• Mahima Shanker

Virtual Water Trade

Updated: May 25

What is Virtual Water Trade (VWT)?


When goods and services are exchanged, or traded, between countries so is virtual water, or the water used in the production of those goods/services - this is the concept of Virtual Water Trade (VWT). If a country is water scarce, it may choose to import water intensive goods (and therefore virtual water) thereby reducing the pressure on the local water resources. To cite an example, if a country uses X cu.m. of local water to produce 1 tonne of wheat and it chooses to import this wheat rather than grow it domestically, it is, in effect, saving X cubic meters of local water per ton of wheat imported.


As such, virtual water trade allows a new and larger perspective on water problems. In fact the concept of virtual or ‘embodied’ water was first developed as a way of understanding how water scarce countries could provide food, clothing and other water intensive goods to their inhabitants. VWT can potentially reduce global water scarcity by transferring water resources ‘virtually’ from the relatively water-surplus regions, to the water-scarce. If virtual water transfers take place from regions with higher water productivity to those with lower, VWT ensures efficient global water use [1].


As food and other products are traded internationally, their water footprint follows them in the form of virtual water. This allows the linkage of the water footprint of production in one country to the water footprint of consumption in another country.


Virtual Water Trade in the Real World


An increase in demand for food and industrial goods and services in the second half of the 20th century necessitated many countries to be net importers of food. In the two and a half decades from the mid-1980s, international trade in agricultural products increased by almost three times, and so did the related virtual water trade. Cereals, meat, fats and oilseeds constitute more than half the virtual water trade across the globe.


Cereal grains have been major carriers of virtual water in countries where water resources are scarce. Therefore, cereal imports can play a crucial role in offsetting local water deficit. This happens, for example, in Mediterranean countries, the Middle East and Mexico.


Globally, the major gross virtual water exporters are USA, China, India, Brazil, Argentina, Canada, Australia, Indonesia, France and Germany and the major gross virtual water importers are the USA, Japan, Germany, China, Italy, Mexico, France, the UK and the Netherlands. Mexico manages to conserve 12 billion cubic meters per year of its national water resources by importing maize. Some of the Middle Eastern countries have to import over 85% of their food because of the water scarcity the region faces. According to Price Waterhouse Coopers (PWC), some Gulf countries import nearly all the rice required by them, about 93% of cereals, 62% of meat and 56% of vegetables.


Virtual Water Trade through Food and Commodities (1995-2005) [3]

North European countries import more water than they export in virtual form. This, however, is not driven so much by water scarcity as it is for protection of their domestic water resources, land availability, and land uses. In Europe as a whole, 40% of the water footprint lies outside of its borders. [4]


Per capita renewable water resources availability among virtual water exporters (in thousand cubic metres) [5]

VWT in India


A study found that India exported about 26 billion litres of virtual water on an average per annum between 2006-16. Rice was the highest exported food product, followed by buffalo meat and maize. In India, farmers rely heavily on groundwater for rice cultivation, and a kilogram of paddy requires about 15,000 litres of water. Since the country is also one of the top producers and exporters of beef, the virtual water necessary for producing one kilogram of buffalo meat was 5 to 20 times higher than that needed for agricultural production. Cashews, pulses and wheat were the imports with the highest virtual water content but these crops utilise much lesser water than rice [6].


Cumulatively, India exported about 497 trillion litres of virtual water and imported about 238 trillion litres during these 10 years over which the study was conducted.


In 2020-21, India’s agricultural exports registered a growth of over 17%, garnering $41.25 billion in foreign exchange. While good news for the country, especially in view of economic recovery from the COVID pandemic, it does have a negative consequence. The improved agricultural exports for 2020-21 translate into the annual drinking water needs of 1,500 villages with a population of 1,000 each! As Ashok Gulati, an agriculture economist points out, the export of 17.7 million tonnes of rice and 7.5 million tonnes of sugar is the same as the export of 50.4 billion cubic metres (rice 35.4, sugar 15 billion cubic metres) of water. [7]


The increase in net virtual water export has happened mostly after 1990, prior to which it was negligible. Virtual water export, in terms of water required for production, was about 10% in the year 2018. In contrast, the virtual water import of India fell to negligible values from 1990 onwards.


With the water footprint of India having increased by about 1.3 times in 28 years (as per research studies) [8], the question is whether India, which is included among the world’s most water stressed countries, can afford to be a net virtual water exporter? As per historical trends, virtual water export from India is expected to grow, therefore its negative impact on future generations will be wider and deeper if corrective actions are not taken urgently.


India needs to integrate virtual water trade risks into the policy framework by:

  • Prescribing the limits of national VWT

  • Establishing and listing the products/regions that need to be excluded from it

  • Specifying the water types to be used

  • Encouraging wastewater reuse and alternative means of water generation to avoid blue water depletion


Why has Virtual Water Trade become important?


The key characteristic of virtual water ‘trade’ is that while being economically ‘invisible’, i.e., no country is technically paying money to import or buy water, it can effectively meet society’s vital needs of food and water security. It enables water scarce regions to enjoy an affordable version of food and water security. So it is a ‘stress-free’ solution to an otherwise precarious problem [9].


This is the reason why some water scientists attribute the ‘absence of water wars’ in water-stressed regions to Virtual Water Trade. The visible impact of trade in virtual water on a national scale goes largely unnoticed, as less than 5% of the total water gets depleted during a year through agricultural exports [10]. This, however, can be considerable enough to cause an imbalance in the water resources at a regional or local level. According to research on Ecohydrology by the University of California, Berkeley, “unsustainable virtual water trade” constitutes about 15% of the water used in irrigation around the world, having increased by 18% from 2000 to 2015 [11].


It may be argued that exports generate revenue for a country in the short term, however, the value of the virtual water exported may well offset these gains by a wide margin in the long run. Therefore, virtual water footprint and trade need to be studied and evaluated carefully in today’s water scarce world.


References:


[1] Source: https://www.orfonline.org/research/finding-solutions-to-water-scarcity/

[2] Source: https://www.researchgate.net/figure/Share-of-Different-Sectors-in-International-Trade-of-Virtual-Water_fig1_238336182

[3] Source: Mekonnen and Hoekstra, 2011

[4] Source: https://waterfootprint.org/en/water-footprint/national-water-footprint/virtual-water-trade/

[5] Source: World Bank Development Indicators Database

[6] Source: https://www.indiawaterportal.org/articles/trading-virtual-water

[7] Source: https://www.downtoearth.org.in/

[8] Source: https://www.sciencedirect.com/science/article/abs/pii/S0959652617311678

[9] Source: https://www.eni.com/en-IT/low-carbon/concept-of-virtual-water.html

[10] Source: https://www.downtoearth.org.in/blog/agriculture/india-s-water-is-being-exported-as-agri-exports-is-there-a-solution-77966

[11] Source: https://undark.org/2021/05/31/foreign-farms-virtual-water/

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