A tradable commodity is essentially a good that can be interchanged for another good, usually falling into the categories of agriculture, energy, metals or livestock. This concept is ideal for countries that is able to produce enough of one product to have stocks left after their people consume the goods, but isn’t able to produce much of another product. Meat, tomatoes, wheat are a few examples.
The most recent entry into the trading industry is water. And it’s aiming to repair a lot of the damage we’ve done over the decades.
By 2050, the world’s water needs are expected to grow by 55%. At the same time, our resources are depleting faster than they’re being replenished at – by this year, we’ll have much scarcer resources. A solution that experts agree is an efficient solution is making water a tradable commodity.
Some may argue with the point that water is essential to life and belongs to all and that if we stay true to morals, we should not be trading it like other commodities. However, environmentalists and economists both note that by involving the market with a role to play will pave the way for better water security in the future. Making water tradable, places an efficient basing price mechanism to set water tariffs.
Australia was the first country to implement this solution, way back in 1997, when they faced a long, bleak drought that lasted till 2009.
The result they witnessed? Business and residential water use was cut by 50% and the drought was tackled!
Richard Damania, an economist in the World Bank Water Practice, explained how it worked. “Suppose I have water, but I’m only growing wheat. Whereas you’re growing grapes or something of higher value, but you don’t have water. Then I can sell you that water instead of irrigating my lower value crop.”
Take a look at this article by CNBC where experts discuss and debate over the possibility of crafting a tradable commodity out of water. Overall, while water’s path to the market is not expected to be a smooth one, there is hope that the eventual outcome will be efficient conservation of the precious resource.