"Virtual Water" and "Water Productivity" as a Strategic Plan for Optimum Use of Water Resources (Soraya Moukarzel - American University of Beirut - Faculty of Agriculture and Food Sciences - 2004-2005)

Abstract

Water management is becoming a must with the growing freshwater needs. The first region to suffer from water mismanagement is the Middle East. The main purpose of this study is to determine the optimal cropping pattern between the most demanded crops that have the highest water productivity (cash value per unit of water). Therefore after calculating the water productivity for a selected group of crops, the decision to import or to locally produce will be based on comparative advantages of water productivity. Then, an optimization model will be developed and solved by linear programming utilizing the General Algebraic Modeling System to obtain the optimal cropping pattern that minimizes the cost of production in terms of money as well as in terms of water. This study is expected to help decision makers in setting a strategic plan on the kind and quantities of crops to grow in Lebanon. It will also help them find a way to let governments interfere in the current national virtual water trade balance in order to achieve higher global water use efficiency and thus save the natural resource and make it more sustainable.

Keywords: Virtual water, Water productivity, Water use efficiency, Optimization, Cropping pattern.

I- Introduction and Review of Literature:

Introduction::
Producing goods and services generally requires water. With the growing world population, freshwater needs are rising. Meanwhile, a major matter is still ignored, this matter being whether there will be enough water for the next generations. The first major region to run out of water is the Middle East. This natural resource deficit arises from the inability of agricultural sectors, governments and institutions to adapt to the resource scarcity and take measures to find and mobilize substitutes. This water is being shared between three principal sectors, namely, agriculture, domestic and industry. On the world average, the agricultural sector uses about 70 to 80 % of the total water withdrawals, making it by far the largest water consumer. This leads to a fundamental problem for water short countries that should manage between their renewable water resources and their capacity for food production. Fortunately, water short economies can import water in food commodities. Water imported in this way is called "virtual water".

The main objective of this study is to determine among the most demanded crops and the ones having the least water productivity, the optimal cropping pattern to be produced in Lebanon that consumes the least water volume and generates the highest revenue in order to save water in agriculture use and re- allocate it in other sectors.

The specific objectives can be stated as follows:

  1. Estimating the amount of water needed to produce the different crops in Lebanon.
  2. Evaluating comparative advantages of producing a crop in Lebanon or importing it in order to determine optimal production and trading strategies.
  3. Put the volume of virtual water trade balances of Lebanon with the context of national water need and water availability.
  4. Minimizing the cost of production by optimizing the right crops and their amounts to be produced in Lebanon as well as those that should be imported from foreign countries in the form of virtual water.

Review of Literature::

1. Definition of virtual water

The water used in the production process of an agricultural or industrial product is called "virtual water" contained in the product. (Hoekstra et al 2000). Virtual water is the water embodied in a product, not in real sense, but in virtual sense. Virtual water has also been called "embedded water" or "exogenous water", the latter referring to the fact that import of virtual water into a country means using water that is exogenous to the importing country. Exogenous water is thus to be added to a country's "indigenous water" [14]. Net import of water in a water scarce nation can relieve the pressure on the nation's own water resources. Virtual water can be seen as an alternative source of water. Using this additional source can be an instrument to achieve regional water security.
Every year, farmers and traders in the Middle East move volumes of water equivalent to the flow of the Nile into Egypt, or about 25 percent of the region's total available freshwater. The water imported in this way is called "virtual water" [3]. In 1996, the agricultural sector in Lebanon consumed 400 Mm3 of water, it was estimated that in 2000, it will consume 1600 Mm3 and 1700 Mm3 in 2015 [20]. This will be making of Lebanon a nation short of water and this, just by the amount of water withdrawal for irrigation purposes.
Virtual water combines agronomic and economic concepts, with emphasis on water as a key factor of production. The agronomic component involves the amount of water used to produce crops, while the economic component involves the opportunity cost of water, which is its value in other uses that may include production of alternative crops or use in municipal, industrial and or recreational activities. The virtual water perspective is consistent with the concept of integrated water management, in which many aspects of water supply and demand are considered when determining the optimal use of limited water resources [9]. In particular the opportunity cost of water use which is a key component of the virtual water perspective, must be considered when seeking an efficient allocation of scarce water resources.

