Agricultural Virtual Water Imports Help China Mitigate Water Challenges

Water scarcity, imbalanced distribution, and pollution are posing serious challenges to the sustainable development of China’s agriculture. Chinese government policies are now focusing on water conservation. Through virtual water imports, embedded in agricultural trade, China is able to fulfil additional local demand while conserving its domestic water resources. China’s imports of agricultural commodities are set to increase continuously, especially for soybeans and corn. South America, the US, and Southeast Asia will continue to be the nation’s key trading partners.

China’s Agriculture Is Water Stressed

With 9% of the world's arable land but only 6% of global freshwater, China needs to feed 21% of the world population. From this perspective, China’s water scarcity is an even more pressing challenge than arable land shortage. In addition, China’s water resources are unevenly distributed geographically. Compared with the water-abundant south, the north has only one-fifth of the China’s freshwater supplies but houses two-thirds of the country’s arable land.

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Agriculture is by far the biggest consumer of freshwater in China, accounting for 65% of the nation’s freshwater withdrawals. 75% of the nation’s grain and over 90% of cash crops such as cotton and vegetables are being grown on irrigated arable land. However, overuse of water for irrigation, especially groundwater, has led to depletion of aquifers, as well as salt accumulation, land subsidence, water pollution, and other environmental issues in many regions.

In the foreseeable future, water stress will continue to challenge China’s sustainable development of agriculture. As the economy grows and urbanization continues, per capita consumption of water-intensive products, such as meat and dairy, will increase. Meanwhile, climate change could lead to more volatile production.

The Chinese government is seeking innovative solutions to tackle these issues. Previously, the government mostly focused on improving water supply infrastructure, such as new reservoirs, new wells, and inter-basin water transfer projects. Since 2012, water conservancy has been made a priority task, with the government establishing a stringent water management system to optimize resources, reduce pollution, and increase resilience to water-related disasters, such as floods and droughts. Water-saving irrigations are promoted to improve the efficiency of water resources. Yield improvements through R&D will also lead to a saving in water use for crops.

Virtual Water Hidden in Agri Commodity Trading Relieves Pressure and Conserves Resources

China has already been conserving large amounts of freshwater resources through importing water-intensive agri commodities, reducing the country’s water footprint. This is why we equate the importing of water-intensive commodities to the imports of “virtual water.”

Rabobank conducted a quantitative analysis on China’s virtual water trade embedded in major grain and oilseed trade flows (including edible oil and protein meals). Selected agriculture products are measured in “water footprint”, which is defined as the water needed to grow those crops. From 2013/14 to 2018/19, China imported, on average, 286bn m3 of virtual water per annum trough commodity trading, while exporting 10bn m3. Over the past five years, the average net import volume reached 276bn m3 per year, equivalent to 7% of China’s domestic agriculture water use.

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On average for the past five years, soybeans made up over 60% of virtual water imports and saved the nation 180bn m3 of freshwater every year. Palm oil is in second place, with a 10% share, followed by sorghum, barley, and rapeseed. As for staple food grains like wheat and corn, China is sticking to the self-sufficiency policy, with relatively small tonnage and virtual water import volumes.

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China’s leading virtual water partners are major exporters of soybeans and palm oil, i.e. South America, the US, and Malaysia/Indonesia. Other exporters are mainly supplying China with food/feed grains like wheat and barley. Imports from the US, Australia, and Canada are currently constrained by trade disputes to different extents, but are expected to recover.

China’s Imports of Water-Embedded Soybeans and Corn Are Expected to Rise

Besides fulfilling unmet domestic demand, the virtual water trade flow also helps to optimize global water resource allocation. Due to natural resource endowments and yield differences, China’s water footprint per metric ton of soybeans produced is significantly higher than in the US and Brazil. It is rational to believe that China will continue to boost soybean imports, once local hog farming recovers from African swine fever, rather than expanding domestic soybean production.

Compared with paddy rice and wheat, corn is a less water-intensive crop per metric ton of grain produced and has a higher potential for imports. To grow 1 metric ton of corn in China, it will consume 801 m3 of water, 60% more than in the US. As China’s corn de-stocking progress is expected to come to an end within two to three years, future corn supply-demand gaps have to be filled in by imports. From a virtual-water-trading perspective, the US appears to be a better fit as a trading partner than South America and the Black Sea region. Importing US corn and cornbased products would allow China to conserve and optimize domestic water resources while fulfilling additional future demand growth. Obviously, other factors, such as price, quality, and availability, as well as China’s domestic corn support policy will also affect China’s purchasing decisions.

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