Due to the exacerbation of climate change, agricultural water security has risen to a prominent position on the global agenda. However, virtual water trade isn't always beneficial for enhancing water resource sustainability; instead, it often leads to serious trade distortion problems due to unreasonable industrial and trade structures. This study employs pathway decomposition method to highlight the path characteristics of such distortions, revealing how virtual water trade distortions occur, why there are regional differences, and what insights can be gained for policy formulation. The study focuses on the agricultural sectors of seven key provinces in China. Findings indicate that virtual water in these provinces' agricultural sectors is predominantly exported through inter-regional and inter-sectoral intermediate goods trade. Furthermore, in regions where virtual water trade distortion is more severe, this characteristic becomes more apparent, leading to significant exports of virtual water. However, the trade chains for importing virtual water are usually short and direct, resulting in a relatively low volume of virtual water imports. These characteristics are closely related to the value chain participation mode. The policy implication is: while "value chain upgrading" has become a trendy term, merely improving trade conditions without enhancing the processing of agricultural products for export, or simply increasing imports of low-end intermediate inputs without upgrading the agricultural input structure for imports, offers no assistance in alleviating virtual water trade distortions. Based on these findings, we propose several differentiated strategies to mitigate virtual water trade distortions.
Read full abstract