Economic implications of food-related virtual water trade

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Role of trade agreements in the global cereal market and implications for virtual water flows.

Understanding the dynamics of food trade, which involves a corresponding virtual trade in environmental resources, is relevant for its effects on the environment. Among the socioeconomic factors driving the international food market, trade agreements play a significant yet poorly understood role in facilitating access to worldwide trade. Focusing on the global trade of grain from 1993 to 2015, we investigate the role of trade agreements in activating new linkages and increasing traded volumes and their environmental implications. Through a data-driven approach, we show that the activation of a trade agreement among countries induces a more than six-fold increase in the probability of establishing a new link. Also, the presence of a trade agreement over time, not just its activation, relates to a more stable market since it reduces the probability of link deactivation by more than half. The trade links covered by agreements show larger flows and smoother inter-annual fluctuations. Furthermore, trade agreements encourage the development of more water-efficient flows by stimulating the exchange of crops with high water productivity values. The average economic water productivity of crops traded under trade agreements increases by 62% when considering total virtual water and even by 93% when focusing on blue water

The advent of the AfCFTA: new possibilities and implications for the African land-water-climate-food nexus

The African Continental Free Trade Area (AfCFTA) was signed in 2018, and came into effect in 2019. Still in an early phase, there is much to expect from the AfCFTA’s implementation over the coming decades. While the major expectations for AfCFTA are for increased inter-regional trade and overall levels of economic integration, there will doubtlessly be implications for the Land-Water-Climate-Food nexus in a continent where agriculture is estimated to contribute 15 percent of GDP (Mzali 2019) and employ over 60 percent of the active population (ILO, 2019), continent-wide. One important effect of the implementation of the AfCFTA will be the reduction of tariff barriers to inter-regional trade which is expected to have an impact on the agricultural and food system. Reduced tariffs will lead to lower food prices which will affect food and nutrition access. At the same time, as the access to regional markets are anticipated to open up, farmers may be drawn to change the crops they grow as well as the intensity of irrigation and fertilizer used or to expand production into land previously unused in agriculture. These changes will have an impact on the land and water systems as well as the greenhouse gas emissions resulting from agricultural activity

Is water consumption embedded in crop prices? A global data-driven analysis

Agricultural production exploits about 70% of all water withdrawals around the globe, but to date, it is not clear if and how this water consumption is taken into consideration in the price of the agricultural primary goods. To shed light on this point, we analyze the farm gate prices of twelve representative crops in the period 1991-2016, considering data from 162 countries in total. The crop price dependence on the water footprint is investigated, also accounting for the country’s water scarcity as a possible additional determinant of the price, and of the land footprint as a possible confounding factor. We find that prices of staple crops (e.g. wheat, maize, soybeans, and potatoes) typically embed the amount of water used for their production. Differently, food products that do not contribute in an essential way to the human diet and whose production is more export-oriented (e.g. coffee, cocoa beans, tea, vanilla) exhibit weaker or negligible water-price links. These variations may be ascribable to specific market dynamics related to the two product groups. Staple crops are often produced in markets where many producers have more space for price setting and may have an incentive to include also the value of water in the final crop price. In contrast, cash crops are cultivated in situations where few producers are ‘price takers’ with respect to the international market. This mechanism may decrease the influence of the water used on crop farm gate price composition. The understanding of different water impacts on crop prices may be useful for increasing efficiency in water allocation and governance decisions, with the aim of improved environmental sustainability in this domain

WATER CONSUMPTION AND CROP PRICES: AN EXPLANATORY GLOBAL DATA-DRIVEN STUDY

We analyze the farm-gate prices of twelve representative crops in 1991-2016, considering data from 162 countries. The association between crop price and unit water footprint is investigated, also accounting for the country’s water scarcity and of the land footprint as possible confounding factors. We find that prices of staple crops (e.g. wheat, maize, soybeans, and potatoes) seem to embed the amount of water used for their production. Differently, food products whose production is more export-oriented (e.g. coffee, cocoa beans, tea, vanilla) exhibit weaker or negligible water price links. These variations may be ascribable to specific market dynamics related to the two product groups