In 2015, the Chinese consumed 152m tons of soybeans. Unable to keep pace with the appetites of its population, much of this is shipped in from the US, which provides around a quarter of China’s agricultural imports.
Among the main drivers for sourcing food from overseas is water – or rather, a lack of it. To produce the vast quantities of soybeans demanded, it would require millions of tonnes of water. By importing the beans, China can make huge savings of this valuable resource.
As the world heats up and our populations grow, maintaining fresh water supplies will be a key challenge. Virtually all of the projected population growth by 2050 will be concentrated in urban areas, which will have a negative impact on water tables.
These people also need to be fed. Currently, agriculture accounts for approximately 70% of global water withdrawals, according to UNESCO, with large portions of what remains going into crucial industry such as power generation.
All of this combined means that as a planet we either need to find a lot more water over the next 40 years or manage what we have much better.
Water-saving technologies, desalination and recycling all have important roles to play here. So too does the trading of the unseen water in food and other commodities – as China has recognised.
Known as “virtual water trading”, the concept applies to anything that required the use of freshwater during the production process, ranging from meat to pharmaceuticals. As these products are then traded around the world, their water footprint follows in the form of virtual water.
It’s a system that many water-poor countries around the world use to relieve pressure on their domestic water resources. For instance, around 1,500 litres of water is used to produce 1kg of wheat, compared to 15,000 litres for 1kg of beef. Accounting for these differences allows countries to make informed decisions about what types of industries they pursue.
Kenya, for example, can mitigate its water scarcity by increasing imports of water- intensive products such as cereals and exports of high-value products such as cut flowers, vegetables, spices and tea, according to a paper by A.Y. Hoekstra, professor of water management at the University of Twente, in the Netherlands.
Indeed, importing agricultural goods can be beneficial for both a country’s water supply and its economy, says Warren Kreyzig, commodities analyst at wealth management firm Julius Baer and author of a report looking at global water stress. He draws attention to the fact that the water used for irrigation “adds much less value per unit than competing consumption in industries such as pharmaceuticals. Therefore, in water-stressed regions, it is economically and environmentally rational that they move away from grain production.”
It isn’t only governments that are using virtual water trading. Multinational companies, such as SABMiller, PepsiCo and Nestlé, are also beginning to take note of how their water usage can impact on the environment – and their reputations – and are developing an interest in water monitoring.
Jacob Tomkins OBE, managing director of Waterwise, which advises on water efficiency, says: “Many large corporations use these [virtual water trading] techniques to track their water usage. Primark is one of the organisations that has used it to really benefit the regions it produces goods in. However, some companies do not follow their entire supply chain and it can give misleading results in their virtual water findings.”
This increasing interest in, and use of virtual water trading has an impact on other industries, says Kreyzig. “Global grain traders, logistics providers and those who develop technology to improve water efficiencies are best positioned to benefit financially from a global increase in virtual water trading,” he highlights.
He adds: “Although virtual water trading is essentially a trade-off of food security for economic growth and stability, it offers an immediate and sustainable solution [to water scarcity], which adds to its political and economic appeal.”
This idea of a “trade-off” is also supported by Hoekstra, who, in his book The Water Footprint of Modern Consumer Society acknowledges how imports of water-intensive products can create a dependency on foreign water resources.
Here lies the rub. For all the positive aspects, virtual water trading also has its disadvantages – not least in that it means countries have to choose between being able to independently feed their populations or cope with water stress. In addition, a number of experts have questioned the validity of associated benefits, claiming that calculations can be inconsistent and can ignore the macro economic and social factors that also impact upon the environment and availability of resources.
For instance, the Netherlands Environmental Assessment Agency has stated that the water footprint indicator is an “unsuitable” tool for sustainability goal setting and policymaking.
Virtual water trading is not a panacea to all of our water woes, but with four billion people facing severe water scarcity and water crises listed as the largest global risk in terms of impact by the World Economic Forum, we need as many mechanisms as possible to address the situation. In countries where resources are plentiful and productivity is high, some argue virtual water trading does make economic and sustainability sense. We have not seen the end to growth in this trading tool yet.
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