Input-output analysis of virtual water trade volume of Zhangye

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1 Inpu-oupu analyss of vrual waer rade volume of Zhangye Ip, W.C. 1, H. Wong 1, X. Jun 2, 3, Y. Zhu 4 and Q. Shao 5 1 Deparmen of Appled ahemacs, The Hong Kong Polyechnc Unversy, Hong Kong 2 Insue of Geographcal Scence & Naural Resources, Chnese Academy of Scence, Bejng , Chna 3 Sae Key Lab of Waer Resources & Hydropower ngneerng Scence, Wuhan Unversy, Wuhan , Chna 4 School of Polcs and Publc Admnsraon, Souh Chna Unversy of Technology, Guangzhou, Chna 5 CSIRO ahemacal and Informaon Scences, Ausrala mal: mahpwc@ne.polyu.edu.hk Keywords: Waer secury, drec waer consumpon, ndrec waer consumpon, oal waer consumpon ABSTRACT Vrual waer rade refers o he ransfer of vrual waer assocaed wh he ransfer of commodes. I has emerged as a new feld of waer managemen whch may be ulzed as a sraegy o allevae waer scarcy and o acheve waer and food secury n waer shor naons or areas. However, dffcules arse n he calculaon or esmaon of vrual waer conen of commodes, parcularly for ndusral producs. By akng Zhangye n Hebe Basn as a case, hs paper explores a new way o assess vrual waer consumpon based on npu-oupu analyss. The analyss resuls show ha he defc of vrual waer rade of Zhangye n 2000 reached m 3, whch mgh nensfes her waer scarcy furher f a rade mx subsuon mechansm s lackng. There s a need for her o aend o he opmal use of waer resources n order o maxmze her susanable welfare of her populaon. Our sudy has also shown ha he npu-oupu model s an operaonal ool for vrual waer assessmen. 1. INTRODUCTION The concep of vrual waer was frs nroduced by Allan (1996) o quanfy he waer requred n he producon process of an agrculural commody. Ths waer s embedded n he commody. Allan (1998) exended he prncple of vrual waer o oher commodes and servces by quanfyng he waer requred n he producon of hese commodes or servces. Inernaonal rade nvolves nernaonal flows of vrual waer, n addon o he flows of he physcal commodes beween naons. In a sudy of vrual waer flows, Hoeksra and Hung (2005) esmaed a global volume of crop-relaed nernaonal vrual waer flows o be 695 Gm 3 per year n average over he perod Waer shor areas may herefore accomplsh waer secury by mporng waer-nensve commodes lke food and elecrc power, from oher naons ha have more waer. On he oher hand, waer rch naons may expor more waer-nensve producs o releve he waer shorage problems of mpored counres. Vrual waer rade beween naons could herefore become a useful and feasble sraegy o mprove global waer use effcency and o acheve waer secury n waerscarce counres or regons. In order o assess he vrual waer flows beween naons, he basc approach (Hoeksra and Hung, 2003, Chapagan and Hoeksra, 2003) s o mulply he rade volumes by her assocaed un vrual waer requremens. However, as far as we are aware, sudes of vrual waer are confned o he producon of crops and lvesock and sudes of vrual waer rade are confned o food rade. In hs paper, we employ an npu-oupu model (Leonef, 1970 and Leonef and Ford, 1972) o esmae he ransfer of vrual waer beween dfferen economc or ndusral secors and apply o Zhangye area of Chna. To he bes of our knowledge hs s a poneered applcaon of npuoupu analyss o vrual waer sudy. Our analyss resuls uncover an mporan ssue of opmal waer use and waer rade emboded n commodes. Vrual waer rade s an mporan, ye currenly negleced elemen n he economc leraure. The use of npu-oupu analyss for vrual waer rade can avod he edous work of esmang he waer conen of ndvdual producs. The waer conen of an ndusral produc or a fnal produc 1980

