten of all jobs in Scotland. Therefore, the exposure of the Scottish economy to risks of any downturn in the sector’s output is significant.

8. Curiously, and unlike other sectors of the economy (forestry excepted), much of farming’s water supply is direct. In theory, precipitation volumes may be estimated, allowances made for evaporation/transpiration and for leakage to groundwater and to surface waters and the balance represents agriculture’s direct use. This arithmetic appears to offer little advantage to the end objective in Scottish circumstances where drainage, not irrigation, is a prime water management issue. However, the choice of agricultural land use will affect the outcome of precipitation’s volume contribution to water bodies. The effect of the choice between agriculture and forestry, with its greater transpiration, will be even more marked.

9. More conventional attribution of water use, derived from water bodies, is also fraught with difficulty. Farms may be supplied from public water supplies, from private impoundment, springs, groundwater and surface water. It is suspected that only the first of these is estimated directly. Given some recent difficulties with billing systems, after the amalgamation of the three former public suppliers, it is not possible to be very confident of such estimates.

10. The most recently published estimate (24 February 2004) comes from the “Scotland’s Footprint” exercise, commissioned by the Scottish Executive and others. Of the 29,000 megalitres consumption which was attributed to agriculture in 2001 from all sources, 8,000 megalitres were identified as irrigation from private supplies. (This attribution assumes no public supplies of water to fish farming.) Sources for this data were various Scottish Executive publications in 2001, 2002 and 2003.

For comparison, annual household consumption of water was estimated at about 500,000 megalitres.

11. Some Scottish farmers, in some places, at some times, need to irrigate their crops. NFUS does not dispute the principle that there should be care to ensure that water abstraction for farm irrigation does not jeopardise ecological quality of abstraction sources. However, not all places are likely to need controls. Where rainfall is high and/or water bodies’ volumes are at satisfactory levels, there should be no need to license abstraction for irrigation purposes, nor should there be much demand (ref. Ayrshire potatoes).

13. Ecological quality of water bodies is not generally threatened by abstraction by farmers. However, the drier places on the East coast where potatoes and vegetables are grown, can require supplementary irrigation. If categorisation of waters shows that controls are needed in these areas, the problem at farm level could be circumvented by creation of ponds and wetlands. These small impoundments would create water supplies from winter rain which could be drawn down, if and when required under summer conditions. Those features would also add to diversity of on-farm habitats for wildlife.

14. Capital spending on farm ponds should be grant-aided. Also, farms that can demonstrate water self-sufficiency should be excluded from regulation.

15. Diffuse-pollution-beating measures should be based on the appliance of science. NFUS has supported the principle of general binding rules but accepts that local requirements may vary. The obligation to observe any variation from the standard rules, as enshrined in the PEPFAA Code, - to meet a particular situation - could be part of that general prescription.

16. NFUS does not deny the possibility of revising the content of the PEPFAA Code, if investigations prove that it is inadequate in general or for particular circumstances. This has been stated in a submission on implementation of the Nitrates Directive.

17. In the context of the mid term review of the EU Common Agricultural Policy, NFUS proposed extension of the principle of cross compliance. It was that all farm support payments be qualified, the basis being standards of good farming practice, for example as was defined in the Rural Development Plan for Scotland. This could provide new and substantial enforcement power beyond the present cross compliance attached to the Less Favoured Areas Support Scheme and Agri-environment Schemes. Our suggestion was accepted. Consultation is underway on Scottish interpretation of the cross compliance requirements that have been set at a EU level.

18. The upside in this situation is that agriculture has an opportunity to be seen to be behaving responsibly. But in return for that, the industry will expect to see more vigorous action to ensure that its efforts are not undercut by cheap imports from countries whose farmers behave less responsibly.

19. The downside that we must guard against is “gold plating” of rules and the higher attendant administration expenses. Regulation should be restricted to known and understood problem areas. Relative to many European countries, they should be few and far between in Scotland. Here, agriculture is much more extensive than is the norm in much of the rest of Europe, particularly in relation to abstraction of water for irrigation.

20. The support of SEPA would be appreciated in getting the Scottish Executive to provide sufficient funding, e.g. through agri–environment schemes, to support relevant environmental projects on farms. While there is now some recognition in the awards system for the contribution that farmers can make, the competitive nature of the schemes mean that the full potential is not being realised. Incentives could be provided for projects that would help implementation of recommendations from catchment management plans.

21. There was a recent announcement of revised priorities for the Rural Stewardship Scheme so that projects relevant to amelioration of diffuse pollution threats would be more likely to be aided. Given that implementation of the Water Framework Directive is an absolute requirement for the Scottish Executive within the terms of the Scotland Act, NFUS does not understand how competitive allocation of resources in this regard can be justified. The same argument holds true for the Habitats and Birds Directives.

22. A particular example may serve to illustrate the extent of the issue. Throughout Scotland it is commonplace to allow livestock access to watercourses for drinking water. Individually, such access points may not represent any hazard to ecological quality of water bodies. Collectively, they could. Therefore, it would make sense, in the WFD context, to have a nationwide scheme of support for exclusion of livestock from watercourses and for provision of alternative drinking water, either supplied from those same water courses or from alternatives such as the aforementioned farm ponds.

23. Total exclusion of livestock from watercourses, would have adverse impacts on ecological quality in some places where the nutrient balances in water are dependent on that source. Such instances should be highlighted by the categorisation of waters and by assessment of habitats. This underlines the importance of local assessment and monitoring.

24. NFUS agreed with the Scottish Executive’s suggestions in the first WFD consultation to reduce the regulatory burden associated with introducing new controls on business. “Controls should be selective, being deployed only where they are needed. The controls should be proportionate to the degree of environmental risk and the controls should be streamlined as far as possible.”

25. However, NFUS was also concerned at the possible impact on an already hard-pressed industry of charges on producers to meet regulatory costs. That concern remains. The recovery of regulation costs from those who are regulated does not have any justification when a farm does not pollute or have other adverse impact on the water environment. We see parallels with how the Integrated Pollution Prevention and Control Directive and the Groundwater Directive have been implemented. Regulatory costs fall on pig, poultry and sheep producers who do not pollute the water environment.

26. The polluter-pays-principle may be brought into play in the context of regulating businesses that do have proven adverse impacts on the environment. In that event, the charges should be proportionate to the environmental cost of the activity concerned.

27. Agriculture faces an ever-increasing amount of regulatory red-tape. This can, and usually does, impose compliance costs. Regulatory costs are additional. Agriculture is rarely able to pass on such costs to customers in higher prices because the sector is overwhelmingly a price taker.

28. Burdening farmers, growers and crofters with the full cost to Government of implementing the Directive would have severe repercussions because of low farm business incomes. If existing regulations are not judged sufficient to fulfil the Directive’s requirements, administrative and inspection costs of any new rules, introduced in the wider public interest, should be financed from the generality of public expenditure.