Alain Vidal responds to IFAD Director of Policy and Technical Advisory Division, Adolfo Brizzi’s recent suggestion that water markets could be the next big investment opportunity.
Last week in Rome, as part of our ‘mainstreaming innovation’ grant from IFAD, the International Fund for Agricultural Development, we organized for our Andes colleagues a workshop to discuss CPWF achievements on benefit sharing mechanisms. Our colleague Marcela Quintero presented successful outcomes in the Cañete Basin in Peru, recently featured in a post on the Agriculture and Ecosystems blog.
At the end of the meeting Adolfo Brizzi, the Director of IFAD’s Policy and Technical Advisory Division, suggested that water markets could be the next big investment opportunity. I suggested the reality is much more complicated. There is no reason to doubt that water markets could be the next investment opportunity, but every reason to question if it should be.
At the heart of this issue are two fundamental questions:
- Is water an economic and, therefore, a tradable good?
- Are water markets the best solution for a future where demand for water is only increasing?
Your answer will depend on your world view, which will depend on where you stand in the global pecking order of haves and have nots. If you are an affluent, well-educated citizen of a developed Western country employed in a profession, especially the financial industry, you probably see considerable merit in these ideas.
If you belong to the growing underclass of Western nations or if you are smallholder farmer or a landless peasant anywhere else in the world, these ideas are just one more blow to any chance you might have of living a better life.
One way to understand the difference in these world views is to review a little history. According to Pierre-Frédéric Ténière-Buchot, former governor of the World Water Council and water law specialist, only three types of law cover probably 80% of water law cases:
- The Anglo-Saxon water law which, like the rest of Anglo-Saxon common law, is based on a contract between neighbors sharing a common resource on which their proximity confers them rights. Anglo-Saxon law originated in the forested Northern European plains where water was relatively abundant and still applies in Anglo-Saxon and Commonwealth countries. Such a contract can include trade arrangements. Add to this the neo-liberal concept that anything can be traded, and you open the door to water markets.
- Roman water law, like the rest of Roman law, is based on a natural law, often represented by a supreme authority (Emperor, Pope, King), and translates into codes, charters and constitutions. Roman law originated in the Mediterranean, where water is relatively scarce and generally considered a common good, meaning that rights are shared and public and under some central rule. It still applies in countries where the language is derived from Latin and Greek and their former colonies in southern Europe, in Latin and Central America, and in parts of Africa. Thanks to Napoleon, it influenced the rest of Europe, except the UK.
- Bedouin water law, where water belongs to the one who owns, conquers or first occupies the land. Bedouin law originates in the Middle East where water is extremely scarce but land is plenty. Here, water rights are linked with land rights; whoever owns the land also owns the water. It still applies in the Middle East, most Arabic, sub-Saharan African and Islamic countries, and exists in some places combined with Anglo-Saxon and Roman law, depending on historical influence.
With this rather broad historical background in mind we can begin to understand what water rights mean where, and what position people might be prone to take on tradable water rights. For example, trading water may sound:
- entirely rationale to an Australian or Californian who lives in a society where there is considerable respect of the rule of law and an economy where almost everything is and can be traded;
- illicit in France or illegal in Ecuador where water is considered a common good; and
- inequitable in sub-Saharan Africa where most of the poor don’t have access to land and hence have no water rights.
Some Australians have tried for many years to export the concept of water markets, which they have studied in what is certainly a good laboratory. There are others (see Walker et al. 2009), myself included, who would suggest that this is what ruined water resources and other ecosystems in the Murray-Darling Basin even while it was being cited in the 1990s as the success story in water management.
Elsewhere, the concept of water markets has encountered huge difficulties. Within Western countries there is a fierce debate over what can and cannot be valued economically. Outside countries with advanced economic systems and high regard for the rule of law, it remains to be demonstrated that water markets and trading water rights have anything positive to contribute to greater equity and poverty alleviation.
- The Cañete River basin film
- Blog on rewards for ecosystem services
- CPWF’s Mainstreaming Innovations Grant from IFAD
There is a considerable literature analyzing why water markets and water pricing are not silver bullets and may in fact be worse than existing rules; see for example:
- Ahmad, M., 2000. Water pricing and markets in the Near East: policy issues and options, Water Policy, Volume 2, Issue 3, 14 July 2000, Pages 229-242, ISSN 1366-7017, 10.1016/S1366-7017(99)00006-9. “In the absence of well-defined, transparent and freely traded water rights, markets may encourage higher use rather than conservation of water.”
- Molle, F., 2009. Water scarcity, prices and quotas: a review of evidence on irrigation volumetric pricing. Irrigation and Drainage Systems, 23, 1, 43-58