Wheeler, S. (Ed). 2021. Water markets: A global assessment. Edward Elgar Publishing. 288p. ISBN 9781788976923 (hardcover)/ISBN 9781788976930 (ebook). £85 (ebook)/£85 (hardcover).
University of Melbourne Law School; email@example.com
To cite this Review: O’Donnell, E. 2022. Review of water markets: A global assessment. Edward Elgar Publishing, 2021, edited by Sarah Wheeler, Water Alternatives, http://www.water-alternatives.org/index.php/boh/item/282-markets
In a new edited collection, Water Markets: A Global Assessment, Sarah Wheeler examines the applicability of water trading and water markets in 20 countries. As noted in the introduction to the book by Wheeler and Xu, since the 1990s, there has been a growing reliance on economic incentives, including water markets, as part of public policy settings to increase the allocative and productive efficiency of water use (see also Rosegrant and Binswanger, 1994). Water markets can play important roles in increasing access to safe water supplies but they can also expose people to potential price-gouging and corruption, undermining support for state investment in water services. Understanding the role water markets play in the way that water is managed, shared, used, and understood, is essential.
‘Water markets’ and even ‘water trading’ are both umbrella terms that encompass an enormous diversity of arrangements (O'Donnell and Garrick, 2019). There are also varying degrees of ‘formality’ in market arrangements, where formality is a measure of the role of the state in defining rights to water and the rules of the market (Ranganathan, 2016). In 2019, as part of a global analysis of water markets, Garrick et al. (2019, p. 7) noted a paradox: that “formal markets have lagged, while informal markets are flourishing”. Wheeler’s edited collection (also drawing on contributions that span the globe), helps to explain this apparent paradox by showing the breadth and depth of government investment in water institutions required to support formal water markets.
The edited collection is based on Wheeler et al.’s 2017 framework to assess a jurisdiction’s “water market readiness” (Wheeler et al., 2017; this paper is presented again as chapter 2 in the book, and for clarity page references are to the reprint in the edited collection). This water market readiness assessment (WMRA) framework is focused on formal water markets that operate in agricultural contexts (although this may also encompass intersectoral trading between agriculture and urban, industrial or mining uses). The authors identify three steps to assess water market ‘readiness’:
- Background context: system hydrology and existing institutional, planning and property right arrangements;
- Market evaluation, development and implementation: assessment of the potential benefits of trade, followed by ‘market initiating change’ to policy settings and institutional arrangements to give effect to water markets; and
- Monitoring and review: adaptive management and further development of ‘trade enabling mechanisms’ (Wheeler et al., 2017, p.31-34).
The intent of the book is to apply the WMRA framework to 20 countries from six regions (Africa, Asia, Europe, South America, North America, and Oceania). The wide diversity of case studies provides insights into water management laws, policies and institutions in Mozambique, Tanzania, Zimbabwe, China, India, the countries of the Lower Mekong Basin (Laos, Thailand, Vietnam, Cambodia and Myanmar), Nepal, Pakistan, France, Italy, England, Chile, the USA and Aotearoa New Zealand. This alone makes the book an excellent resource for water scholars, and it is still too rare to find a book on water markets where case studies are not concentrated in the Global North. However, there are also a few surprising exceptions, such as Spain, South Africa and Iran, where it would have been very useful to see an updated analysis of water trading.
As the WMRA is applied across each of these locations, it becomes clear that almost all countries remain very far from the robust formal water markets envisaged under Step 3 of the framework. In fact, only two countries (the USA and Australia) have any regions that have progressed through the three steps of the framework. On the other hand, many of the other locations have low levels of water trading, using informal processes or ‘pair-wise’ trades between individual buyers and sellers (chapter 4 by Zuo et al.; chapter 11 by Bark and Smith). These locations highlight the importance of local relationships and social norms in facilitating informal water markets and should make water policy makers question if the benefits to be obtained from investing in formal water markets are worth the significant costs.
The framing of the WMRA implies that ‘water market readiness’ is a goal for water policy makers, with each country being assessed for progress towards that goal. In doing so, it risks presenting water markets as an end in themselves (rather than one of several means to achieve equitable and efficient water sharing), where the success or otherwise of a water management system is defined in terms of how it functions as a water market. For example, chapter three by Pittock et al. explores water management in Mozambique, Tanzania, and Zimbabwe, and highlights the water governance failings, as well as showing that water could be used more efficiently. However, it doesn’t clearly articulate how a water market could help, rather showing that “we should instead look to interventions that save irrigation farmers time and energy costs, and maximise crop yield, so that, in some cases, total water use is reduced” (Chapter 3, p. 63). In chapter 4 by Zuo et al., the analysis of water markets in China highlights the possibility of market mechanisms to enable reallocation between competing uses (a problem that markets can excel in solving), but also documents that 70% of China’s staple crops, 80% of cash crops, and 90% of vegetables are produced using irrigation. Intersectoral transfer would potentially place food production at significant risk, unless it was also accompanied by investments in irrigation efficiency. For food producers to compete with other sectors for water based on price, food prices would need to rise significantly. This is a problem worldwide, and underscores the need for water markets to be contained within broader systems of water governance that ensure essential services (food, drinking water, sanitation, as well as ecologically healthy rivers) continue to be provided.
In applying the WMRA widely, the book also highlights some blind spots. For example, the WMRA also tends to overlook intersections with management of related resources, which is a limitation discussed in chapter five. In this chapter, Loutain et al. argue that “in West Bengal, farmers prima facie appear to be trading water, but in practice they are trading access to energy to lift water (p. 87). This is an important lesson: the WMRA is a useful tool, but it is only one lens through which to consider the problem of effective, efficient, and equitable water management.
