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Wine Woes and Water Stress: How Non-Essential Industries Cope with a Changing Climate

Michael Larrick  ·  September 21, 2018

Image: A concrete lined irrigation ditch runs between grape vines in South Africa’s Western Cape.

Image: A concrete lined irrigation ditch runs between grape vines in South Africa’s Western Cape. Flickr user Jason Jones, Creative Commons.

In discussions about water shortage, the topic of the human right to water seems to be a key topic of debate. Different countries approach the question of whether individuals should have a right to access safe water differently, and much has been written comparing approaches.  One aspect that is less well covered is how different countries approach water allocation for “non-essential” water uses in times of shortage.

The wines of South Africa’s Western Cape are world renowned. But the recent water crisis in this region has strained the industry, causing lower yields, increasing costs, and raising the question of priority for uses not considered essential to fulfilling a human right to water. Consecutive bad years threaten to bankrupt viticulturalists. Grape vines are perennials, taking years to mature, and death from stress or culling to save water can set grape growers back a decade or more. Combined with economic stress from lower yields, vineyards face tough choices in how to use meager water allocations.

South Africa is an extreme and timely case study, but drought is increasingly endemic to the wine industry globally. From the South Africa to Australia, France to California, water shortage is becoming a reality for grape growers. In such situations, wine is shaped by law as much as the rains. These struggles faced by wine suppliers highlight a conundrum that is gaining attention across States and industries. States take a variety of legal positions when rationing water during shortage. With increasing frequency, water sources are so stressed the basic needs of individuals are threatened. In such a situation, can and should law and policy restrict access for non-essential industries that don’t directly relate to individual needs? Wine offers a look at how this tension plays out. While enjoyable, it does not provide essential sustenance. A comparison how different wine growing regions regulate viticulturalists during severe drought offers an interesting look at the different ways of apportioning water when there’s just not enough to go around:  some let the market sort everything out, while others take a more active role in deciding who gets what.

The Western Cape, Water Crisis, and Wine

The Western Cape of South Africa is entering its third consecutive year of inadequate rainfall. Many reservoirs, both municipal and agricultural, have been exhausted to the point of collapse, without normal replenishment. Dam levels fell to an average 21.4 percent, while the bottom 15 percent is unusable due to siltation. This has led to extreme conservation measures. Cape Town limited individuals to fifty liters per person per day, rapidly approaching the statutory guaranteed minimum of twenty-five liters per day. While individuals have a constitutionally guaranteed right to water minimum, juridical persons like businesses share no such protection.

Legally, water in South Africa is a common resource entrusted to state administration. Private parties may acquire authorizations to use water from a local state authority, a Catchment Management Agency. But there are significant limitations. The State can set temporal limits, assert guaranteed rights necessity to supersede rights, or implement pricing structures changing incentivize particular uses as more wasteful or beneficial. First, these licenses have an expiration date, whereupon licensees must reapply to state administrators. Second, basic human needs and environmental concerns have priority over other uses like agriculture during shortage, curtailing non-essential rights. Finally, the government charges a scalable tariff for any uses above the fifty-liter individual minimum, and for specific types of uses. Using these methods, the government exercises great control over water allocation.

For example, the government can exercise legal priority and economic pricing during the current drought to incentivize municipal uses over grape growing. Agriculture’s ability to use non-potable sources and geographical/infrastructure challenges have spared many vineyards from pressure to yield to individual needs. Still, the average irrigation dam fill is also low—at 26 percent—and local rainfall is inadequate to make up for the shortage. Should they share water with more critical uses, the local Catchment Agency may set prices higher for vineyards to disincentivize their use. In extreme cases, the Catchment Agency may even invoke the higher priority of human and ecological rights to limit or refuse water to vineyards.

Another challenge to giving a human right to water is a decrease in economic labor, leading to unemployment and unrest. Seasonal unskilled labor makes up 75 percent of South Africa’s agricultural sector. A decrease in vineyard yields means a decrease in jobs, increasing unemployment. This can have a cascading and catastrophic effect. In a country facing social unrest, water stress is another factor increasing social tensions. So while facially it might be prudent to conserve water for individual use, there could potentially be secondary effects impacting a broader population.

