Virtual water-the case against exporting/producing water intensive crops.

 Laissex fairez would advocate the free market as the best arbitrator of allocation problem, but the rampant market failures in agriculture(manmade and nature induced) make governments step in even in the emerging economies, to "solve" the issue.

With the water wars heating up in Southern States of India(as witness the Kerala-Tamil Nadu war of words over the safety of the ancient Mullaperiyar dam) and Africa(where the 4 upstream nations of the Nile have reached an agreement increasing their share without the 'ratification' of the downstream nations like Egypt), water politics are attaining a zenith. Even the reputed Indian Infrastructure Report 2011-published by IDFC and coordinated by IIT/IIM-focuses on the issue of water scarcity, and its implications for development and growth in years to come. Given that this publication is not prone to exaggeration, and has been often ahead of its time on issues like urbanization, contract structuring etc, its views should be taken with respect.

I stumbled across a dissetation by Suvi Sojamo, titled Merchants of Virtual Water – The ”ABCD” of
Agribusiness TNCs and Global Water Security, prepared for Msc(water science) at King's College. Read it here http://www.kcl.ac.uk/sspp/departments/geography/study/masters/dissertationsojamo.pdf. 
The paper argues that major global agribusiness players(ABCD of agriculture) are major global water managers due to their remarkable shares of international virtual water 'flows' embedded in agricultural commodities. The entire report makes for interesting reading, but the takeaway I got was that crops like corn, soyabean, wheat(and in Indian context, rice/sugarcane/cotton) may have high margins but a better public policy measure would be contribution/profits per unit of water used. And thanks to the underpriced water in India, the apparent profits would be high for those crops as the social cost of water is not factored completely.

At the very least, this issue needs study in India while fixing MSPs of crops, designing export incentives for primary produce etc. Otherwise, we risk spending heavily to fix the water scarcity issue, while spending elsewhere on encouraging production/export of those very crops which aggravate the issue.