Russia in Global Affairs

In early May, a week apart, Russia’s Minister of Agriculture Alexander Tkachev and presidential economic advisor Sergei Glazyev spoke of exporting Russian fresh water. The minister came out with a radical proposal to export surplus water from hydroelectric power plants in the Altai region to China’s Xinjiang via Kazakhstan. Glazyev took a more market-oriented approach. He proposed “collecting, purifying, treating and exporting fresh water.” In former years, Moscow’s ex-mayor Yuri Luzhkov also proposed exporting Russia’s water resources, and in 2013 ??the Economic Development Ministry considered the idea, too. Now this idea has emerged in a different context, but its essence is the same—to get a lot of money without making much effort by selling natural resources that cost nothing to the country.

Global competition for water is really growing, and countries rich in water resources will be in an advantageous position. However, the water problem has moved from the level of local crises to the level of a global strategic challenge. This transition plays a fundamental role in the development of real competition. Today trade in raw water—for example, projects for diverting Siberian rivers or building a water pipeline from Lake Baikal to China—is sale without any added cost, with unpredictable environmental effects and a potentially strong corruption element, as the cost of this valuable strategic resource will only keep growing.

ADAPTATION TO THE GLOBAL WATER CHALLENGE: VIRTUAL WATER AND QUASI-COLONIZATION

In the near future, international relations will meet with a new long-term problem, when changes in the distribution of water in river basins will be caused not by individual countries located upstream and their actions but by objective processes that will be difficult to control: population growth, changes in people’s consumption habits, urbanization, and increased water intake in agriculture. In those circumstances, countries will have no choice but to jointly adapt to these problems since not even military actions will be able to reverse these tendencies.

Even if there are no acute international conflicts over water resources in the future, direct consequences of water scarcity will have a profound impact on all major spheres of human activity. Processes that are already underway precipitate changes in the structure of leading and emerging economies and provoke large-scale migrations to areas with more water resources. According to estimates made by the director of the Institute of Water Problems of the Russian Academy of Sciences, Victor Danilov-Danilyan, the number of “water refugees” in the world may reach 500 million by 2030, that is, in less than 15 years.

At the regional level, humankind has significantly redrawn the map of water resources: there are more than 3,000 reservoirs and dams in the world, and irrigation canals divert water for hundreds of kilometers away from rivers into steppes and deserts. Countries located downstream strongly react when countries upstream begin to divert water. Egypt has repeatedly expressed readiness to take any measures to prevent the construction of the Renaissance Dam in Ethiopia; Uzbekistan does not rule out a war with Tajikistan over the Rogun Dam; and Syria prior to the civil war protested against the construction of each new dam in Eastern Anatolia in Turkey. Meanwhile, even at the national level, manipulations with raw water per se are no longer enough for the adaptation to global water challenges.

Unlike the diversion of rivers, which even theoretically would give benefits only to a limited number of countries, efficient use of fresh water provides ample opportunity to the whole world. Resources for extensive growth have been exhausted in many countries. Water scarcity will be the main resource constraint for development, both economic and social, for all countries, except for Brazil, Russia, and Canada, and there are no possibilities for reversing tendencies that stimulate demand for water—demographic boom, the high-protein diet shift, and urbanization. We can only speak of adaptation to these processes and attempts to mitigate them.

Therefore, the only strategic response to the global water challenge and international competition for water would be to improve water use efficiency by redistributing water intakes and introducing new water use technologies. Importantly, these measures do not require redistributing water flows among countries.

Physical replacement of water is possible only at the regional level and in disparate volumes. Any analogy with oil makes sense only if we speak of transportation methods, because the amount of exported oil is by far smaller than the amount of water needed to produce goods. On a global scale, the redistribution of water intakes largely means the redistribution of the production and sale of not water per se but water-intensive goods: food, energy, industrial goods, and biofuels. Academician Danilov-Danilyan gives a very graphic example: the cultivation of grain exported to countries in North Africa and the Middle East requires the amount of water that is equal to the annual flow of the Nile. In other words, we can say that there are two rivers in the region: the real Nile and the “virtual” Nile. Obviously, it is impossible to provide such amounts of food without international trade in virtual water and technologies.

VIRTUAL WATER

The virtual water concept, proposed by Professor and water management expert John Anthony Allan in the early 1990s, is based on water consumption statistics and the idea that in most cases people use water not directly but as a production resource. Allan defined virtual water as the amount of water embedded in food or other products. According to this concept, countries that have limited water resources can and should purchase water-intensive products from countries where the relative value of water is lower. Thus, water resources will be used most effectively.

