About 70% of the world's surface is covered in water. Only 2.5% of it is fresh water and suitable for human consumption. By 2050, two-thirds of the world's population will be affected by water scarcity. Last year, Wall Street recognized this trend by commodifying water on the Chicago Mercantile Exchange (CME). Now, more than 100 organizations have demanded that the Commodity Futures Trading Commission (CFTC) shut down water trading.
National advocacy organization Food & Water Watch and 138 other organizations penned a letter to CFTC on Dec. 20, requesting CME to halt all trading of the Nasdaq Veles California Water Index Futures, the world's first water futures contracts, based on water rights in severely drought-plagued California.
"Water index futures trades are contrary to the public interest as they involve the trade of an essential resource," wrote Food & Water Watch.
The letter argued that water is essential for life and not a commodity. It said the contracts undermine California's state law and "beneficial use" doctrine that prohibits entitlements from being used for speculative trading.
Zach Corrigan, senior attorney for Food & Water Watch, said, "the commission should reject this shoe-horn attempt to drive investor profit under a federal law never meant to apply to a common public resource managed by the state for the public welfare."
Since the water contracts began trading last December, market participants have traded approximately $1.1 billion worth of spot water, each contract equivalent to 10 acre-feet of water.
The letter also warns large institutional firms could corner the market and implement strategies to hoard water, thus raising water prices which would be devastating for households and farmers on the ground.
"Free market advocates claim that markets create efficiency, but the outcome is usually dystopian and horrifying," said John Aspray, an organizer with Food & Water Watch.
Water is not a commodity. Water is a human right and a resource that must must be protected from speculation and profiteering. Regulators at the Commodity Futures Trading Commission (@CFTC) must use their authority to shut down CME’s water futures market!https://t.co/p1iwSBWwkY— John says pass the #PROAct (@John_Aspray) December 20, 2021
Therefore, the commodification of water seems like a good idea as it could benefit businesses that need to hedge their bets. Still, the futures market is open to manipulation by big banks, as we all know in the precious metals space.