False Economy - Alan Beattie [50]
China is in a similar situation. Its giant population has placed considerable strain on the country's limited water. Often, the giant Yellow River, in whose valley settled agriculture first started in China, now runs dry before it reaches the sea. But though China's demand for water has gone up rapidly as its people have started eating much more meat, a sign of their rising income, the country has relieved some of the pressure by importing water-and land-intensive crops like soybeans, which are used to feed pigs. In return it exports labor-intensive produce like mushrooms and garlic, not to mention its colossal and profitable sales of manufactured goods, which use relatively little water in their production.
But the pattern of resources flowing from places of abundance to places of shortage is very often violated by the artificial constraints of policy. The world's largest net exporter of virtual water is, bizarrely, Australia, which is the second-driest continent on earth after Antarctica. We will see later just why it is so common for small groups of producers— frequently farmers—to be able to capture government policy and turn it to their own ends. Often it is easier to do this with water than with other resources, since water is frequently either given away free or priced in a peculiar way.
The logic of trade being determined by resources involves the price of those resources reflecting their true value. Countries with a lot of fertile land and not many people, for example, will tend to export land-intensive agricultural produce, because land will be relatively cheap. But when resources like water are handed out free, or for different prices to different groups of producers and consumers, those decisions can become distorted.
Australia is a country with a lot of land. But it is also very dry and has a fragile ecosystem. Nonetheless its export-oriented farmers help to send a net 64 billion tons of virtual water out of the country each year. The amount of water for irrigation being taken out of the huge Murray-Darling Basin—a river system that starts up in tropical Queensland and the high New South Wales mountains and empties into the sea by the southern Australian city of Adelaide—is causing marked environmental damage.
Australia has a relatively sophisticated water trading system. But though it allows farmers to sell water rights among themselves, it severely restricts their ability to sell them to industry and the cities. As a result, Australia continues to export low-value but thirsty crops like rice and cotton while its cities suffer from severe water restrictions. In practice, by giving away its scarce water radically below cost to farmers, Australia is stiffing its own cities while subsidizing consumers in the rest of the world.
Except when there is a drought, water rights trade among Australian farmers at about one hundred Australian dollars per million liters or thousand tons. Water rights in the cities trade at ten times that. If there were a free trade in water, many farmers would sell their allocation to the cities rather than, for example, keeping rice fields under water for five months of the year. The country would cease to export net virtual water in such huge quantities. But the political imperative to keep the farming industry alive has so far prevented the market logic of scarcity and abundance from being allowed to function. True, Australia's government has announced a