Water is the most critical factor of production in agriculture, which determines crop yields, food supplies, as well as, sustainability. With an increasing world population and the advancing global warming with associated rising water scarcity, it is becoming increasingly important to consider what we make of our use of water in agriculture. When water is already scarce and pressures to meet competing needs are growing, many believe the next monster commodity of agricultural economics will be H20.
This blog examines the ways in which water use is guiding agricultural decisions, affecting economic conditions, and proving to be an important commodity for countries around the world.
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The Growing Pressure on Water Resources
Water shortage is a fact that affects many areas in the world. More than 2 billion people live in countries that are classified as having high levels of water stress. In agriculture, which uses about 70% of the world’s fresh water supply, there is perhaps more pressure than ever to find ways to use less. Water is critically important in all stages of agricultural production – whether it’s for crop watering, livestock care, and so on. However, as a result of increased worry about dwindling freshwater supplies, business leaders now seek to examine how water can be better managed and allocated.
The Role of Water in Agricultural Productivity
Water is the lifeblood of farming. If there’s not enough irrigation, crops won’t grow well and yields will shrink — which ultimately means higher prices for consumers. In regions that are arid or semi-arid and water is limited, farmers struggle with a two-fold challenge: ensuring their crops receive enough moisture while avoiding overwatering waste. As water supplies become less reliable because of climate change, it is crucial that businesses as well as farmers adopt new technology and methodologies by which growing will continue to be sustainable.
Innovative methods—such as drip irrigation, water-efficient technologies, and drought-tolerant crops—are contributing to the saving of agricultural water. And this entrepreneurship is not just essential to the environment, it’s also economically important. When installed properly, they can curb water use and lower operating expenses as well as boost total productivity – turning the efficient use of that already precious resource into a competitive edge in agricultural markets.
The Emergence of Water as a Commodity
As water shortages deepen, some regions are beginning to see that water is an economic commodity they can’t afford not to sell. That is particularly the case in places with water markets—such as Australia and the United States. Water trading allows businesses to buy and sell water rights, more effectively allocating resources as those who need water the most can access it.
The concept of water as a tradable commodity is catching on. In the decades ahead, we may even see global water markets in which companies, farmers or perhaps entire governments trade water much as they do oil or other natural resources. Water could trade just as oil does, market forces establishing its price. Such a change will not only encourage water conservation, but drive investment in more efficient uses of water – and thus provide businesses with the opportunity to profit from sustainable use.
The Financial Implications for Businesses
The increasing financial significance of water is creating challenges and opportunities for food providers. With water scarcity on the rise, companies are going to have to change their approach for how they use and manage this resource. Firms that invest in water-saving technologies, such as smart irrigation systems or wastewater recycling capabilities, are going to put themselves in a better position with respect to controlling cost and optimizing bottom line. Those that do not may experience increased costs, reduced yields, and loss of comparative advantage.
Meanwhile, the agricultural requirement of water will also disrupt where investors invest. Venture capitalists and impact investors are already looking at water-related projects as an opportunity to make money while also doing something for the planet. Consequently, the economics of agriculture could evolve toward recognizing water as a commodity with real value.
The Future of Water in Agriculture
The economics of water in farming are changing fast. And as water becomes rarer and therefore more precious, management of the inelastically demanded resource will continue to be a bellwether issue for business – and policy. Agricultural companies that can implement water-conscious solutions and techniques will not only work toward preserving this valuable asset but will also set themselves apart as industry leaders in a market that is more and more invested in sustainable production methods.