The challenges this drought poses for viticulturalists create an interesting case study of South Africa’s water law at work. If the drought continues, grapes may increasingly struggle compared to more urgent social uses. The price may increase so drastically that operating at current sizes may not make sense, setting vineyards back decades if they are forced to fallow vines. Additionally, the government can and has invoked priority of human rights to shuttle water away from agricultural uses. The subjugated priority makes it legally difficult to justify against other consumers, like potable water or more essential foodstuffs. And resulting lost labor would hurt the economy and add to social unrest. Michael Fridjhon, a prominent South African wine judge, has no doubt 2018 will be a defining year for South Africa’s wine industry 

Murray-Darling Basin, Australia, and Regulated Water Markets

Australian vineyards have battled drought before—the Millennium Drought from 1997 to 2009 was the longest, deepest, and most severe on record. This coincided with a glut in the grape market. Reacting to rising demand in the early nineties, new vineyards matured just as the drought hit, flooding the market with competition. These two factors had devastating effects on individual vineyards. Both the government and industry had to change their relation to water conservation by adopting a market approach combined with government-regulated allocations. The Millennium Drought offers a retrospective of how industry and government adapted to water stress using a market-based approach.

In Australia, rights are vested in the federal government, and managed by individual states. Complicating this, the Murray Darling Basin, the primary location for agriculture, overlaps three states, each with its own water allocation plan. In 2004, in response to drought, Australia developed an entitlement and allocation system—as well as a water market—to encourage best beneficial use. Entitlements are individual rights, granted in perpetuity and severed from the land. State agencies issue a yearly allocation plan dividing those entitlements, so they operate more like “shares” in a river allocation than a defined absolute volume. In response to the drought and interstate complications, in 2007 the states banded together to create the Murray-Darling Basin Authority to cover planning for the whole basin. A government-monitored market allows trading of both entitlements and yearly allocations, which steadily expanded as the drought intensified.

At first, the drought caused high water prices for viticulturalists in the loosening market, coupled with lower individual yields. The maturation of vines planted a decade earlier resulted in rock bottom grape prices due to increased competition. The eventual result though was a boon for vineyard owners, who were able to supplement allocations that were lower than they expected and save their vines from irreparable harm and death. Creating statutory rights and a robust regulated market helped vineyards survive despite water shortage 

Bordeaux, France: Old Ways, New Challenges

A combination of drought and extreme weather events have stricken European grape harvests, leading to a 20-percent drop in harvest from 2013 to present. Last year marked the smallest vintage in over sixty years. Government and industry have taken steps to combat a changing climate, but change comes slowly to a region so steeped in tradition.

The French government administers water in the public trust through planning and management. Irrigating vineyards has historically been illegal, with rainfall providing the sole source of water. This policy was strongly tied to keeping a ‘pure’ approach to viticulture. But on the heels of their own drought in 2005, regulations against irrigation have eased. Drip irrigation was allowed for the first time, to protect France’s number one agricultural export. This also means viticulture is now tied into the local water supply.

Additionally, in 2016, France became the first European Union nation to adopt a human right to water. However, the exact scope of this right is unclear and untested. France has not faced choices like South Africa, between providing a human right to water and continuing economically important, but vitally unessential industries.

Water scarcity increasingly impacts France’s wine regions, but it has not yet reached a critical juncture like in South Africa or Australia. French laws and regulations are adapting to react to this new threat, albeit slowly and cautiously. Because these laws and regulations are so new, it is not yet clear how a human right to water and loosening irrigation regulations will impact wine industry. Future severe droughts will test the French system, and since the set-up mirrors South Africa, it may play out in the same way.

California and the Free Market of Prior Appropriation

Balancing limited water resources with its position as a national agricultural epicenter is a well-trod discussion for the American West. California faced significant drought from 2012 to 2017, where reservoir totals dropped to as low as 8 percent. Much like the previous regions, this resulted in extreme stress on perennials like grape vines.

