The expensive cost of cheap water

By Harry van Versendaal

From drinking to cleaning, from making newspapers to automobiles, water is used in ways that escape our awareness. Water, in other words, is too precious to be wasted, but this is exactly what?s happening, prompting a number of groups to promote ways of conserving it. One way, say some, is raising its price — as the argument goes, cheap water comes with a hefty price tag.

Experts meeting in Madrid last week, for example, warned that governments in the northern Mediterranean must phase out irrigation subsidies to farmers or risk a ballooning threat to the environment and food security.

?There are increasing incentives to produce more and to use more irrigation, because there is a very attractive market out there waiting for these same products,? said Kevin Parris, an economist at the Organization of Economic Cooperation and Development (OECD), pointing a finger at developing markets in India and China.

Growing demand, as a result of rising world populations and changing dietary habits, and the climate change wild card are putting a strain on water resources and intensifying the need for more efficient management of this, a precious albeit long-squandered resource.

Data is often fragmented, but the pattern is there. Some 47 percent of the world?s population will live under severe water stress by 2050, the OECD predicts. Meanwhile, farmers will need to produce nearly 50 percent more food up to 2030 and double output by 2050 to match soaring demand, according to the Paris-based organization.

Things will only get worse as a result of global warming. That, most scientists predict, will increase irrigation needs by 26 percent while exacerbating the consequences of desertification, deforestation and soil erosion — especially in the southern hemisphere.

Thirsty farmers

Agriculture is the main user of the world?s freshwater withdrawals, accounting for almost 70 percent. Eight percent goes to urban use. It is often missed that H2O is used to make everything from electricity to automobiles. So industry consumes about 22 percent of resources. Water demand among factories and domestic users has quadrupled over the past 50 years.

Water is a finite resource, which means there is only a certain amount of it out there. It is used, but it is never really used up. Water evaporates from the ground or transpires from foliage to become cloud before falling back to the earth as rain. Although humans have found a way to remove salt from seawater, a practice known as desalination, the technology, which is gaining ground in Spain, Israel and Australia, comes with a poor environmental record. It damages the coastline while using up big chunks of energy which adds to the greenhouse effect.

There is no easy way, it seems, when it comes to protecting the environment.

?There is not much to do on the supply side,? Parris said, adding that efforts should instead focus on curbing demand. And there is no better best way to accomplish this, most experts agree, than by introducing a price for water that reflects its true cost.

Most governments provide financial support for irrigation — allowing farmers to pay far below market prices. Policymakers do so to serve social and political objectives, such as food security and regional development in poorer areas, but they remain deaf to the collateral damage caused by underpriced water.

Undercharging for irrigation water, Chris Charles, project manager of Global Subsidies Initiative (GSI), told the Madrid conference, has dire environmental and economic repercussions such as groundwater depletion and pollution, as it encourages intensively farmed and pesticide-intensive crops, while at the same time distorting international markets.

No transparency

A recent study by the GSI, which is a chapter of the International Institute for Sustainable Development (IISD) found that Spain spends an estimated 1 billion euros a year on irrigation subsidies. Other countries in the northern Mediterranean — Greece, Italy, France and Portugal — the report said, also provide generous aid but the true magnitude is hard to determine as governments are wary of sharing too much information.

?That money could be better used in other parts of the economy,? said Charles of the Geneva-based outfit set up to monitor government subsidies and their impact on sustainable development.

In most cases, farmers only pay for the operation and maintenance costs for water, while shunning their due share of capital costs for hydro projects like dams and canals.

On top of discouraging the switch to water-wise technologies such as surge flow irrigation, low pressure sprinklers, drip-irrigation and moisture sensors, subsidies is the thick wall obstructing the eco-signal. ?There is no scarcity message in the price of water,? Nuria Hernandez-Mora, president of the New Water Culture Foundation (FNCA), a Spanish non-governmental organization, told the conference.

Advocates of subsidies say that slashing state support is going to push up commodity prices for consumers and drive many farmers out of business. But those concerns, critics say, are not backed up by evidence. ?The rise in water prices does not increase food prices at the supermarket,? Parris said, drawing on past experience in Australia and Israel.

Some people argue that the out-of-whack economics of the EU?s common agricultural policy (CAP), a system based on mammoth subsidies and artificially cheap exports, has not helped much toward conservation either. ?Most aids go to intensive farming systems,? said Eva Hernandez of WWF Spain?s freshwater program.

