blitzkrieg1980
Octobrist
The Watermill is certainly a good use of a tile, even under less than ideal conditions. Also, note it takes awhile to build that town while a watermill can be built.
It's all about city specialization. If the city is mostly a production city, watermills are better built on those tiles. If the city is more of an economic city, put a town down. If it's your GP city, or specialist city for economy, use a farm. Also, the farm gets another food point after Biology (i think).