Virtual Water Trade from India
Author: Vikram Yogi

The concept of virtual water emerged in the early 1990s and was first defined by Professor Allan (1993) as the water embedded in commodities. Producing goods and services requires water; the water used to produce agricultural or industrial products is called the virtual water of the product. This water is ‘virtual’ because it is not anymore contained in the product. For example "When you consume one kilo of grain, you are in effect also consuming the one thousand liters of water needed to grow that grain similarly when you consume one kilo of beef, you are consuming the 13,000 liters of water needed to produce that amount of meat, and this is the hidden or 'virtual water’.

The potential of the concept:

Water saving: Net import of virtual water in a water-scarce nation can relieve the pressure on the nation’s own water resources. Virtual water trade between nations and even continents could be used as an instrument: to improve global water use efficiency and to achieve water security in water poor regions of the world. Virtual water trade can be an instrument in solving geopolitical problems and even to prevent wars. From an economic point of view it makes sense to produce the demanded water-intensive products in those places where water is most abundantly available .

Virtual water storage:

Virtual water can also play a role in bridging drought periods. Food storage is an effective way of storing water in virtual form and it can be seen as an alternative to real water storage. The food can be generated when water productivity is high and delivered when productivity is low from this we can save significant amount of water.

Virtual water transfer:

Virtual water trade between or within nations can be seen as an alternative option to inter-basin water transfers, especially when land is not a limiting factor for food production. This is for instance very relevant for China and India, where major real water transfer schemes are being considered.

Water footprint: a relevant indicator of water use:

Virtual water is an essential tool in calculating the real water use of a country, or its water footprint. The total water use within a country is not the right measure of a nation’s actual appropriate of the global water resources.

Water foot print of a country = Total domestic water use + Virtual Water import – Virtual water export

The water footprint of a nation is related to dietary habits of people. High consumption of meat gives a large water footprint. Also the more food originates from irrigated land, the larger is the water footprint. Finally, nations in warm climate zones have relatively high water consumption for their domestic food production resulting in a larger water footprint.

Method of calculation:

Virtual water can be expressed as the volume of water used by the exporter to produce the traded amount of food or as the volume of water the importer would have used otherwise. The difference between the two is the net impact of trade on global water use. A further distinction is possible between crop and irrigation water depletion. Depletion is defined as a use or removal of water from a basin that renders it unavailable for further use. Crop water depletion includes crop evapotranspiration and losses because of reservoir evaporation, percolation to saline aquifers and pollution.

Crop Water Depletion:

Virtual water flows can be expressed as the volume of water depletion incurred by the exporting country (equation 1) and as the amount that the importing country would have required otherwise (equation 2):

ETexij = Xij.CWj --------------------- (1)

ETimij = Xij.CWj --------------------- (2)


ETexij = crop water depletion used by the exporting country (m3)

ETimij = crop water depletion the imported would have used (m3)

Xij = net cereal trade from exporter i to importer j (kg)

CW = crop water depletion per unit crop (m3/kg)

i = Exporting country

j = Importing country

The volume of crop water depletion per unit crop is a function of climate (evapotranspiration) and crop yield (determined by, among others, farm inputs, soil characteristics and management, on-farm water). Expressed in cubic meter water per kilogram, it indicates how much water is needed to produce one unit of food. It is estimated from (equation 3):

CW = Amount of water = 10.DP crop -------------------- (3)

      Amount of crop            Y crop


DPcrop = crop water depletion (mm)

Ycrop = crop yield (kg/ha)

The factor 10 is included to match units: 1 mm on one hectare corresponds with 10 m3 of water. DPcrop includes crop evapotranspiration coming from precipitation and irrigation water. It is computed from:

DP crop = Peff + NET / EE ---------------- (4)


Peff = effective precipitation (mm)

NET = net irrigation requirements (mm)

EE = effective efficiency (%)


NET = ETcrop — Peff --------------------- (5)

ETcrop= kc .ETo ---------------------------- (6)


kc = crop factor

ETo = reference evapotranspiration (mm)

Effective efficiency of irrigation water, defined as the depletion beneficially used by crops divided by total depletion, shows how efficiently irrigation water is managed. The crop factor kc and methods to estimate ETo can be found in FAO Irrigation and Drainage paper no.56. Equations (4) and (5) implicitly assume that, under irrigated conditions, all irrigation requirements are met. This assumption, needed because reliable estimates on deficit irrigation are lacking, may lead to an overestimation of irrigation water savings, especially in water scarce areas where deficit irrigation is common. In rain-fed areas, NET is zero and crop evapotranspiration is met exclusively by effective precipitation.