2 s consdered o conss of wo componens, namely drec waer consumpon and ndrec waer consumpon. Drec waer consumpon s he amoun of waer requred by he esablshmen n producng he produc. The producon of such a produc wll usually nvolve he npu of varous raw maerals and oher producs and servces a varous sages of he producon process. The producon of hese nermedae npus hemselves has also consumed waer a her respecve places of producon bu has no been accouned by he esablshmen producng hs fnal produc. The waer conen of nermedae npus may be ermed ndrec waer consumpon whch ogeher wh he drec waer consumpon consues he oal waer conen of hs fnal produc. conomc npu-oupu analyss allows he deermnaon of nerdependences of drec and ndrec waer conens beween commodes. The mehod arbues he vrual waer conens of all nermedae npus o he vrual waer conen of he fnal produc whou he need of reverng o he dealed sages of he producon process. 2. INPUT-OUTPUT ANALYSIS OF VIRTUAL WATR An npu-oupu model of an economy may be represened by he marx relaon X = I A Y + Y Y ( ) ( D ) where X s he vecor of oupu quanes, Y D s he fnal domesc demand, Y s he expors, Y s he mpors, A s he marx of echncal coeffcens represenng he ner-ndusral nerdependence and I s he deny marx. The change n oal oupu resuled from mpors and expors s gven by: Δ X = ( I A) ( Y + Y Y ) ( I A) Y = ( I A) Y ( I A) Y =ΔX ΔX D D where Δ X = ( I A) Y s he ncrease n oal oupu ha s requred o cope wh he expors Y, and Δ X = ( I A) Y would have been he addonal oal oupu requred should he mpors Y be produced domescally. In order o raonalze he npu-oupu model for vrual waer analyss, we defne he un drec waer usage coeffcen of an economc secor o be he oal waer consumpon for producon by he economc secor dvded by he oal producs produced,.e. f = W / X, where f s he drec un waer usage of he h secor, W s he oal waer consumpon n producon and X s he oal quany of he producs produced. Here he waer usage s based on he moneary value of produc, however, may be based on he quany of producon. Gven ha nermedae npus are usually requred by an economc secor n s producon process, we shall nroduce a un oal waer usage coeffcen by f = n fa k k k = 1 f +. Here, f s he un oal waer usage of he h secor, and n a k = u k / uk, k = 1 s he relave share of he kh secor produc npued for h secor s producon, where u k s he npu of kh secor produc by he h secor. The frs erm on he rgh hand sde represens he drec waer consumpon and s readly avalable. The second erm whch refers o he waer conen of nermedae npu, or he ndrec waer consumpon of he secor, s usually unknown. By consderng waer conens as an npu, he nerdependency beween waer consumpon of varous economc secors may be assessed. We shall oban he marx deny F = ( I A) F where F s he vecor of oal un waer usages, F s he vecor of drec un waer usages and A = (a k ) s he marx of relave shares of nermedae npus. By such an npu-oupu formulaon he oal un waer usage may be deermned from he drec waer usage. When mpors and expors mulpled o oal waer un consumpon we shall oban he addonal waer requremen f hese mpors and expors would have been produced locally: W = ( Y Y ) F. v The npu-oupu model approach bypasses he need of esmang he waer conen npus n he 1981

3 producon process. Insead, only requres he waer consumpon sascs of varous economc or ndusral secors and an npu-oupu model relang he ransfers of producs beween hese secors. Provded relable waer consumpon sascs are avalable and he npu-oupu nerrelaons can be correcly formulaed ransfers of vrual waer assocaed wh commodes ransfers among economc secors can be esmaed relably. 