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Food and Beverage Companies Wake Up to Water Risks

Drip irrigation can help farmers get more yield per drop, a crucial solution to meeting food needs as water stress expands around the world.  Photo: National Geographic.
Drip irrigation can help farmers get more yield per drop, a crucial solution to meeting food needs as water stress expands around the world. Photo: National Geographic.

Last week, Starbucks announced that it would stop sourcing and producing its bottled water brand, Ethos Water, in California and shift production from the Golden State to Pennsylvania.

In explaining its decision, the beverage maker cited “the serious drought conditions and necessary water conservation efforts.”

With California in its fourth year of a historic drought, Starbucks has been called out for tapping springs in severely drought-stricken Placer County, which last month declared a water-shortage emergency.

The company faced not only the risk that its water supply might shrink, but that its reputation could be badly tarnished if it did not act.

Starbucks is by no means alone. Drought and water stress are affecting the decisions and bottom lines of a growing number of companies.

Last month Coca Cola decided not to proceed with an $81 million bottling plant in southern India due to local farmers’ concerns about groundwater availability. Food giant Cargill reported a 12 percent drop in profits for the fourth quarter of 2014, citing drought damage to pastures used to raise beef in the western United States.

With one-third of the world’s food now grown in areas of high or extremely high water stress, companies are waking up to water risks.

But most are doing far too little to respond to these risks, according to a new study by Ceres, a Boston-based non-profit that aims to mobilize corporate and investor leadership on environmental sustainability.

With water stress spreading across the globe, diversifying geographic locations is often no longer the most sensible or cost-effective response, Ceres concludes.

Rather, companies must build water security proactively by working to reduce water use not only within their own production facilities, but also across their supply chains. They can also build resilience by working collaboratively to improve the health of the watersheds that supply their operations with water.

Ceres analyzed 37 companies in the packaged food, beverage, meat and agricultural products industries for their strength in managing water-related risks. The majority of the companies are headquartered in the United States and listed on the S&P 500 stock index.

The researchers looked at indicators of corporate governance and management around water, as well as specific actions to reduce water risks not only in the companies’ process operations, but also in their manufacturing and agricultural supply chains.

For a brewing company, for example, this means examining water risks related to the production of barley and hops, which can account for 90 percent of the water footprint of a pint of beer. Likewise, a tomato sauce manufacturer would need to assess water-related risks to its tomato growers, and then work to reduce them.

Often it can be difficult to trace the whole supply chain of a product, but an accurate rendering of risks requires this knowledge.

Ceres scored each company on a 0-100 scale, with 100 indicating the most comprehensive and effective water-risk mitigation strategy.

At the top of the list, with a score of 70, was the packaged-food giant Unilever, which has set a goal of achieving 100 percent sustainably sourced ingredients by 2020. The company defines water-use and pollution-control practices, and expects its agricultural producers to comply with them.

Last year, Ceres notes, Unilever partnered with the Dutch NGO Solidaridad to boost the water efficiency of farms in India that supply the company with sugarcane, cotton, soy and tea. The aim is to save 400 billion to one trillion liters (106-264 billion gallons) of water in three years.

Of the 37 companies analyzed in the study, 62 percent have begun to evaluate water risks at their own production sites (for example, bottling plants). But only 40 percent have started to evaluate risks across their agricultural supply chains.

Coca-Cola, General Mills and PepsiCo, all of which scored in the top five, as well as Molson Coors Brewing Company, have developed watershed protection plans to help ensure a reliable supply of high quality water for their production sites.

Four of the companies Ceres analyzed offer financial support to help their suppliers farm more sustainability. WhiteWave Foods, for example, offers assistance to growers to transition to organic farming, while General Mills provides vegetable growers in the Irapuato region of Mexico with interest-free loans to help them shift to highly efficient drip irrigation.

If the world’s food is to be produced without going deeper into water debt, farmers, companies and regulators must work together to achieve sustainable water-use practices.

And, as the Ceres study makes clear, informed investors will increasingly want to know how companies are mitigating their water risks.

[Disclosure: Coca Cola and WhiteWave Foods, both mentioned in this post, are sponsors of Change the Course, the water stewardship initiative I co-lead.]

Sandra Postel is director of the Global Water Policy Project, Freshwater Fellow of the National Geographic Society, and author of several books and numerous articles on global water issues.  She is co-creator of Change the Course, the national freshwater conservation and restoration campaign being piloted in the Colorado River Basin.