Implications of water policy reforms for virtual water trade between South Africa and its trade partners: economy-wide approach

This paper employs an economy-wide framework to evaluate impacts of water and trade policy reforms in South Africa (SA) on virtual water flows. To pursue this analysis, the study derives net virtual water trade flows between SA and its partners to assess implications of recent trade agreements within the South African Development Community compared to economic cooperation with other major trading blocks (e.g. European Union, Asia, and Brazil, Russia, India and China (BRIC)). Recent trends in actual trade confirm model predictions that liberalization of water allocation would switch water from field crops to horticulture and promote growth in non-agricultural exports. The results suggest that it is necessary to introduce policies that enhance likely outcomes of liberalization promoting higher water use efficiency within irrigation agriculture such as increased adoption of more efficient irrigation methods (sprinkler, drip, etc.) as water becomes more expensive under wider open competition. Moreover, investment in higher water use efficiency and improved competitiveness of dryland agriculture therefore represent the sound economic options for strengthening the capacity to achieve food security objectives as the country strives to lower net water exports. Finally, careful coordination of trade and water policy reforms is another necessary challenge for SA's strive to manage a water stressed economy.