Buying and selling water is a reality in Alberta sometimes for big money

Just south of the town of Taber, Alta., known for its potatoes, corn, and rich soil, the crew at North Paddock Farms finish their lunch, slide on their gloves, and get to work.

Russet Burbank seed potatoes drop onto a sizing belt, where they're sorted and cut. Nearby, massive storage bins are full to the brim of potatoes, due forthe nearby McCain Foodsand Lamb Weston plants.

The work is underway on April 24 despite the stress that looms over the entire operation this year. This farm, which grows potatoes, canola, Timothy hay, wheat, flax, fava beansand garlic using irrigation, is part of the St. Mary River Irrigation District (SMRID), the biggest of its kind in Canada.

In April, the district said farmers would get eight inches of water half the allocation they get in a good year with a dry winter affecting snowpack and reservoir storage.

That's not enough for Alison Davie, one of the owners of the farm operation. She says they need at least18 inches to grow their potato crop.

For that reason, North Paddock Farms is looking to buy more water.

"If we need more water in this area, we look to see if there's any available to purchase.You've got neighbours, sometimesthey're not going to use their allocation," Davie said.

"All of that extra water comes at an extra cost that's over and above our growing cost."

The year ahead could bring many such transactions in a little-known market Albertans may not be familiar with: the water market.

For farmers like Davie, it will involve the temporary purchase of water allocations. For larger parties, it's something significantly more consequential.

Handshake deals

The St. Mary River Irrigation District, where the Davies' farm is situated, holds the water licences used by farmers in this region.

During times of water scarcity, transfers of water allocation are permitted through transactions between farmers. The transfers are arms-length, and the SMRID doesn't get involved with the actual terms.

"Farmers will pay compensation to each other, if they deem it is worth it to them to have extrawater," said David Westwood, general manager of the St. Mary River Irrigation District.

It's a calculation that Davie and her husband, Michael, have had to make this year. And it comes with some risk, not knowing what the weather will bring.

"We might have a wet June, then we obviously didn't need to go do it. But on our farm, it was a risk we were willing to take," she said.

Water allocation purchases are a fact of life within the SMRID this year, but it's still somewhat ambiguous for farmers like Davie.

"It's, you know, handshakes, contracts. If you really need the water, you're willing to pay more," Davie said.

The Bow Valley Irrigation District is allowing its farmers to trade portions of their limits to other farmers this year. On April 24, the district set its water allocation at 16 inches to start the year, 80 per cent of what it was last year but still twice the amount set in the SMRID, Davie's district.

"We decided a few months ago that we should allow farmers to trade allocation amongst themselves this year. I don't expect there will be much trading, but there might be a little bit occurring," said Richard Phillips, general manager of the district.

Water allocation trading within irrigation districts is one thing. No permanent licences change hands they remain held by the district.

But there's a bigger picture at play here, too. It involves large-scale water deals and transfers of "water licences" sometimesfor big money.

And to learn why it works like this, you have to go back. Way back.

Water on the market

Alberta has had a water priority system in place since 1894known as "first in time, first in right," or FITFIR.

It's based on seniority, meaning those who applied first when the system was established, starting more than 100 years ago,have rights to water first.So someone who received a water licence in 1900, for example, has first claims on Alberta's water, compared to someone who received a licence in 2000.

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Water licences are required for anyone seeking to use or divert groundwater or surface water in the province. There are 25,000 licence holders in Alberta, according to the province.

"There's no discrimination under the first in time, first in right system, based on what the water's purpose is," said Lorraine Nicol, a senior research associate in the economics department at the University of Lethbridge.

"You could have a golf course with a senior licence, and a dairy licence with a junior licence, and that water isn't going to the dairy farmer."

Nearly two decades ago, as concerns about water scarcity in the south loomed, the provincial government put a moratorium on the South Saskatchewan River Basin, closing the Bow, Oldman and South Saskatchewan sub-basins to new surface water allocations.

Effectively, it meant that water sources south of the Red Deer River sub-basin were closed. But there had to be some flexibility in the system in order for water to move amongst users, Nicol said.

"Because if you were a widget maker, and you're starting a new plant in this area, there's no licence water allocations to be found," Nicol said.

Davin McIntosh, who was practising planning and environmental law when the moratorium came into effect, knew what it meant.

Alberta's Water Act had set the rules around how water licences could be transferred. McIntosh knew that the moratorium, in effect, created Canada's first market-based system to trade water licences.

"The Water Act included provisions for the transfer of water rights. So people had been anticipating this change for most of a decade," McIntosh said.

"Having studied this I had done a masters of law focused on how the water market would evolve I was prepared to help answer those questions."

He quickly found himself inundated with such questions.

That's because overnight, the only way to get new rights was to get them from another user, meaning the market value went from effectively zero to "who knows."

"What people didn't know and what was very interesting to me at that time the act can just set the stage for a market. But then the players in the market determine price and value," he said.

After the moratorium, the first transfers mostly involved agricultural transfers on the St. Maryand Oldman rivers.

Bigger transfers followed, including during construction of the CrossIron Mills mega-mall, north of Calgary.

The mall attracted more than 20,000 people on its opening day in 2009. But for a long period,it wasn't clear the deal would ever reach its conclusion because of challenges with the mall'swater supply needs.

