Currently, one-third of total food production is in areas of high or extremely high water stress, or competition. Five important water risk drivers affect the water security of the food sector: 1) growing competition for water, 2) weak regulation, 3) aging and inadequate water infrastructure, 4) water pollution and 5) climate change. These water risks are already affecting corporate income statements and balance sheets due to: disrupted operations and limits on growth driven by water shortages and loss of social license to operate alongside other factors.
82 percent of food sector respondents to the CDP’s 2014 water information request indicate that water risks could have a substantive impact on business operations and 90 percent of the 31 publicly-traded U.S. companies evaluated in their report cite water as a material risk in their 10-K financial filings. Recent examples of financial impacts include:
● Cargill reported a 12 percent drop in 2014 fourth-quarter profits as a four-year drought in the U.S. Southwest damaged pastures used to raise beef.
● The Campbell Soup Company saw a 28 percent drop in its California-based carrot division profits in early 2015 due in part to drought followed by intense rains.
● The Coca-Cola Company decided not to move forward on the development of an $81 million bottling plant in southern India in April 2015 due to resistance from local farmers who cited concerns about strains on local groundwater supplies.
● GrainCorp, Australia’s largest agribusiness, reported a 64 percent drop in 2014 profits due to a prolonged drought that cut grain deliveries by 23 percent and nearly halved grain exports.
● J.M. Smucker introduced an eight percent price increase on Folger’s K-Cup coffee packs in early 2015 to offset the worst drought in Brazil in decades.
● Unilever estimated that natural disasters linked to a changing climate—in particular, food price increases, water scarcity and reduced productivity in many parts of the agricultural supply chain—cost the company around $400 million annually.
In short, when it comes to growing and producing food, water shortages are a serious & pressing issue, so pressing that Ceres, a nonprofit organization mobilizing business and investor leadership on climate change, produced a report in 2014, from which these facts come. Ceres directs the Investor Network on Climate Change, a network of over 100 institutional investors with collective assets totaling more than $13 trillion.