Reuters | May 10, 2011
By Barbara Lewis

GENEVA (Reuters) -Selling water on exchanges in the same way other commodities are traded could help solve a shortage of the world's most precious raw material likely to hit long before oil runs dry, the chairman of Nestle said on Tuesday.

"I am not against the idea," Peter Brabeck, chairman of the world's largest food group, told Reuters when asked about the idea of exchange-based water trade.

The first place to consider it should be Alberta province , he said, where competition could be particularly fierce between farmers needing water for crops, and oil companies needing water to exploit oil sands, which require far more water than other kinds of oil deposit.

"We are actively dealing with the government of Alberta to think about a water exchange," Brabeck said.

As a first step, he added, Alberta had separated land rights and water rights, so owning land did not automatically give rights to water that ran through it.

He also cited the ancient example of the Gulf state of Oman, which had a water exchange system dating back thousands of years and noted how the strong rally in oil, which climbed to more than $127 a barrel for Brent crude in April and was above $117 on Tuesday on international futures markets, could erode demand.

"You see what happens when demand is growing. The market reacts and people start to use oil in a more efficient way," he said.

"One thing that does not move at all is the price of water."

The non-executive chairman refused to comment specifically on the current rally across commodities, including cocoa and coffee, as well as oil, used in huge quantities by Nestle. He said he could not comment on "operational issues."

WATER, ENERGY, FOOD FOR BILLIONS

Brabeck answered questions before and after a speech to a mainly academic audience in Geneva in which he addressed the challenges of providing water, energy and food for a world population, which is expected to head to 10 billion, according to a U.N. report last week.

He echoed comments made at the World Economic Forum in Davos earlier this year, saying biofuels should not be allowed to devour the precious resources available.

"One of the first decisions we should be taking is no food for fuel," he said, adding even second generation biofuels, which use non-food raw materials, were not the answer.

He argued the second generation would never be able to produce the amounts of biomass required by ambitious government targets to increase the amount of biofuel in the energy mix.

In Davos he said "no food for fuel" was a solution to food price inflation and he reiterated on Tuesday that escalating commodity prices were the root cause of unrest that has racked North Africa and the Middle East.

"The Arab spring was really started when the governments had to increase the price of food. The political side came afterwards. It came because people were pushed backwards into extreme poverty," he said.

(Editing by Cynthia Osterman)