"It was quite an ordeal," said Al Schule, who was the reeve of Rocky View County at the time. "We were doing everything possible, trying to figure out how we could get water to them."

Rocky View County initially believed it could get its water from Calgary, but the neighbouring municipality refused. Another plan to divert from the Red Deer River was also upended.

Finally, theWestern Irrigation District agreed to sell aportion of its water rights for $15 million. It set the first market price for water rights in the Bow River corridor, McIntosh said.

"Gradually, smaller transfers sort of caught up and prices got closer and closer. But the market was different then, as well," he said.

Early transfers allowed moving of water rights from pretty much anywhere in the Bow River basin to anywhere else. Since then, unwritten policy has made it much more difficult to move rights upstream and to smaller tributaries, McIntosh said.

"You've got to keep a very watchful eye on where the water transfers are happening, because you don't want to damage river instream flows by letting too many significant water rights move upstream,"said David Percy, an expert in water law at the University of Alberta.

"That's always a factor that the director [under the Water Act] has been able to take into account."

The market is also quite slow-moving, taking on average a couple of years to complete, McIntosh said. It requires finding parties willing to give up their rights and a party willing to purchase rights, before negotiating a commercial agreement and then bringing an application to the government.

That kicks off an administrative review process, which functions somewhat like an environmental review. Thedirector under the Water Act has broad discretion to figure out what should be allowed, looking primarily at the effect on the environment and other users, McIntosh said.

"I often say that arranging a commercial agreement in the water space is a little bit more like arranging a marriage than a commercial agreement, because you don't know from the outset what's going to be approvable," he said.

Since 2006, there have been nearly 400 water licence transfers inAlberta,according to the province. Transfers can be permanent or temporary.

The government can hold back up to 10 per cent of water in an allocation transfer, which can be held in a natural water body or a conservation licence.

British Columbia is now also allowing water licence transfers through its Water Sustainability Act.

Murky water

Though McIntosh has been involved in a significant portion of the transfers approved in the Bow River Basin, he admits there are challenges at play.

Given that water transfers typically take a couple of years to get approved, there aren't obvious ways to expedite the process.

It's also an opaque market, with no public record of the value of water rights transfers, he said.

"A lot of it just has to do with perceived value, or, advice that buyers and sellers get from someone like me," McIntosh said.

It's why Prof. Tricia Stadnyk, Canada Research Chair in hydrologic modelling with the University of Calgary's Schulich School of Engineering, refers to Alberta's water market as a sort of "Wild West."

In one sense, water markets can be viewed positively, because they can potentially help Albertans realize the value of water, she said. It puts that value up front and centre, particularly if one is in a region where there isn't a lot of water to go around.

It could lead to Albertans understanding more personally the value of water, and what it means to have to conserve it or to live with less, Stadnyk said.

But there are other things to think about here, too, she said.

"If you are on the winning side of that, and you're making a huge profit. That isn't right, either," Stadnyk said."Because, let's face it, water is a fundamental, basic human right. The United Nations has declared that."

In theory, provisions in Alberta's Water Act are intended to improve efficiency of use and move water where there's the most economic benefit, McIntosh said.

More conservation measures are likely to be put into place by cities, townsand irrigators because it's obvious that water is valuable, he said.

But any time one puts a price on what is an environmental attribute or an environmental commodity, there can be winners and losers, he said.

A not-for-profit kids' camp or rehab centre, for instance, that needed water rights in a significant volume would have to buy them at the same price that a developer would, McIntosh noted.

In an interview with CBC News last month, Alberta Environment Minister Rebecca Schulz said she's heard concerns from Albertans looking to see more transparency in the process.

Part of that, she said, is understanding what's being allocated, and involves asking all major water users to input their information so it can be made available digitally.

"We have to look at that. But we do have to have a conversation about, then, about what that looks like. So more to come on that," Schulz said.

"It's one of the things that I'm going to be asking our water advisory panel for some advice and guidance on. I've been very transparent about that on our town halls, as well as all of the major water users.

"Bring your ideas, because this is something that Albertans have raised concerns with. It's something we're going to have to look at."

Early days

Alberta's Water Act is still a relatively recent piece of water management legislation compared to other jurisdictions. The water market in Australia, for instance, has been in place for three decades, and involves about $5.4billion Cdnin water trades annually.

But in a year marked by the potential of a challenging drought, especially as demand grows in Alberta's semi-arid south, the value of a finite water supply and the pricesubsequently assigned to it takes on greater relevance.

Nicol, the senior research associate in the economics department at the University of Lethbridge, said any reforms to the province's water licence system will take political will, and comewith social, economic and ecological questions.

"It's just like dairy quotas. Those quotas were given to dairy farmers for free. When water licences were issued, those water licences were issued without cost, either," she said.

"It is the state of affairs in this province. I really can't speculate as to how you would solve that. It's very well embedded into the system."

For Davie, back on North Paddock Farms, buying water is new.

It's still unclear what this year will bring. Davie said she's hopeful this is just a one-year anomaly.

"I guess it's brought to light the challenges that we're facing down here if we are facing a multi-year drought, a multi-year water shortage, we would really have to rethink some of the crops we're growing on our farm," she said.

"We're just going to have to learn and adapt. That's what farmers do. We are faced with a problem, and pivot, and change."