Virtual water: in practice or theory?

Virtual water in theory

Oki et al. (2017) highlight that, in the case of water, areas of high demand do not necessarily align with areas of natural supply – much like many other resources. To combat this, other resources are commonly traded from areas of high resource availability to areas of low resource ability.  In the context of water, they go on to explain how the trade of ‘real water’ – water in its natural liquid state – is not economically feasible due to the high costs of storage and transportation relative to the real value of water.  Therefore, water needs to be traded by virtually; they define ‘virtual water trade’ as: “the international trade in water-intensive commodities between water abundant countries and water-poor countries…”, which they estimate to occur on the scale of 1100-2300km3 per year.  Put simply, instead of trading actual water, water can be traded virtually, embedded within high-water goods, therefore reducing the demand in the water-poor destination country.  As 90% of a nation’s water consumption is used in food production, as Allan (1998) claims, much of the literature surrounding virtual water focuses on the trade of agricultural products.  Thus, it is argued that through the virtual trade of water embedded within agricultural products, domestic water demand can be reduced in many water-scarce African countries, therefore improving water and food security. 

Virtual water in practice: South Africa

South Africa is currently a water stressed nation, becoming water scarce by 2025 (according to Falkenmark’s WSI) - with annual freshwater availability projected to fall below 1000m3 per capita.  Therefore, due to the compelling logic of agricultural virtual water trade, South Africa has made huge efforts to reduce the exports of crops, falling by 62% between 2002-2013 - according to Hassan and Thiam (2015).  However, by directing policy only towards agricultural crops, virtual water exports have increased in the water-intensive horticulture, mining and services sectors, largely governed by global trade dynamics – where trade agreements have become increasingly favourable between South Africa and the BRIC countries (Brazil, Russia, India and China).  This has resulted in South Africa being a net exporter of virtual water, with virtual water exports increasing by 79% between 2002-2013.  

Intracontinental virtual water trade in Africa, from Konar and Caylor (2013)

According to Konar and Caylor (2013), South Africa is also a net virtual exporter within the African continent.  It exports account for 31% of intracontinental virtual water trade, making it THE major exporter within Africa.  Konar and Caylor attribute this to the disproportionate direct foreign investment into South Africa compared to its African counterparts, aimed to increase its agricultural output. 

In the case of South Africa, issues of water scarcity and food insecurity have not been improved – and are likely to have been worsened – as a result of the trading of virtual water embedded within agricultural crops. Whilst policy has been successful in reducing its virtual water exports embedded within agricultural crops, global market dynamics have increased its extracontinental virtual water exports within non-crop products, far outweighing the reductions of the former, resulting in a significant increase in its virtual water exports.  Global economics have also increased South Africa’s intracontinental virtual water exports by promoting agricultural expansion despite South Africa’s known water scarcity issues.

Virtual water in practice: Egypt

Similarly, in Egypt – another water scarce nation, scholars have advocated for the role of virtual water trading as a means to guide water and food policy – most notably Allan, the Western academic who coined the term.  In response, as Barnes (2013) explains, the government implemented a policy aimed to limit water-intensive rice exports by reducing the area of rice cultivation.  However, she argues that by placing the entire value of this water within rice – intrinsic to virtual water perspectives – the value of water’s other functions is masked.  She explains that Egypt’s climate makes its soils very susceptible to salinisation, reducing the soils agricultural productivity – and that rice paddy irrigation, as well as producing rice, can reduce the salinity of topsoil by 25%, thus allowing for sustained cultivation.  Thus, by framing water management policy through the lens of virtual water, other important functions of water are overshadowed – potentially causing detrimental impacts on the sustainability of future agricultural development. 

Concluding remarks

Overall, I think that virtual water trading could be a logical way to alleviate issues of water scarcity and food insecurity.  However, as exemplified in both Egypt and South Africa, virtual water is bound to economic rationale, which is known to be plagued with negative externalities – whether that’s reduced soil fertility, or an outcome that is the complete opposite of the intended outcome