The WTO Public Forum last week included a panel session on water and trade. A number of messages emerged from the discussions -here are some highlights:Embedded water
It takes 15,000 litres of water to make 1kg of beef – this sounds like a lot but what matters more than volume is the scarcity of water where the beef was produced. Water rich areas place a low value on a litre of water compared to water scarce areas and so can compete in the production of beef.
Trade redistributes water
Trade is an efficient way to redistribute water from water rich areas e.g. northern France to water scarce areas, e.g. central Spain. Water is often redistributed in the form of cereals imports. Value addition takes place by feeding low value crops to livestock transforming them to a high value products.
The trade in embedded water
For Dr Mohammad Ait Kad from Morocco’s Agriculture Ministry, “Trade is not an option but a necessity”. It spreads the risk of agricultural production in a region that is food insecure. In the Horn of Africa, imports of crops into water-scarce regions are vital for smoothing out seasonal scarcities. Cereal surplus countries that place restrictions on exports aggravate this mechanism and threaten food security (Maite Aldaya, Fundacion Botin).
Market distortions in water
Subsidies for energy and irrigation cause distortion in the market for water, leading to rapid drawdown of aquifers and the cultivation of thirsty crops like cereals in hot areas that traditionally would grow olives. These implicit subsidies have trade impacts (e.g. artificially lowers the price of cereals from areas receiving energy and water subsidies) (Ron Steenblik, OECD)
Other policies have an impact on trade in embedded water: Climate change policies (or lack of them) will change trade patterns as water scarcity increases in some areas. Reform of policies on water to make prices reflect real resource scarcity is hampered by how the cheap water is capitalized into value of farmland. Policy reform creates real losers amongst farmers who purchased land before reform.
The pros and cons of consumer labels were discussed. Labels for embedded water are very limited in what they can communicate: the scarcity of water used to make a product is more important than the volume. How easily would a consumer absorb such information (whilst rushing round the market on a Saturday morning).
Water and carbon are similar issues
The issues reflect some of the same discussions around climate change and trade, namely that water (like carbon) needs to be priced for its negative externalities. There are similar trade policy responses, for example the (flawed) introduction of consumer labels. There is agreement that strong domestic environmental regulation is preferable to resorting to trade measures to address environmental problems associated with trade.
In reforming both water and energy policy, (getting the prices right), there are winners and losers – how society compensates the losers is the key issue.