Opinion | Nestlé water deal is bad economics – and bad policy – for Michigan

There are lots of ways to look at the state of Michigan’s decision this week to allow Nestlé Waters North America, Inc. to increase extraction of groundwater near Evart to expand production of Ice Mountain bottled water.

As an economist, I look at it from a numbers perspective, and when Nestle's demand for our water goes higher, prices are supposed to follow suit, but that isn't the case.

Many disagree, but let’s accept the notion that water is a product and selling it to a corporation is one potential use for it. Nestlé paid a single application fee of $5,000 and will be required to pay a $200 annual reporting fee to extract 576,000 gallons per day of Michigan groundwater.

Related Michigan Nestlé water stories:

Mike Taillard is an economic consultant and author who is a Democratic candidate for the Michigan Senate’s 35th District, where he moved after serving in the Army. He lives in Benzonia with his wife Ashley and four children.

That’s about one-third of a penny per gallon ($0.000347.) That’s several times lower than the national average cost of municipal water in residential areas (about $0.0074 per gallon and significantly higher in places like Flint). To buy Nestlé’s water, you’ll pay roughly $2.67 per gallon (a 12 pack of 12-ounce Ice Mountain water bottles sells for $2 or $3).  That’s as much as 7,000 times more expensive than what Nestlé is actually paying per gallon of water. That’s one heck of a markup.

Clearly, water has value, and people are willing to pay for it.  When that water is made available in convenient little plastic bottles, people are willing to pay a lot more for it.  The water being extracted belongs to the people of Michigan, so if water has so much value then why aren’t the people of Michigan selling it to Nestlé instead of simply giving it away?

That is still how the market works, right?  If you have something of value that someone else wants, then you charge them a fee equal to or greater than that thing’s base value?  Nestlé sure as heck remembers basic economics, so why can’t the elected representatives in Michigan seem to understand?

Texas understands. The state charges a production tax on oil equal to 4.6 percent of the market price.  When we consume something, there is a resource cost involved, and someone must incur that cost. 

“There’s no such thing as a free lunch,” as economists are fond of saying, and if Nestlé isn’t paying for the water it is consuming, then who is? 

Who will eventually be left with the bill when lunch is over?  The Michigan taxpayer unless our elected representatives start recognizing they are failing the people of Michigan by neglecting to function as an effective steward for our resources.

Even by the Michigan Department of Environmental Quality's simulations, the increased rate of extraction will result in more than a 1 percent average decrease in surface water per year in the area over a period of 20 years.

With thousands of angry letters written regarding Nestlé’s expansion, it’s clear the people know this isn’t in their best interest.  Even the people who live near the plant have made their will known.

Osceola Township denied Nestlé’s application to build a new pumping station because it violates township zoning ordinances, but a judge two counties away overruled township code and pushed the application through anyway. 

Current lawmakers have encouraged the Michigan Department of Environmental Quality to ignore the will of the people and use Nestlé’s environmental impact estimates as their primary guide in assessing whether to approve the expanded operations.

In doing so, the lawmakers failed to not only represent the resources of the state, but they’ve failed to represent the people who voted for them.

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Comments

Suz McLaughlin
Tue, 04/03/2018 - 6:06pm

If feels like Nestle stuck a HUGE straw in the Michigan aquifer and just sucks away! #PureMichigan is a JOKE!!!

Nick Najor
Tue, 04/03/2018 - 9:11pm

Solid perspective here. Everyone in their right mind was passionately opposing the Nestle application, and in the end it didn't matter. This generation of Michigan political leadership continues to disappoint.

Barbara
Wed, 04/04/2018 - 8:39am

We are in trouble both environmentally and with elected officials unwilling to listen to the majority of citizens! While boycotts are taking place we are being screwed by nestles and our own officials. !

Jim Vollmers
Wed, 04/04/2018 - 8:48am

I can't fathom how people in Detroit and Flint are in fear of having their water shut off, but our political leaders find a way to give it away to a multi-national corporation. Bad leadership.