Only one chapter focuses on how water markets can not only be tools for managing within existing limits (sustainable or otherwise), but can also offer a pathway to improving ecological health by returning water to rivers and aquifers. In this chapter 13, Gilson and Garrick explore how water markets reallocate “water from farmers to restore habitat, using hydropower revenues and mitigation funding from residential developers” (p. 207). In doing so, they draw on survey results from 2007 and 2017, which show that not only have barriers to water trading increased over time, but that the most frequently identified barriers by participants were “socio-cultural factors [including] finding willing sellers, engaging with landowners through building and maintaining relationships, managing political and cultural resistance, and dealing with negative effects of transactions” (p. 217). They find that ‘culture matters’ and that the WMRA is too narrow in its focus on the ‘political acceptability of trade’, arguing instead that “certain geographies may need to expand the scope of their assessment beyond externalities to adequately and proactively prepare for socio-cultural barriers” (p. 218).
This question of the cultural acceptability of water markets is also explored in chapter 14 by Talbot-Jones and Grafton, which considers water trading in Aotearoa New Zealand. This chapter also provides a fascinating overview of two non-point source water quality trading markets operating in Aotearoa (in Lake Taupō and Lake Rotorua), which is definitely worth a read. These two examples highlight the value of simplicity for water trading, not only as a way to lower transaction costs, but also to enable potential buyers and sellers to create a mental model of their own participation in the process. One of the challenges for water quantity trading markets in Aotearoa is that the consent to use water cannot be classified as ‘one of ownership or full control’ because of the “long-standing disagreements between the Crown and Māori over ownership and control of water that have been driven by inconsistent translation of Te Tiriti o Waitangi (Treaty of Waitangi), one of New Zealand’s founding documents” (p. 226).
This book speaks to several of the challenges facing water managers, but continues to overlook the roles of water custodians. For example, one repeated element of both the WMRA as well as numerous economic analyses of water management is the requirement to unbundle water rights from land. Separating water from land is a source of pain and injustice for many communities, yet resistance from farmers in Italy (chapter 10 by Dioniso Pérez-Blanco), Australia (Frontier Economics, 2007) and other developed nations is often framed merely as a lack of understanding of the benefits of water markets. Although ‘unbundling’ has proven remarkably useful in lowering transaction costs of water trading and increasing water market activity, it has also become another barrier to holistic management of land and water.
In the final chapter, Wheeler acknowledges that one of the gaps in the WMRA framework is that it “does not currently properly account for the social and cultural acceptability of trade, and not including these categories specifically could result in some analysts underestimating their importance” (p. 243). In chapter 14, Talbot-Jones and Grafton also appear (unintentionally) to limit the importance of cultural factors to “regions that have water systems of cultural significance” (p. 230). This is an unnecessary (and dangerous) qualification, as all water systems, everywhere, have cultural value and significance. In settler colonial states, it is even more important to acknowledge this significance, even though dominant settler state systems of law and water management rarely acknowledge the importance of the relationship between people and water (Martuwarra RiverOfLife et al., 2021, Ruru, 2018).
The significant contribution of this book is that it provides a guide to policy makers that not only shows how to progress towards the development and implementation of formal water markets, but also demonstrates how much investment and work is required from the state. Wheeler et al.’s WMRA framework is a profound demonstration that formal water markets are a form of regulation, not an alternative to regulation. In doing so, they show why so few countries have formal water markets, even while informal water markets remain widespread. In most cases, it seems that the upfront cost of institutional and legal reform (including overcoming social and cultural resistance to a formal commodification of water) outweighs the benefits of improved water allocation efficiency.
As an edited collection, this book is highly readable, both in its entirety and as individual chapters. It offers broad insights about the potential applicability of water markets in a wide variety of settings. However, it does need to be read with caution, for its lack of critique of the hegemony of market tropes, and the way this thinking can displace other values for water, other ways of knowing water, and other processes of water management. It is important that the absence of water trading is not necessarily or only necessarily (or only) a ‘cultural reluctance to water trade’, but represents a clear acknowledgement from water stakeholders that not all values can be condensed into a single metric, and that the hand of the market should not be solely responsible for distributing water between uses.
Frontier Economics. 2007. The economic and social impacts of water trading: Case studies in the Victorian Murray Valley. Canberra Rural Industries Research and Development Corporation.
Garrick, D., O’Donnell, E., Moore, M.S., Brozovic, N. & Iseman, T. 2019. Informal Water Markets in an Urbanising World: Some Unanswered Questions. Washington, D.C.: World Bank Group.
Martuwarra Riveroflife, Taylor, K.S. & Poelina, A. 2021. Living Waters, Law First: Nyikina and Mangala water governance in the Kimberley, Western Australia. Australasian Journal of Water Resources 25: 40-56.
O'Donnell, E. & Garrick, D. 2019. The diversity of water markets: Prospects and perils for the SDG agenda. WIREs Water 6: e1368.
Ranganathan, M. 2016. Rethinking urban water (in)formality. In: Conca, K. & Weinthal, E. (eds.) The Oxford Handbook of water politics and policy. Oxford Handbooks Online: Oxford University Press.
Rosegrant, M.W. & Binwangher, H.P. 1994. Markets in tradable water rights: potential for efficiency gains in developing country water resource allocation. World Development 22: 1613-1625.
Ruru, J. 2018. Listening to Papatūānuku: a call to reform water law. Journal of the Royal Society of New Zealand 48: 215-224.
Wheeler, S.A., Loch, A., Crase, L., Young, M. & Grafton, R.Q. 2017. Developing a water market readiness assessment framework. Journal of Hydrology 552: 807–820.