The virtual water trade (also known as trade in embedded or embodied water), a concept introduced by Tony Allan, is the hidden flow of water in food or other commodities are traded from one place to another. For instance, it takes 1,340 cubic meters of water (based on the world average) to produce one tonne of wheat. The precise volume can be more or less depending on climatic conditions and agricultural practice. Hoekstra has defined the virtual-water content of a product (a commodity, good or service) as "the volume of freshwater used to produce the product, measured at the place where the product was actually produced". It refers to the sum of the water use in the various steps of the production chain.
The virtual water trade is the idea that when goods and services are exchanged, so is virtual water. When a country imports one tonne of wheat instead of producing it domestically, it is saving about 1,300 cubic meters of real indigenous water. If this country is water-scarce, the water that is 'saved' can be used towards other ends. If the exporting country is water-scarce, however, it has exported 1,300 cubic meters of virtual water since the real water used to grow the wheat will no longer be available for other purposes. This has obvious strategic implications for countries that are water-constrained such as those found in the Southern African Development Community (SADC) area.
Water-scarce countries like Israel discourage the export of oranges (relatively water intensive crops) precisely to prevent large quantities of water from being exported to different parts of the world.
In recent years, the concept of virtual water trade has gained weight both in the scientific as well as in the political debate. The notion of the concept is ambiguous. It changes between an analytical, descriptive concept and a political induced strategy. As an analytical concept, virtual water trade represents an instrument that allows the identification and assessment of policy options not only in the scientific but also in the political discourse. As a politically induced strategy, the question virtual water trade can be implemented in a sustainable way, whether the implementation can be managed in a social, economical, and ecological fashion, and for which countries the concept offers a meaningful option.
The data that underlie the concept of virtual water can readily be used to construct water satellite accounts, and brought into economic models of international trade such as the GTAP Computable General Equilibrium Model. Such a model can be used to study the economic implications of changes in the water supply or water policy, as well as the water resource implications of economic development and trade liberalization.
In sum, virtual water trade allows a new, amplified perspective on water problems: In the framework of recent developments from a supply-oriented to demand-oriented management of water resources, it opens up new fields of governance and facilitates differentiation and balancing of different perspectives, basic conditions, and interests. Analytically, the concept enables one to distinguish between global, regional, and local levels and their linkages. This means, that water resource problems have to be solved in problems if they cannot be successfully addressed in the local or regional watershed. Virtual water trade can thus overcome the hydro-centricity of a narrow watershed view. According to the proceedings of a 2006 conference in Frankfurt, Germany, it seems reasonable to link the new concept with the approach of integrated water resources management.
The concept of virtual water trade was introduced to refer to the idea that countries can save domestic water by importing food. Imported food, however, comes from somewhere. In 2002, Arjen Y. Hoekstra, while working for UNESCO-IHE, introduced the concept of water footprint. The water footprint shows the link between consumer goods or a consumption pattern and water use and pollution. Virtual water trade and water footprint can be seen as part of a bigger story: the globalization of water.
Australia's National Water Commission considers that the measurement of virtual water has little practical value in decision making regarding the best allocation of scarce water resources.
Limitations of the virtual water measure
Key shortcomings of virtual water measures are that the concept:
- It relies on an assumption that all sources of water, whether in the form of rainfall or provided through an irrigation system, are of equal value.
- It implicitly assumes that water that would be released by reducing a high water use activity would necessarily be available for use in a less water-intensive activity. For example, the implicit assumption is that water used in rangeland beef production would be available to be used to produce an alternative, less water-intensive activity. As a practical matter this may not be the case, nor might the alternatives be economic.
- It fails as an indicator of environmental harm nor does it provide any indication of whether water resources are being used within sustainable extraction limits. The use of virtual water estimates, therefore, offers no guidance for policymakers seeking to ensure that environmental objectives are being met.
The deficiencies with the concept of virtual water mean that there is a significant risk in relying on these measures to guide policy conclusions. Accordingly, Australia's National Water Commission considers that the measurement of virtual water has little practical value in decision making regarding the best allocation of scarce water resources.
Other limitations more specific to the MENA (the Middle East & North Africa) region include:
- In MENA rural societies, farmers are by tradition politically influential and would prohibit new policies for water allocation. Reallocating the water resources adds a huge burden on the farmers especially when a large portion of those farmers use their land for their own food consumption which happens to be their only source of food supply.
- Importing food could pose the risk of further political dependence. The notion of "self-sufficiency" has always been the pride of the MENA region.
- The use of virtual water lies in the religious regulations for charging for water. According to Al-Bukhari, Prophet Mohammad's teachings, the Prophet said: "People are partners in three: Water, Herbs and Fire" (referring to basic energy resources). Therefore, and because farmers are generally poor and rainwater, rivers, and lakes are like a gift from God, the MENA countries might find it difficult to charge the farmers the full cost for water.
Virtual water content of selected products
The following table shows the average virtual water content of some selected products for a number of selected countries (m3/ton):
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In 2002, Arjen Hoekstra, whilst working at the UNESCO-IHE Institute for Water Education, created the water footprint as a metric to measure the amount of water consumed and polluted to produce goods and services along their full supply chain.
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