Chris Carpenter
Wed, 04/04/2018 - 3:01pm

People in Flint and Detroit should simply work harder and allocate their income towards paying their bills. As a teen growing up, I was taught by my dad to work hard and always pay my bills on time - that needs come ahead of wants.
To compare Nestle legally taking water from the ground to water issues in Flint and Detroit is silly. Two very separate topics.

Cindy Gudel
Thu, 04/05/2018 - 12:45pm

The people of Flint WERE paying their bills. If they aren't paying now, it's because they don't want to pay for contaminated water. Would you? (P.S. - NESTLE'S HAS A HISTORY OF NOT ALWAYS PAYING IT'S BILLS!) The reason Flint's water is contaminated is because the legislators decided to cut expenses, and in the end ILLEGALLY poisoning the city's water supply. After years, they have not fixed a problem that they as public servants are LEGALLY OBLIGATED to fix. That's their job. Nestles does not have a legal right to the water unless the legislators give it to them. The state legislators decided NOT to give the FLINT residents clean water, but to GIVE Nestles legal rights to clean drinking water, basically for FREE. For a good legislator, the citizens of their state should be their priority. Also, Water is a precious commodity. Why are they giving it away practically for free? If the state bottled it up and sold it themselves, they'd probably make enough to put new pipelines in to Flint, plus have enough left over to pay off the state debt over the next few years. But we can't have that. It would be against our capitalist system, even if we are giving the business to a FOREIGN company.

Time to change
Wed, 05/30/2018 - 6:15pm

Hum, WATER. Not sure but if you look at the big picture wouldn’t that be the paint?

Rick
Wed, 04/04/2018 - 9:03am

Another sellout of the people of Michigan and another win for big corporations.
The best legislature corporate money could buy.
We need to vote out the Republicans once and for all.

Jim
Tue, 04/10/2018 - 2:28am

That will never happen! Voters in this state are intoxicated with the philosophy this legislature has promulgated for the last twelve years.

Suze
Wed, 04/04/2018 - 9:26am

If ever a time for WTF it’s now....vote out our non representatives and overhaul our state depts. MDEQ and Health and Human Services as a start.

Le Roy G. Barnett
Wed, 04/04/2018 - 9:28am

Under Republicans, the interests of the public will almost always be subordinate to the interests of business. Anyone who doesn't like the outcome in this case can take corrective action at voting booth.

sam melvin
Wed, 04/04/2018 - 9:42am

Water bottles end up in michigan garbage --still costing taxpayer more money
Sweetwater in our lakes are ours not the state to "see..or ..
garbage from canada = still costing taxpayers more money
booths are bad health hazerades to michigan taxpayer...
WHO profits by this deals.?

Jim
Wed, 04/04/2018 - 10:46am

Oil is a non-renewable resource. Paying an extraction fee (Texas) is fine, but consumers are the ones who really pay it.

Water is a renewable resource. In my lifetime, there is exactly as much water now as when I was born. I learned this in seventh grade when my science class studied the water cycle.

All the food we consume not only contains water, but took water to produce it. Think of all the California water in the produce you consume in Michigan. Now think about all the imported (from other states) beverages we consume. Many Michigan communities drink well (ground) water, and pump it at far greater rates then Nestle proposes. They do not pay for their water, either. Be careful what you wish for. To be fair and consistent, if Nestle must pay for its water, so must all the communities who drink groundwater. And farmers who water their crops. And so on. Regardless, we consumers ultimately pay for it.

Ironically, Nestle is a job creator. There aren't many good jobs available in Northern Michigan. They're not 'taking' water from us. And they're keeping it clean. It'll end up in the water cycle and be re-used.

I say let them have as much as they can while keeping the aquifer sustainable. MDEQ is capable of determining that. Nestle is even better at it. Think about it: would Nestle invest millions in water wells and production facilities if the source wasn't sustainable?

