THE EQUITY PRINCIPLE AND WATER TRADING

Speculation

Speculation and price manipulation can cause the market price of water to be volatile and to escalate dramatically during times of shortage. This is not only a problem for farmers who need the water for their crops but also for urban users and the environment if governments have to buy extra water.

Ralph Nader's advocacy group Public Citizen argues that in the USA, water 'plutocrats... seek to quot;gamequot; public water projects - much as Enron quot;gamedquot; energy deregulation. setting up insider water trading systems' so that 'profit rather than need dictates the destiny of California's water' (Gibler 2003: 1). In the United Kingdom, the Office of Water Services claims that 'a company establishing a dominant position' in the water market 'would not in itself infringe the Competition Act' but if such a company restricted the right of others to extract water, the reg­ulator could step in and direct it to provide access (DEFRA 2005).

Some governments have tried to put in place safeguards against speculation. In Victoria there are limits on how much water 'non-water users' are able to own, intended to prevent 'water barons' becoming established. However, that only limits speculation by those who don't use water themselves, and there are ways of getting around the safe­guards (Anderson amp; Newton 2004; DSE 2005). For example, people are buying land to position themselves as water-users 'and then just deserting the land and keeping the water'. Arable land is now going to waste as people use it just to get water rights for speculation purposes. Don Blackmore from the Murray-Darling Basin Commission says, 'I can take you to a block where there are six farmers in the same region and they don't put a drop of water on their property.

In the meantime those who need the water for their farms can't outbid the big players who are often not farmers at all. Real estate agent Neil Camm, for example, has found that water trading is more profitable than real estate trading and with an annual turnover of 100 000 megal­itres claims to be Australia's biggest water trader. His company, National Waterbank Ltd, was established for the purpose of raising money to buy up water licences (Fullerton 2001: 166; Lewis 2003).

In 2003, the largest private owner of water in Australia lived in Argentina. The investigative television programme Four Corners reported that his company had rights to some 157 000 megalitres a year (Fullerton 2003). Thomas Krijnen (2004: 4) has written, in the journal Natural Resource Management, of:

the expected rise in the number of 'water barons' - people who buy up water allocations and trade in them much as they would trade in any other commodity on the stock market. The fear is that, motivated by a straightforward desire for profit, they will create artificial markets, manipulate supply and raise the cost thus pricing genuine irrigators, who would otherwise be viable, out of the market.

Between 1999 and 2003 the price of water in Australia increased by 27 times and many blame this on speculators. 'Water rights are being touted as the next big investment after housing, according to a board member of the Reserve Bank, and there is speculation that the boom in the price of irrigation rights could harm the nation's farming industry as speculators try to profit from the water shortage' (EnviroInfo 2003). More radical critics argue:

given the desperate shortage of river water in general, the agribusi­nesses may find the trade in water more profitable than the produc­tion of crops. If so, the government will simply have burdened the nation with a layer of totally unproductive middle men with a stran­glehold on our most precious natural resource - a resource which should rightfully belong to the people and be managed by govern­ment.

Efficiency vs equity

Water allowance trading aims to ensure that water is allocated 'efficiently':

According to classical market economics, economically efficient allo­cation of resources is achieved by competition between consumers for products they want... In this case 'efficiency' is defined as allo­cation that produces the greatest net benefit to society - not neces­sarily the most equitable sharing of resources, nor one that maximises production. (ENRC 2001: ch 7)

In reality, those who can pay the most for water are not necessarily those who produce the crops or the products that are most important to the community. Those with best access to capital have best access to water, and often producers of luxury crops such as wine grapes are better able to pay for water than those farmers producing staples such as milk, cereals and vegetables, which the community depends on (ENRC 2001: ch 7). This means that the price of basic food items will increase, some­thing that impacts most heavily on the poor, for whom food represents a greater proportion of their living expenses.

What is more, the idea that a water market will ensure that water is used for the most valuable product ignores the way that the market value of different crops changes: 'What is considered high value one day, may be in overproduction or may be overtaken by technology shortly thereafter' (Fullerton 2001: 159). In fact, by 2005 there was a glut of wine grapes in Australia, causing their price to fall and leaving growers with increasing water costs and declining profits.

Another problem occurs when a large number of farmers in a dis­trict sell their water rights permanently to get the cash to leave their farms. Not only are the abandoned farms left as magnets for weeds and feral animals and as eyesores on the landscape, but the cost of main­taining shared irrigation infrastructure is left to the few farmers who stay. This 'Swiss cheese effect' has been felt in parts of Australia such as Rochester West in northern Victoria, where half the farms have closed down. In the nearby Goulburn-Murray Rivers district, half the water has been sold to other areas. This impacts on employment as the shops and businesses that once serviced the local area close down also (Carruthers 2005).