Allan, a professor at King's College London, was honoured for having introduced the concept of "virtual water" in 1993, a unit to measure how much water is necessary in the production and trade of food and consumer products, according to a statement.
For example, a cup of coffee requires 140 litres of water to grow, produce, package and ship the coffee beans.
Allan was awarded the prize for "his unique, pioneering and long lasting work in education and raising the awareness internationally of interdisciplinary relationships between agricultural production, water use, economies and political processes," the nominating committee wrote.
"The improved understanding of trade and water management issues on local, regional and global scales are of the highest relevance for the successful and sustainable use of water resources," it said.
Allan, 71, will receive a cheque worth $150,000 dollars and a glass sculpture, to be handed over at a ceremony in Stockholm attended by King Carl XVI Gustaf on August 21st.