Paying to extract water will cost consumers money. And create a giant 'money grab' in Lansing. Count on it. Do you really want that? I don't. I save 1000% by drinking my own tap water!

Zeke
Wed, 04/04/2018 - 11:27am

Well Jim I tried to side with you on Nestles but can't stomach your lack of reasoning. I can't believe you feel its OK to give our resources away let alone get nothing back for doing so. Also don't believe the MDEQ is monitoring the situation because Lansing has gutted their authority to enforce the laws on many issues not just this situation.

Dr. Nick
Wed, 04/04/2018 - 1:20pm

I'm afraid your all wrong Jim! Nestle is bottling our water and shipping it all over the country and taking it out of our water shed! This is a foreign corporation making an immense profit from our precious ground water. And as far as jobs they are creating, they are few in comparison to the immense profit they are making taking resources out of the state and the country! This is a poor deal and should be cancelled or suspended immediately. Someone was paid off to approved this horrible deal for our state. Another example of our short sighted politicians and bureaucrats thinking of themselves and not the people they are paid to represent.

Chris Carpenter
Wed, 04/04/2018 - 3:14pm

Wow I thought all Dr. were smart. You proved me wrong.

With your logic, Faygo pop that is made with Detroit water but sold in Ohio, Indiana and other states is Michigan water leaving our state. Dasani and Deja Blue is our precious tap water that is sometimes taken out of state. All that Strohs beer that was drank all over the Midwest in the 1960s and 1970s.

Nestle has water bottling plants all over country. When I bury Deer Park bottle water at Rite AID drugs I am buying Nestle Water from another state that I drink and deposit here. The same goes for Coors and imported beers. Fiji, Icelandic, Perrire and other bottled water coming into Michigan. People drink them, urinate here and it goes back into Michigan supply after treatment.

I think you just have a hatred towards corporations.

Can you provide evidence that someone was paid off - are you just making wild false claims?

Will Tyler White
Wed, 04/04/2018 - 5:28pm

Chris - bottling plants in cities like Detroit, Flint, or any other city for that matter are paying market rates for their water, just like any other consumer. The water rates pay for acquisition, purification of the water and treating wastewater. Nestle does not pay any of those costs as it bypassed city water providers. Other states (as stated in the article) have laws in place to bill companies for the costs incurred and tax them for use of the natural resources - which Michigan does not.

Beth B.
Mon, 05/21/2018 - 6:18pm

Thank you Dr. Nick...exactly....

Jim
Tue, 04/10/2018 - 2:34am

If water is such a renewable resource how come California periodically has such devistating drouts? No snow, no water.

Eric Baerren
Wed, 04/04/2018 - 11:32am

The problem here is that what Nestle has asked to do is consistent with Michigan law and Michigan water use tradition. The same reasons why Michiganders can canoe down a river unimpeded by a No Trespassing sign are the same reasons why Nestle can pump out water, treat it, and sell it as a product. It's available for everyone to use, including to make products (does anyone really want to argue that bottled water is as unhealthy as Diet Coke? do we really want to regulate how much water can be used to make Faygo or Bell's beer?).

There are lots of reasons to chagrin this decision, but that the DEQ allowed a legally recognized commercial entity to use a legally available resource to create a legally recognized consumer product in a way that is consistent with state law isn't one.

r Nick
Wed, 04/04/2018 - 1:24pm

Then the law needs to be changed!!!

Anonymous
Wed, 04/04/2018 - 11:43am

How is El-Sayad's statement inaccurate? You actually agree with his statement that she's not talking about an assault weapons ban in this article twice. He didn't say she opposes a ban, or that she is for gun control regulation, he's saying she is not talking about an assault weapons ban. That's true, and your article that concludes El-Sayad's statement is mostly inaccurate even concludes the same thing. If you want to write about Gretchen's position on gun control that's fine, but don't mislead voters by falsely claiming her opponent's statements are inaccurate and filing it under a "truth squad" article.

