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Virtual Water Trade as a Policy Instrument Contributing to the Achievement of Food Security in the GCC Countries Waleed Zubari
05/03/2015
 The concept of ‘virtual water’ has been introduced by Tony Allan in the early nineties (Allan, 1993; 1994). However, it took nearly a decade to get global recognition for the importance of the concept of achieving regional and global water security. The "virtual water" content of a product, as often defined, is the volume of water used to produce the product, measured at the place where the product was actually produced (i.e., a production site specific definition). The virtual water content of a product can also be defined as the volume of water that would have been required to produce the product in the place where the product is consumed (i.e., consumption site specific definition) (Hoekstra and Chapagain, 2004).
 
It is often noted that net import of virtual water in a water-scarce nation can relieve the pressure on a nation’s own water resources, and that virtual water can be seen as an alternative source of water (Hoekstra, 2003). It is of no doubt that using this additional source can be an instrument in planning and managing water resources. Moreover, virtual water trade between or within nations can be seen as an alternative to real, inter-basin water transfers. Renault (2003) notes that the issue of optimal production is not only a matter of wisely choosing the locations of production, but also a matter of proper timing of production. One can try to overcome periods of water shortage by storing water in its virtual form, e.g. by food storage. This can be a more efficient and more environmentally friendly way to bridge dry periods than, for example building large dams for temporary water storage.
 
The economic argument behind virtual water trade is that, according to international trade theory, 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 (Wichelns, 2001). Hoekstra and Hung (2003) argue that virtual water trade between nations can be an instrument to increase ‘global water use efficiency’. From an economic point of view it makes sense to produce the water-intensive products demanded in this world in those places where water is most abundantly available. In those places water is relatively inexpensive, there are smaller negative externalities to water use, and often less water is needed per unit of product. Virtual water trade from a nation where water productivity is relatively high to a nation where water productivity is relatively low implies that globally real water savings are made.
 
The strength of the virtual water concept is that it embraces the whole water management in a country or basin and allows for a deeper understanding of water use through, for example, diet description or broader optimization of water allocation between different water uses by incorporating access to external water resources through virtual water trade (WWC, 2004). This presents the concept as a practical policy tool that can be extended to detailed analysis of water resources management, as well as environmental, agricultural, and trade policies. Until now many of these policy issues have been solved empirically by common sense food policies and strategies in many GCC and Arab countries. For example, Jordan has made policy choices to reduce or abandon exports of local production of water-intensive crops and replace them by imports or cultivate higher return crops to allow optimization of water use.
 
Although virtual water is ongoing in the region, whether among the GCC countries, among the GCC and the larger domain of Arab countries, or among the GCC/Arab countries and the world (Figure 1), it is yet to be considered as a policy option in planning and allocating water resources.
 
Figure 1. Virtual water balance per country related to trade in agricultural and industrial products over the period 1996-2005. Net exporters are shown in green and net importers in red. The arrows show the biggest gross international virtual water flows (> 15 Gm3/yr); the fatter the arrow, the bigger the virtual water flow.
 
 
 
 
Source: Mekonnen and Hoekstra, 2011
 
While agriculture in the GCC countries accounts for about 85 percent of the total water consumption, drawn mainly from non-renewable groundwater sources, agriculture has not kept pace with the rapidly increasing demand for food, resulting in a widening food gap that is filled by imports. The GCC countries are therefore becoming increasingly dependent on imported food products. Currently, the GCC countries are heavily dependent on food imports (Table 1), which is expected to continue to increase as a result of rapidly growing population, improving living standards, sustained economic and industrial development on one hand, and limited/depleting natural water resources and limited arable lands on the other. Moreover, climate change is expected to have a major impact on the region in terms of agricultural production.
 
