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Should We Commoditise Water?

Commoditization of water could very well be a sensitive (and borderline irrational) topic and definitely not a topic we think about today but the burning question especially for highly populated countries like India remains ‘what can be done to make water conservation more effective?’

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When we pour a glass of cold water to quench our thirst, it’s easy to forget what it takes to get a glass of clean water to our houses and how important is it to our existence. While we think about oil, gas or gold; we immediately know that they are precious and it takes a lot of effort and money to get them to us. With water we somehow assume that we can get as much as we want and anytime we want. After all earth is two-third water, Isn’t it?

Water, Oil, Gas and Gold are precious natural resources provided to us by Mother Nature. But Oil, Gas and Gold are treated as commodities while water is treated as a public resource. What does that mean? Simply put, a commodity is a basic good, which can be used in the production of other goods or services whose value is driven by the market forces. Whereas a public resource is made available without profit to all members of the society, mostly by the government. This categorization makes absolute sense. Humans cannot survive without water, which makes it a basic human right and its availability should be governed. But having spent 15 years understanding the value chain for some of these valuable commodities, one question I cannot stop thinking about is “Can we do a better job in water conservation by treating water as a commodity?” 

Firstly, let’s get some facts together to understand the seriousness of the problem at hand.

  • Earth has approx. 1234 million trillion liters of water.
  • 97% of this water is salty. 2% of water is frozen. 1% available for human kind. Most of which is underground and really difficult and expensive to get to. This 1% keeps us alive.
  • Cities like Cape Town which are already on the verge to run out of water. That’s ~ 4 million people with possibly no water supply.
  • About 600 million Indians live in areas where water stress is rated high to extreme (Reference: Economic Times ‘1 billion Indians live in water scarce areas’ 20 Mar 2019)
  • By 2040, most of the world will not have enough water to meet yearly demand.

Let’s also talk about consumption patterns of the 1% water that is available to us. We use 70% of this water for agriculture purpose. 20% for industrial purposes and the remaining 10% for daily needs such as drinking, cooking, brushing etc. Although, there is an increasing awareness in the society to conserve the 10% water we use at homes but what about the remaining 90%?

We all know water is used for irrigation and in almost all manufacturing processes. What we don’t realize is that some crops and manufacturing processes consume a lot of water. Did you know that it takes:

  • 2700 liters of water to make a single cotton t-shirt
  • 7600 liters for pair of jeans.
  • 130 liters for a cup of coffee.
  • 74 liters for your favorite glass of beer.

So why is water not treated like other precious commodities? Could treating it that way help us do a better job in conserving it?

In my opinion, water definitely has commodity like characteristics. It’s valuable and has limited availability. Hence, price of water as an asset will only increase. But the big difference is that it does not abide by the rules of capitalism. The true cost of water does not get passed on to the consumer of the end product. In the examples above, cost of water is more than the price of the end product. But it is treated and priced like it will always exist. We don’t know how to rightly price water. What utilities charge for water does not even cover a fraction of the cost for its production and which is why water utilities always lose money and have to be funded by the government?

Not pricing water correctly and not passing the true cost of water to the end consumer can influence a lot of poor decisions. For example, some of the most water intensive crops such as cotton, rice and sugarcane are grown in some of the most water scarce regions. Considering that close to 70% of irrigation in India is done through underground water, we realize bulk of our underground water reserves are being used to irrigate the most water intensive crops in regions which have water scarcity. A lot of water intensive industries were historically setup in areas where fresh water was in abundance but not factoring in the true price of water, has led to a lot of water exploitation and decrease in underground water availability.

With oil and gas, there is also a lot of focus on optimizing the transportation from origin to where the demand is. With water the situation is different. In countries like India, the basic infrastructure to transport water especially for agricultural purpose is largely nonexistent. Farmers rely heavily on open canals and ‘flooding the field’ approach leading to about 40% water loss while transporting.

Commoditization of water could very well be a sensitive (and borderline irrational) topic and definitely not a topic we think about today but the burning question especially for highly populated countries like India remains ‘what can be done to make water conservation more effective?’

We may not treat water as a commodity but bringing a commodity like focus is definitely required. There are companies globally investing heavily on water. While some focus on desalination of water, there are others benchmarking the price of water production across cities in the world so that the true cost of water can be known. Then there are companies manufacturing precision agriculture equipment to maximize crop yields while preserving resources. We should be investing heavily in water too starting with upgrading our water infrastructure and introducing newer technologies to irrigation. Complemented by stricter laws on wasting and polluting water, maybe we can avoid our own Cape Town like situation. The demand will always be increasing and we do have a limited supply. We have to optimize. That’s the only answer.

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