Food production / Trade / Water conservation

International Water Management Institute (IWMI).

English

Research Papers in Economics

Few people realize that we “eat” between 2,000 and 5,000 liters of
water per day—depending on the composition of our diet. With
increasing global water shortages and awareness of the environmental
impacts associated with irrigation, the concept of trading in virtual
water—the amount of water used to produce an agricultural
commodity—is receiving attention. Growing food where water is
abundant and trading it to water-short areas is being recognized, in
theory, as having a large potential to save water and minimize new
investment in irrigation infrastructure. However, in practice, socio-
political interests and economic costs may prove stronger than water
scarcity concerns.
Issue 25 Putting research knowledge into actionDoes Food Trade Save Water?
The potential role of food trade in water
scarcity mitigation
Is Virtual  Water Trade a solution for water scarce
countries?
By the year 2050 there will be an additional 3 billion people to feed. Food production may
need to increase by 70-90 percent from levels in 2000 to meet this global food demand.
Without improvements in the efficiency and productivity of agricultural water use, crop
water consumption would have to grow by the same order of magnitude.
A big challenge in water management is to grow sufficient food for a growing and more
affluent population while meeting the many other demands on limited water
resources—household needs, industrial requirements and environmental functions. Already,
an estimated 20% of the global population lives in river basins that are characterized by
physical water scarcity.
International food trade can have significant impacts on national water demand. The term
‘virtual water’, first introduced by Allan (1998), refers to the volume of water used to
produce traded crops. By importing food a country ‘saves’ the amount of water it would
have required to produce it on its own soil. Thus, international food trade can have important
impacts on how and where water is used.
Food trade reduces water use at two levels. At a national level, a country reduces water
use by importing food rather than producing it. At a global level, trade reduces water use
because, at present, production in exporting countries is more water efficient than in
importing countries. Moreover, four of the five major grain exporters produce under highly
productive rainfed conditions while importing countries would have relied more on
irrigation. In fact, without cereal trade, global irrigation water demand would have been
higher by 11%.
Some researchers have suggested that international food trade can and should be used as
an active policy instrument to mitigate local and regional water scarcity. They contend
that, instead of striving for food self-sufficiency, water short countries should import food
from water abundant countries. Indeed, food trade has a large potential to alleviate water
scarcity, but in practice there are many reasons why this is unlikely to happen in the
near future.
This Water Policy Briefing is based on the CA Research Report 4: Does International Cereal Trade
Save Water? The Impact of Virtual Water Trade on Global Water Use (CA Research Report 4) by
Charlotte de Fraiture, Ximing Cai, Upali Amarasinghe, Mark Rosegrant and David Molden; and on
Investing in Water for Food, Ecosystems and Livelihoods (BLUE PAPER, Stockholm 2004, Discussion
Draft) by David Molden and Charlotte de Fraiture; and on Is Virtual Water Trade a Solution for Water
Scarce Countries? by Charlotte de Fraiture and David Molden, Bridges 2004. The full text of these
reports is available at www.iwmi.cgiar.org/assessment/files
2 January, 2007The Virtual Water concept examined
We “eat” between 2,000 and 5,000 liters of water per
day—depending on our diet. Insignificant in
comparison are the amounts of water each person uses
for drinking (between 2 to 5 liters per day) and for
washing, sanitation and other household needs
(between 50 and 200 liters per day).
It takes between 500 to 4,000 liters of water to grow
one kilogram of wheat, but up to 10,000 liters to produce
one kilogram of grain-fed beef (fig.1 ). In the United
States of America an average meat diet contains an
estimated 5,400 liters of water per person per day, while
a vegetarian diet contains 2,600 liters. If every person
adopted a typical U.S. diet, approximately 75% more
water would be needed for food production (World Water
Council, Virtual Water Trade, March 2004).
imported in food, or exported in food—in the past from
1981 to 2000 and in the future in 2025.
In 1995, some 1,724 million tons of grain (or 12% of
the global production) was traded. Eighty percent of all
cereal exports are mainly grown under rainfed
conditions in five regions—the USA, Canada, Argentina,
Australia and the European Union. In total, 269 km3 of
crop water was depleted in the exporting countries to
produce the traded amount.
Cereal importers—around 25 countries in Asia, the
Middle East and Africa account for 80% of all cereal
imports—would have depleted 433 km3 of crop water
and179 km3 of irrigation water to produce the traded
amount domestically. China, Japan, Korea, Indonesia,
Egypt, Mexico and Iran figure among the top 10 cereal
and virtual water importers.
Many sub-Saharan African countries do not feature
as major food importers despite their relatively low
agricultural production. This is due to the lack of
financial resources in these countries to import food to
