An empirical assessment of virtual water: The impact of liberalization of agricultural subsidies and international trade on irrigation water demand

This dissertation explores the relationship between agricultural price policy, international trade and water resources management. It models, on a global scale, the impact on regional irrigation water demand if subsidies are reduced through multilateral liberalization of agricultural trade. The hypothesis is that subsidy reduction, such as that mandated in the Uruguay Round Agreement on Agriculture, will alter crop production patterns, and that this will in turn reduce the demand for irrigation of low-value agricultural products (such as cereals) in water scarce regions.; In order to test this hypothesis, two separate models are created. The first model, called OLGA, analyzes the impact of agricultural trade liberalization on production, consumption, and trade for 15 agricultural products in 30 countries and regions. The second model, named LUCIA, estimates the crop water productivity coefficients for specific cereal crops in different countries and regions around the world. These coefficients are combined with the output from the first model to calculate the amount of water consumed during cereal production in each country for each of the different trade scenarios.; The results of the OLGA-LUCIA framework indicate that changes in cereal production due to multilateral subsidy reduction are not large, and that the overall shift in water consumption is quite limited for most countries. If only trade liberalization is considered, cereal production does not shift to the most productive regions, as current agricultural subsidies are heaviest in countries that already have a comparative advantage in this sector. The loss of producer support therefore drives down cereal production in many countries that have abundant water resources. In the medium-term, cereal production is shown to increase in countries with limited producer support, including arid regions such as China, India and the Middle East and North Africa. Trade liberalization will bring many benefits (as well as concerns), but will not by itself induce reallocation of water-intensive agriculture to areas of water abundance.