What is virtual water and why does it matter?

Water used in supply chains to produce and provide goods and services is of huge, but often unrecognised, importance to the global economy and to supply-chain resilience. Here we examine some of these dependencies and the risks that follow when it is used unsustainably.

Consumers today have access to a wider range of foods, manufactured products and services than ever before. Behind this abundance is a system of international supply chains – largely invisible – linking farmers and labourers, fields and factories in producer and processing countries to retailers and consumers in destination markets. To buy a bag of Pakistan-grown rice in a UK supermarket, for example, a consumer is not only reliant on a kilo of grains travelling halfway round the world but is also indirectly dependent on the resources – land, freshwater, energy, labour – used to produce, process, transport and store it. This resource use is ‘embedded’ in the end product; embedded water is often called ‘virtual water’. The overall water-related impacts from the production or supply of a good, or from all production or consumption by a defined actor or area, are known as its ‘water footprint’.

Water used in these supply chains falls into three categories: ‘green’ water, essentially soil moisture taken up by plants; 'blue' water, from other surface or groundwater sources such as springs, lakes, rivers and aquifers; and 'grey' water, needed to meet water quality standards.

Agriculture has by far the largest water footprint of any sector, accounting for practically all green water and over 90 per cent of blue water consumed globally; agricultural pollution is responsible for over half of global grey water footprints.¹

Figure 1 shows the total volumes of water, split into green, blue and grey – used by all the goods and services produced and consumed in 56 and 46 countries, respectively.

The global economy depends critically on water availability and the hydrological cycle, and faces significant risk from disruptions to both. More than half of the world’s food production occurs in areas where water stored on or beneath the Earth’s surface² is projected to decline. Nearly 3 billion people live in these areas, putting their access to clean water at risk.

Both chronic and acute lack of water availability pose serious challenges to the global economy. In agriculture, for example, around 11 per cent of rainfed croplands (which would cover an area approximately equivalent to the size of Chad or Niger) and 14 per cent of pasturelands (covering roughly twice the size of India) face severe recurring droughts. Of the world’s irrigated croplands, over 60 per cent (covering an area similar in size to Iran) face high or very high water stress.³

In textiles, 15 per cent of manufacturing sites already faced above-medium water scarcity risk in 2020; this is projected to rise to 23 per cent by 2050.⁴

Water stresses can present non-linear threats in certain geographies or to certain commodities. For example, reductions in glacial melt could have substantial impacts on water availability for agricultural production in countries such as India; a reduction in groundwater levels could, aside from reducing water availability, raise pollutant concentrations in aquifers and increase bioaccumulation in crops (arsenic in rice, for example).⁵ At the same time, rising sea levels may increase infiltration of saline water into groundwater supplies, threatening drinking water supplies and irrigation, with the cost of running desalination plants potentially passed on to consumers.

Climate change is expected to increase water shortages and scarcity, particularly in low-latitude and tropical regions. Nonetheless, the location and magnitude of these impacts over the remainder of the century remain uncertain,⁶ and climate models do not provide a reliable picture of likely disruptions to rainfall.

Although the precise shape of future stressors is unknowable, political decisions, relationships and policies will continue to exert considerable influence over water supply, demand and redistribution across scales, from global systems to river basins, aquifers and local water resources, in the coming years. 

As well as being at risk from water scarcity and pollution, the global economy is responsible for substantial degradation of water resources. While the water itself is not lost from the cycle, its use and pollution by agricultural and industrial production and processing often have negative social and environmental impacts within the affected river basins. 

Given that climatic pressures and other shocks disproportionately affect vulnerable communities and the most vulnerable people within them, social inclusion must be central to building resilience in competing uses of water resources. Policies that fail to address water security inclusively will undermine the resilience of communities in and around supply chains, risking the introduction of further social and political challenges to continuity of supply. The urgency of developing inclusive policies is only increasing as population, geo-economic, geopolitical and environmental pressures mount.

