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Water Markets

The aim of water markets is to encourage existing water supplies to be used more efficiently, by allowing users to sell their water rights to other consumers. Water markets tend to be preferred by farmers to volumetric charges for irrigation water. All water, not just that which is surplus to the farmer’s use, becomes potentially marketable, and farmers have an incentive to drop low-value applications if they can earn more by selling it (‘water farming’). Water markets have other advantages:

(1) They recognise traditional water rights, capitalised in the value of land. Farmers become allies in the transfer of water to other users.

(2) They remove the need for largefinancial subsidies for building and operating irrigation systems, which usually benefit wealthier farmers.

(3) They offer flexibility in responding to changes in crop prices and water values.

The development of efficient water markets depends on a number of conditions, including the ability of the seller to establish ownership over the resource at law, which means that customary rights may be insufficient as a basis for a deal. In addition, for markets to operate in the public interest, the interests of third parties including environmental interests and those of populations living downstream of any large transfer need to be considered.

Further information (this mainly relates to Australia and New Zealand where considerable work has been done on water markets): Water allocations and entitlements: a national framework for the implementation of property rights in water, COAG, 1995.

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