[hepr-vn] A costly thirst (Why world's poor often pay most for drinking water)

[Vern Weitzel]

http://www.ft.com/cms/s/0/3c12a800-0197-11dd-a323-000077b07658.html

(also see image)

A costly thirst
By Fiona Harvey, Environment Correspondent

Published: April 3 2008 18:20 | Last updated: April 3 2008 18:20
Slum-dwellers in Dar es Salaam pay the equivalent of £4 ($8, €5) for 1,000 
litres of water, bought over time and by the canister. In the same Tanzanian 
city, wealthier households connected to the municipal supply receive that amount 
for just 17p. In the UK, the same volume of tap water costs 81p and in the US it 
is as low as 34p.

Figures from other countries confirm the evidence: it is generally the poorest 
who pay most for what is one of the most essential of all natural resources. 
Water is in short supply for a large proportion of the world’s people: about 1bn 
lack access to clean water and 2.6bn have no sanitation. An estimated 5,000 
children die every day from water-related disease, according to WaterAid, the 
London-based charity.

EDITOR’S CHOICE
Ban warns business on looming water crisis - Jan-25

Long period of rising food prices forecast - Jan-21

PepsiCo adds sparkle to clean water initiative - Jan-21

‘Elite’ trust business above all, study says - Jan-21

In depth: Davos 2008 - Jan-21

If the number of people lacking safe drinking water were halved, at a cost of 
about $10bn, the world would benefit by $38bn in annual economic growth, 
according to the United Nations Development Programme. Disputes over water 
rights can, the UNDP argues, lead to conflicts – such as in Darfur.



Yet, as each shower of rain serves to remind, water is just about the most 
renewable natural resource. The problem is its distribution – not only the 
climatological patterns that leave some places parched while others flood but 
also the way societies manage their water resources.

The question is how to put a fair price on water. In some of the same countries 
where poor people lack access to clean water, others waste the resource because 
their supply is subsidised by the government or is otherwise priced so low that 
they have no incentive to save it.

This is hardly a problem confined to the developing world. Farmers in Spain are 
estimated to pay a price for water that is only about 2 per cent of its real 
cost. Rice and wheat farmers in California’s central valley use one-fifth of the 
state’s water but the low prices they pay represent a yearly subsidy estimated 
at $416m for 2006.

“Water is absolutely not fairly priced or realistically priced. Therefore people 
are using water as if it is a resource that will be free of charge forever. That 
is the reason we are running out of water,” says Peter Brabeck-Letmathe 
(pictured below), chief executive of Nestlé, the foods group. He warns of an 
impending crisis in which businesses will struggle to find the water they need 
and will be forced to pay much higher prices for it, if more is not done to 
conserve the resource and distribute it more rationally.



The only answer, argues Mr Brabeck-Letmathe, is to bring market forces to bear. 
Water must be fairly and realistically priced, in order to ensure it is not 
wasted. “That is how to move forward,” he says. His company is involved in the 
issue as part of efforts to present itself as a good citizen in the face of a 
30-year-long boycott of its products by consumers who disapprove of Nestlé’s 
record of promoting powdered baby milk in the developing world. Mixing the 
infant formula with contaminated water led to numerous deaths that could have 
been avoided if mothers breast-fed instead, activists allege. The company says 
it now complies with an international code on marketing such products.

One of the most damaging effects of the failure to price water fairly is the 
global trade in “virtual water” – that is, water used in the production of food 
or manufactured goods. Some countries that are poor in water nevertheless send 
it abroad in the form of agricultural and industrial exports.

Australia exports more “virtual water” than any other country, through shipments 
of wheat and other crops. Its farmers have suffered a seven-year drought, only 
now showing signs of easing. As a result, they are the most efficient 
agricultural users of water in the world. Experts wonder, however, whether it 
makes sense for such an arid country to engage so much in growing 
irrigation-intensive crops for export.

The trade in “virtual water” goes largely unnoticed by consumers of the 
processed goods. But the price of many goods sold around the world shows that 
the water that went into their production was very cheap. A pair of jeans that 
sells for a few pounds uses up to 11,000 litres of water, according to 
Waterwise, a UK not-for-profit organisation. A hamburger that sells for less 
than a dollar requires more than 2,400 litres of water to produce.

Agricultural users of water are often heavily subsidised, whether directly or 
indirectly, making the water for farmers “vastly underpriced”, says Andrew 
Hudson, leader of the water governance programme at the UNDP. This is 
contributing to serious problems: the UN organisation estimates that in parts of 
India, ground-water tables are falling by more than a metre a year, jeopardising 
future agricultural production.

