The role of ‘virtual water’ in efforts to achieve food security and other national goals, with an example from Egypt
Professor J.A. Allan has defined ‘virtual water’ as the water embodied in food crops that are traded internationally (Allan, 1996a, Allan, 1996b, Allan, 1998). Professor Allan uses the concept to describe a water-short nation’s opportunities for achieving food security by purchasing a portion of its food requirements in international markets, rather than using scarce water resources to produce all of its food requirements. Such a strategy is particularly pertinent in years when the world prices of food grains are lower than the costs of production in water-short countries. In fact, Professor Allan suggests that for many years the low prices of food grains have enabled some Middle Eastern countries to delay addressing serious domestic water allocation issues by importing ‘virtual water’ in international markets (Allan, 1996b).
The ‘virtual water’ perspective compares the amount of water embodied in a crop that can be purchased internationally with the amount of water that would be required to produce that crop domestically. For example, if 1000 m3 of water are required to produce 1 tonne of wheat, then importing 1 million tonnes of wheat is equivalent to importing 1 billion m3 of water (Allan, 1999). The question raised by this comparison is whether a greater economic value might be generated by importing the million tonnes of wheat and using the billion m3 of water in some other activity. This question is pertinent in describing inevitable trade-offs, particularly in nations where both water and foreign exchange are scarce resources.
‘Virtual water’ combines agronomic and economic concepts, with emphasis on water as the key factor of production. The agronomic component involves the amount of water used to produce crops, while the economic component involves the opportunity cost of water, which is its value in other uses that may include production of alternative crops or use in municipal, industrial, or recreational activities. The ‘virtual water’ perspective is consistent with the concept of integrated water management, in which many aspects of water supply and demand are considered when determining the optimal use of limited water resources (Bouwer, 2000). In particular, the opportunity cost of water use, which is a key component of the ‘virtual water’ perspective, must be considered when seeking an efficient allocation of scarce water resources.
The concept of ‘virtual water’ brings focus to the opportunity cost of water when evaluating crop production and international trade alternatives. The same concept applies to the water embodied in other productive activities, such as manufacturing and power generation. Some manufactured goods require a greater amount of water in the production process than other goods. Nations in which water is particularly scarce may gain by importing water-intensive manufactured goods, while exporting goods that require less water in production. Similarly, nations with limited fresh water resources may gain by generating electricity in coastal areas, using ocean water for cooling, or by importing electricity from countries with abundant hydro-electric resources (Bouwer, 2000).
Professor Allan describes the role of international trade in moving ‘virtual water’ from “comparatively advantaged regions, where there is a surplus of soil water in soil profiles to comparatively disadvantaged regions such as the MENA region (Middle East and North Africa), where water is scarce (Allan, 1998)”. Indeed, the economic component of the ‘virtual water’ concept is closely related to the comparative advantage concept from international trade theory. That concept suggests that nations should export products in which they possess a relative or comparative advantage in production, while they should import products in which they possess a comparative disadvantage. Regarding water resources, countries in which water is particularly scarce may gain from trade by importing water-intensive crops, while using their limited water supply for activities that generate greater incremental values.
Several countries in the MENA region have been implementing a ‘virtual water’ strategy implicitly for many years because the volume of water available for food production has not been sufficient to meet increasing demands (Allan, 1996a). Richards (1987) describes the gap between food supply and demand that arose in the region during the oil boom of the 1970s. Higher incomes combined with steadily increasing populations generated substantial increases in food demand that could be satisfied only by increasing food imports. Examples of the average annual rate of growth in food imports during 1974 through 1982 include 8.2% in Egypt, 17% in Jordan, and 30.1% in Saudi Arabia. Allan (1999) states that “since the end of the 1980s, the MENA region has been importing 40 million tonnes of cereals and flour annually”. He suggests that “more virtual water ‘flows’ into the region each year than flows down the Nile into Egypt for agriculture”. Brown and Halweil (1998) report that in 1997 the MENA region, which contains 5% of the world’s population, accounted for about 25% of the world’s grain imports.
Despite the economic rationale for importing some portion of a water-short nation’s food supply, some public officials in MENA countries are reluctant to acknowledge the role of ‘virtual water’ in their food security strategies. Allan (1999) and Otchet, 1999, Otchet, 2000 suggest that their reluctance may be due, in part, to political concerns regarding the public’s perception of a nation’s dependence on international markets for a portion of its food supply. Some of those concerns are evident in the discussion regarding ‘food self-sufficiency’ versus ‘food security’ that arose in the MENA region during the early 1980s (Richards, 1987, Richards and Waterbury, 1996).
