Can virtual water 'trade' reduce water scarcity in semi-arid countries? The case of Spain

Agricultural trade is by far the largest vehicle to ‘move’ water virtually around the world. Observing that most countries import and export water embedded in the exchanged products, the objective of this study is to assess the virtual water ‘trade’ in Spain for the period 1997-2006. We differentiate between the green and blue components of virtual water from a hydrological and economic perspective. The combination of spatial and time dimensions offers a unique empirical setting to determine whether virtual water ‘trade’ can contribute to reduce water scarcity. The study reveals that Spain is a net ‘importer’ of virtual water. By far the largest virtual water ‘imports’ are linked to cereals and animal feed products whilst the virtual water ‘exports’ are linked to exports of animal products, fruits and vegetables. Virtual water ‘trade’ is one way to reduce the vulnerability of the agri-food sector to climate instability. It reinforces the competitive advantages of its natural endowments capital investments in agriculture. The econometric analysis using provincial water exports water exports are invariable to cyclical water scarcity, and largely explained by fixed factors. Virtual water ‘trade’ does not exacerbate water scarcity, though it is certainly a source of pressure for resources management.