18 January 2009

Weekend Discussion: Globalization

NOTE: This post will stay here until Sunday night. Posts for Saturday and Sunday morning go below this post.

Dear Aguanauts,

Discussion posts allow you to discuss your beliefs on a topic -- to share your understanding, experience and opinions -- without worrying about what's right or what others think. (Check out last week's discussion on commuting.) Most important, the discussion allows us to learn from each other. So...

Do globalization and liberalized farm trade favor more sustainable water use globally?

3 comments:

  1. I'll start off by giving the classic economic answer: this is really a question about different countries/regions pricing and taxation policies.

    Assuming that the marginal price of water represents the fully internalized cost in each locale, zero trade barriers will result in the most efficient use of water.

    Obviously, this is not the case so it's really an empirical question of trade patterns and water policies. Seems like you'd need to do a really large study to answer the question.

    However, from a meta point of view, you're probably better off trying to create both international and local institutions that encourage improved water pricing and trade policies. The closer we can get to fully internalized costs and zero trade barriers, the closer we will be to optimal water use.

    Reducing tariffs on water intensive products produced in countries that subsidize water usage will result in overconsumption of water. Increasing tariffs on water intensive products produced in countries with good pricing and taxation policies will also result in overconsumption because it shifts production to subsidized countries

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  2. I think these would favor more sustainable use, but only slightly. I think that water is the limiting factor in many of the best areas for growing (i.e., like the SW United States, the weather is good, but water is limited). I think that as trade barriers are reduced large scale irrigation projects will be built in parts of the world where they do not now exist.

    This question raises a corollary issue: is it better to rely only on local food/fiber sources or is it better to import (or transport) from the most efficient and effective producers? As a person who recently has been enjoying cherries grown in Chile and who often enjoys oranges from Australia, I favor the free-trade approach.

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  3. We asked this question for the case of Spain, which is a country severely suffering from water scarcity and a great food importer and exporter. Spain imports a lot of cereals and feeds, and exports pork meat, fruits and vegetables, wine and olive oil. We found that Spain's imports are produced in rain-fed regimes (Ukraine, Argentina, UK, USA and France). Our food economy does not add further direct pressure on water resources in these countries. Our exports come primarily from the Mediterranean regions were water is more scarce. We did econometric analysis, which led to the following conclusions:
    Spain’s farm trade has increased significantly during the 10-year period of analysis 1997-2006. Virtual water ‘trade’ has also grown in both directions, but embedded in entirely different products. By far the largest virtual water ‘imports’ are linked to cereals and animal feed products, totaling a water amount that is equivalent to total water use in Spain. The virtual water ‘exports’ are linked to exports of animal products, fruits and vegetables. Spain is clearly a net and increasing ‘importer’ of virtual water ‘trade’. ‘Imported’ virtual water varies with drought cycles and cushions the effect of lower cereal yields cause by droughts. The animal sector is thus sheltered from domestic supply shocks, and keeps its competitive edge in the EU market, independently of the domestic cereals and feed production. Virtual water ‘trade’ is one way to reduce the vulnerability of the agri-food sector to climate instability, even in countries, like Spain, which are both large importers and exporters of food products. It reinforces the competitive advantages of its natural endowments and capital investments in agriculture.
    In light of Spain’s observed virtual water ‘trade’, one can conclude that as semi-arid economies expand they become bigger water net ‘importers’. But virtual water ‘exports’ may grow too, because trade allows for land and water substitution that in turn allows for more production specialization and bigger farm exports. In the case of Spain, the clear advantage of its benign climate is accompanied by the not so clear competitive advantage of intensive animal production, which may be linked to less stringent environmental enforcement than in other EU countries.
    This paper also examined the hypothesis of whether virtual water ‘trade’ aggravates water scarcity in the most competitive and exporting regions. Instead of looking at nation-wide trade, we scaled down the analysis to examine the regional and time differences of virtual water ‘exports’ based on the variations of both water scarcity and irrigated land productivity. The findings show that virtual water ‘exports’ do not respond to changes in water scarcity, but essentially to the natural and capital endowments of the provinces. So we conclude that farm trade, and the virtual water ‘trade’ that comes with it, adds a degree of latent pressure to the water resources of the exporting provinces. But farm exports show very little response to variations of economic water scarcity, and seem to evolve quite invariably to the variations of water availability and economic value.
    It can then be concluded that in the Spanish economy, agricultural trade flows are to a large extent decoupled from water use and water scarcity signals and respond primarily to region-specific natural conditions and capital accumulation patterns. Virtual water trade facilitates specialization and competitiveness, adding more valuable products to the domestic and international markets than would be the case without it.

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