Appendix G: Allocations for Commercial Manufacturing
The proposed demands for commercial industry is expected to be relatively small volumes, the economic justification is required for additional allocations. The most likely commercial demands from the Waitaki Catchment are likely to be related to processing industry expansion related to irrigation in the region. The most likely expansion of commercial industry demands is likely to be in the "Meat processing" and "Dairy product manufacturing" sectors, however new industries may also establish.
It is expected that the small volumes required by commercial manufacturing industry would be insignificant in the catchment context (see Glasson Potts Fowler, 2001), provided appropriate controls for pollutants were specified, and returns to the river were of a specified minimum quality. The national benefits of allocations to commercial manufacturing must seek to support expansion development, with applied water efficiency at current levels or above.
Investment by commercial manufacturing enterprises will have regard for scenarios that erode their current level of supply reliability. Even temporary cases of water restrictions can have massive impacts upon the sustainability of these enterprises in the long-term. When combined with poor system reliability information, there is motivation for the commercial manufacturing sector to seek allocations with considerably lower economic value than would be expected for expansion scenarios.
Accurate sector based water accounting is not available for New Zealand. Estimation of the economic contribution of alternative industry water allocations cannot be estimated with certainty. While efforts have been made by the EcoLink project (McDonald & Patterson, 1998) to achieve this end, it is the view of the study team that this information could not be reliably applied to the Waitaki Catchment.
Upon reviewing the EcoLink results, the analysis provided in Economic Efficiency of Water Allocation (MAF, 2001) infers that there was a significant difference for dairy manufacturing. The EcoLink estimate of value added was in the order of $86/m³, while data collated by MAF (2001) for some other factories suggested an estimate in the order of $422/m³. Clearly, the accuracy of the water usage data limits the accuracy of the economic valuation results.
By comparison, the publication Water Account for Australia, 1993-94 to 1996-97 (2000) (Table 1.15) for the "Meat and Dairy Products Manufacturing" sector would suggest a nationwide figure66 of approximately $75/m³. This sector was at the lower end of the economic contribution by other categories within the manufacturing sector, with values ranging between $24/m³ and $778/m³.
These values here are considered over-estimates of the economic contribution as they do not consider the capital investment required to facilitate transition. It is estimated that these figures should be first reduced by up to 50% to reflect capital investment associated with expansion as this is not considered elsewhere. There is some argument that the figures should be reduced further to reflect compensation of employees involved in the production process. In this case the overall reduction could be in the order of 90% of the figures provided above. This would results in manufacturing benefits as low as $7.50/m³, but this is considered the "extreme" lower bound estimate.
Even though there are limitations in the accuracy of the data available and the assumptions that pertain to calculations, the results of economic contribution are considerably greater than for irrigation or hydroelectricity generation. This assumes that additional allocations would facilitate increased productive output, and assume efficiency levels equivalent to or better than at present. A different valuation method is required to assess allocations that serve only to improve "security of supply".
Back to Top