Water problems are typically studied at the farm-level, the river–catchment-level or the country-level. About 70% of irrigation water is used for agriculture, and agricultural products are traded internationally. A full understanding of water use is impossible without understanding the international market for food and related products, such as textiles. Based on the global general equilibrium model GTAP-W, we offer a method for investigating the role of green (rain) and blue (irrigation) water resources in agriculture and within the context of international trade. Since problems related to groundwater availability are getting more severe in the future, we analyze the impact of different water use options for 2025 where data is readily available. We run two alternative scenarios. The first, called water crisis scenario, explores a deterioration of current trends and policies in the water sector. The second scenario, called sustainable water use scenario, assumes an improvement in policies and trends in the water sector and eliminates groundwater overdraft worldwide, increasing water allocation for the environment. In both scenarios, welfare gains or losses are not only associated with changes in agricultural water consumption. Under the water crisis scenario, welfare not only rises for regions where water consumption increases (China, South East Asia and the USA). Welfare gains are considerable for Japan and South Korea, Southeast Asia and Western Europe as well. These regions benefit from higher irrigated production and lower food prices. Alternatively, under the sustainable water use scenario, welfare losses not only affect regions where overdrafting is occurring. Welfare decreases in other regions as well. These results indicate that, for water use, there is a clear trade-off between economic welfare and environmental sustainability.