meet the recommended consumption levels.
Trade in water is already happening
Though the thinking of trade in terms of water is
fairly recent, trade in virtual water is as old as
agricultural trade itself. Virtual water flows from
exporting to importing countries inevitably take place
as a by-product of the global food trade.
The study of the Comprehensive Assessment of Water
Management in Agriculture presented in this policy
brief quantified global virtual water flows—water
Figure 1. Water consumption for food production
Some key definitions
Depletion is defined as a use or
removal of water from a basin that
renders it unavailable for further use.
Irrigation water depletion refers to the
water used by crops in an irrigated
condition. Crop water depletion includes
crop evapotranspiration and losses
because of reservoir evaporation,
percolation to saline aquifers and
pollution.
Water productivity is an efficiency
term quantified as a ratio of product
output (goods and services) over water
input. The output could be biological
goods or products such as crop (grain
fodder) or livestock (meat, egg, fish) and
can be expressed in term of yields,
nutritional value or economic return. The
output could also be an environmental
service or function. Water productivity
can be at different scales and for a
mixture of goods and services.
Water Policy Briefing 3The map above shows virtual water importers (in
red) and exporters (in green).
Does trade save water?
Food trade saves water in the importing country.
Japan—the world’s biggest grain importer—would
require an additional 30 billion cubic meters of water
to grow the annually imported cereals on its soil. By
importing grain, Egypt—a highly water stressed
country—saved some 8.5 billion cubic meters of
irrigation water—one sixth of the annual releases from
the High Aswan Dam (fig. 2).
Globally, agricultural trade has a moderating impact
on crop water depletion and irrigation water demand.
Cereal trade saves crop water depletion because
exporting countries tend to use the available water
more efficiently. On average, exporters consumed 1.2
m3 of water per kilogram of grain through crop water
depletion, while importers would have used 2.0 m3
per kilogram. In addition, cereal trade also saves
irrigation water because major cereal exporters
produce under highly productive rainfed conditions,
while the main importers would have relied on
irrigation. Without cereal trade, irrigation water
depletion would have been higher by 112 km3—or
11 percent.
A steady increase in cereal trade does not necessarily
translate into an increase in virtual water flows. Over
the period 1980-2000 cereal trade volume grew by one
third while the volume of virtual water traded
remained at the same level and “savings” through trade
increased only slightly. Figure 3 explains why. The
growth in water embedded trade volumes was offset
by improvements in crop water productivities in both
importing and exporting countries.
Not all water ‘saved’ by trade are real
savings
Trade in food and virtual water results in ‘real’ water
savings when the water saved can be reallocated to
other uses, such as environmental uses. Many traded
crops are grown under rainfed conditions. Rainwater
usually cannot be allocated to other uses besides
alternative rainfed crops. Reductions in irrigation
water depletion result in ‘real’ water savings. For
example, importing paddy rather than growing it can
result in irrigation water savings, though not
necessarily. In Asia, during the monsoon, the
combination of abundant rain, floods and limited
storage capacity means that there is no alternative use
for the water ‘saved’ by importing paddy rather than
growing it.
Figure 1. Trading of virtual water in 2000 due to crop trade
4 January, 2007Figure 2. Egypt and USA—traders of cereals and water
Figure 3. Water productivities of exporters and importers, 1980-2000
Water Policy Briefing 5Some countries where water resources are very
scarce often have no option but to import. Egypt for
example cannot grow all cereal that it currently
imports because it does not have the necessary water
resources at its disposal. Thus, it is misleading to hold
up Egypt as an example of water ‘savings’ through
global trade since, to begin with, it has little or no water
to save.
How important is trade in mitigating
water scarcity?
Though the potential of trade to reduce water use is
large, agricultural trade does not, at present, play an
important role in global water scarcity mitigation. Water
scarcity is just one among multiple drivers of food
trade. Most trade occurs for reasons unrelated to
water—less than a quarter of cereal trade occurs from
water abundant to water scarce areas (for example from
Europe to North Africa and the Middle East). Three
quarters of the cereal trade takes place between water
abundant countries, and major water importers are
not necessarily water scarce. In some countries land
rather than water is the binding constraint. For
example, Japan—the largest importer—requires
“virtual land” that comes with cereal trade, rather than
“virtual water”. Fast growing and industrialized
economies sometimes have labor rather than water
shortages. Water savings through trade are related to
productivity differences between importers and
exporters and are merely a by-product of trade. Saving
water is not generally a factor taken into consideration
in formulating agricultural trade policies.
Food trade can have positive as well as negative
implications for water use and ecosystems. On the one
hand, expanding trade in countries where agriculture