Table 1. GCC Food Balance, 2008, in thousand metric tons (modified after Khouri, et al., 2013)
SSR= Self-sufficiency ratio (Domestic Production/(Domestic Production - Exports + Imports)*100)
 
Virtual water trade flow for the GCC countries (1996-2005) was about 33 billion cubic meters/year or about 1,100 cubic meters/capita/year, of which the largest share of this virtual water flows is international trade in agriculture-related products (96 percent), while trade in industrial products represents the remaining percentage (Mekonnen and Hoekstra, 2011; Table 2). If the fact that the GCC countries lie well below the severe water scarcity threshold of 500 cubic meters/year/capita (average of 155 cubic meters/year/capita) is taken into account, the importance of virtual water for the region becomes apparent. In contrast, the total virtual water trade volume between the GCC countries is estimated in 2006 at 1.1 billion cubic meters (Al-Otaibi, et al. 2013). This large difference between the two figures obviously indicates that food security in the GCC countries cannot be achieved by their integration in food production alone, for none of these countries has a comparative advantage in agriculture production It also indicates that larger integration circles need to be looked at, namely the Arab world and the Islamic world.
 
Table 2. Virtual Water in the GCC countries (1996-2005)
Source: Mekonnen and Hoekstra, 2011.
 
However, virtual water trade has many constraints and associated risks, the most important of these being price volatility. As a food-importing region, the GCC is vulnerable to spikes in global food commodity prices, such as the one that occurred in 20081. That price increase has had a strong impact on the region’s food and agriculture policy, and will continue to have an impact over the next decades. A growing GCC population points towards increased dependence on imported food staples. Food imports are projected to grow from US$18.1 billion in 2007 to US$53.1 billion by 2020, or 8 percent of all imports in value terms. Ensuring that food imports remain available at an affordable price is a key strategic priority for the GCC (EIU, 2010).
 
In the aftermath of the food price crisis, both GCC governments and private investors in the region have been studying alternative ways of ensuring food imports by controlling the source of supply. The main strategies are buying or long-term leasing land in developing countries to use for export-oriented farming. Gulf-owned farming projects2 are already being considered, negotiated, or implemented in North Africa, Sub-Saharan Africa, central Asia, southern Asia and eastern Europe, including Sudan, Kenya, Pakistan, Indonesia and others. However, this strategy carries with it many risks3 and requires careful and continued management and making sure that benefits are shared for both sides4. Other but equally important proposed strategies to reduce exposure to market price volatility include the risk management tools of regional strategic food reserves and regional purchasing approach (Khouri, et al. 2013).
 
However, importing food should not be the only response the water-scarce GCC countries should and can take to achieve food security. Efficient irrigation systems in the GCC countries have a vital role to play in the conservation and sustainability of water resources, as well as the sustainability of food production and agricultural development in the future. A shift to modern irrigation and agricultural methods and demand management tools to increase agricultural productivity and water conservation is imperative. Increasing the efficiency of water use and applying demand management and conservation measures in the agricultural sector, where the largest proportion of water resources are used and where irrigation efficiencies are low, would result in effective and real water savings. Moreover, this has to be paralleled with enhancing agricultural production through a region-based agricultural R&D (Khouri, et al. 2013).
 
The argument here is that the virtual water strategy should be an integral component in the whole package of integrated water resources management and aligning and integrating agricultural policies with water policies to achieve both water and food securities. Moreover, the energy dimension of the water-food nexus can be seen clearly here – by importing water intensive crops, not only can there be local water savings, there are also energy savings through reduction in withdrawal of irrigation water from deep aquifers (Siddiqi and Anadon, 2011), which could be significant for the GCC countries that have energy intensive groundwater withdrawals.
 
However, the introduction of virtual water concept as a policy option in the GCC countries and the Arab Region at large is still in need of extensive investigations, in-depth research, and feasibility evaluation Although import of virtual water trade will relieve the pressure on national water resources, including this new concept as a policy option, requires further research and understanding of the impacts on the local social, economic, environmental, cultural, natural, and political situation.
 
In conclusion, food imports in the GCC countries are necessary to provide what the region is unable to produce due to water resource deficiencies and should be considered as a complementary part of the food security formula. Agricultural policies can benefit from the use of the “virtual water” concept in terms of its potential water saving when used as a practical policy tool. While food import is ongoing in the region, it needs to be used as a policy instrument and embedded within water and food policies. The virtual water concept can help to inform agricultural policymaking about what should be produced internally and what should be imported, putting in consideration political, social, economical and environmental factors.
 