In this economic formula, some countries have already found sources to strengthen their international positions (for example, Brazil and Argentina have entered Asian markets and are now among the leading meat suppliers in the world; and Jordan has almost completely switched to the import of water-intensive grain from the United States and has thus significantly relieved water stress in rural areas), while emerging Asian giants are adapting the main areas of their state policies to this formula. This concept did not announce any new form of water trade but it has had a major impact on water use policies by providing graphic answers to fundamental questions: What is the relative value of water and how can it be adequately calculated in the economy and trade? Net virtual water exporters are North American countries, as well as Argentina, Thailand, and India. Net importers are Japan, South Korea, China, Indonesia, and the Netherlands.

It is noteworthy that although China is one of the largest food exporters, the volume of its imports, especially meat imports, is so great that the amount of imported virtual water exceeds all exports. The Netherlands is among importers for a different reason. The country has highly efficient agriculture and diligently uses every meter of its land. This is why it grows crops with low added value, preferring to buy fodder from other countries and specialize in animal husbandry and horticulture. Thus, in quantitative terms, the Netherlands is, indeed, a net importer, but in terms of money the country receives substantial income as an exporter of products in which water has maximum value added.

To have a better idea of benefits from conscious trade in virtual water, let us have a look at statistics for various countries, provided by the Water Footprint Network. For example, the production of one ton of soybeans requires 4,124 cubic meters of water in India, 2,030 cubic meters in Indonesia, and 1,076 cubic meters in Brazil. The average world figure is 1,789 cubic meters. If we take the production of meat, its water footprint varies even more: the production of one ton of beef requires 11,681 cubic meters of water in the Netherlands, 21,028 cubic meters in Russia, and 37,762 cubic meters in Mexico. The average world figure is 15,497 cubic meters.

Rice and wheat, the main consumers of water in agriculture (rice accounts for 21 percent of the total water footprint of grain production, and wheat accounts for 12 percent), also require different amounts of water in various countries: the production of one ton of rice takes 1,022 cubic meters of water in Australia, and 3,082 cubic meters in Brazil. The water footprint of one ton of wheat varies from 619 cubic meters in the Netherlands to 2,375 cubic meters in Russia. This gap is due to different levels of efficiency of agricultural technologies, different water management techniques and climates. Therefore, efficient water use is becoming a very important source of competitiveness.

Trade in virtual water is now the main platform for international competition for water resources which allow countries to have direct impact on foreign food, energy and industrial markets and, at the same time, sell their own water resources with maximum value added. The importance of this platform will keep growing with the relative appreciation of fresh water. All countries recognize the political importance of the food problem, and no one doubts the possibility to directly influence food markets through water resources as one of the main factors of agricultural production. An embargo on Russian grain exports in the summer of 2010 and the ensuing bread price hikes were one of the catalysts of the Arab Spring in Egypt. Moreover, not only trade but even just water metering is important as a factor of production. There have appeared studies proving that control over sources of fresh water has become the key to the Islamic State’s control over vast territories—and over economic activities across the region.

QUASI-COLONIZATION

Over the past 20 years, tens of millions of hectares of land have been sold or leased in developing and, especially, the least developed countries to grow food, procure wood and produce biofuels. These practices have been described as “quasi-colonization” and they include large-scale purchases or leases of land abroad for exporting food and goods produced there to one’s own country and only then for selling them to third countries. According to John Anthony Allan’s estimates, these practices now account for 90 percent of all land transactions in Africa and 80 percent in the world. All these businesses are highly water-intensive, and studies confirm that the availability of sources of fresh water is becoming a determining factor in leasing and purchasing land abroad.

Although foreign direct investment has always existed, today we can speak of a new phenomenon—agro-colonization. Land grabbing has become a widespread practice since the early 2000s. What is the main difference between land grabbing and ordinary investment? Land grabbing is accompanied by unequal distribution of income between local communities and investors, and by the export of crops to investors’ countries of origin, rather than to the local or international market. This factor explains the high attractiveness of countries with inadequate protection of property rights and unstable political regimes for land grabbers. In such cases, the distribution of income is the most advantageous to investors (the “colony’s” share is in government officials’ incomes). They deplete natural resources and have no incentives to adopt long-term strategies for using the land they have leased or even purchased. Although most of these land lease agreements are concluded for terms of 50 to 99 years, they cannot be viewed as a solid basis for long-term cooperation, considering the instability of political regimes in most African countries.

