Shifting from volume to economic value in virtual water allocation problems: A proposed new framework and methodology

Abstract

The water footprint provided a full methodology to operationalise the virtual water concept (the volume of water used along a supply chain to produce products and services). A key theme in the water footprint literature is the efficient allocation of water resources at the global scale given the feasibility of trading water intensive commodities from water rich to water poor areas: this is an economic problem of resource allocation between alternative and competing demands, albeit with a novel international component.Moreover, given that price signals indicating relative scarcity are usually either absent or distorted for water, it is also a problem that can be seen through the lens of environmental (or non-market) valuation. However, to date environmental valuation has not been used to inform the efficient use and allocation of water within and between the different locations encompassed by international supply chains. Methods: Drawing on an agri-food supply chain framework which we propose in this paper, we begin by conceptualising the economic values that accrue to water consumption (blue and green water) and degradation (grey water) at different points along a supply chain. Based on this conceptualisation, we assess the extent to which it is possible to approximate these economic values by relying on existing secondary data on the shadow value of water in different contexts. The use of secondary data in this way is known as benefit (or value) transfer. To achieve this, 706 unit estimates of the economic value of water are collected, standardised and reviewed encompassing off-stream water applications (agriculture, industry and municipal) and in-stream ecosystem services (waste assimilation, wildlife habitat, recreation, hydrological functions and passive uses).From this, a proposed methodology for valuing virtual water is presented and illustrated using the case study of global durum wheat pasta production. Results:The case study shows the total value of the virtual water used to produce one tonne of durum wheat pasta ($212). More importantly, the case study also highlights how variations in economic value between multiple locations where durum wheat is cultivated (Saskatchewan $0.10 m 3 , Arizona $0.08 m 3 and Baja California $0.24 m 3 ) indicate relative water scarcity and thus impact, as well as the potential for a more efficient allocation of virtual water. Conclusions:The main conclusion from this research is that when geographical disparities in the economic value of water use within a supply chain are accounted for, what was perhaps considered sustainable in volume terms, might not, in fact, represent the optimal allocation. However, future research opportunities

Optimization of Virtual Water Trade with Emphasis on Agricultural Sector Support From Two Perspectives: Maximizing Farmers' Welfare and Employment.

“…Regarding the fruits, the highest value of 1 m3 was obtained 3997 Tomans from oranges and the lowest value 401 Tomans from olives. Our findings about economic value is similar to Lowe et al (2020). They showed that the total value of the virtual water used to produce one tonne of durum wheat pasta ($212).…”

Water scarcity in agriculture: An overview of causes, impacts and approaches for reducing the risks

“…The total WF is the sum of those three components and refers to the water directly involved in the agricultural processes, while the indirect water, also known as ‘ virtual water’ , represents the water that is embedded in the preparation of the material and energy commodities utilised for the agricultural processes [ 80 ].…”

“…It is clear that global freshwater appropriation is an important issue. In spite of that, there is a global debate on whether WF should be a volumetric or an impact-based indicator as CF is [ 80 ]. The debate is rooted on the important need to fully understand and describe the WF purpose, and to determine the most representative unit of measure for water appropriation [ 80 ].…”

“…In spite of that, there is a global debate on whether WF should be a volumetric or an impact-based indicator as CF is [ 80 ]. The debate is rooted on the important need to fully understand and describe the WF purpose, and to determine the most representative unit of measure for water appropriation [ 80 ]. This originates from the fact that, while some scientists highlight the importance of impact factors, such as water consumption, is strongly affected by a series of boundary conditions, other scientists argue that a product’s volumetric WF is more important because freshwater is a global resource that is virtually traded through products [ 82 ].…”

“…As a result of this, comprehensive assessments can be conducted that enable creating extensive profiles of impact category indicator results [ 85 ]. Some LCA scholars have proposed, that WF should be a tool to supplement the environmental impact assessment of products with a supply-chain or life-cycle approach [ 80 ]. Since, ISO 14046 does not recommend a specific impact assessment method to use, several WF-assessment methods have been released over the years [ 14 , 34 ].…”