Water more expensive than oil?

Water has been referred to as the blue gold, and only recently (when oil cost US$10 dollars a barrel) some scientists predicted that water would soon become more expensive than oil. People do already pay as much as $US5-10 dollars for a cubic metre of tap water in some countries in Europe (including treatment of waste) and up to several hundred US dollars for a cubic metre of bottled mineral water. As we are bombarded with stories in the media on water scarcity and drought, should we be worried that the price of water will spike to US$80 dollars per cubic metre, as has happened for oil?

While no doubt people in some drought-striken towns in Australia will find it hard to believe, even severely water scarce countries have something like 500-1,000 cubic metres of water for each inhabitant a year. People need at least some 20 cubic metres a year for their domestic needs (50 litres a day) - a tiny fraction of the water available even in very water scarce countries. We will not run out of bottled mineral water any time soon.

Depending on diet, however, as much as 70 times more water, 1,400 cubic metres a year, is needed to grow food. Water-scarce countries need to import the food they do not have the water to grow. That is what Egypt does: it imports more than half of its food because there is no water to grow it domestically. It imports food from countries like the US, Argentina, Brazil and Australia - where large amounts of water are converted into food and exported.

Irrigation engineers used to think their goal was to capture water, in reservoirs, before it would flow to the sea and be “wasted”. So many dams have been built that many rivers indeed barely reach the sea anymore. People around the world discovered, however, that all rainwater serves a purpose in nature. Every drop taken is a trade-off.

As long as the value of water in nature is not recognised, and water for agriculture is subsidised, the chances are too many dams will be built. Farmers generally pay no more than cents for each cubic metre of water, if they pay at all. The really tough water decisions are to balance water for agriculture with water for nature.

In Australia the response has been to cap the use of water in the Murray-Darling, make water trade-able, and start buying back water from agriculture to return it to nature. Many other countries are just coming to terms with the fact free water has run out. Water is available, but at a price. If farmers don’t pay the price, then nature will.

We cannot escape the fact as water scarcity increases, the price of water is bound to go up. People will pay, if they have to, up to the value they get out of the use. That is why cities and industry, where the value they get out of the water use is measured at least in dollars per cubic metre, out-compete agriculture easily almost everywhere. The value or productivity of water in agriculture varies from several cents for most grain crops up to as much as $1 for intensive vegetable production.

Good government policy will help water move from lower to higher value uses. As water gets scarcer, it no longer makes sense for society to use it to grow crops with a water productivity of only cents for each cubic metre, if the value in nature is more. Of course, as long as the price farmers pay for water is less than what they get out of it, they will keep using it.

Research can help determine the value of water in alternative uses, even for complex uses such as nature. Agricultural research also works to increase the productivity of water in agriculture. A combination of smart engineering and agronomy, for example, can drive the water needed to produce a kilogram of rice down from 2,000 to as little as 500 litres.

Recent advances in molecular biology have increased the potential to develop drought resistant crops. To keep agriculture competitive and sustainable, a 50 per cent increase in the productivity of water in agriculture will be feasible - and necessary - worldwide, over the next two decades. Increasing the value people get out of water will help them prepare for price increases.

While I think only designer water like Perrier will remain more expensive than oil at current prices, I would not be surprised to see the price of water double or triple over the next two decades.