2. Water scarcity in the Middle East

With the growing world population, there will be in increase in the demand for water. It is estimated that currently nearly 1.4 billion people (or the equivalent to a quarter of the world's population or a third of the population in developing countries) live in regions that will experience severe water scarcity within the first quarter of the next century [26]. There is a major threat that the water available may be inadequate to meet growing food demands [24] particularly in water short countries.
Although it is generally not publicized, the Middle East as a region ran out of water in the 1970's [2]. Many Middle Eastern economies must use fresh surface and ground water resources for food production. In contrast, in temperate region, up to 90 % of the water used in food production comes from naturally occurring water in soil profiles, called soil water. Soil water differs from freshwater in hat it can only be used in agriculture to produce crops. Freshwater can be used by all sectors (domestic, industrial and agricultural activities) and can be lifted, pumped and transformed. (Allan et Al).
Several countries in the Middle East region have been implementing a "virtual water" strategy implicitly for many years because the volume of water available for food production has not been sufficient to meet increasing demand [3].
Richards (1987) describes the gap between food supply and demand that arose in the region during the oil boom of the 1970s. Higher incomes combined with steadily increasing populations generated substantial increases in food demand that could be satisfied only by increasing food imports. Allan (1999) [5] states that "since the end of the 1980s, the Middle East and North Africa (MENA) region has been importing 40 million tones of cereals and flour annually". He suggests that "more virtual water 'flows' into the region each year than flows down the Nile into Egypt for agriculture". Brown and Halweil (1998) reported that in 1997 the MENA region, which contains 5% of the world's population, accounted for about 25% of the world's grain import.

3. Virtual water trade flows between countries

Tony Allan (1998, 2003) [4], [5], [6], [7], [8] argue that virtual water trade can be an instrument in solving geopolitical problems and even prevent wars over water. Next to the political dimension, there is the economic dimension, equally stressed by Allan (1997, 1999, 2001) [3], [5], [6]. The economic argument behind virtual water trade is that, according to international trade theory, nations should export products in which they possess a relative or comparative advantage in production, while they should import products in which they possess a comparative disadvantage [31].
Hoekstra and Hung (2002, 2003) [16] argue that- while pricing and technology can be means to increase local water use efficiency and reallocating water at basin scale to its higher-value alternative uses as a means to increase water allocation efficiency- virtual water trade between nations can be an instrument to increase "global water use efficiency". From an economic point of view it makes sense to produce the water- intensive products demanded in this world in those places where water is most abundantly available. In those places water is cheaper, there are smaller negative externalities to water use, and often less water is needed per unit of product. Virtual water from a nation where water productivity is relatively high to a nation where water productivity is relatively low implies that globally real water saving are made.
Oki et al (2003) [21] estimate that the global water saving due to global food trade amounts to 455x 109 m3/yr. Given that the total water use by crops in the world has been estimated at 5400x 109 m3/yr [23], this is a saving of about 8%. Oki et al (2003) [21] arrive at their estimates as follows. They estimate that the virtual water content of international food trade flows is 683x109 m3/yr from the point of view of the exporting countries. Producing the traded food products in the importing countries would require 1138x109 m3/yr. The difference makes the global water saving.
In some countries with large populations and limited resources, substantial amount of food will need to be imported, in perpetuity, even if all resources are committed to producing food for domestic consumption (Lofgren and Richards, 2003). Many countries import a large portion of their food supply whether or not they are explicitly implementing a virtual water strategy [7], [33]. The virtual water metaphor was created originally to gain attention of public officials for choosing policies that influence the use of water resources in arid regions. Several authors have described how water short countries can enhance their food security by importing water intensive food crops. Some authors have noted similarities between the virtual water metaphor and the economic theory of comparative advantage. The metaphor addresses resource endowment, but it does not address production technologies or opportunity costs. Hence, the metaphor is not analogous to the concept of comparative advantage. In other nations, the virtual water metaphor might be helpful in describing opportunities for adjusting production and marketing activities in ways that would increase the values generated with limited resources [31], [32]. Each country could then gain from trade by producing the goods for which it has a comparative advantage (a lower opportunity cost of production), while importing the good for which it has a comparative disadvantage (a higher opportunity cost of production).


