As the world wrestles with the challenge of a low carbon future, the issue of water – or rather, the lack of it – has started to emerge as an even more fundamental constraint. Global water reserves are being put under strain not only by more frequent droughts (thanks to global warming), but also from annual global population growth of about 77 million people. Indeed, climate change experts at the Scripps Institution of Oceanography claim that nearly 1/6th of the world’s total population is already vulnerable to a lack of water brought about by environmental and demand changes. As the population continues to grow and the effects of climate change accrue, this number is likely to rise significantly.
Because nearly every industry requires water at some point in their value chain, this fundamental liquid is emerging as the strategic sustainability issue, potentially even more influential than carbon. The beverage industry is particularly vulnerable to changes in the water supply; water is used extensively throughout the beverage supply chain, from the growing of ingredients to the pumping and bottling of product. So, is the water intensive beverage industry fated to be a “canary in the coal mine” – early road kill in the coming water wars? Or does it have another role to play – as a leading developer of innovative water conservation techniques, perhaps? The stakes could not be higher for an industrial sector completely dependent on continued easy access to large quantities of fresh H2O.
UPDATE: Thanks to a commenter for spotting our inadvertant error (highlighted with strikethrough and italics below). We’ve updated the post to fix the mistake.
The water “footprint” of the beverage industry is certainly impressive. In 2008, SAB Miller determined that its entire supply chain, including the cultivation of ingredients, required nearly 8.4 trillion liters of water – nearly double the amount of water used by Iceland in 2004. Even so, the American Beverage Association estimates that its members only consume about one in every 3,300 gallons of groundwater used in the USA, or about 0.03% – far less than other industries.
Agriculture remains by far the largest consumer of water worldwide, accounting for about 70% of annual global water use. In contrast, the industrial and commercial sectors of the global economy only account for about 22% of water use. Given current growth rates, human use of available freshwater is projected to rise from about 54% currently to over 90% of all available freshwater within 25 years. Clearly, something will have to give.
Unfortunately, just making the beverage industry water neutral will not solve the looming water crunch. But it still might accelerate our collective understanding of water use and impact, just as people have started to grasp the concept of carbon footprints. Beverage companies have been some of the first to start calculating the “water intensity” of their products. Analogous to carbon inventories, these calculations seek to estimate the “water footprint” of a product, including the ingredients and production processes used to make it.
Just like carbon footprints, this focus on water has led to new opportunities for savings in the value chain. For instance, in 2007 PepsiCo piloted a program that demonstrated radical reductions in water usage for rice cultivation through new irrigation techniques. PepsiCo estimates that converting just 6,000 acres of rice paddy to this new process would fully offset all water used by PepsiCo India’s beverage plants. The point is that if the water resources (which for now are relatively cheap) are not fully accounted for at the product level, then both companies and the ultimate consumer will lack the information they need to make informed decisions. For the beverage industry, it could, quite literally be a matter of survival. Did you know, for example, that the water footprint of a single glass of beer is 75 litres? I’ll have a glass of wine, then – or maybe not at 120 litres of water per glass. So maybe its time to stick with coffee, except that a single cup costs 140 litres to produce. Filtered tap water, anyone?
The consequences of emerging water scarcity on business are well described in the ‘Water Scarcity and Climate Change Report,’ issued by Ceres and the Pacific Institute. The report suggests two types of risks to businesses from water scarcity: physical and reputational. ‘Physical’ risks include those that stem directly from the use of water in production, such as a lack of water to use as a main ingredient in beverages, or increasing difficulty and cost to grow crops or raise animals. There are also ‘reputational risks’ to be considered. Production plants that take water from local sources can create direct conflicts with residents – even when water shortages are due to external factors. Coca-Cola learned that the hard way, when the Indian state of Kerala alleged that the company was misusing local water resources, subsequently forcing the closure of Coke’s plant there. Environmental and community groups are still fighting to kick Coke out of other villages in India. Deserved or not, this lack of water in vulnerable communities risks damage to the reputation of any company connected with the offending plant. Since water represents such important risks on critical dimensions, water use and water efficiency are clearly key strategic issues for industry.
So, what are the leading beverage companies doing to manage the existing and future risks of water scarcity? As of 2008, Coca-Cola required around 2.5 litres of water to create 1 litre of product, when taking into account when not taking into account the cultivation of sugar and other ingredients. Today, Coke is working to get that number as close to 1:1 as possible, reaching 1.5L water use to 1L of product at its Bellevue plant. Neville Isdell (CEO of Coca-Cola Company until July 2008) recently affirmed his company’s commitment to water conservation, stating, “Without access to safe water supply, our business simply cannot exist.” Coca-Cola has made a goal to be ‘water neutral’ by returning every liter of water they take from the earth, or by compensating for its use with conservation efforts. This program is one of the first of its kind, not only because of its grand scope, but because it is part of a comprehensive internal CSR program, rather than an isolated effort to focused solely on water efficiency.
Coca-Cola is far from the only company to have water initiatives. SAB Miller has pledged to reduce water use by 25% in the coming years. Corporations such as Nestle Waters, PepsiCo, Anheuser Busch InBev, Diageo PLC, and Groupe Danone all have similar initiatives on the table. Likewise, in the UK, Cadbury Schweppes has put water reduction initiatives into action at sites that are deemed ‘water scarce.’ But will this be enough? Time will only tell but I, for one, will be raising a cold one as a toast to their success.
FairRidge Group is a team of management, strategy, and change experts focused on business transformation through the practical application of sustainability for operational improvement and strategic innovation. FairRidge Group brings a new framework for sustainability management that integrates strategy, operations, branding, measurement and organizational development to drive profitable business transformation.
Camilla Whitehead is an Intern at FairRidge Group. Camilla is studying International Relations and Modern History at the University of St. Andrews, Scotland.