Wrong Topic Dude
Wed, 04/04/2018 - 3:15pm

We are talking about water here.

Brad
Wed, 04/04/2018 - 11:45am

Hey Mike, since groundwater belongs to the people of Michigan, and I'm a people, I'll be over a little later to start drilling a well in your yard. Where do you live?

Hedwig
Wed, 04/04/2018 - 3:13pm

I don't understand your comment. Why would you want to go that far instead of having access to a well in your own yard?

Roadlion
Wed, 04/04/2018 - 1:28pm

Another consideration that the author failed to mention is the infrastructure in the areas of these facilities needs to be improved. Roads need to be built to all weather standards, and to handle the heavy truck traffic. Who pays for this? Not Nestle's it's the taxpayer. So not only are we selling our most valuable resource for about 1/3 of a cent per gallon we are paying for the road improvements to haul it away! Me thinks our business manager Nerd Governor needs a lesson in economics.

Chris Carpenter
Wed, 04/04/2018 - 2:58pm

Who buys the Ice Mountain water? Residents of Michigan do. They then urinate it out, it is treated by the waste treatment and rejoins the water in the state. Some of that evaporates into the clouds and falls as rain and snow in the area it was withdrawn from. It is not like water is a limited source like a fossil fuel or iron ore. Water is constantly being replaced every time it snows and melts or rains.
Nestle employees many people at the bottling plant and as truck drivers delivering the water. This helps the states economy.
Still since state infrastructure is in poor shape, I think a 2 cents a gallon state tax on groundwater used by any commercial venture would be a fair compromise.

TJH
Wed, 04/04/2018 - 3:52pm

It is sad that so many people can't see beyond the immediate gratification we get from the Nestle deal in the form of a few new jobs. Our water is a renewable resource as one commenter says p, but clean ground water and surface water is often not what gets returned in the modern water cycle. This is a bad deal of for our environment, as is the bottled water fad in general. It is also very bad economically.

David
Thu, 04/05/2018 - 10:24am

The lack of any intelligent life in Lansing is appalling. If anyone thinks the current legislators will do anything that the MAJORITY of the people want, don't hold your breath. They'd sell their mothers , children and grandchildren first.

Anne
Fri, 04/06/2018 - 11:23am

To those that claim that water is a sustainable resource so no worries.... have you been to California lately? They are running out of water. They are using waste water from fracking to water crops now. It is short sighted thinking that makes decisions to allow unlimited water extraction. Actually it reflects the typical pro business thinking seen in Lansing everyday. Vote them out.

Stan Blood
Fri, 04/06/2018 - 11:47am

The legislature needs to fix this fiasco ASAP. The water that Nestle steals needs to stay where it is--in the ground. The DEQ should be re-built with people who care about Michigan, not puppets of corporate greed.

A Republican will never get a vote from me again.

K. Carrigan
Fri, 04/06/2018 - 9:49pm

One of Michigan's greatest assets is fresh water. Most future projections are for scarcity of water ( especially clean water) throughout the world. Why should we allow Nestle to extract our water at virtually no cost? I also noted that the bottled water provided to Flint residents was most often labeled as being a Nestle product. How are the empty plastic containers being disposed for? The head of Nestle in Michigan is married to a state official. I question how much this tragedy has benefited Nestle's bottom line.

John Saari
Sun, 04/08/2018 - 8:23am

It is not right. The gov thinks it knows best, without a vote of the people, it gives away our most prescious resource. We should charge by the gallon, charge a service fee as well as a road use fee, as well as a Community Tax.

John Saari
Sun, 04/08/2018 - 8:23am

It is not right. The gov thinks it knows best, without a vote of the people, it gives away our most prescious resource. We should charge by the gallon, charge a service fee as well as a road use fee, as well as a Community Tax.