Water that is embedded in goods and services, or used in their supply, often draws on water in geographies distinct from where the products are consumed.  Although many goods are produced and consumed in the same country, around 20 per cent of agriculture's water consumption is used to support international trade.⁷

Population growth, rising living standards, changing dietary preferences and a corporatized international trading system have dramatically increased the water footprints of international trade in recent decades. This has not only exacerbated water stress in many producer regions but also created significant geopolitical and supply-chain risks. Agricultural trade, which accounted for around 65 per cent of all virtual green and blue water trade between 1986 and 2022, roughly trebled in volume, to around 2,800 km³ at the end of this period.⁸

Global virtual water trade is highly asymmetric: 81 per cent of ‘blue water’ embedded in agricultural trade is associated with consumption in upper-middle and high-income countries.⁹ Virtual water flows from lower-middle-income to high-income countries are particularly significant. The G20's consumption, meanwhile, accounts for over half (55 per cent) of the blue water embedded in international agricultural trade.¹⁰

Theoretically, trade allows for a more balanced use of the world’s water resources by enabling water-scarce countries to access water-intensive products from water-plentiful regions, with both parties profiting from the exchange. Arid countries such as Saudi Arabia are critically dependent on importing water-intensive goods that their domestic hydrology cannot support. However, exporting water-intensive products often has serious negative consequences in the producing country. Overextraction, underpricing and weak regulation in water-scarce or climate-vulnerable regions frequently result in water pollution, diversion and depletion, reducing ecosystem health and societal resilience to climate and biodiversity crises. In some countries, for example, an increase in agricultural exports has driven deforestation, contributing to flooding and erosion.¹¹

Corporate disclosure data reveal an increasing problem: among Global North-headquartered companies disclosing 2025 water data to the independent environmental impact disclosure entity CDP, almost 80 per cent of supply-chain facilities with substantive water-related issues are located in the Global South.¹²

The unsustainable share of countries' external blue water footprints varies in accordance with how concentrated their import sources are. By volume, imports to the US and China alone accounted for around 17 per cent of unsustainable blue water embedded in traded crops in 2015.¹³

Blue water consumption becomes unsustainable when it exceeds local renewable-water availability from groundwater and surface sources, leading to reduced flows or groundwater levels. Extraction from non-renewable groundwater sources – those not recharged by the water cycle – permanently depletes the affected aquifers.

The tooltip on the map below shows which producing countries and crops contribute most to the volume of each country's unsustainable external blue water use (hover over each country to see the details). 

Unsustainable international water trade causes environmental and social harms, including worsening water quality, habitat fragmentation, biodiversity loss and conflicts over water access. It also limits communities' capacity to adapt to, or mitigate, climate change and droughts. 

At the 2021 UN Climate Change Conference (COP26), a 26-strong coalition of governments (including the host nation, the UK), businesses and civil society organizations signed the Glasgow Declaration for Fair Water Footprints (FWF) for Climate-Resilient, Inclusive and Sustainable Development. Signatories resolved to ‘take transformative action for fair water footprints which will have durable benefits for our communities, ecosystems, and economies, and help to achieve Sustainable Development Goal 6 (SDG 6): Ensure availability and sustainable management of access to water and sanitation for all by 2030.’¹⁴ The Declaration reflects a shared recognition that the water footprints of consumer society, economic activity and international trade are closely connected, including through global supply chains.

A fair water footprint is more than a measure of how much water is used to produce goods and services; it is a framework that considers both the environmental and social impacts of that water use. It ensures that water is withdrawn sustainably and equitably, pollution is avoided, and workers have secure access to safe water, sanitation and hygiene. Fair water footprints also promote working with nature to safeguard ecosystems, while planning for climate-related extremes such as droughts and floods. FWF signatories are pioneering ways to embed these principles in priority supply chains by 2030, creating benefits for both exporters and importers.

In 2024, Everstream Analytics reported that fluctuating water supply – particularly prolonged drought – disrupted agri-food, textiles, and mining supply chains across Latin America and Asia-Pacific, reducing yields, constraining production, and raising costs.¹⁵ By adopting FWF practices including sustainable sourcing, water‑efficient production and equitable allocation, companies can reduce risk exposure, maintain output and protect market share, building resilience valued by investors and customers.

Whether in the EU’s and UK's water‑intensive agricultural imports from Morocco, or the UK’s sourcing of sugar from water-stressed Malawi, recognizing the shared value of sustainable water use transforms supply chains from points of vulnerability into engines of resilience, strengthening diplomatic ties, stabilizing markets and building a climate‑resilient trading system. Collective action on fair water footprints reduces strain on shared water sources, safeguards community access, protects business operations and strengthens social licence to operate. For exporters, demonstrating a fair water footprint could differentiate them in markets where buyers demand sustainable supply chains.

