Free-Flowing Markets Sustain Growth

The world must increase its usable water supply and effectively manage water demand, while ensuring that everyone has access to enough water to meet their basic consumption and sanitation needs. These tasks must be balanced with providing rural communities and the agricultural industry access to enough water to be economically viable and to feed a growing world population.

picture of globe and water

Meeting competing needs effectively

Rabobank’s industry note Agricultural Water: Free-Flowing Markets Sustain Growth shows how global economic development additionally requires enough water to support increased demand for energy production and industrial use. Water must also be used to maintain ecosystems and other natural amenities. These competing needs must be met, against a backdrop of increasing climate variability. According to Senior Analyst Vernon Crowder: “The challenge is in determining what the 'proper' allocation of water resources should be, along with incentivising investment so that use-efficiency technologies and supply-side infrastructure are not under-provided. 'Free' markets have been shown to be a capable mechanism for efficiently allocating resources to their highest value use.”

In the context of comprehensive water management and more efficient allocation of water resources from the use of water markets, Australia should be considered a success. However, achieving and measuring environmental outcomes while maintaining economically efficient levels of agriculture production has still been challenging. Balancing environmental and agricultural needs as water markets further develop will be especially critical for the world’s most-productive agricultural region, California.

Taking a comprehensive approach

The development of effective water markets requires the convergence and coordination of technical, institutional, legal and economic (TILE) forces, in a comprehensive approach that meets the needs of society. The development of water markets in specific regions of the world will evolve differently, at different paces, and take on nuances that are specific to each region’s characteristics. As markets are implemented/expanded, each area’s ag producers potentially face slightly different costs and benefits, but, generally, markets will increase the overall net benefit to society, while decreasing risk for the ag sector as a whole.

  • Vernon Crowder

    Senior Analyst - Fresh Produce
    Read more
  • Roland Fumasi

    Head of RaboResearch Food & Agribusiness - North America
    Read more
  • Marc Soccio

    Senior Analyst - Beverages
    Read more
  • Georgia Twomey

    Analyst - Commodities
    Read more
  • James Williamson

    Analyst - Dairy
    Read more