Whereas in the early 1960s hundreds or thousands of hectares of land were leased, today this figure has reached millions of hectares; land transactions for plots smaller than 10,000 hectares are not even included in statistics of relevant NGOs. Exact figures are hardly available, but in 2008 in Africa alone the minimum area of such “colonies” was estimated at 34 million hectares, which equals the territory of Finland or two Uruguays. The highest concentration of new farmlands is in sub-Saharan countries where people suffer the most from hunger and thirst.

According to tentative and announced agreements, the area of farmland leased by foreign companies in the basin of the Nile, Africa’s longest river, will increase to ten million hectares within the next few years. Ethiopia is the “leader” of the new colonization: since 2008, the Ethiopian government has leased 3.6 million hectares of land to investors from India, China and Saudi Arabia and plans to increase this figure by another 7.5 million hectares in the coming years. Sudan and South Sudan have concluded contracts for irrigated farming for a total of 8.3 million hectares. Uganda plans to irrigate an additional one million hectares of land. Although contracts do not bind investors to engage in farming, prospects for the full exploitation of these lands are minimal. According to estimates of the Food and Agricultural Organization, the Nile’s irrigation potential is not more than eight million hectares, irrespective of when the leased land will be developed. Obviously, the river’s waters will not be enough even for five countries in its basin (Egypt, Sudan, South Sudan, Ethiopia, and Uganda) which plan to irrigate 8.6 million hectares; meanwhile, the Nile’s water resources are shared by eleven countries. Cameroon, Senegal, and Niger also actively participate in the competition for foreign lessees. Small tropical countries do not fall behind, either—more than 40 African states are involved in large-scale land lease transactions.

The first “colonizers” were Gulf states, which back in 1973, during an oil crisis, were faced with a threat of a grain embargo by the United States. However, their small populations and large revenues from oil exports and the favorable situation on world food markets allowed them to diversify suppliers. The food crisis of 2008-2010, when major food exporters, such as Russia, Argentina, India, and Vietnam, limited their exports of grain and other products, exacerbated the food security issue and provoked large-scale agro-expansion by Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Kuwait. Their most attractive targets were countries in Africa (especially Mozambique, Sudan, and South Africa) and Southeast Asia (Thailand and Laos—primarily for growing rice, fruit and vegetables).

The Asian giants, China and India, in a bid to adapt to the growing needs of their populations and the growing water shortage, actively joined in the colonization in the 2000s. Although both countries lease land in Southeast Asia, Latin America and even Eastern Europe, the bulk of their investment is made in Africa where, according to the GRAIN international organization, they invest in multi-billion-dollar projects. Japan, Korea, and Singapore also actively participate in the new colonization. Developed countries, however, prefer to do business with countries where property rights are better protected and lease land mainly in BRICS countries: China, Brazil, and South Africa.

According to estimates shared by Professor David Zetland of Leiden University, two-thirds of present-day transactions in Africa are made by large agro-holdings, and the other third by financial investors and sovereign wealth funds. It should be noted that developing and developed countries pursue different goals: the former want guarantees for their food security, while the latter seek to ensure high yields for their investors. Therefore, investors who want to earn maximum profits are interested in higher prices. After the food crisis of 2008-2010 and the ensuing growth of prices for basic food commodities, Western institutional investors (particularly pension funds) play an increasing role in this segment.

For those who are interested in the food security of their own country, the amount of available food is the decisive factor. Therefore, the costs of growing food may even exceed the market average: control over supplies remains the main thing.

Today, only four companies dominate the food market, and all of them are in the jurisdiction of Western countries (the owners of these companies are among the most influential members of U.S. and Western European elites). These companies are Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus. They control 70 to 90 percent of basic food commodities. The food and territorial expansion of developing countries clearly demonstrates their desire to revise the existing system in global food markets and strengthen their national food sovereignty not by extracting valuable resources (land, water and energy) from the national economy but by using farmland and water resources of poor producing countries.

Some experts view direct investments of developing countries, above all China, in leasing and purchasing land in Africa and Latin America as an attempt to challenge the hegemony of Western powers in virtual water trade. Economic competition has acquired a political dimension: control of virtual water is becoming a source of power and influence.

VIRTUAL WATER IN INDUSTRY AND POWER ENGINEERING

Since agriculture is very important for developing and the least developed countries, they pay less attention to trade in virtual water as the water footprint of industrial products. However, the added value of water is much higher in this case. Meanwhile, the water intensity of an industry may differ substantially in various countries, and this difference is even greater if we calculate the amount of water used in energy production. Industries that use the greatest amounts of water are petrochemistry, metallurgy, pulp and paper production, and power engineering. As a result, available sources of fresh water become a major restraint for the growth of water-intensive industries in developing and the least developed countries, even despite the presence of specialized resources.

