John Phipps: Why Water is the New Oil for Landowners

There are signs that water is the new oil. 

This is a question sent in by U.S. Farm Report viewer David Marshall of Lafayette, Indiana: "You've covered the subject of foreign land ownership and rightly noted that it's a very small percentage. I think the issue that we really need to address, especially in the southwestern states, is the purchasing of farmland by corporate entities that have nothing to do with farming but who solely want to obtain the water rights that the purchase of the ground includes. Their main reason for purchasing the land is to have a resource that they can sell to the highest bidder. How long before hedge funds and corporations own all the water rights and the farmer and the public are left to be the highest bidder or do without the needed resource?”

As Mark Twain said, “Whiskey is for drinking, water is for fighting”. While our arguably arcane water rights laws have provided thousands of billable hours for water lawyers in the West, I don’t think we’ve seen anything yet.

“First in time, first in line” may have seemed like a good idea centuries ago when rivers and groundwater appeared inexhaustible, the enormous use by modern agriculture - about 80% of our nation’s resources - is testing the practicality of those laws. I can’t imagine modern lawmakers reforming our laws with the needed speed, so the backup method of acquisition for water consumers is to buy the water needed from agriculture.

Bluntly put, there is a price for every gallon, and many farmers are just now realizing how extremely valuable those gallons are.

As I have argued in every land-use debate -from solar panels to suburban development - with rare exceptions due to location or unique qualities, the rights of landowners should be preeminent to allow the market to redistribute those assets.

Consider the rapidly growing cities of the Southwest, like Phoenix. Spending millions to buy water rights from nearby farmers currently growing alfalfa in the desert to feed dairy cows, when milk is being dumped in Wisconsin, looks to me like an inefficient market hampered by regulation and unable to rationally allocate assets.

Between our outdated milk pricing programs and water laws, the outcome you describe is capitalism’s way of solving a problem. Farming may always be the optimal use for our ever-scarcer water.

I think not, but I think this is a problem being solved by accountants, not lawyers.