Other businesses may also have their water supply subsidised or may be granted 
extraction rights that give them cheap or even free access to water sources. The 
UNDP concludes: “When it comes to water management, the world has been indulging 
in an activity analogous to a reckless and unsustainable credit-financed 
spending spree. Countries have been using far more water than they have, as 
defined by the rate of replenishment.” This recklessness is storing up problems 
for the future, when the world’s population is forecast to rise to 9bn by 2050 
from nearly 6.7bn today.

How can water be fairly priced? Many non-governmental organisations want water 
to be recognised as a basic human right and are suspicious of schemes that raise 
the price of water. Henry Northover, head of policy at Water Aid, adds that in 
some developing countries, poor governance structures hamper attempts to price 
water: “The success of using pricing as a form of regulating supply is a 
function of the robustness of institutions and effectiveness of policy regimes.”

Mr Hudson believes that water can be better priced if certain conditions are met 
first: “You need to have mechanisms that provide for the basic human need of 20 
litres of water a day [for drinking, cooking and washing]. For that, governments 
need to apply subsidies in an appropriate fashion and build local access to water.”

Most governments regulate the price of water but, because of the “perverse 
subsidies”, that often does not result in sensible water pricing. So Mr 
Brabeck-Letmathe has an alternative idea: water trading.

He compares the concept to carbon trading, which has put a price on emitting 
carbon dioxide in Europe. Under a so-called cap-and-trade mechanism, a limit is 
imposed on how much carbon companies can emit and allows them to trade their 
quotas with one another. A similar system with water would mean that businesses 
and farmers would be granted the right to use a certain amount of water. If they 
want to use more than their quota, they must buy the rights from other companies 
or farmers in the trading system.

This idea is not new, he says – desert dwellers in Oman have been trading with 
each other the right to water supplies for thousands of years. More recently, in 
Nestlé’s native Switzerland, a system has come to exist in some areas where 
farmers each have a right to take a certain amount from irrigation channels and, 
depending on the crops they grow, might decide to take less water in return for 
payment from a neighbour who wants to take more.

Fred Krupp, president of Environmental Defense Fund, a US charity, is an 
enthusiastic supporter of the idea. He told a meeting at Davos in January: 
“Appropriately designed and applied, a market-based tool such as cap-and-trade 
can be just as much a solution to our water crisis as it is for global warming.”



But Jamie Skinner, principal researcher at the International Institute for 
Environment and Development, says there are legal and political obstacles to 
water trading. He points to Spain, where farmers do not own the water and 
therefore could not trade it without disentangling water rights from land 
rights, which is tricky. He adds that for water trading to work, “some degree of 
privatisation of the resource is needed, which has proved politically difficult 
or distasteful in many contexts”.

Mr Krupp acknowledges that there would be legal and governance problems and 
vested interests to be overcome – particularly the farming lobby, as agriculture 
receives the best treatment almost all over the world when it comes to water 
rights and pays less for its water than any other industry. He says: “There is 
no question that we have much to do to ensure that water trading occurs in a way 
that is cost-effective and prevents undue windfalls. We also need to ensure that 
water transfers don’t hurt rural communities, low-income populations or the 
environment. An effective system of cap-and-trade for water will require lots of 
metering and enforcement.”

But he insists: “Those issues are very manageable and we and others are already 
working on them.”

Other differences exist that would hamper imposing a cap-and-trade system on 
water as has been done with carbon. The trade in carbon is virtual: companies 
swap permits to emit the greenhouse gas rather than transferring actual tonnages 
of it. But water is heavy and difficult to transport across long distances. “It 
is not fungible, it is not deliverable,” says Edward Kerschner, chief investment 
strategist at Citi Global Wealth Management.

The only world shipments of any significance are of bottled water, which is an 
expensive product often regarded as environmentally unsound. So any trade in 
water could take place only within small regions, such as areas that share a 
source. The examples of Switzerland and a few others show that local systems for 
water trading can be developed, provided the governance is there to ensure that 
the trading is conducted fairly and there is the political will to press ahead.

Whether water trading catches on or not, Mr Brabeck-Letmathe believes one thing 
is certain: businesses should brace themselves for more expensive water, the use 
of which would also be more highly regulated. He says: “We will have to pay more 
for our water – and it is correct that we should.” Many businesses would prefer 
a system of water trading to having their charges arbitrarily raised by water 
companies or bureaucrats, he argues.

As Mr Krupp concludes: “What relevance does all this have to the business 
community? A secure water future, including healthy river systems, contributes 
to a healthy business climate. Markets and conservation are the most 
cost-effective alternatives for getting to that secure water future.”

For the poor who pay disproportionately high amounts for their water, fairer 
pricing could not come soon enough.
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