The world is running out of access to clean, drinking water at an alarming rate…
Approx 90% of the world’s water comprises of ocean water and only a very small percentage is freshwater.
Freshwater can also be further broken down into three categories:
Blue water - water used for drinking approx (5% a typical nation’s water resources)
Grey water - wastewater used in industry (5% ")
Green water - water used for agriculture (90%)
These freshwater resources are rapidly depleting and according to a UN report published in 2015 “the world will only have 60% of the water it needs by 2030 without significant global policy change”.
The world needs to take rapid action if it is to address this crisis, however most action requires significant capital expenditure or time
So, what are the options for transporting water:
-shipping it in plastic bottles (bad for environment, uneconomic use of transport)
-building pipelines (very expensive, requires capital and long project timeline)
-taking it out of the sea, or de-salinasation (incredibly expensive - it was even called a last resort by a European Union Water Commission - https://www.politico.eu/article/quenching-thirst-with-desalinated-ideas-2/)
The question still beckons…
What would be the first step a government would take to tackle the crisis?
Conserve water. You would do everything in your power to account for every single drop of water in your region The issue with water conservation today is that there is no system that can account for water resources in a clear, methodical manner. Water has not been scarce until the twentieth century, so it has not been considered as a valuable commodity.
Enter virtual water
The True Value Of Water
Virtual water is a concept championed by economists Hoekstra and Chapagain.
They defined it as the volume of freshwater used to produce the product, measured at the place where the product was actually produced.
Virtual water is in essence a system for measuring the value of water. The system of measurement is a far more accurate, as it accounts for water expenditure which might not otherwise appear on a government balance.
With virtual water, every good/service that a nation imports/exports is ascribed a virtual water value. It is the amount of water used to produce the product. For example, almonds typically need a gallon of water to grow. So if you grew 1m almonds on a farm in Argentina and exported them to Spain, you would be exporting 1m gallons of virtual water from Argentina to Spain.
Virtual water is the most practical way of measuring a nation’s use of water resources. And it can be traded between nations. A nation which produces a product which is non-essential to life (almonds again), could probably save money by importing almonds and using their domestic water supply for more important purposes (drinking, sanitation).
This is called virtual water trade.
The introduction of a universal virtual water metrics is almost inevitable, because the cost of ignoring them are incredibly high. Let’s imagine there are two regions in northern Africa A1 and A2. Both nations have been rivals for centuries. Both nations are running out of water.
Nation A1 Versus Nation A2 - An Intense Rivalry!
A1 has applied virtual water metrics to its domestic water resources. Instead of shipping 10m cubic litres of water by exporting cotton, A1 uses its groundwater to produce drinking water to its local population - saving enormous amounts of water. It also begins importing meat, which has a high virtual water content, from Australia and rents land with groundwater on-site from its farmers. This policy then eases the pressure of water scarcity.
A2 is the exact opposite. A2 ignores the concept of virtual water completely. Instead A2 begins importing water by shipping in plastic bottles. The A2 government soon find that the transport costs of importing water like this are absolutely enormous, especially when shipping them to remote rural regions in desperate need of water. They have spent enormous capital reserves on importing water in bottles. In this time, they ignore the 50m+ water melons which are exported to India, China and the EU. Water melons in this fictional story have a virtual water value of 5 gallons per melon. So in essence, A2 is exporting 250m gallons of water annually. This is water A2 could have easily saved, if they had measured the virtual water measure of their imports and exports.
Lets take the example even further. A1 has a rivalry with A2. It realises it can de-stabilise A2, by importing essentially all of its virtual water, exacerbating A2’s water crisis. A1 begins importing all of A2’s agri-products, which are high in VW all while the crisis is steadily getting worse. After years of trade, A2 realise they have been exporting enormous amounts of virtual they could previously saved. Their capital reserves have been completely depleted by importing water in plastic bottles and building incredibly expensive de-salinisation plants. They realise their domestic production of beef will collapse, because their farms are running dry. The problem is that the market has now realised the true value of virtual water. A farmer in Sydney realises he can ship beef (again, high in VW) to water scarce nations at an extremely high premium, because he is providing them with water in a sense. In this case, A2’s capital reserves are almost entirely depleted and its completely government collapses.
My point here…is that the cost of ignoring virtual water is incredibly high, whereas the cost of introducing policies making best use of virtual water is incredibly low. It costs nothing actually.
For this reason, there is an inevitability about the introduction of fair virtual water policies. Otherwise, you will have situations where savy/wealthier nations put incredible strain on poorer regions experiencing extreme water scarcity.
TL;DR In the future, water will be valued by the products used to produce it. This will lead to interesting investing trends for the savy investor…
See virtual water product calculator below: