I expect to see a globally integrated market for fresh water within 25 to 30 years. Once the spot markets for water are integrated, futures markets and other derivative water-based financial instruments — puts, calls, swaps — both exchange-traded and OTC will follow. There will be different grades and types of fresh water, just the way we have light sweet and heavy sour crude oil today. Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.
– Willem Buiter, Chief Economist, CitiGroup (1)
In a poignant book published two years ago, Clive Hamilton, a Professor of Public Ethics, surveyed the psychological mechanisms conditioning the mass denial of the ominous reality of climate change. In part, he argues that even as reason obliges us to confront climate change and come to terms with it, the frailty of the human psyche steers us into denial when faced with catastrophic threat. (2) Alas, while the faculty of reason retreats from the survival imperative posed by global warming, the profit motive does not. We know, of course that very powerful monied interests are happy to fuel denial of global warming. (3) Meanwhile, other powerful monied interests are devising ways of profiting from some dimensions of the developing climate crisis. Arguably the most important theater of operations in this respect is water.
The notion of water as a commercial commodity is foreign to almost everyone, of course. Developed nations have provided nearly universal access to relatively clean water for generations, and even in underdeveloped countries, populations generally can generally make do with local water sources or some state-delivered water. Alas, these days may not last for long. As we shall see below, the relationship between man and water is changing, and so are the economic conditions related to water. Water scarcity and water crises are not unknown to history — in the ancient world entire societies collapsed through mismanagement of water. But this time it really will be different. This time, capitalism is reaching water.
«With the land comes the right to withdraw the water linked to it, in most countries essentially a freebie that increasingly could be the most valuable part of the deal.»
– Peter Brabeck-Letmathe, the Chairman of Nestle (2009) (4)
According to bold predictions from the heights of the investment class (such as Willem Buiter, cited above), water stands to become the most valuable commodity of all over the next few decades. The case that water's intrinsic value will appreciate is persuasive. Thus, the rapid increase in population in the developing world, especially the urban population, is putting exceptional strains on water services. As well, water-intensive agriculture is spreading, and competing with cities for water. Meanwhile, industrial pollution of water is proceeding very rapidly in many places, and is leaving consumers little choice but to pay for safe water. In addition, climate change is bringing huge new stresses of its own. Droughts are becoming more intensive, and higher temperatures year-round are shrinking glaciers, which play such an important role in fresh water supply during the dry season in many parts of the world.
One need only glance at environmental news headlines over the past few weeks to appreciate the development of a many-sided water crisis around the world. For instance, we hear that the record-breaking drought that afflicted the US from the Spring of 2012 has not really abated, and agriculture throughout the middle of the country faces calamity already this year if precipitation does not return to at least normal levels over the next six to nine months. (5) A hideous heat wave across most of Australia has compelled meteorologists to recalibrate their models. (6) Water pollution has reached shocking levels in China, with 40 percent of its rivers seriously polluted, and half of those so toxic that people should not touch the water. (7) A NASA study measuring the Amazon rainforest canopy over the last decade found that droughts in 2005 and 2010 were severe enough to inhibit regrowth, portending deep ecological consequences if this cycle proceeds. (8) And researchers have registered an alarming retreat of the Andes glaciers in South America, by some 30-50 percent since the 1970s. They warn that millions of people will be at catastrophic risk from water shortage if and when the glaciers disappear. (9)
To the investment class, scarcity smells of profit, of course, and the profit opportunities where water is concerned could be huge. Until recently, the fact that states provided water to their citizens free of charge largely excluded water from the menu of investment projects. To be sure, investors took genuine interest in water processing technologies, like desalinization. But the idea of controlling access to water itself was not on the menu. The institutional landscape surrounding water is changing now, however, with potentially serious consequences in many areas of the globe.
A Perfect Storm Dooming Free Water?
First, the wonders of the information age are allowing corporate-backed research outfits to study water systems much more thoroughly than ever before. While the advertised goal of these efforts is to help companies to use water more efficiently, they are also empowering investment funds, giving them precise information with which to guide and pinpoint their investment projects. (10) Second, the strain on governmental budgets over the last few years leaves public authorities ever more vulnerable to the lure of privatization of public assets, including water treatment and delivery systems. Third, the techniques of privatization in the hands of the investment class have become more sophisticated in recent years. Investment funds are gradually perfecting the art of maneuvering public authorities into parting with public assets, and extracting maximum profit thereafter. (11) Fourth, the emergence of hydraulic fracturing (fracking) technologies to extract natural gas deposits has raised the industrial value of water to prices far beyond what any agribusiness operation or residential water utility can afford to pay. In the US, for example, fracking operations will pay up to $3,000 per acre-foot of water, versus about $50 for farmers. (12) Where water resources are falling into private hands, therefore, local populations should expect diversion of those resources to industrial buyers.
Fifth, the last ten years or so has seen the emergence of huge SWFs (sovereign wealth funds, excess capital in the hands of national governments — especially oil-rich nations — pooled for purpose of investing beyond the nation's borders).(13) These funds prioritize not only profit, but also the strategic imperatives of their nations, and, as it happens, some of them are very hungry for water (Saudi Arabia, for example, which has depleted 80 percent or more of its underground water in the last few decades (14)). SWFs have been reinforcing a land grab of striking proportions around the world in recent years, especially in Africa. One third of Africans already live in water-scarce conditions. The water-intensive agriculture projects attending the land grabbing stands to imperil many millions of people, and open the door to private sector, for-profit water services. (15) The stakes here are certainly large. SWFs and other foreign investors have acquired an average of 10 million hectares of land per year since 2007. (16) In just five countries (Democratic Republic of Congo, Indonesia, Phillipines, Sudan, and Australia), they now have 29.7 million hectares of land, which is 20 percent more territory than the entire United Kingdom. (17)
The list of investors acquiring or preparing to acquire water-related assets is long, and it is imposing: big banks, SWFs, multinational corporations, targeted hedge funds, tycoons, and pension funds all figure in large numbers… (18) The investment class is quick to assert that the incipient water crisis is in part a reflection of water's isolation from market forces. Water, they argue, has been undervalued, and so investment in water has lagged. Investment, so the story goes, will alleviate the crisis. While this argument is not empty, the above-mentioned categories of investors prioritize profit, not social good. They are pressing for the maximum extension of property rights to water, with no regard for the possible consequences of this. It is most unfortunate, therefore, that adequate national and international regulatory controls over water resources do not exist almost anywhere in the world. Review of relevant controls is underway in many countries, prompted by the recent surge in land grabbing. (19) But of course it would be rash to assume that the public interest will generally win out in the struggle to define and regulate rights to land and water. It will be well worth watching how this picture takes shape over the next few years.
(1) Quoted in Tracy Alloway, “Willem Buiter thinks water will be bigger than oil”, ftalphaville.ft.com, July 21st, 2011.
(2) Clive Hamilton, Requiem for a Species: Why We Resist the Truth About Climate Change, Routledge, 2010.
(3) Invaluable here is James Lawrence Powell, The Inquisition of Climate Science, Columbia U. Press, 2011. A helpful summary of Powell is John W. Farley, “Petroleum and Propaganda”, MonthlyReview.org, Vol. 64, Issue 01, 2012.
(4) Quoted in “Squeezing Africa dry: behind every land grab is a water grab”, Grain.org, June 11th, 2012.
(5) Bridget Doyle, “Drought's Effects Linger Even in Winter”, Weather.com, December 28th, 2012.
(6) Jon Queally, “Burning 'Deep Purple': Australia So Hot New Color Added to Index”, CommonDreams.org, January 8th, 2013.
(7) Elizabeth C. Economy, “China's Water Pollution Crisis”, TheDiplomat.com, January 22nd, 2013.
(8) Andrea Germanos, “Study: Planet's Lungs Under Assault From Climate Change”, CommonDreams.org, January 18th, 2013.
(9) See, e.g. Jon Queally, “Melting Glaciers in Andes Could Spell Water Crisis in South America”, CommonDreams.org, January 23rd, 2013.
(10) Shiney Varghese, “Water Grabbing to Follow Food Speculation?”, Institute for Agriculture and Trade Policy, January 19th, 2013.
(11) See, e.g., our overview, published in this forum: David Kerans, “Budget Austerity in the West: New Food for the Privatization Parasite?”, Strategic Culture Foundation, October 22nd, 2010.
(12) Jo-Shing Yang, “Profiting from Your Thirst as Global Elite Rush to Control Water Worldwide”, marketoracle.co.uk, December 21st, 2012.
(13) A useful interpretive overview is the relevant chapter in Matt Taibbi, Griftopia, Spiegel and Grau, 2011.
(14) Jalees Rehman, “A Parched Future: Global Land and Water Grabbing”, 3QuarksDaily.com, January 7th, 2013.
(15) See, e.g., “Squeezing Africa dry…”, op. cit.
(16) “Slideshow: “Who's behind the land grabs?”, Grain.org, October 16th, 2012.
(17) Rehman, op. cit.
(18) Jo-Shing Yang has compiled just such a list (op. cit.).
(19) A very recent overview is Saturnino M. Borras, Jennifer Franco, and Chunyu Wang, “Competing Political Tendencies in Global Governance of Land Grabbing”, tni.org, December 2012.