$25 a kilogram for rice?!

My corporate sustainability lecturer mentioned in a lecture the other day that a study found that if you factored in the cost of the water, producing rice in Australia costs about $25 per kilogram. Which is insane. I don't know anyone who would be willing to pay that much for a kilogram of rice. Of course, this is not what rice costs in the supermarket, which is a beautiful illustration of the externalities (an economic term for "The side effect on an individual or entity due to the actions of another individual or entity." eg. pollution) involved in something like this. Growing rice in Australia is economically viable because rice growers don't have to pay enough for the water they use, and the impact of that water use on the country is an externality - one the environment and animals are paying for, not the consumers.

Examples like this are a great argument for the importance of internalising externalities and having prices that truly reflect the cost of the production of a good for everyone - including society and the environment.

It also begs a question - why do we have such blind faith in the 'invisible hand' when it allows crazy things like this make economic sense? In the driest habited continent on earth, I think it is fair to say we should not be growing rice.