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

Abstract

PurposeThe 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. MethodsDrawing on an agri-food supply chain framework that 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. ResultsThe 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 m3, Arizona $0.08 m3 and Baja California $0.24 m3) indicate relative water scarcity and thus impact, as well as the potential for a more efficient allocation of virtual water. ConclusionsThe 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 highlight the need for additional data collection on the economic value of water in several contexts. This additional data would help the environmental valuation community to undertake a more comprehensive and robust approach to virtual water valuation.This paper is accompanied by the Data in Brief article entitled “Dataset on the in-stream and off-stream economic value of water.”