The development of shale gas production offers a good example of how water can become a resource constraint for the economy. This technology requires much water, without the possibility of its reuse. The absence of spare fresh water resources is viewed as a major limitation for the production of shale gas in China, and many experts believe this factor was among informal arguments during Russian-Chinese negotiations on a gas contract, held on May 21, 2014.

Trade in virtual water as the water footprint of foodstuffs or industrial products has become global. At the regional level, virtual water is more important in terms of energy, which may be hydropower, thermal or nuclear power. The construction of hydroelectric dams is becoming one of the most common causes of acute international conflicts over water resources. At the same time, the sale of electricity to third countries is the best guarantee of stable water use in the international water basin.

It often happens that the export of electricity from a hydroelectric power plant, the construction of which was strongly denounced by other countries in the basin, helps to remove or alleviate international tensions. China, for example, abides by this strategy on the Mekong River, while the purchase by Kazakhstan of hydropower from Kyrgyzstan (on the Chu and Talas rivers) is the only successful example of water-energy barter trade in Central Asia. Ethiopia, which is building a coalition to revise Nile water quotas and which is planning to build Africa’s largest dam, uses the cheap electricity export card in its negotiations with neighbors. The high cooperation potential in power engineering is due to the fact that in this case both the country upstream and an importing country downstream are interested in establishing the water discharge regime and water intake quotas.

The construction of dams gives upstream countries a significant political resource, as it allows them to “blackmail” neighbors by threatening to restrict water and electricity supply, which has a direct impact not only on agriculture but also on industries and infrastructure.

THE WATER USE POTENTIAL FOR RUSSIA’S INTERNATIONAL STRATEGY

Russia is the world’s second largest country in terms of renewable water resources. It hosts Baikal, the largest freshwater lake in the world. Russia has more than 120,000 rivers that are at least ten kilometers long; their total length is 2.3 million kilometers. Russia’s renewable water resources are estimated at 4,202 cubic kilometers. Seventy-one percent of this amount belongs to the Arctic Ocean basin; 14 percent belongs to the Pacific Ocean basin; 10 percent to the Caspian Sea basin; and only 5 percent to the Black, Azov and Baltic sea basins combined. Surface inflows from surrounding countries account for only 185 cubic kilometers, or 4.5 percent of all renewable water resources in Russia.

Although water supply in Russia’s southern and south-western regions is much smaller than in Siberia (2,000 cubic meters vs 120,000-190,000 cubic meters per capita a year), it is still almost twice as big as that in the Mekong basin (about 1,000-1,100 cubic meters) and it exceeds the world average (1,370 cubic meters) by 50 percent. Russia’s water infrastructure is believed to be the longest in the world, and the country is among world leaders by the number of dams: more than 300 large dams and over 3,000 small and medium-sized dams were built in Russia in the 20th century.

This wealth is definitely a strategic asset, which Russia uses only tactically. Russia does not have a position of its own on the international water agenda.

Table 1 shows water withdrawal by sector for countries with the largest annual water intake. India, China, and the United States are the top three leaders: their high demand for water is due to their huge populations (2.9 billion people) and their leading economies (4th, 2nd and 1st places in the world, respectively). Russia is placed tenth in this list.

Table 1. Water withdrawal by sector for countries with the largest annual water intake, the average for 2000-2012 in cubic kilometers per capita

Sources: Worldwater.org, databank.worldbank.org, FAO AQUASTAT

Russia’s annual water intake is 66 million cubic kilometers, which is a mere 1.5 percent of the country’s renewable resources. Russia has a non-standard sectoral structure of water intake: industry accounts for 60 percent of water intake, of which 80 percent (30.5 million cubic kilometers) goes to power (predominantly nuclear power) engineering; agriculture accounts for only 20 percent (as most Russian regions do not use irrigated farming and advanced technologies); and another 20 percent is used for municipal water supply—Russia is among the world’s top ten water consumers in this respect and is even ahead of Japan with 19 percent.

In terms of “profitability” of water in the economy, the situation is as follows. The Japanese economy is the most efficient in using water: each used cubic meter contributes $55.7 to the country’s GDP. The U.S. is second with $23.5. Figures for other countries range from $0.6 (Pakistan) to $8.6 (Mexico). In Russia, each cubic meter of water earned $5.7 in the 2000s. Water profitability in China is only slightly less than in Russia ($4.5), while its water intake is eight times as large as that in Russia. However, reserves for increasing water use efficiency in the Russian economy have not only a financial but also a commodity dimension.

