The effect of decoupling on water resources: Insights from European international trade

The concern on the effects and potential consequences of the displacements of water resources through international trade has increased in the last decades. Today, water scarcity is considered one of the main problems in the world. Despite large advances on its quantification and understanding, further research on the anthropogenic determinants of the exchanges of water embodied in international trade is necessary. Our study aims to shed light on the trajectories and explaining factors of water exchanges in the European Union. In particular, we analyse how the 2003 Common Agricultural Policy (CAP) reform, which decoupled direct subsidies from production, affected European water consumption through agri-food exports. First, our methodology relies on the bottom-up approach to estimate European long-term exports of virtual water from 1995 to 2013. Second, we assess the effect of the reform on water consumption using panel data analysis in a trade gravity framework. Our main results show that the 2003 reform boosted extra European virtual water exports. We also observe a large heterogeneity in our sample, pointing to Mediterranean areas as the most affected by the policy reorientation. Spain, one of the most water scarce countries in the European Union, is essential to explain this link.