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🗣️ "Liquid Markets"

The Indicator from Planet Money

Photo by César Couto / Unsplash

Table of Contents

Hosts: Stacey Vanek Smith & Darian Woods
Category: 🗣️ Opinion

Podcast’s Essential Bites:

[1:01] DW: “Carly's family have been able to farm in the Australian state of New South Wales for generations, thanks to her great grandfather, […] who was part of this massive project about 100 years ago, building huge irrigation lines drawn from Australia's biggest river, the Murray River. It was built around the same time as development on the Colorado River in the US, which is kind of the equivalent. These are both huge bodies of water that have dams and canals that keep farming going in what would otherwise be pretty drought prone areas. And it worked until the droughts got worse.”

[1:36] SVS: “If there's not enough of something to go around like water, a lot of economists will just say put a price on it […]. Let the market decide where that water is best used. And that is what Australia has done. They have one of the most advanced water markets in the world where anyone can buy and sell water.

[2:45] DW: “Australia's droughts are increasingly brutal. In the last 20 years, the flow of Australia's Murray River fell by half compared to last century. And that is a huge deal for the country. In response, the Australian Government set up one of the most advanced markets in the world for treading water. Carly Marriott, the sheep farmer, can easily log on to a website on her phone.”

[3:17] SVS: “In Australia, it's as easy to trade water as it is to use an app like Venmo or Robinhood.”

[3:38] DW: “The basic idea is this that the government sets aside water that it reckons can be sustainably taken from the dams and put that water on the open market for the taking to the highest bidder.”

[4:53] DW: “Letting the water go to its highest value use has been analyzed by Neal Hughes and his team at the Australian Bureau of Agriculture and Resource Economics and Sciences. Neil says that allowing different regions to tread water has made huge economic gains. For example, in the Southern Basin region where much of the country's farmland is. […] Basically, they modeled that water trading allowed an additional $117 million worth of stuff that could be grown. So you could think about that as like 12% more produce and meat and wool with the same amount of water. And Neil says that those benefits are even greater in the drought years, when getting water to its most valued use matters the most.”

[6:26] SVS: “[During a price spike in 2019, Carly] was particularly frustrated that she was being offered really expensive water from people who were not even farmers themselves. This is the major difference between the US and Australia. Yes, the US has water markets, but they are generally tied to land. But in Australia, you do not need to own land to trade water.

[7:49] DW: “Neil Hughes, the economist […], was very positive about the whole system. He said that having those outside investors was a good thing for the proper functioning of the market. It meant that those trades of water were likely to actually happen. If there aren't that many people using the water trading website, then farmers might just hold on to water that they don't need.”

[8:22] DW: “[There are] three main lessons for water markets. Lesson number one is regulation. Water markets are serious markets. And […] regulation should be just as vigilant as you'd have in other industries like finance, the same way that you might have rules around conflicts of interest or insider trading. You'd also by that logic, need those rules in the water market. And lesson number two coming [is] make sure the rules reflect a rapidly changing climate.”

[8:52] SVS: “Lesson number three [is] shar[ing] information widely. At the moment the institutional investors can be at an advantage with forecast models, and like really fast internet connections. If that information is better shared, there might be less of a sense of grievance from farmers working from a slow internet connection, who never signed up to be rapid day traders of water.

Rating: 💧💧💧

🎙️ Full Episode: Apple | Spotify
🕰️ 10 min | 🗓️ 08/31/2021
✅ Time saved: 8 min

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