An emerging partnership between the UK and Moroccan governments exemplifies how collective action between buyers and suppliers can be mobilized to address systemic water risks embedded in global supply chains. Focusing on the Souss-Massa region – an agricultural hub from which the UK sources a sizeable share of its tomatoes and blueberries – the partnership supports targeted research and development strategies aimed at restoring hydrological equilibrium in a context of chronic groundwater depletion and climate stress. Through collaborative learning, the initiative will generate new evidence to inform policy reform and implementation. It will identify the governance, regulatory and procedural adjustments required at local basin level and across international supply chains to enable more sustainable, equitable and resilient water use. Within this context, FWF provides a framework to make these hidden externalities visible, linking UK consumption to water impacts in the source region and shifting the focus from individual efficiency gains to collective responsibility and corporate accountability for sustainable water use. By aligning public policy, supplier practices and buyer commitments, FWF can help translate research insights into concrete supply-chain reforms: encouraging responsible sourcing, improved water stewardship and shared action to safeguard groundwater resources, while supporting livelihoods and long-term agricultural resilience in Souss-Massa.¹⁶

The fair water footprints approach is bringing substantial benefits for shared water security in Malawi, which is consistently ranked as one of the world’s most climate-vulnerable economies. The agriculture sector – accounting for 80 per cent of export revenue and livelihoods – is subject to a devastating and intensifying cycle of drought and flood events. A survey by Water Witness and Malawi’s Chamber of Commerce found that 96 per cent of Malawian businesses face water-related challenges, from unreliable supply to flood and drought impacts, poor water quality and limited infrastructure, with many reporting losses of over 25 per cent of annual turnover. 

The leadership shown by Malawi’s government as a founding signatory to the Glasgow Declaration for Fair Water Footprints is unlocking new forms of collaboration with the private sector and NGOs, to ensure that key export sectors – sugar, tea, tobacco, fruit and nuts – are supported by, and contribute to, shared water security. Malawi’s agricultural water users have been among the first to adopt water stewardship: the Sukambizi Tea Association, Africa’s largest female-led cooperative, has invested in improved water supply and sanitation for tea-growing communities. To advance this further, leading businesses will collaborate in a nationwide Water Stewardship Acceleration programme to build technical knowledge and skills and bring together global buyers, producers, banks and local communities to drive collective action, policy reform and financing for shared water security and resilience.¹⁷

Financial institutions are integrating water risk into investment decisions. In 2025, 223 institutions representing nearly US$23 trillion in assets targeted over 1,300 companies for water‑risk disclosure through CDP – a 54 per cent increase on the previous year.¹⁸ Companies demonstrating robust water stewardship are better placed to secure financing, attract long‑term investors and avoid capital flight from portfolios exposed to unmanaged risks.

Consumer awareness is also rising. Two‑thirds of consumers prefer brands with a fair water footprint and over half are willing to pay more.¹⁹ Companies that credibly link products to responsible water use through transparent reporting, pollution prevention and community engagement protect brand value, capture market share, influence procurement, build investor confidence and secure premium markets. Integrating water stewardship into long‑term strategies also drives efficiency, innovation and resilience, while neglect exposes firms to escalating risks. Water is no longer a compliance issue but a strategic resource determining competitiveness.

Effective water stewardship requires strong governance frameworks that balance short‑term economic goals with long‑term resource security. Governments must embed water into trade, industrial and environmental policies, treating it as a shared resource rather than an externality.²⁰ Fair water footprints depend on clear data and disclosure across value chains. Statistical agencies, trade ministries and companies must strengthen reporting on water use and risks, while voluntary and mandatory standards should converge to ensure coherence across sectors and geographies. Closed‑loop water systems, wastewater treatment and recycling technologies reduce consumptive use and pollution; innovation incentives enable industries to lower their water footprints while creating new business opportunities.²¹

Investors play a decisive role by integrating water and climate risks into credit models, stress‑testing portfolios and making resilience a condition of capital. Extended Producer Responsibility schemes and environmental, social and governance‑linked financing can channel resources into water‑sensitive infrastructure and circular systems. Transparent, participatory decision‑making builds trust and legitimacy, particularly where water use overlaps with vulnerable ecosystems or Indigenous lands. Multi‑stakeholder platforms and benefit‑sharing mechanisms protect and empower communities.

Fair water footprints are not only a tool for sustainable water management; they are cross‑cutting enablers of national and international commitments — from the SDGs and Paris Agreement to trade, climate mitigation and adaptation, and human rights agendas. By embedding fairness and transparency into water use, countries and industries can simultaneously advance environmental protection, social equity and economic resilience.