The Weekly Reader

Link: http://www.iht.com/articles/2007/02/08/bloomberg/sxmuk.php

Water woes loom in Asia
Bloomberg News
Published: February 8, 2007

By Andy Mukherjee

If water were a globally traded commodity, with unmet demand in China and India reflected in its price, the world might shed its newfound craze for biofuels.

It is bad enough that some of us need ethanol distilled in Scotland to lubricate our evenings.

Growing corn to make ethanol to run sport-utility vehicles is downright silly; nowhere more so than in China and India.
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As many as 400 Chinese cities are facing water shortages; farmers in the most-populous nation are forgoing millions of tons of grain production every year. Per-capita availability of water is expected to shrink to alarming levels by 2030.

How serious is the shortage?

"The only thing that worries me about the China story is the water problem," a commodities investor, Jim Rogers, chairman of Beeland Interests Inc. in New York and a fan of China, said this week at a press conference in Melbourne.

"If China cannot solve the water problem, that could be the end of the story," said Rogers, who co-founded Quantum Fund with George Soros and then went biking around the world.

Amid this water scarcity, China has gone on to become the world's third-largest bio-ethanol producer after Brazil and the United States, pouring thousands of gallons of water to grow a ton of corn, and then using more water to turn the corn into ethanol.

What a colossal waste.

As recently as December, the Chinese government came up with controls on corn-to-ethanol projects so as not to lose more precious water to producing fuel at the expense of food.

The tradeoff between water and biofuels may also be crucial for India. One-sixth of India's food output is being supported by pumping groundwater, which is depleting rapidly.

In the state of Tamil Nadu, more than a third of aquifers are "overexploited," meaning the rate at which water is being extracted is more than the pace of recharge.

According to the World Bank's estimates, by 2050 demand for water in India will exceed all available supplies.

India passed a law last May requiring gasoline to be mixed with 5 percent ethanol. The saving grace, from the point of view of water conservation, is that India doesn't yet allow sugarcane juice to be converted directly into ethanol. The fuel can only be produced from molasses, as a byproduct of sugar.

"The downside of growing food for fuel is water," Fred Pearce, an environmentalist and the author of the 2006 book "When the Rivers Run Dry," said at a sugar-industry conference in Geneva in October.

Sugarcane growers, some of the biggest guzzlers of water, are dreaming of biofuel riches when the world, following the lead of Brazil, moves to flex-fuel cars, which run on both gasoline and ethanol.

Just because there is not a worldwide market in water, it doesn't mean the price of wasting this scarce resource in making fuel won't have to be paid. The adjustment will come through food prices. And it will be severe.

China and India, which are going dry, will import more food. As urbanization gathers momentum, many farmers in India will sell their water entitlement to condominium and factory owners.

When two of the world's top three grain producers become importers, it will have a big impact on prices internationally.

Global wheat prices climbed to a 10-year high in October, partly because India resumed imports in February last year after a six-year gap. Now there's a possibility that China may become a net importer of corn, which, too, rose to its highest in a decade in January, thanks to the biofuel frenzy.

Neither China nor India wants to contemplate a future without agriculture. The governments in both countries have an avowed preference for self-sufficiency in staple food. Premier Wen Jiabao of China sees falling grain output as a threat to national food security. The sentiment in India is the same.

The rest of the world is gasping with wonder at the fast- growing economies of China and India and betting that fossil fuels won't be enough to meet the burgeoning demand for energy.

Therefore, there is a rush to find alternative fuel sources in everything from corn to sugarcane to oil palm. Alarmed by the tripling of crude-oil prices in five years, policy makers in Beijing and New Delhi, too, have begun rooting for biofuels.

Ethanol plants in Minnesota use from 3.5 gallons to 6 gallons of water to produce 1 gallon of ethanol from corn, says the Institute for Agriculture and Trade Policy.

For the United States as a whole, there will be a 254 percent increase in the volume of water used in ethanol production from 1998 through 2008, according to the institute.

The United States has plenty of water; the world as a whole doesn't.

"If water would have its correct price, then we wouldn't even be thinking about biofuels," the chief executive of Nestlé, Peter Brabeck-Letmathe, said last month at the World Economic Forum in Davos, Switzerland. "If I had to identify one resource I'm worried about, that's water."

Perhaps we will know the true price of water only when corn syrup is more expensive than oil.