Water Scarcity and Virtual Water Trade

The Challenge

The Global Environment - Water Scarcity and Virtual Water Trade

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.

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)?

Find out more about Water Scarcity and Virtual Water Trade in the Virtual GES, the web-based knowledge center of the Global Economic Symposium.

Find selected literature on Water Scarcity and Virtual Water Trade at the Econis Select database of the ZBW.

Confirmed Speakers

• Policy: Netumbo Nandi-Ndaitwahm, Minister of Environment and Tourism, Namibian Government
• IO/NGO: John W. McDonald, Chairman and CEO, The Institute for Multi-Track Diplomacy
• Academia: Yacov Tsur, Ruth Ochberg Professor of Agriculture, The Hebrew University of Jerusalem, Israel
• Academia: Tony Allan, Head of KCL Water Research, Group, King’s College London
• Business: Richard Evans, CEO (retd.), Alcan Inc and Rio Tinto Alcan
• Moderator, Academia: Joachim von Braun, Director, Center for Development Research (ZEF Bonn); Professor for Economics and Technological Change, University of Bonn

GES Session Organizer(s)

• Alvaro Calzadilla
• Katrin Rehdanz
• Christine Bertram

Session Experts:

• Claudia Ringler, Ph.D., Senior Research Fellow, International Food Policy Research Institute
• Mike Young, Professor, University of Adelaide; Executive Director, Environment Institute

Proposed Solutions

by Christine Bertram, Alvaro Calzadilla and Katrin Rehdanz

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.

Please join the discussion and propose your solution via the discussion tab at the top of this page.