While water doesn't come free, it does come cheap–especially to farmers, ranchers, and other special-interest groups who successfully lobby for heavily subsidized rates. As Terry L. Anderson and Pamela S. Snyder document in "Priming the Invisible Pump," a recent publication by the Political Economy Research Center, throughout the world revenues from agricultural users "barely cover 10 to 20 percent of water project construction and operating costs."
Such subsidies are rampant in the United States. In 1993, for instance, Congress authorized the Central Utah Project, a series of dams, aqueducts, tunnels, and canals that will collect water from the Colorado River and deliver it to Utah's Great Basin. "The project will deliver water to irrigators at a cost of roughly $400 per acre-foot," write Anderson and Snyder. "The additional crops produced with the water make it worth about $30 per acre-foot to Utah farmers. But they will only pay $8 per acre-foot."
The days of heavily subsidized water may be numbered, however. Although water projects are "extremely well suited to pork barrel politics," the authors see signs of a trend toward markets in water. Water "banks," in which users can "deposit" excess capacity, and other market-oriented pricing mechanisms have sprung up in a number of Western states in the United States, as well as in Australia, Germany, France, and Chile.
Anderson and Snyder note that the interest of market forces in water is largely the result of market forces in politics: "As current fiscal and environmental constraints make it more difficult to find new sources of supply, government agencies are being forced to consider raising water prices."