II- Proposed Scope of Work and Methodology:

1. Setting the Status Quo: In the status quo, no import is allowed to Lebanon. It is assumed that the crops needed will be grown in the country without importing any of national requirements.
The most demanded crops in Lebanon for local consumption will be selected. This will be done by adding the amount of locally produced crops and the imported ones. After adding them, they will be arranged in descending order from the most demanded to the least demanded. Then, the total water amount needed for their production will be estimated on the following basis:

1.a. Calculation of specific water demand per crop type
Per crop type, average specific water demand will be calculated separately on the basis of FAO and Lebanese data on crop water requirements and crop yields using the following relationship:


Where:
SWD denotes the specific water demand (m3 ton-1) of crop c in Lebanon,
CWR the crop water requirement (m3 ha-1); and
CY the crop yield (ton ha-1).
The crop water requirement CWR (in m3 ha-1) is calculated from the accumulated crop evapotranspiration Etc (in mm/day) over the complete growing period. The crop evapotranspiration ETc follows from multiplying the "reference crop evapotranspiration" ETo with the crop coefficient Kc:


The concept of "reference crop evapotranspiration" was introduced by FAO in 1992 to study the evaporative demand of the atmosphere independently of crop type, crop development and management practices. The only factors affecting ET0 are climatic parameters. The reference crop evapotranspiration ET0 is defined as the rate of evapotranspiration from a hypothetical reference crop with an assumed crop height of 12 cm, a fixed crop surface resistance of 70 s m-1 and an albedo of 0.23. This reference crop evapotranspiration closely resembles the evapotranspiration from an extensive surface of green grass cover of uniform height, actively growing, completely shading the ground and with adequate water [27]. Reference crop evapotranspiration is calculated on the basis of the FAO Penman-Monteith equation (Smith et al., 1992; Allen et al., 1994a, 1994b; Allen et al., 1998):




in which:
ET0 = reference crop evapotranspiration [mm day-1];
Rn = net radiation at the crop surface [MJ m-2 day-1];
G = soil heat flux [MJ m-2 day-1];
T = average air temperature [°C];
U2 = wind speed measured at 2 m height [m s-1];
ea = saturation vapor pressure [kPa];
ed = actual vapor pressure [kPa];
ea-ed = vapor pressure deficit [kPa];
D = slope of the vapor pressure curve [kPa °C-1];
g = psychrometric constant [kPa °C-1].


1.b. Calculating water productivity

The water productivity of each crop will then be calculated on the following basis:


where:
WUE is the Water use efficiency in kg per m3
Yield is the yield in kg from 1 hectare planted
NIR is the net irrigation requirement in m3 for one hectare
After getting the farm gate price of each crop, the water productivity in $ per m3 will be obtained as follows:


where:
Water productivity is expressed in $ per m3
WUE is the water use efficiency expressed in Kg per m3
Price is the farm gate selling price in $/Kg


From the above formulas, it is obvious that the crops having the least water productivity are the crops that consume the more water and that generate the lowest amounts of profit. These are therefore the crops that ought not be produced in Lebanon. From these crops, the five having the least water productivity will be selected in this study.
In the status quo, it is not allowed to import crops from out of Lebanon. After determining the crops planted in that region, the considered crops values will be evaluated. This value will be expressed per volume m3 which results from multiplying the quantity of product (Kg) by the unit value per product, expressed as volume of water per Kg of product (m3/kg). This value is the virtual water value and is calculated by the following equation:


Where:
ETa is the quantity of water evapotranspired at field level
Yield is the increment or total yield
This virtual water value will be multiplied by the farm gate price of the crop and this way, the dollar value of virtual water will be obtained.
After setting the status quo, it will be allowed to import crops from foreign countries. It is therefore necessary to compute as well the virtual water value of those same crops in the foreign countries and then choose the crops to grow in Lebanon as well as those to import.



