Virtual water trade: Economic development and independence through optimal allocation

Abstract

The uneven temporal and spatial distribution of water has led to water crises in many countries. The virtual water trade constitutes a means of dealing with such crises. The virtual water trade uncovers the hidden flow of water in traded commodities between countries. This work proposes a multi-objective optimization model that maximizes the revenue and minimizes the direct and indirect water uses of producing strategic agricultural and industrial goods. Several water prices and levels of subsidies are accounted for in the optimization. A country’s agricultural and industrial independence is used to constraint the optimization problem, which achieves food security and economic benefit. The proposed optimization model is applied to identify the portfolio of suitable agricultural products in Iran. Results show that wheat features the largest portion of water use in the agricultural sector, while potatoes and tomatoes are more lucrative due to their relative high price and low water use of about 400 m3 per ton of produce. Moreover, it is found that raising the water price reduces industrial imports because producing industrial goods is cost-effective in offsetting the reduction of net-revenue from agricultural production.