Drivers of domestic grain virtual water flow: A study for China

Abstract

Trade can conserve water resources in an administrative region if the region imports water-intensive commodities rather than producing them domestically. However, many recent studies of domestic virtual water flows (VWFs) have found that there is a net VWF from water-scarce regions to water-rich regions within large countries such as China. Inter-provincial grain trade will result in a considerable geographical redistribution of water through VWFs, which will make the situation of the water shortage more serious. Therefore, it is necessary to identify the governing factors of the VWFs to understand the less-than-ideal water-use patterns and to build well-informed regulations for saving water. Taking grain production in China as a case study, this paper studies the drivers of inter-regional VWFs. An integrated method combining a Logarithmic mean Divisia index (LMDI) decomposition method and a gravity model is proposed in this work. In the method, the changes in VWFs are decomposed into four portions with the LMDI method firstly. Based on that, a VWF gravity model is developed to analyze the social, economic and natural driving force behind the four changes and the total domestic grain VWFs. The main empirical results are as follows. (1) There is a trend toward the separation of grain consumers and grain producers in China. Net positive VWF within China has occurred from water-scarce north to water-rich south, and there has been a sharp growth trend in the size of this flow over time. The existing pattern of inter-province virtual water trade is exacerbating scarcities in already water-scarce regions. (2) The growth of grain exchanges was responsible for most of the increase in grain VWF. The decreasing unit water footprint of grain production drives down the number of grain VWFs; however, this decrease cannot offset the boost provided by the other effects. (3) Water endowments and geographical distance are demonstrated as have not significant influences in domestic VWFs. The most important drivers of inter-regional VWF within a country is the outward push force of the exporter and the inward pull force of the importer. The technological level of grain production and the economic conditions in the import region are less important drivers. The results indicate that the domestic VWFs of the grain trade are governed primarily by industrial distribution and regional division in the national economy rather than by water endowment. Although implementing water-saving policies in water-scarce and water-export regions further helped to alleviate this situation, the fundamental solution is to change the industrial distribution and regional division in the national economy.