Irrigation Water Depletion

Analog to the crop water computations, irrigation water depletion can be expressed as the amount that the exporter used and the importer would have used:

IRexij = Xij.IWj ------------------- (7)

IRimij = Xij.IWj ------------------- (8)


IRexij = irrigation water depletion used by the exporting country (m3)

IRimij = irrigation water depletion the imported would have used (m3)

IW = irrigation water depletion per unit crop (m3/kg)

IW= 10.NET / EE ---------------- (9)


The factor 10 is needed to match units from mm per hectare to m3

Impact of Trade on Global Water Use:

The impact of trade on the global crop water use is quantified as the difference of crop water depletion in the exporting country and the crop water “saved” in the importing country:

ETdifij = ETimij —ETexij =X ij.(CWj —CWi) -------------- (10)


ETdifij = difference in crop water depletion between importer and exporter because of trade (m3)

The impact of cereal imports on global water use into country j is given summing all bilateral flows:

TotIRdifjiIRdifij --------------------- (11)

At global level the impact is:

GlobETdif = ΣiΣjETdifij --------- (12)

A positive value of ETdif signifies that water “savings” because of trade occur as the exporter is more water efficient than the importing country. A negative value suggests that global crop water

depletion increases because of trade since the exporter uses more water than the importer would have. Similarly, the impact of international cereal imports on irrigation water depletion is quantified by:

IRdifij = IRimij — IRexij = X ij.(IWj —IWi) ----------------- (13)

at national level:

TotETdifij = ΣiETdifij -------------- (14)

and at global level

GlobIRDIFij = ΣiΣjIRdif ij ---------------------- (15)

Virtual water content of the livestock product is calculated in two steps

  • The virtual water content of the live animal is calculated based on its diet (crop composition) and total drinking and servicing water consumption during its entire life span. Then the virtual water content of a live animal is distributed over the different products produced from that animal. Scope of virtual water trade: It has been estimated that in the year 2025 world will produce 2615 million tonnes of grains, because of which 2981 Km3 of crop water will be depleted. In which 337 Km3 of crop water will depleted by the exporters, which is an improvement of 24 per cent as compared to 1995. It has been estimated that if the world trade will grow with the same rate then the global crop water saving will be doubled from 164 km3 to 358 km 3 and irrigation water saving will raise by 70 percent from 111 km3 to 191 km3. About 15 to 20 percent of the water used in the world is for export and import in virtual form. Among these, 67 percent of the global water trade is related to trade of crops, 23 percent is related to trade of livestock and livestock products and 10 percent is related to trade of industrial products. In terms of actual values, the global volume of virtual water trade is estimated to be 940 Gm3 /yr, out of which 695 Gm3/yr from the trade in crops and 245 Gm3/yr from trade in livestock and livestock products. Impact of virtual water trade Virtual water trade as a policy option requires a thorough understanding of its impacts not only related to international trade regimes and dependencies but also on the local, social, environmental, economic and cultural situation. Local Impact: At the local level, virtual water trade could deprive farmers and their families of their livelihoods unless alternatives are developed in terms of alternative crops or alternative employment. By importing virtual water, local water can be saved only if those people that used this water for their livelihoods find other ways or other employment to compensate for the loss of water to maintain their livelihoods. Other local impacts to be considered relate to the environment at both importing and exporting countries relevant to alternative uses or water mining. National Impact: At the country level, virtual water has a strategic dimension, both for the countries that import and for those that export it. Since water productivity varies quite a lot, it is important for water scarce countries to allocate their water resources as efficiently as possible, taking into consideration the water productivities, market value of the crops they produce and consume and the food markets they have access to. Regional Impact: Virtual water trade through appropriate and fair trade agreements should be encouraged to promote water savings and enhance food security. However, countries cannot do this in isolation. They have to consider the strategies and policies of their neighbors. The consequences of change in food trade patterns for water reasons should be examined in terms of money (currencies) food security, food sovereignty, employment and of course water resources.
Global Impact: At the global level, virtual water trade has geopolitical implications: It induces dependencies between countries; it is influenced by and has implications on the world food prices as well as on the global trade negotiations and agreements on tariffs and trade. The issue of virtual water is related to that of globalization, which raises a concern among many politicians and the general public. This can be understood from the fact that increasing global trade implies increased interdependence of nations. This can be regarded either as a stimulant for Co-operation or as a reason for potential conflict. Centralized imports of cereals may create a food ‘reservoir’ giving the state a monopoly on the food market, allowing it to create a client base in the major cities, distributing food in exchange for political allegiance. Such allegiance brings a degree of political dependency. These implications are politically sensitive especially since the current low food prices of the global market are closely related to the high level of subsidies in many exporting countries and since they have a detrimental effect on the agriculture development of the countries importing food products. Sectoral policies, such as agricultural taxation and input and output price policy profoundly influence farmer decisions regarding cropping decisions and associated water use. In addition to highly subsidized irrigation water, farmers benefited from cheap fertilizers, pesticides and credit. Reduction in crop price supports and input subsidies could significantly influence trade in virtual water. Increases in virtual water trade could therefore provide significant benefits by reducing the negative environmental consequence of distorted agricultural policies.


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About Author / Additional Info:
I am currently pursuing Ph.D in Agricultural economics from IARI New Delhi.