The rapid increase in food imports in the MENA region during the 1970s caused a decline in food self-sufficiency ratios that generated concern among policy officials regarding their national dependency on food imports (Richards, 1987). As a result, several countries began investing heavily in agriculture during the early 1980s to increase domestic food production. Much of the focus was on expanding irrigation and providing subsidies to farmers for the purchase of machinery and other inputs. Food production increased as a result of those programs, but the direct and indirect costs were substantial (Wenger and Stork, 1990, Richards and Waterbury, 1996, Chapter 6). In addition, salinity and drainage problems arose, over time, as did policy issues regarding the optimal use of non-renewable groundwater. Issues regarding sustainability of food production efforts in the MENA region arose during the late 1980s and have persisted through the 1990s. Throughout this time, food imports have remained an important component of the total food supply in the region (Allan, 1995).
Many water-short countries will continue to rely on imported food crops to provide a significant portion of their food supply in future, while also producing a portion of their food requirements domestically. The optimal combination of imports and domestic production will vary among countries according to their endowments of arable land, water, and other productive resources. Policy goals including the provision of national security, promotion of economic growth, and enhancement of the quality of life for citizens will also be considered when determining optimal strategies regarding domestic food production and international trade.
The goal of providing national security is often given substantial weight when evaluating efforts to ensure food security. Nations that produce a large portion of their food requirements may perceive a greater sense of national security than nations that rely heavily on food imports. However, the cost of attaining that sense of enhanced national security may be quite high, as measured by the opportunity cost of scarce land, water, and capital devoted to domestic food production. The likelihood that food imports might be curtailed in future, causing domestic stress and leading possibly to hostilities among nations, is difficult to estimate. However, the impact of curtailment by any one nation can be reduced by importing food products from several nations and by establishing mutually beneficial trade in food and other products.
Scarce water resources and the concept of ‘virtual water’ will play important roles in the analysis of national policy objectives in water-short countries. Policies that arise from consideration of international trade opportunities will enhance the net values generated with limited resources and may reduce the likelihood of international conflicts regarding transboundary water resources in arid regions. Optimal national strategies likely will result from consideration of all scarce resources, in addition to water, and of the full set of national policy objectives.
The goals of this paper are the following: (1) to extend the discussion of ‘virtual water’ by describing its role within an economic model of a nation’s efforts to achieve food security and (2) to present a broader view of a nation’s goals regarding social net benefits, so that the role of ‘virtual water’ may be examined more appropriately in conjunction with other key resources needed to achieve those goals. An example from Egypt describes the importance of considering labor, land, and capital, in addition to water resources, when examining crop production alternatives and international trade opportunities.
An economic model of food security in which the benefits of international trade and ‘virtual water’ are examined conceptually is presented first. That model is then embedded within a broader model of public goals that include national security, economic growth, and the quality of life. This broader framework supports a more detailed analysis of policies regarding water use, agricultural production, and international trade by considering interactions among policy goals and instruments. The framework also promotes consideration of short-run and long-term policy objectives, and the potential role of ‘virtual water’ in achieving those goals.
Definitions and an economic model
Many definitions of food security have been offered by various authors and inter-governmental agencies, over the years, and most of these focus on the availability of food and the ability of people to gain access to it. For example, the World Bank defines food security as “access by all people at all times to enough food for an active, healthy life. Its essential elements are the availability of food and the ability to acquire it (World Bank, 1986)”. The Food and Agriculture Organization of the
Maximizing social net benefits
The goal of achieving food security is likely one of many goals that a national government seeks to achieve, over time. Other goals include the provision of national security, achieving economic growth, and providing a desirable quality of life to citizens. It is helpful to consider these other goals when discussing ‘virtual water’ and international trade opportunities, as water and other resources are often involved in policy discussions and decisions regarding these other national objectives.
Crop production and international trade
Food imports and the embodied ‘virtual water’ have long been important components of Egypt’s annual food supply. Wheat imports have grown from 1.2 million tonnes in 1961 to 7.4 million tonnes in 1998 (Fig. 4), making Egypt the third largest importer of wheat after China and Russia (Weiss and Wurzel, 1998). Maize imports have grown from 0.1 million tonnes in 1961 to 3.1 million tonnes in 1998. Much of the imported wheat is used to produce bread and flour that are distributed in food subsidy programs,
International trade in food grains and other agricultural products will continue to play a critical role in national efforts to achieve food security and generate economic growth in many countries. The ‘virtual water’ embodied in food imports and exports will remain a valid concern for water-short nations seeking to maximize the value of their limited water supplies. The labor, land, and capital embodied in agricultural imports and exports must also be considered in countries where one or more
I appreciate the helpful comments of Megumi Nakao regarding earlier versions of the paper and the comments provided by Dr. Herman Bouwer and two anonymous reviewers. This paper is Rhode Island Agricultural Experiment Station Publication Number 3835.
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