A dynamic view on agricultural trade patterns and virtual water flows in Peru

Increasing integration in global markets can foster economic growth, but also impacts the use of water resources for the production of traded goods. This is particularly critical for low-and middle-income countries where increasing agricultural exports, especially of high-value horticultural products such as fresh fruits and vegetables is promoted as a pro-poor development strategy. The aim of this paper is to quantify the contribution of agricultural trade to virtual water flows and economic gains. The focus is on Peru and trade flows since 1986, as this represents a case of rapidly increasing trade flows and a rapidly changing product composition of trade. We consider long-term trade trends and changes in the product composition of trade, using a product classification, and analyze the implications for trade revenues, VW flows, blue and green water use, and economic water use efficiency. We use an innovative decomposition analysis to disentangle the drivers behind increased virtual water exports. We find that despite sharp increase in agricultural exports Peru is a net importer of virtual water, which implies that participation in international trade has been conducive for both economic growth and saving water resources at national level. We find agricultural exports to have a high economic water efficiency but to increase water scarcity and the use of blue water in producing regions. Our results imply that a focus on high-value export sectors is a valid development strategy for low- and middle-income countries from both an economic and a water perspective but that the strategic location of export production with respect to the availability of water is important for policy-makers to consider. Our approach confirms the importance of considering long-term dynamics and regional differences in research on virtual water trade.