CAP subsidies gobble up over 40 billion euros a year, i.e. more than 40 percent of the bloc?s budget. The biggest chunks of aid, Parris said, go to the richest farmers in the north who produce more water-intensive goods such as dairy, sugar beets and beef. ?In the EU the richest farmers get the bulk of the subsidies. It?s bizarre and unfair,? Parris said.

Tampering with subsidies, of course, is always a tricky one for politicians who are wary of disaffecting their voters. Aid is systematically used as a tool to benefit specific groups of people which is why governments can be quite laconic about the allocation of handouts.

?Subsidies themselves create a pool of money out of which recipients can influence the very political process that channels money to them in the first place,? a recent GSI report notes. The problem is that, particularly in the southern European world of corruption-prone politicians, petulant unions and vested interests, government aid has come to be seen as natural. ?Subsidies thus metamorphosize into entitlements and any attempt to curb them becomes politically hazardous,? the report says.

Greeks know a thing or two about entitlements. Local farmers have repeatedly blocked major highways with their tractors to press with their demands — and they have in most cases gotten away with it as governments pay the price for the salience of patron-client relations. This scene was repeated in early February when hundreds of farmers, from northern and central Greece, threatened to block the border with Bulgaria in a bid to pressure the socialist government into giving them tax-free gasoline, compensation and subsidies.

Know your rights

In recent years, alternative concepts have been put forward to improve water management. One of these plans is water trading, whereby users buy and sell water rights. The idea is to direct water toward high-value uses, and the scheme has found success in Australia where water rights are in some places transferred on a temporary or permanent basis between stakeholders. The recycling of water also holds promise, but low water prices do not make recycling very interesting to farmers.

Others advocate the introduction of a water footprint to track the amount of water that goes in the production of each good. According to calculations by Water Footprint Network, a Dutch-based non-profit foundation, an apple requires 70 liters of water, one glass of beer 75 liters, and one hamburger 2,400 liters. But numbers like these are unlikely to change our increasingly demanding dietary habits, especially as more and more people around the world rise into the middle class (2 billion people currently stand on the threshold, according to a recent Economist report). ?Times have changed. My daughter these days wants to eat strawberries in midwinter,? Parris said.

To make things a bit more complicated, some people hold that water is a natural right and should thus be provided free of cost. That?s a cultural, economic and, perhaps, philosophical question. But even if water came from god, the standard counter-argument goes, it did so without the dams and the water pipes.

Those wasteful Greeks

Agriculture in Greece uses 87 percent of water resources — a staggering figure that is close to the average in developing countries. Low water prices have made local farmers shy of technological innovation (outdated sprinkler systems, often seen wetting neighboring plots of land or the asphalt road, are still very widespread) while encouraging water-intensive crops such as cotton.

Cotton farmers in Greece, one of the main beneficiaries of EU funds, have in the past been subsidized by up to four times the market value of their crop, but CAP reforms over the previous year have made things harder for freeloaders.

Management has never been the Greeks? forte and management of water, too, leaves a lot to be desired. Agriculture is heavily dependent on groundwater and access is often ensured via illegal wells. Due to overpumping of groundwater, withdrawals are being extracted faster than they are recharged.

The excessive use of water is evident in the heavily farmed plain of Thessaly. A controversial project to divert the country?s second-longest river, the Acheloos, from Western Greece to the area was recently suspended by Greece?s highest administrative court citing environmental concerns.

An OECD report published last year put total subsidies for Greece over 141 million euros. ?No significant effort has yet been made to make farmers pay for the important rehabilitation and maintenance costs,? the report said. The country?s landscape and the economic significance of the agricultural sector (the contribution to Greek GNP is one of the highest in Europe), it said, ?are factors which explain the delay in implementing water pricing reforms.?

The EU water framework directive, launched about a decade ago, was designed to reform water pricing and financing policies toward full cost recovery. But it has yet to make an impact on Greece, where, according to an assessment published by the Greek environment ministry in 2008, the cost recovery level ranges between 1.78 and 56.25 percent.

Current trends are clearly unsustainable, but little can be achieved unless we all come to realize the true price of water. ?If you ask how much a liter of gas costs, most people will know,? said Parris. ?If you ask them the price of water, nobody knows.?