Finally, food security in the GCC countries can be achieved by adopting a complementary and balanced agricultural policy mix between local agriculture that takes into account the limited water resources in the region, food imports, and agricultural investment abroad in food strategic commodities. Moreover, it is clear that the majority of the Arab countries cannot provide for all of their food needs due to the lack of agricultural capacity in these countries. However, Arab food security could be achieved through regional agricultural integration that combines the relative comparative advantages of the Arab countries, such as land and water resources, human resources, and financial resources. The Arab countries, through appropriate public private participation models, could join together in agricultural projects aimed at achieving food security for the region as a whole using advanced agricultural methods supported by active R&D in agricultural production.
 
References
 
Allan, J A (1993) Fortunately there are substitutes for water otherwise our hydro-political futures would be impossible. In: ODA, Priorities for water resources allocation and management, ODA, London, pp. 13-26.
Allan, J A (1994) Overall perspectives on countries and regions. In: Water in the Arab World, perspectives and prognosis, Rogers, P and Lydon, P (eds). Harvard University Press, Cambridge, Massachusetts, pp. 65-100.
Al-Otaibi, I, El-Sadek, A A, and Al-Zubari, WK (2013) Calculation and Evaluation of Virtual Water Flow between the GCC Countries. Emirates Journal for Engineering Research, 18(2): 21-34 (in Arabic).
EIU (Economist Intelligence Unit) (2010) The GCC in 2020: Resources for the future. The Economist, Geneva.
Hoekstra, A Y (2003) Virtual water: An introduction. In: Proceedings of the International Expert Meeting on Virtual Water Trade, IHE-Delft, Value of Water Research Report Series No. 12.
Hoekstra, A Y, and Chapagain, A K (2004) Water footprints of Nations. Value of Water Research Report, Series No. 16, UNESCO-IHE Institute of Water Education, Delft.
Hoekstra, A Y, and Hung, P Q (2003) Virtual water trade: a quantification of virtual water flows between nations in relation to international crop trade. In: Proceedings of the International Expert Meeting on Virtual Water Trade, IHE-Delft, Value of Water Resource Report Series No. 12.
Khouri, N, et al. (2013), Food Security Strategies in the Arabian Gulf Region. In: Water and Food Security in the Arabian Gulf, pp. 175-221. The Emirates Center for Strategic Studies and Research, UAE.
Mekonnen, M M, and Hoekstra, A Y (2011) National Water Footprint Accounts: Production and Consumption, Vol. 1: Main Report, Research Report Series No. 50, UNESCO-IHE, University of Twente, The Netherlands. Available at: http://www.waterfootprint.org/?page=files/VirtualWaterFlows
Renault, D (2003) Value of virtual water in food: Principles and virtues. In: Proceedings of the International Expert Meeting on Virtual Water Trade, Delft, Value of Water Research Report Series No. 12.
Siddiqi, A, and Anadon, L D (2011) The water-energy nexus in Middle East and North Africa. Energy policy, 39: 4529–4540
Wichelns, D, (2001) The role of virtual water in efforts to achieve food security and other national goals, with an example from Egypt. Agricultural Water Management, vol. 49: 131-151.
WWC (World Water Council) (2002) E-Conference Synthesis: Virtual Water Trade-Conscious Choices. WWC.
 
NOTES
 
1-When food prices soared owing to supply-demand mismatches and speculative investment, the fear of shortages prompted some producing countries to ban food exports.
2-A variety of GCC investment vehicles is being used to finance agricultural investments, including sovereign wealth funds, public funds that have been set up specifically to invest in agriculture, and private equity funds, while state-owned agriculture or food firms may also invest directly.
3-Some of the risks involved are: when GCC investors try to export all of the output of a farming investment at a time when the host country faces a serious food shortage; non-transparent land valuation and transfer process, not ensuring a broader range of stakeholders than just governments, not providing clear and visible benefits for local communities (EIU, 2010).
4-e.g., GCC investing and providing funds in improved agricultural productivity in developing countries, aligning GCC foreign aid spending more closely with food security aims by helping countries to create food surplus to be exported, and consultation and negotiation with local farmers.
 
 
Prof. Waleed Zubari is Chairperson of Water Resources Management, Arabian Gulf University, Manama, Bahrain
 
 
 
 
 
 
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