3. A CAS XAPL We have appled he npu-oupu model o analyze he vrual waer rade of Zhangye area n Accordng o waer consumpon sascs publshed by Bureau of Sascs of Gansu (2000), here are hry ndusral and producon secors n Zhangye. We have consoldaed hese ndusral and producon secors no egh broad ones, namely crop planaon, foresry, lvesock farmng, fshery, manufacurng, power and fuel, consrucon and servce ndusry. The producons and waer usage of hese broad secors are gven n Table 1. Table 2 gves he nermedae npu of hese ndusral secors (Zhu, 2001). The esmaed vrual waer ransfers are gven n Table 3. Our sudy reveals ha Zhangye has a ne expor of vrual waer n Beng a waer shor area, Zhangye has had no been demonsraed o make use of he vrual waer rade sraegy o compensae s already scarce waer resources, nsead has even expored m 3 vrual waer hrough varous rades. The vrual waer expors accouned for 26.9% of he oal ndusral waer usage. For ndvdual economc secors, he crop planaon alone has a ne expor of m 3 n On he oher hand, he mpors of vrual waer are seen o ouwegh he vrual waer expors n oher ndusral producon secors such as he Fshery, anufacurng and Servces. In oher words, Zhangye ran no serous vrual waer rade defc by exporng waer-nensve bu economcally neffcen agrculural producs and mporng waer-effcen manufacurng and ndusral producs. The economc srucure and he mpor-expor polcy of Zhangye can be consdered no able o crcumven s regonal dsadvanages and defcency. The relavely huge food expors could aenuae he serousness of he already overexploed waer resources, hus adversely affecng s regonal long-erm waer and food secury. 4. SCNARIOS STUDY An economy wh low echnologcal level and less developed ndusry wll rely more heavly on exporng prmve producs such as farm and food producs for an exchange of mpored manufacured and servce producs. As farm producs are relavely waer-nensve, exporng farm producs n exchange for mpors of ndusral producs s dsadvanageous n erms of vrual waer rade. The ndusralzaon of Zhangye regon s sll n a sarng sage n whch agrculure and farmng domnae s economc acves. In 2000, he value added of farm produce makes up 41.8% of he oal value added of he regon whle ndusral producon and servce ndusry represen 29.2% and 29.0% of he oal value added respecvely. These facs explan he curren vrual waer rade defc of Zhangye and reveal a need of her aenon o he opmal use of waer resources n order o maxmze her susanable welfare of her populaon. For long erm developmen and susanably, Zhangye should adop some mechansms ha would adjus he opmal allocaon of varous npus o producon processes. A flexble waer prcng polcy ha would drve he subsuon of waer owards oher npus s preferable. The ulzaon of vrual waer rade sraegy s also a feasble and workable mechansm for waer shor regons such as Zhangye o allevae her waer shorage problems and he pressure on economc developmen caused by waer shorages. We have herefore smulaed he effcency of employng such a sraegy n Zhangye under wo dfferen scenaros. Scenaro 1: There are no mpors or expors so ha he defc of vrual waer rade s se a zero. Scenaro 2: There are no expors of farm crops and food so ha he vrual waer rade arsng from crops and food s se a zero. Oher mpors and expors reman he same as before. The smulaed resuls are shown n Table 4. Had Zhangye adoped one of hese sraeges for s vrual waer rade would have consumed m 3 less waer a leas, grealy allevang s already scarce waer resources. The local waer hus saved could have oherwse been used for economc acves wh hgher ecologcal, socal and economc reurns o susan longer-erm developmen. 1982

4 5. CONCLUSION Our foregong sudy has suggesed ha npuoupu analyss s a smple and workable ool o esmae vrual waer ransfers. The mehod bypasses he esmaon of he waer conen ha s conaned n a commody. I only requres he waer consumpon sascs of varous economc or ndusral secors and an npu-oupu model relang he ransfers of producs beween hese secors. The compuaons nvolved are relavely smple and readly operaonal. Provded relable waer usage sascs are avalable and he npuoupu nerrelaons are correcly specfed he esmaes made should be relable and accurae. Waer scarcy has always been a serous problem mpngng on food producon and waer secury of many waer shor regons and naons. Vrual waer may be consdered