Water Bill

Written evidence submitted by Food and Drink Federation (WB 24)

Water Bill 2013-14

Summary

Water quality and availability are critical to UK food security. But the problems of supply (and sewerage services) vary enormously from place to place across the country. Many can only be addressed by collaborative action between a range of stakeholders. FDF is concerned that the introduction of more upstream and retail competition could potentially inhibit some of the actions required, to the detriment of collective efforts to improve resilience and sustainability.

Detail

1. This submission is made by the Food and Drink Federation, the trade association for the food and drink manufacturing industry, the largest manufacturing sector in the UK, employing 400,000 people. The industry has an annual turnover of over £78.7bn accounting for 15% of the total manufacturing sector. Exports amount to over £12bn of which 76% goes to EU members. The industry buys two-thirds of all UK’s agricultural produce. More information on who FDF represents is set out in Annex 1.

2. The food and drink industry is heavily reliant on water, both in terms of its own manufacturing operations and, to an even greater extent, for the production of its agricultural raw materials. We also recognise that increasing population and the effects of climate change make it even more important to safeguard both the water environment and the ecology it supports and to use water as efficiently as possible.

3. In England and Wales there is a wide variety of sources, abundance and infrastructure relating to water supply, encompassing some very different challenges for their maintenance and future provision. The cost of providing a water supply will therefore also vary substantially between different regions and companies, as will the profitability of such operations. The ratio of use between domestic and industrial consumers also varies greatly from region to region.

4. This variability and the difficulties of transporting water in bulk over large distances, poses a unique set of challenges compared to the market reforms that have been undertaken for other utilities such as electricity or gas, where national grids and load-sharing arrangements are both feasible and commonplace.

5. FDF does therefore have some concerns about the Government’s desire to introduce both upstream and retail competition in the water industry which we believe runs the risk of sub-optimal decisions being made in respect of some broader strategic issues around the long term resilience of water resources and the need to safeguard future supply.

6. We also think that competition may weaken, or even put in jeopardy, the degree of co-operation required between water companies and their industry customers in terms of maximising the efficient use of resources. One example might be a decision by a manufacturing company to install an effluent treatment plant to treat and recycle its own waste water, thereby reducing costs to the business in terms of lower discharge consent charges. This plant though could reduce the flow to the local water company’s own plant where it might be used to ‘dilute’ other more potent effluent streams affecting operations there. Under the current integrated system, it would be possible for the manufacturer and the water company to have a rational discussion of costs and benefits and potential impacts on planning decisions for the future. But under a fully competitive model, such a dialogue would be less likely and there would be more chance that costs would lie where they fall and for the manufacturing company to recoup the ‘benefits’ from a different undertaker.

7. A competitive model could also work against the best interests of catchment protection and management, where some payment for ecosystem services may be crucial to the measures adopted. Unless these costs can be shared equitably between the interested parties in a given catchment, a less than optimal decision could result. The introduction of retail competition would not necessarily correct this as it would allow a customer to find a cheaper supply elsewhere, free of this cost-burden.

8. Although the Government has recently published Charging Principles which emphasise the need for charges to better reflect the costs of supply in order to increase resilience and sustainability of water resources in the longer term, the Bill as it stands, does not in our view sufficiently address challenges of this sort, nor is it yet clear what other provisions may be put in place in furtherance of this strategic objective which was a key objective of the Water White Paper.

9. Furthermore, and consistent with the recommendation in the 2013 report of the House of Commons EFRA Committee Inquiry into the Water Bill, the Government should also take the reassuring step of elevating Ofwat’s function to contribute to sustainable development from a secondary to a primary duty.

10. The introduction of retail competition in England will mean that companies based there will be able to choose their water supplier and sewerage provider in line with the situation in Scotland. This should at least in theory allow those FDF members with multiple operating sites the opportunity to source these services from a single provider and thereby benefit from efficiency savings. Such reforms could also drive the water companies and sewerage undertakers towards a greater focus on customer delivery and offer a better ‘package’. However whether these benefits are realised in practice will depend on whether the other powers in the Bill, such as the proposals around having a more transparent access pricing regime to use the incumbent water companies’ network, together with the upstream and retail reforms, are effective in attracting new entrants. Ultimately competition in water supply and sewerage provision needs to become commercially feasible, something that has not happened to date. Moreover any such benefits would need to be considered against the potential downsides of market reform discussed in paras 4 -7 above.

11. When it was published FDF welcomed the emphasis in the White Paper on water companies needing to plan for their future needs more effectively, in particular the need to build resilience and flexibility into the system, for example by joining up their own networks. We also said at the time that achieving this will be challenging given the pressure on private water companies to provide a return to their shareholders rather than safeguard national infrastructure. FDF therefore welcomes the provisions in the Bill that seek to promote the interconnectivity of the water supply system, both to help facilitate bulk trading between water companies as well as making it easier for new entrants to input their own water resources into the water supply system. We also welcome the subsequent changes made to the Bill to reinforce the Government’s commitment to the incumbent water companies retaining ownership of the infrastructure and its management. The emphasis in the recently published Charging Principles on long term resilience and sustainability is also welcome.

12. FDF welcomes the proposals in the Bill to extend the scope of the Environmental Permitting regime to include water abstraction licensing which we believe should offer efficiencies for both the regulator and regulated.

December 2013

Annex 1

The UK Food and Drink Manufacturing Industry

The Food and Drink Federation (FDF) represents the food and drink manufacturing industry, the largest manufacturing sector in the UK, employing 400,000 people. The industry has an annual turnover of over £78.7bn accounting for 15% of the total manufacturing sector. Exports amount to over £12bn of which 76% goes to EU members. The industry buys two-thirds of all UK’s agricultural produce.

The following Associations actively work with the Food and Drink Federation:

ABIM Association of Bakery Ingredient Manufacturers

ACFM Association of Cereal Food Manufacturers

BCA British Coffee Association

BOBMA British Oats and Barley Millers Association

BSIA British Starch Industry Association

BSNA British Specialist Nutrition Association

CIMA Cereal Ingredient Manufacturers’ Association

EMMA European Malt Product Manufacturers’ Association

FCPPA Frozen and Chilled Potato Processors Association

FOB Federation of Bakers

PPA Potato Processors Association

SMA Salt Manufacturers’ Association

SN Sugar Nutrition UK

SNACMA Snack, Nut and Crisp Manufacturers’ Association

SPA Soya Protein Association

SSA Seasoning and Spice Association

UKAMBY UK Association of Manufacturers of Bakers’ Yeast

UKHIA UK Herbal Infusions Association

UKTC UK Tea Council

FDF also runs specialist sector groups for members:

BCCC Biscuit, Cake, Chocolate and Confectionery Group

FF Frozen Food Group

MG Meat Group

ORG Organic Group

SG Seafood Group