is mainly rainfed might come at the expense of
ecosystems in those countries where more land needs
to be put under production. Wetlands and other fresh
water ecosystems as well as forests are the target of these
expansions and may be irredeemably damaged. On the
other hand, the export of a seasonal crop such as rice—
grown in Asia when water is abundant—can be
beneficial as the paddy fields play a buffer role for floods
and enhance groundwater recharge.
Will the role of virtual water trade
change in the near future?
Trade forecasts by Rosegrant et al (2002) indicate
that trade volumes are expected to grow and thus
volumes of virtual water traded will also increase. By
2025 cereal trade may reduce irrigation water depletion
by 191 km3 or 19%. Today nearly one quarter of food
trade occurs from water abundant to water short areas.
With global water shortages increasing, this percentage
may rise by 38% in the year 2025. Trade has and will
continue to have important implications for national
and global water use (table 1)
But improved productivity in irrigated and rainfed
areas may play a more prominent role in future water
conservation than cereal trade. The same projections
by Rosegrant et al (2002) indicate that water
productivity improvements may reduce global water
use by 1,205 km3 between 1995 and 2025. This is in
contrast to the 355 km3 which would be saved as a
Figure 4. Water depletion in global cereal production
6  January, 2007result of trade. Where productivity is low, water-short
importing countries will increasingly face the choice
between growing imports or the pressure to use water
resources more productively. In most importing
countries there is still scope to conserve water by
increasing “crop per drop”.
Can trade be used as a policy tool to
mitigate water scarcity?
International trade provides water short countries
an option for responding to increasing water scarcity
but the importance of this option depends on many
factors, including international trade agreements, the
costs of engaging in trade, and the nature of domestic
economic objectives and political considerations.
Increasing international trade comes at a substantial
cost, especially to developing countries. Foreign
exchange is required to pay for food imports, and for
many poor countries this is earned only through
exports, grants or loans. However, the costs may not
be immediately apparent because these countries
receive large amounts of assistance from donors either
in terms of hard currency or through subsidized
exports from the United States and Europe. Many
developing countries, particularly in sub-Saharan
Africa, do not export enough to be able to pay for
imports. Moreover, countries whose economies
depend on one or few export products are vulnerable
to changes in terms of trade which affect their
purchasing power. Trade also requires a considerable
amount of energy for transporting goods, which adds
to the environmental costs.
For poor countries struggling with issues of food
security, depending on imports from trade to meet basic
food needs is risky. Such a strategy is viewed as one
that increases their vulnerability to global fluctuations
in market prices as well as to geopolitics. Reaching a
level of food security is still an important policy goal
and, despite emerging water problems, many countries
view the development of water resources as a more
secure option to meet food supply goals and promoting
income growth, particularly for poor rural
communities. It is also uncertain that water-scarce
countries who cannot afford sufficient investments in
water infrastructure can afford to import large amounts
of agricultural commodities. As recent negotiation
under the umbrella of the World Trade Organization
illustrate, the economic and political interests associated
with agricultural trade are likely to dominate water
scarcity and environmental concerns in a considerable
number of these countries.
High potential but many issues
The idea of food trade as an answer to water
shortages is appealing. But firmly established
political, social and economic interests in agricultural
trade will limit the potential of this option. Under the
prevailing political and economic climate, it is unlikely
that food trade alone will solve problems of water
scarcity in the near term.
Table 1. Cereal production and global water use, summary table
1995 Million tons km3 of ET km3 of irrigation
Global cereal production 1,724 2,875 979
Total traded* 215
Depleted by exporters 269 67
‘Saved’ by importers 433 179
‘Savings’ because of trade 164 112
Trade related to water scarcity 52 64 15
2025 projection based on Rosegrant et al. (2002)
 Global cereal     production 2,615 2,981 1,013
 Total traded* 343
Depleted by exporters 337 64
‘Saved’ by importers 695 256
‘Savings’ because of trade 358 191
Trade related to water scarcity 130 128 24
Water Policy Briefing 7Water Policy Briefing Series
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Writer: Premila Canagaratna;  Editors: Charlotte de Fraiture and Sharni Jayawardena;  Design & Layout: Nimal Attanayake
Iran is struggling to improve agricultural productivity. The country is among the top ten cereal and virtual water importers. Photo Credit: Jonathan Woolley

Does food trade save water?: the potential role of food trade in water scarcity mitigation

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Does food trade save water?: the potential role of food trade in water scarcity mitigation

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Research Papers in Economics