Gil White
Sun, 04/08/2018 - 12:43pm

It does not seem this private sector endeavor adds much at all to the Michigan economy, while adding much to a private sector entity's bottom line. In turn, its packaging is absolutely terrible for the environment, ironically water resources being hit hard from plastic particulates , and it is exempt from the bottle/can bill. Why not raise fees substantially (and I mean substantially) with state collected revenues dedicated to public education and/or infrastructure? Quit giving it away for free and then turning around and asking taxpayers to deal with the environmental consequences!

D. C. Walking
Mon, 04/09/2018 - 11:01am

Nestle is just the beginning folks. A thirsty world is turning its eyes toward the Great Lakes. In the very near future, the political and economic pressure to commoditize the people's water will become immense. Michigan is not prepared for this. Our existing water laws are relics of a time when we believed clean water to be an inexhaustible resource. Unless those laws are updated and strengthened to protect and recognize the value of potable water, the day will come when we will all be buying our drinking water.

Jim
Tue, 04/10/2018 - 2:22am

Which Governor was in office when Nestle was granted the right to extract the water. That will tell a lot about the philosophy of safeguarding Micigan's most valuable natural resource. It is intriguing isn't it that the political party that boasts it is better at managing business affairs consistently manifests absolute ignorance when managing government. And to think our economic system is cradled in the arms of such incompetence.

Cynical Guy
Sat, 04/21/2018 - 7:45am

So Bridge is running this opinion piece, written by a State Senate candidate, as a Facebook sponsored ad? Isn’t that a campaign contribution?

Noel Kos
Tue, 05/08/2018 - 9:42pm

This does not just affect Michigan. How said they own that lake? This affects Canada, Wisconsin, Illinois, Minnesota? Does anyone out there understand the concept of the water tables? Or how many chemichels they will dump into the lake? They will make it devoid of fish! Seriously is the greed and wealth of nestlie really that important? How many jobs did they bring? And at what cost?

lmtrucks
Thu, 05/10/2018 - 10:29am

Isn't there a tax cut hat could handle this? I thought tax cuts cured all ills.

Susan
Mon, 05/14/2018 - 12:15pm

Sorry Bridge, but I think your math is off.

First off, $0.000347 is not a 1/3 of a penny, it is 1/30th of a penny.

Second, and more important... the $5000 fee was strictly for asking to suck more water (as I understand it) and is a one time fee only. It was an expense, yes, but has nothing to do with the rate they pay, same as if I had to pay for a new water meter. Nestle had to pay whether they got more water or not.

But even if it were a yearly fee, that would bring the total cost of water to $5,200.00. Yearly water pumped is 210,240,000 gallons.

$5,200.00 / 210, 240, 000 = 0.00002473 per gallon

40,000 gallons for $1, or 1/400th of a penny per gallon.

If you discount the $5,000 fee, the actual rate they are paying yearly is 0.0000009512 per gallon. Rounded in their favor that is a million gallons for $1. Or 1/10000 of a penny, per gallon.

Beth B.
Mon, 05/21/2018 - 6:13pm

Selling our water, is a horrible idea. $200.00 a year for a permit?? We should be charging per gallon and limiting the gallons each year. And to think the governor has shut off safe water to the citizens of Flint, stating it is safe now. I have seen results of recent water tests that should the water is not safe as with I am sure many other cities in the state. So other than the water company is making out here....I am sure if the onion skins were peeled back we might see who....

Nancy W
Mon, 05/21/2018 - 6:25pm

This makes me sick. Why should we pay for the bottled water given to Flint residents. Its OUR water!!! Something has to be done. If anyone has suggestions, please let me know. I would be willing to support anything to change this problem.

JT
Thu, 05/24/2018 - 10:53am

I can understand Nestle provides jobs and invests capital into Michigan - which is good. It does no one any good to have this water sit in the ground never to be used and to gain nothing from it. Charging a % fee based upon water extracted instead of a flat fee would seem to make more sense for the residents of Michigan. Unfortunately representatives are torn between the jobs and investment Nestle provides and citizens thinking Nestle is stealing our water. A good compromise would be to charge a % fee not so high as to kill the golden goose but enough to make sense.