The dangerous game of trading the future of water

GS News
5 min readJan 25, 2022


By Michelle Langrand

Traders work on the floor of the New York Stock Exchange, 19, July, 2021. For the first time last year, it became possible to trade water on the futures markets on Wall Street. (Credit: Keystone/AP/Richard Drew)

Only a handful of countries in the world have legislation that allows for water rights to be bought and sold in the private market, and the idea is not new. However, the trend has been slowly emerging. In 2020, water joined oil, gold and other commodities on Wall Street to be traded through futures contracts.

For the UN special rapporteur on the right to water and sanitation, Pedro Arrojo-Agudo, water commodification is one of the greatest threats to making sure everyone in the world has access to it. The Spanish economist is preparing a report on the topic and will present it at the UN General Assembly in October.

In conversation with Geneva Solutions, the expert explained why toying with water in the stock market is a “dangerous and irresponsible” game.

Geneva Solutions: Why did you choose to look into water markets?

Pedro Arrojo-Agudo: We have three decades of experience on water markets in different countries and it’s not that all the markets work the same way, but there are similarities, and so we can analyse and we ought to do it because we are facing a crisis that is as tragic as it is paradoxical. The global water crisis of the blue planet. We need to analyse if these approaches are helping us to face and to solve the global water crisis. For me, it is not the right way.

GS: Why?

PAA: When we take this kind of approach in which we think that water is just a resource that is scarce and useful, and then to consider it, instead of a public good and of general interest, as an economic good or as a commodity to be dealt with through the logic of the market, we are transforming citizens into customers. These 2.2 billion people without access to water become 2.2 billion impoverished customers that cannot afford it. Instead of solving the core of this global water crisis, we are making the vulnerable people even more vulnerable.

GS: Water can be traded only in a few countries, so how would it affect populations across the world?

PAA: First thing we are not talking about general markets, we are talking about the real future markets. We are talking about a very specific way of managing these future markets, in which the main approach is the speculative approach, managed by institutional investors. Before, the ones who had control over exchanges for instance were the farmers or the companies that were distributing the goods. But since the 90s and the beginning of the century, 80 to 90 per cent of the contracts are in the hands of speculators that are not producers, sellers or distributors of these goods. They just want to buy the rights for the future, activate the volatility of prices and make a good business in the process.

One question that is very clear in commodities in general is that the future markets have a strong influence on stock markets. When you put the water from California in the future markets, it will likely be included in an index. Even if the water is in California, the index is buying and selling in a global market. If suddenly this index is successful, for the biggest institutional investors, the price will grow, but not because of the water, but because of the index.

GS: Futures trading in water is barely emerging as a trend. How do you know that the outcome will be negative?

PAA: In the 90s and at the beginning of the century on, for instance, the introduction of food in future markets, [proponents] said ‘through these speculative strategies we will have stabilising prices for the future’. And what is the reality? We have 20 years of experience and now the prices of food have the highest volatility ever known.

The rise in food prices in 2008 was related to speculation strategies. In three to four months, $300bn were focused directly through the indexes, and the prices of wheat, rice and corn doubled or even tripled. This was not a reaction to real supply and demand dynamics, but because of speculation. This can occur with water.

GS: But unlike food, water is not sold and bought across continents.

PAA: That is the doubt I have. Up to which point, for instance, the possible bubble of water in future markets will be connected with the stock market in California? You cannot take the water from California and send it to China. This is a big question and there are many uncertainties.

But if these future markets for water are financially successful, we can expect similar results like the impact on food. This has been assessed by the United Nations and there are plenty of reports saying it is not the right way to deal with sensitive issues, especially if we are talking about a product on which the lives of millions of impoverished people depend. There are authors that say we need to strongly re-regulate these future markets in order to avoid speculative bubbles, to avoid price volatility, and in order to protect the most vulnerable people from such risks. Putting water in this perspective is very irresponsible and very dangerous.

GS: Where do you think the futures trading in water is heading?

PAA: I have talked with experts on financial speculation and they say, ‘we don’t know, we think that this experience will be a failure’, but not because of ideological questions but because water is a very complex issue. And it’s very likely that this first experiment will be a failure, like in other cases where a new product is introduced in the future markets. Usually, what happens later is another strategy is built to try again. So, even if it is not financially successful, the push in that direction will continue, if we don’t change the approach and regulation of future markets.

I have analysed the US, Australia, Chile and Spain and these are real markets that have been more and more deregulated, and in fact at present they are nearly free water rights markets. The people who can sell and buy under these markets are advancing this kind of private appropriation in contradiction with the idea of common good. Environmental issues are being pushed aside, and the most vulnerable people are not participating in these market processes.

GS: Does this mean that economic and financial instruments cannot be used to help solve the water crisis?

PAA: We have other instruments, which are very practical and effective in order to deal with climate change, and which are in agreement in coherence with water democratic governance, with public participation, and with transparency in hydrological and territorial planning.

We can reserve water for the next drought, and we are doing these kinds of things with participatory approaches, where the population is involved. For instance, I agree with the possibility of developing water banks, such as in California or Spain, but these kinds of markets are under the control of a public institution so there is no possibility of speculating on prices. You can prepare in advance to recover water rights with a fair compensation for the person who wants to give up this water to other users in the case of a future drought, but with costs that are profitable for the person who is giving their water right for the next drought and not in a permanent way. It is not excessive and it is not under the pressure of speculation.

Originally published at



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