2. Allow import of crops from foreign countries

2.a. Calculation of virtual water trade flows and the national virtual water trade balance

Virtual water trade flows between nations will be calculated by multiplying international crop trade flows by their associated virtual water content. The latter depends on the specific water demand of the crop in the exporting country where the crop is produced. Virtual water trade is thus calculated as:


where:
VWT[ne,ni,c,t] denotes the virtual water trade (m3yr-1) from exporting countries ne to importing country (Lebanon) ni in year t as a result of trade in crop c.
CT represents the crop trade (ton yr-1) from exporting countries ne to importing country (Lebanon) ni in year t for crop c.
SWD represents the specific water demand (m3 ton-1) of crop c in the exporting country.


The above equation assumes that if a certain crop is exported from a certain country, this crop is actually grown in this country (and not in another country from which the crop was just imported for further export).


2.b. Decision basis considering comparative advantages

After determining the required amounts of water to grow our necessary crops in Lebanon without allowing import, it will be allowed to import some of national needs from foreign countries. Therefore, the same procedure will be followed to calculate the water productivity of crops outside Lebanon. First, for each crop imported to Lebanon, the countries of origin will be determined and the water productivity for these crops in Lebanon will be determined.
The farm gate prices of the crops will therefore be considered the price of the crops arriving to Beirut port and the amount of water needed to grow them will be null since, this water needed will not be affecting Lebanese water resource but foreign water resources which is not of our concern in this study.
The selection criteria in this case will therefore be only centered on the prices needed for importing the crops into Lebanon and thus, the crops originating from the countries charging the least cost for selling as well as the least cost of export will be the most profitable for Lebanese authorities to import.


3. Minimizing costs of production

The objective of this study is to minimize the cost of production of crops for the Lebanese government in terms of money as well as in terms of water resources. Therefore, the choice will be based on water productivity basis. This way, while deciding on whether to import or grow crops in Lebanon will be at the same time a procedure that will save money as well as a very important resource that is becoming scarce in the Middle East, this resource being water. The decision criteria will therefore be based on comparative advantages. For each crop, the water productivity from different sources will be opposed to that of Lebanon. The source having he lowest water productivity will be the one that should be imported. If producing the crop in Lebanon generates more productivity than any other country, then the crop in question should be grown in Lebanon.


4. Optimization model development

Based on a mathematical optimization model, the optimal combination of crops to be grown in Lebanon will be selected as well as those that should be imported. This will be performed by using the General Algebraic Modeling System (GAMS) with an objective of minimizing the costs of production subject to different constraints such as water availability, land, capacity of production in Lebanon and water productivity. This optimization model, will be done for each crop separately in such a way that determines the amounts to grow locally as well as the amounts to imports from each of the exporting countries. Sensitivity analysis will also be performed in order to determine the


III- Significance of Proposed research:

This study will aim at deciding on which crops to grow in Lebanon and on which crops to import. Knowing the national virtual water trade balance is essential for developing a rational national policy with respect to virtual water trade, It will also help us find a way to let governments interfere in the current national virtual water trade balance in order to achieve higher global water use efficiency and thus saving the natural resource and make it last longer.

Finally, this study will generate, from the comparative advantages when evaluating opportunities to import or export agricultural products, policy discussions regarding water resources.


IV- Time commitment and justification of the Itemized Budget

Full time research assistant (B.S or above) for a period of one year. The job is to collect field data of the pilot project (area to be studied)- (South Bekaa irrigation project) and data analysis.


V- References

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