Each morning, millions of people around the globe commence their day with a cup of coffee. Only a few people may realise that producing a single cup of coffee involves everything from growing the coffee plant to processing the beans. This process requires approximately 150 litres of water, most of which is sourced from locations far away from where the coffee consumer is situated. In addition to this, when considering the water needed to make a teaspoon of sugar (approximately 10 litres), a splash of milk (about another 10 litres), & a small cookie (approximately a further 30 litres), it involves a breakfast that may exceed a minimum of 50 litres. That’s what many people may use at home in a day.
The hidden water that’s embedded in the consumed goods is referred to as ‘virtual water’. Through trade, enormous volumes of virtual water tend to move across borders. This way, international trade tends to move roughly 500 billion tonnes of water annually. That amounts to 50 times the weight of all goods moved by sea. That’s equivalent to a quarter of the total global water usage. These flows reflect rapid growth in the virtual water trade. Over the past two decades, the virtual water trade has increased by half. This reflects rising revenues, a shift towards more water-intensive diets, and the development of longer value chains.
Trade helps save global water.
Water is unevenly distributed across the globe. Persistent freshwater loss tends to disrupt employment, incomes, & ecosystems. North America holds over half of the global renewable freshwater. However, that’s only 5% of the global population. Meanwhile, many densely populated regions, such as South Asia or the Middle East, tend to face severe water stress.
Global trade helps balance these distribution differences. The World Bank’s flagship report, Continental Drying: A Threat to Our Common Future, reflects that crop trade saves around 500 billion cubic meters of water each year. This benefit is because many crops are grown where water is used more efficiently than in importing countries. This may be crucial to water-dependent sectors, such as agriculture, energy, and industry, which support around 1.7 billion jobs worldwide.
Some virtual water trade is sub-optimal
Almost 1/5th of the irrigation water embedded in traded goods tends to originate from locations where water is scarcer and so used less efficiently than in the importing markets. Water-stressed nations are effectively exporting scarce water resources through agricultural products. Several major exporters of irrigated crops also tend to face significant water stress. This mismatch indicates that trade flows may not consistently align with the most sustainable use of water.
Trade policy may influence where water-intensive production occurs
Trade policy does more than move goods. It can also actively influence where & how water-intensive production takes place. Shifting production to water-abundant regions, supporting diversification in stressed basins, besides enabling the flow of water-efficient technologies, is where trade policy may help align economic competitiveness with water security. Such alignment may occur through a combination of price signals, regulatory measures, & international cooperation. These are tools that already exist but are not yet fully used for water, such as subsidies for water-efficient technologies and tariffs on water-intensive crops.
Price indicators
Price signals shape production incentives across borders. In many water-stressed regions, water tends to be often underpriced. Energy subsidies may make groundwater pumping artificially cheap. These distortion corrections are the most effective solution. However, when they persist, tariff structures may amplify or dampen their effects on the overall cost of water usage and the sustainability of water resources in various sectors.
Import tariffs affect the competitiveness of water-intensive sectors. These are agri-food, textiles, leather, and pulp & paper, besides chemicals. Tariffs on water-saving technologies such as drip-irrigation systems and smart meters, besides wastewater-treatment equipment, may slow their adoption. These tariffs tend to be lower than the overall average tariffs. Reducing them may make water-saving technologies more accessible to farmers, besides industries.
