Speculating on water

An interesting article/interview in Wired on market speculation and water. It is with Frederick Kaufman, who published this article on futures markets for water (i.e. speculating) and Wall Street in the recent (Oct 24) issue of Nature.

Public or private? The fight over the future of water.

Brandon Keim

All around the world, from the Himalayas to the Great Plains, fresh water is starting to run low. It’s shaping up to be one of the 21st century’s great environmental and humanitarian challenges: People use water faster than nature can replenish it.

Some people argue that privatization is the answer to the water crisis. But others, including food journalist Frederick Kaufman, say that’s a recipe for disaster. The author of Bet the Farm: How Food Stopped Being Food, published in October by Wiley, Kaufman points to the recent history of food prices as an example of the dangers posed by modern finance.

In the last five years, food prices have gone haywire, rising steadily while spiking three times, causing global food shortages and social unrest. Many economists and some scientists blame food prices on speculation. Once the province of farmers and agriculture industry insiders looking to hedge their risks, food markets were opened in the 1990s to the financial industry. The market soon stopped working like it’s supposed to.

“We’ve seen the price of food become more expensive than ever three times in five years. Normally we’d see three price spikes in a century,” said Kaufman. “And part of the reason is this new kind of commodity speculation in food markets.”

In an article published Oct. 24 in Nature, Kaufman describes what he calls “Wall Street’s thirst for water” — the push to turn water into a commodity like food, with the same instruments that produced the mortgage-backed security collapse and 2008 financial crisis.

At risk, says Kaufman, are the 80 percent of humanity already threatened by water shortages and everyone who depends on a stable, affordable supply of life’s essential ingredient.

Wired talked to Kaufman about his fears