As regards the productivity of agriculture (and, specifically, water in agriculture), there is a great potential for growth: according to La Via Campesina, an international peasants’ movement, if the productivity of Russian small private farms extends to the entire sector, the annual productivity of agriculture would increase six-fold! By way of comparison, such extrapolation in Kenya would only double productivity, and in Hungary it would increase it by 30 percent. The high water intake in the municipal sector is due to the inefficiency of outdated systems and high water losses. To overcome this backwardness, the Russian government has since 2009 proposed several initiatives aimed at modernizing water supply and water treatment systems. However, these programs have not reached their goals yet, although efforts are made both at the federal and regional levels. Foreign investors, too, have begun to show interest in this sphere, but their activity is largely limited by institutional barriers, the non-transparency of the tariff-setting system, and the inefficient management of the existing water canal system.

Paradoxically, Russia is one of the few countries in the world where the water factor is not felt by society as a structural factor. As a result, Russia occupies a disproportionately small place in the global virtual water market, considering the possibilities it has. Russia’s average net export of virtual water is 4.2 billion cubic meters a year, whereas that of Canada, which has similar climatic and hydrological conditions, is 12.5 times larger, standing at 52.5 billion cubic meters.

The bulk of Russia’s net export goes to the Middle East and North Africa, where it traditionally sells its grain. It is only in these regions that Russia plays an important role as a guarantor of their food security, and in some cases political security. The aforementioned embargo of 2010 was one of the factors that caused the Arab Spring in Egypt.

Meanwhile, Russia may also have similar influence in Asia-Pacific countries, as China, ASEAN countries (which become increasingly dependent on China), and developed Asian countries—Japan and Korea—are interested in importing Russian foodstuffs. The demand for external sources of food security exists in all countries of the region: China, ASEAN, Japan, and Korea have already taken measures to this effect. In 2014, China published No. 1 Central Document, in which the Chinese Communist Party Central Committee gave priority to the strengthening of national food security and support for agriculture amid a worsening environmental situation. ASEAN has four-year food security plans, and it has adopted the ASEAN Integrated Food Security Framework and the Strategic Plan of Action on Food Security. The Japanese Cabinet in 2010 adopted a new Basic Plan for Food, Agriculture and Rural Areas, which set the goal of increasing the food self-sufficiency ratio from 40 to 50 percent by 2020. Korea, which imports more than 90 percent of its food, attaches primary importance to agro-colonization. The country leases more than one million hectares of land, nearly half of all arable land, in Madagascar, and more than 300,000 hectares in Mongolia. In all, Korean food-importing conglomerates operate in 16 countries.

Today, however, Russia is a net importer of virtual water as the water footprint of foodstuffs from the Asia-Pacific (imports exceed exports by a factor of four and amount to 5,277 million cubic meters in transactions with nine major trading partners). Even if we add industrial products, the virtual water trade balance will improve only with some of these countries.

Russia can significantly improve its position in the Asia-Pacific if it acts as a guarantor of the region’s food and water security. Over the post-Soviet years, the area of irrigated farming in Russia has decreased by more than 20 percent. Considering the possibility of bringing new areas into high-technology farming, we can say that more than 30 million hectares of land in the country are now misused. Meanwhile, over the same years, the worldwide average area of arable land per capita has decreased by 50 percent.

Regional hydropower markets also remain largely untapped in Russia, increasing hydropower export to China would be a necessary step for effective management of the common international basin.

The aforementioned initiatives have obvious limitations, such as low population density in areas east of the Urals, poorly developed infrastructure, and harsh climatic conditions. Russia could use the experience of Canada and Australia, which have vast territories (the world’s second and sixth largest, respectively) and relatively small populations but which have built high-tech economies based on access to unique natural resources.

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Strategic opportunities for Russia lie precisely in the market of global and regional trade in water-intensive products, as Russia has the greatest potential in agriculture and water-intensive industries amid the growing shortages of water, arable land and energy in both developed and developing countries.

It would therefore be advisable for the government to gear its policy in certain regions towards attracting strategic foreign investors who would be capable and willing to introduce advanced technologies in agriculture, rather than produce only virgin raw materials for processing abroad. This practice has been relatively effective only in the European part of Russia. Exports to several Asia-Pacific countries would be an indispensable prerequisite for effective development of water-intensive industries in Siberia and the Russian Far East. Only then could we speak of using water resources as a strategic political resource. Otherwise, it would be primitive export of low value-added products in the interests of one buyer and on terms disadvantageous to Russia.