Scarce Resources

The discipline of economics has traditionally defined:

  • Scarcity as the situation in which unlimited wants exceed the limited resources available to fulfill those wants.
  • Resources as inputs used to produce goods and services, including natural resources such as land, water and minerals, labor, capital, and entrepreneurial ability. These are otherwise referred to as the factors of production.

But Is Water a Scarce Resource?

For many years water was regarded as an abundant resource. In fact its abundance was one reason why water was so cheap despite it being essential for all life. This compares to diamonds which are hardly essential for life but are much scarcer than water and therefore far more expensive.

In recent years, however, the perceived scarcity of water has been a major policy issue throughout many parts of the world, including Australia.

The International Water Management Institute Opens in new window defines a country or region as having a water shortage if the water supply is less than 1000 cubic meters per person per year.

By this definition a significant number of countries face severe shortages.

Australia has a water supply far in excess of this minimum; however, many parts of Australia still face water shortages.

This is in large part due to the fact that around 65 percent of Australia’s water run-off occurs in the tropical northern regions, but most of the heavily populated cities are located in Australia’s southern regions. Further, nearly 75 percent of Australia’s irrigated agricultural output is grown in the Murray-Darling Basin, Opens in new window which receives a little as 6 percent of total water run-off.

Therefore, although Australia may not have a shortage of water by some official definitions, its people and agricultural activities often do experience very severe water shortages as they are largely located where water is least plentiful.

According to the Water Services Association of Australia Opens in new window, by 2030 Australia, by 2030 Australia’s major cities will face a water shortage of over 800 gigaliters per year, which is equivalent to more than Sydney’s current total annual water usage.

There is also a trade-off between water uses. Of the total water consumption in the Australian economy the agricultural industry consumes about half, households about 13 percent, with the remainder consumed by other (non-agriculture) commercial users. According to scientists:

Water demand and levels of water of water extraction from rivers and groundwater are now unsustainable. About 75 percent of the mean annual flow in the Murray-Darling Basin is diverted with the result that the mouth of the Murray River has often closed in recent years of lower rainfall. To cope with climate variability more than twice the average annual flow in the basin is held in storage. Such high levels of storage and extraction have very damaging impacts on the health of the rivers, floodplains, wetlands and estuaries of the Murray Darling.

In response to this, Australian governments have agreed to cap water extractions. While this is acknowledge as a good start, scientists maintain that:

Many other land management factors such as drainage, nutrient and chemical pesticide loading are also very important to the health and ecological function of rivers, groundwater, wetlands, floodplains and estuaries.

Australia is a wealthy country and better placed than many to adopt policies which can alleviate water shortage problems.

Although not all politicians and scientists agree on every proposal, most agree that policies must be such that they improve the productivity of water-using industries.

Economic analysis Opens in new window also indicates that the price of water, particularly for use by industry, has been too low, leading to overuse.

Economists have long argued that the pricing of water should more appropriately reflect its scarcity.