as a new form of waer resources whch, f nellgenly ulzed could be employed o allevae he waer shorage pressure ha a regon or naon s facng. The adopon of vrual waer rade sraegy n a naon or regon may only be effecve when he adopon s coupled wh an approprae ranson or resrucurng of s economc or producon composon. Adverse effecs could be a msmach of labour skll whn ndusres leadng o massve labour force surplus or shorage of parcular ndusral secors. Transon of an economy from one sae o anoher s also a long me process, makng vrual waer sraegy dffcul o be mplemened promply and effecvely. A flexble waer prcng polcy ha would auomacally adjus varous npu subsuons s preferable. Noneheless, a waer scarce naon or regon may se a long-erm goal of re-allocang he resources of her economy resuled from he mpac of vrual waer rade wh an am of achevng long-erm waer secury. 6. RFRNCS Allan, J.A. (1996). The polcal economy of waer: reasons for opmsm bu long-erm cauon. In aer, Peace and he ddle as: Negoang Resources n The Jordan Basn by Allan, J.A. (d). Taurs Academc Sudes, London. Allan, J.A. (1998). Vrual waer: A sraegc resource, global soluons o regonal defcs. Ground Waer 36, Chapagan, A.K. and A.Y. Hoeksra (2003). Vrual waer flows beween naons n relaon o rade n lvesock and lvesock producs. Proceedngs of he Inernaonal xper eeng on Vrual Waer Trade, eded by A.Y. Hoeksra February 2003, UNSCO-IH, The Neherlands. Gansu Waer Resources Bullen (2000). publshed by Bureau of Sascs of Gansu, Chna. Hoeksra, A.Y. and P.Q. Hung (2005). Globalsaon of waer resources: Inernaonal vrual waer flows n relaon o crop rade. Global nvronmenal Change 15, Hoeksra, A.Y. and P.Q. Hung (2003). Vrual waer rade: A quanfcaon of vrual waer flows beween naons n relaon o nernaonal crop rade. Proceedngs of he Inernaonal xper eeng on Vrual Waer Trade, eded by A.Y. Hoeksra February 2003, UNSCO-IH, The Neherlands. Leonef, W. (1970). nvronmenal repercussons and he economc srucure: An npu oupu approach, Revew of conomcs and Sascs, 52, pp Leonef, W. and Ford, D. (1972). Ar polluon and he economc srucure: emprcal resuls of npu oupu compuaons, n: A. Brody and A.P. Carer (ds) Inpu Oupu Technques. Amserdam: Norh-Holland. Zhu, Y. (2001). Waer carryng capacy of Zhangye of Hehe Basn. Techncal Repor (n Chnese), Insue of Geographcal Scence & Naural Resources, Chnese Academy of Scence, Bejng, Chna. ACKNOWLDGNT The auhors are ndebed o a referee of CSIRO, Ausrala, and o wo anonymous referees of ODSIU 2007 for her useful commens whch have led o mprovemens n hs paper. Ths research was suppored by a research gran from he Research Commee, The Hong Kong Polyechnc Unversy. I s also parally suppored by Research Gran Nos and from he Naonal Naural Scences Foundaons of Chna. We also hank Zhongmn Xu a Cold and Ard Regons nvronmenal and ngneerng Research Insue, Chnese Academy of Scences, for hs echncal asssance n processng he waer resources daa. 1983

5 Table 1. Producon (Bllon RB) and waer consumpon (10 8 m 3 ) of egh broad ndusry secors n 2000 Secor Value Added Toal producon Impors xpors Waer consumpon Crops 2, Foresry Lvesock Fshery anufacurng 1, Power and Fuel Consrucon Servce 1, Table 2. Inermedae npu (llon RB) of ndusral secors Producon secor Crops Foresry Lvesock Fshery anufacurng Power & Fuel Consrucon Servce Toal Crops Foresry Lvesock Fshery anufacurng Power and Fuel Consrucon Servce Toal npu Indusry Table 3. smaon of vrual waer rade (10 8 m 3 ) of Zhangye n 2000 W = ( Y Y ) F v xpors Impors Ne Impors Acual waer consumpon Crop Foresry Lvesock Fshery anufacurng Power & fuel Consrucon Servces Toal Table 4: ffcency of vrual waer rade sraegy under wo dfferen scenaros Scenaro Vrual waer saved (10 8 m 3 ) Value added ncreased (Bllon RB) No mpors or expors No crop expors Noe: Indusral waer usage effcency of Zhangye n 2000 s RB37.4/ m 3, US$1 RB