Water Scarcity and Virtual Water Trade

The Challenge

Two fifths of the world’s population faces water shortages. During the coming decades, water scarcity is expected to rise as a result of a rapid increase in the demand for water due to population growth, urbanization and increasing consumption of water per capita. In addition, climate change is expected to influence the supply of water, modifying the regional distribution of freshwater resources.

Agriculture is the largest consumer of freshwater resources and consequently highly vulnerable to changes in water availability. International trade in food products is not only a key variable in global food security; it is also a key variable in agricultural water management. As water becomes scarcer, importing goods that require abundant water for their production may save water in water-scarce regions.

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Is virtual water trade a realistic option for managing water scarcity beyond providing information on the water content of products? For which countries can virtual water trade be a meaningful option to cope with water scarcity and to what extent will water-short countries rely on domestic food production to ensure food security and avoid market volatilities? What kinds of incentives and administrative structures are needed to realize benefits from virtual water trade? Under what conditions will virtual water trade improve the global use of freshwater resources?

How will small-scale farmers in water-short regions be affected by and react to such a change in policy? What policy measures are needed to ensure that poor people benefit from virtual water imports? How can poor, water-short countries finance imports of water-intensive agricultural products? What are the limiting factors for a successful use of the concepts and how can they be overcome (for example, via international trade law, trade liberalization and agricultural subsidies)?

Background Paper

Water Saving through International Trade of Agricultural Products

Chapagain, A., Hoekstra, A., Savenije, H.

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Abstract

Many nations save domestic water resources by importing water-intensive products and exporting commodities that are less water intensive. National water saving through the import of a product can imply saving water at a global level if the flow is from sites with high to sites with low water productivity. The paper analyses the consequences of international virtual water flows on the global and national water budgets. The assessment shows that the total amount of water that would have been required in the importing countries if all imported agricultural products would have been produced domestically is 1605 Gm³/yr. These products are however being produced with only 1253 Gm³/yr in the exporting countries, saving global water resources by 352 Gm³/yr. This saving is 28 per cent of the international virtual water flows related to the trade of agricultural products and 6 per cent of the global water use in agriculture. National policy makers are however not interested in global water savings but in the status of national water resources. Egypt imports wheat and in doing so saves 3.6 Gm³/yr of its national water resources. Water use for producing export commodities can be beneficial, as for instance in Cote d’Ivoire, Ghana and Brazil, where the use of green water resources (mainly through rain-fed agriculture) for the production of stimulant crops for export has a positive economic impact on the national economy. However, export of 28 Gm³/yr of national water from Thailand related to rice export is at the cost of additional pressure on its blue water resources. Importing a product which has a relatively high ratio of green to blue virtual water content saves global blue water resources that generally have a higher opportunity cost than green water.

Proposed Solutions