Water law in the U.S. is highly state-specific, but all states west of the 100th meridian, where precipitation alone is insufficient to grow crops, generally follow some form of Prior Appropriation. In this system, users must divert water and apply it to a beneficial use. Unlike percentage allocations of total supply such as in Australia, maximum use in California is usually capped at a specific amount, and is subject to seniority rather than state allocation. Additionally, there is a “use it or lose it” approach—if a user doesn’t use their maximum allocation, they risk forfeiting it in the future. It has been arguedthis protecting of rights is in fact counter-productive, encouraging waste among users who fear forfeiting valuable rights in over-allocated streams. Trading full rights is allowed, but to transfer portions of a right puts the user at risk of forfeiting it permanently.

Prior Appropriation states do not recognize or give special treatment to a human right to water, relying instead on free markets to provide for needs. California is the lone U.S. state to recognize a human right to water, codifying it in 2012. This guarantees a right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes. However, the scope of this right focuses on connecting rural and disadvantaged people to municipal water supplies. It does not address an individual’s relative priority in the Prior Appropriation system. The most senior rights, regardless of how they intend to use the water as long as it is beneficial, get priority.

This more hands-off, free-market approach puts most of the onus to surviving the drought on vintners. This can be a blessing or a curse, depending on a farmer’s position in the priority scheme. A senior right assures at least some flow, while a junior right is subject to fulfillment of those before it. At least there is relative reliance on this system for users, with no fear of expropriation for domestic use like in South Africa. While some state constitutions like Colorado in text provide for priority for domestic uses over agricultural and industry, courts have been hesitant to interpret this to upset the priority system. In Town of Sterling v. Pawnee Ditch, the Colorado Supreme court held constitutional language that domestic water uses were preferred above all others did not supersede constitutional protections against taking private property without just compensation.

During the California drought, farms adopted more efficient irrigation methods like drip irrigation, and used supplemental groundwater to weather the worst of it. Vines survived until the rains returned, but survive is very different from thrive. California vineyards are still in a precarious situation. While, for now the waters have returned easing the tension, but will the conservation lessons learned stick around or will fear of forfeiting rights return viticulturalists to the old ways?

Putting It All Together: What Trends Emerge Around Non-Essential Industries and Their Relative Priority

These four approaches to regulating water shortage fall on a spectrum. States with strong commitments to a human right to water like South Africa fall on one end. Here, states have decided that an individual human right to water eclipses rights that are not essential for vitality. The upside is there are protections for individuals so people do not face dehydration or death during water crises. The downside is uncertainty for those non-essential industries, and the fallout from diverting water away from these industries can have sever economic effects, rippling throughout a society.

On the other end of the spectrum is a free-market priority system like in California. First in time, first in right provides certainty for rights holders, who know where they stand in line. It also allows a certain freedom to buy or sell rights to fulfill specific needs. While individuals claim no right to water, municipalities often have large bargaining power to ensure individual needs are met. Still, a tendency towards maximizing individual rights usage to preserve them conflicts with conservation. And less regulated markets combined with hesitance to enforce priority for specific types of uses like domestic over agricultural means no guarantee water will be put to societally advantageous use.

Both France and Australian approaches fall in the middle. France’s relatively new regulatory changes and recognition of a human right to water put it more towards South Africa. But since this system has not faced a true test, a resolution to the tension between uses and needs remains unresolved. Australia’s market system leans more towards the California approach. But Australian markets are more regulated, and the government exercises more control by decreeing allocations in yearly basin plans.

It is evident that as droughts become a more common phenomenon globally, the tension between vital needs and economic needs is increasing. While this spectrum by no means marks the only way to approach a water shortage, a clear trend is emerging that States are choosing between free economic choice to allocate water, and ensuring basic human needs are guaranteed.

So which approach is right? Should there be a human right to water that supersedes non-essential industry rights, or should there be protections for freedom to own usufructuary rights? Approaches should be tailor-made to different cultures, geography, and legal traditions. After all, hydrological challenges are hyper-geographically specific, and the machinery of the law turns slowly. But evidence of increasing water stress globally makes this discussion far from theoretical. U.S. water lawyers would be wise to pay attention to how shortages play out in other countries in order to best advise their clients on which directions the tides may be turning.

Mike Larrick

Sources 

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