Proposal - Water Scarcity and Virtual Water Trade

1) Analyzing the source of the problem

Compared to industry and residential water use the agricultural sector is the largest consumer of water. Today, many water-short regions and countries still use the little water they have for growing crops. However, before water-scarce countries implement policy measures dealing with the problem, they should carefully analyze the causes of water scarcity. Measures will need to differ between countries characterized by absolute water scarcity and those where institutional inadequacies are the main causes.

2)   Institutional failures

Water shortage is often caused by inadequate management of water resources. Production decisions in agriculture are so far driven taking into account the production factors land, labor and capital but not water. For this reason, a first step is to implement a price for water used in agriculture, which reflects scarcity and influences food production and flows of agricultural goods around the world. Water pricing should be introduced gradually and eventually include non-market functions of water such as ecosystem services.

3) Virtual water trade

If absolute water shortage is a country’s main problem, importing water-intensive agricultural products from countries where water is more plentifully available is, therefore, one possibility for these countries to preserve domestic water resources. However, several issues need to be considered including (1) alternative income opportunities for rural workers, (2) good distributional infrastructure, (3) good governance, (4) environmental impacts in water exporting countries, (5) lowering of trade barriers and agricultural subsidies in other countries, (6) loss of food sovereignty, and (7) timing and spatial extent.

These issues emphasize the fact that the concept seems to be a solution especially for industrialized countries and calls for a rather gradual implementation.

4) Complementing measures

If relative water-shortage is a country’s main problem, virtual water trade should not be used as a substitute but rather as a complement to a country’s sustainable water management policies. In developing countries, implementing more efficient irrigation technologies, for example, could help preserving domestic water resources. Today a lot of water is wasted by the use of old irrigation systems. Rain water harvesting could also alleviate the problem.

5) Paying attention to the national and regional context

Virtual water trade does not have to be global. Countries belonging to the Southern African Development Community (SADC), for example, can be characterized by large differences in climate conditions and water availability. Therefore, trading agricultural products in the region might be beneficial for these countries. Poor but water-rich countries like Angola, the Democratic Republic of Congo, Mozambique and Zambia could gain from selling agricultural products to the neighboring water-short countries including Botswana, Namibia and South-Africa. The water-short countries could avoid inefficient expenditures for large water transfer schemes (pipelines) by instead supporting investments in grain production and transportation infrastructure (roads) in the water-short countries to alleviate virtual water trade.