The owner of Te Mata Mushrooms has lashed out at Hawke's Bay Regional Council, saying its prosecution over an alleged breach of resource consent conditions amounts to a bid to have the company shut down.
The Havelock North business is facing six charges and a maximum $600,000 in fines after complaints it has failed to contain odours generated by the compost it makes to grow its mushrooms in.
Under its 2012 resource consent, odours from the mushroom farm must not waft over its boundaries but the council says it has received numerous complaints...
The mushroom farm had been on its Brookvale Rd site since 1967 and in the past few years Hastings District Council had allowed more than 160 houses to be built nearby, Mr Whittaker said.Ronald Coase argued that externalities are jointly produced. That is, it takes two parties to create an 'externality problem' - the party that generates the externality, and the party who is affected. In this case, if there were no residents living in close proximity to the mushroom farm (as was the case until relatively recently), then the odour from the compost would not be a problem.
Since there are now nearby residents who are affected, we need to consider whether government intervention is necessary. The Coase Theorem tells us that, if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own (i.e. without government intervention). In the case of a bargaining solution under the Coase Theorem, it depends crucially on the distribution of entitlements (property rights and liability rules).
If Te Mata Mushrooms has the right to compost on their property, then the default solution is that the residents just have to put up with the smell, or move elsewhere. The alternative solution is that the residents could pay compensation the mushroom farmer in exchange for the farmer reducing production, or altering their production method to produce less odour. The alternative solution would only be feasible if the compensation paid by the residents was individually less costly to each of them than the amount that they value the loss of enjoyment created by the odour, and the compensation was more than the lost profits of the mushroom farmer. Of course, the problem here is that getting all residents to collectively pay the farmer is difficult due to free-riding (some residents could choose not to pay, but would still receive the benefits if the farmer reduced the odours).
On the other hand, if residents have the right not to have their nostrils assailed by compost stench, then the default solution is that the mushroom farmer must reduce odours (through reduced production, or altered production method). The alternative solution is that the mushroom farmer could pay compensation to the residents for their loss of enjoyment of their property.
In this case, given that there are resource consents in place that limit Te Mata Mushroom's activities in terms of the odours it generates. So, it is clear that the residents have the over-riding rights. Even though the mushroom farm was there first, the time for the farmer to fight this battle over rights was at the time of the resource consent, not now. It is too late and they have to either comply, compensate the residents to placate them and avoid complaints, or face the consequences.
This might seem like a straightforward application of the polluter pays principle, but is also probably the least-cost solution to the externality as well. The cost to the farmer (who can presumably relocate further from residential areas if necessary) is likely to be lower (and a one-off capital or relocation cost) and concentrated in a single party, compared to an ongoing cost to many residents from the farm's activities.