Buying a Farm – a Valuer’s perspective | Water rights – and wrongs

WATER

Water is one of the three primary natural resources that determine the potential of a farm, together with soil and climate.

Water (rain) plays a primary role in dryland production and livestock farming, and water is the heart of irrigation. It not only adds value directly to the farm, but its availability increases the value of the land as well. The availability and management of water is a complex topic, with a multitude of variables and interested parties involved. I am going to discuss water over two articles, and will focus on the basics as applicable to farming.

South Africa is a relatively dry country and water usage is strictly regulated by law. The National Water Act (Act 36 of 1998) is the main regulating force of water use in South Africa and replaces any previous laws dealing with water entitlement (rights). The purpose of the Water Act is to ensure that the nation’s water resources are protected, used, developed, conserved, managed and controlled to the benefit of all, while protecting the environment, managing floods and drought and meeting international obligations.

Water-use Entitlement VS Water Right

A fundamental change brought forward by Act 36 of 1998 is that water no longer adheres to the property, but to a water user (Thompson, 2006). Water “rights” will eventually disappear from title deeds. The Act stipulates that a person or legal entity becomes a water user by registration. The registered water-use entity receives an entitlement to use water from the Department of Water Affairs. This entitlement is to use water on a specific property.

The Act gave the Department of Water Affairs and Forestry the tools to gather the information they need for the optimal management of the country’s water resources. The registration of water use is one of these tools. The registration process required answers to four basic questions: who are you, where are you, how much water are you using and what are you using it for? It should be clear that water-use registration was and is only a census and not an automatic entitlement to use water. Verification of entitlement should follow registration and lead to the issuing of a water-use license.

The numbered certificate issued after registration gives information on the volume of water used, the source, the farm on which it is used, the registered water user, what it is used for and the type of registration. Unless already replaced by a water-use license, this registration certificate is the only official document the user will have to indicate what the eventual water entitlement could be.

One serious issue that has emerged through the process of issuing water-use licenses is when less water is allocated than what was previously used, and initially “registered”. There could be several reasons for this, the main reason usually being a shortage of water in the area, and the resultant smaller allocations given. This could have a detrimental effect on a farm’s value, as higher valued irrigation land then becomes normal dry land, whether actually irrigated or not. This in turn can have serious negative consequences for financial institutions and their loan to value conditions.

Categories of Water Use according to the Act

The Water Act, under section 21, makes provision for eleven categories of water use, of which the following three are directly applicable to the farmer and important to a Valuer:

1. Taking water from a water source

This registration shows the actual water in cubic metres per annum that the water user takes from a water source to use for irrigation. It also shows the specific source, for example dams, rivers, streams, boreholes, fountains etc.

2. Storing water

This registration is just what it says. It entitles the water user to store the water, after which it can be used when it suits the user. The water volume mentioned on the storing water registration is not added to the taking water from – entitlement and therefore it is also not added to the hectares that may be irrigated.

3. Stream-flow reduction

This registration replaces the forestry permits previously required for plantations.

Plantations use more water than the natural vegetation, and the expansion of plantations is controlled by means of stream-flow reduction certificates.

*This article was originally published on the Farmer’s Weekly website