After a punishing five-year drought in California that damaged harvests, caused job losses among farm workers and sent food manufacturers scrambling for commodities, many companies learned firsthand just how much of a business risk water scarcity can be.
The food and beverage industry is particularly dependent on water – indeed, agriculture uses 70 percent of the Earth’s freshwater supplies. In California, whose farms produce more than half of the nation’s fruits and vegetables, that use stretches to 80 percent.
Consequently, water scarcity is one of the biggest risks facing the $5 trillion food and beverage industry, causing spikes in operating and procurement costs and influencing reputations. And it’s likely to get worse as climate change brings more droughts and continues to intensify storms, which means more floods.
The good news is that the food and beverage industry is starting to realize this, and some major corporations have taken significant steps in recent years to better manage and conserve water and reuse it where possible.
After all, water shortages in California resulted in a $2.7 billion hit to the economy in one year alone at the height of the drought and job losses of 21,000.
The sobering news is that despite their growing awareness of water risk, most companies are not doing nearly enough to match the magnitude of potential problems.
Those are the findings of a recently released Ceres analysis of the 42 largest food and beverage companies, “Feeding Ourselves Thirsty: Tracking Food Company Progress Toward a Water-Smart Future.” My colleagues assessed companies on how they are responding to water risks across four categories of water management: governance and strategy, direct operations, manufacturing supply chain and agricultural supply chain.
They found mixed progress. “Feeding Ourselves Thirsty” data indicates that companies in the packaged food business generally did the most to manage water risk and protect watersheds for the future, followed by beverage companies, while meat and agricultural products companies did less. And yet individually, companies vary widely on how well they do, even within one sector.
It’s gratifying to see in the data, though, that progress is being made in California.
General Mills, Coca-Cola Company, Molson-Coors Brewing Co. and Campbell Soup Company were all cited for working with agricultural supply chains, such as their work in California’s San Joaquin Valley. These companies are involved in a groundwater recharge project with Valley farmers, in which farmers allow floodwater to be captured and stay on their fields to recharge the groundwater underneath.
Campbell Soup Co., which relies on California for tomatoes and carrots, has engaged with tomato growers in its agriculture supply chain to help them conserve water. Campbell asked tomato growers to consider replacing sprinkler irrigation with drip irrigation. The majority have done so, and the switch proved to be beneficial in many ways: Tomato growers not only reduced water consumption by 20 percent per acre, but also increased yield, improving efficiency by some 40 percent, according to Dan Sonke, Campbell’s director of sustainable agriculture.
General Mills, which turns to California for nuts, dairy and tomatoes among other commodities and has manufacturing operations here, managed to improve its water efficiency by 20 percent in its direct operations between 2006 and 2015. It is working to improve watershed health in five key water-strained regions around the world including California’s Central Valley.
PepsiCo also achieved a 20 percent improvement in water-use efficiency – across global operations, and four years ahead of schedule. It reduced water use in its own operations like its California Frito-Lay manufacturing operations, as well as its agricultural and manufacturing supply chains. PepsiCo also works to replenish watersheds where it has operations.
Coca-Cola Company, which has 53 plants in California, saved 280 million gallons of water at those facilities by implementing water reclamation and waterless processing technologies. It also got high marks in the “Feeding Ourselves Thirsty” analysis for governance because it makes water risk management a board responsibility, and for its watershed work. Like its main competitor, it too replenishes water to watersheds and communities near its operations.
I’m happy to say that General Mills, PepsiCo and Coca-Cola are Connect the Drops members.
Molson-Coors cut its water use per barrel of beer produced to half the industry average in its Irwindale, California, brewery and now is trying to produce the same water efficiency in all its breweries. Its management set a goal to reduce overall water use intensity by 20 percent by 2020. Molson-Coors is also one of 12 companies that links executive compensation to water management.
As such experiences show, prioritizing water in a state that promotes – and needs – water conservation is a savvy business move that also improve efficiency and saves money. In fact, smart water management has become an imperative for food companies as climate change, water scarcity and pollution accelerate around the world, the “Feeding Ourselves Thirsty” researchers say.
Yet there are companies doing very little about water risk. Monster Beverage, based in Corona, California, scored the lowest in the “Feeding Ourselves Thirsty” analysis. Although the company website describes water conservation efforts generally, Monster does not discuss water risk in its publicly filed reports with the Securities and Exchange Commission, and there is no evidence that it includes water risk as part of corporate governance for top executives or its board to consider.
Kraft Heinz, which has many plants in Southern California, scored 9 points out of 100. It does little to conserve water and assess risk in its own operations and even less in its supply chains.
As a generality, the food and beverage sector has made progress in setting water goals in direct operations and assessing progress there. The vast majority of companies have informed shareholders about potential water risks to their operations.
But the industry hasn’t made enough progress in elevating water risk to the board level, integrating water risk into procurement processes, managing wastewater to reduce water use and collaborating with stakeholders – including other companies – to protect and restore watersheds. These could make the difference between having enough usable water in the future or not.
In California, we went from an epic drought that cost the economy $2.7 billion at its height to torrential rains and floods that cost $1 billion in infrastructure damage. Water risk is very real here. We applaud what companies have done so far, but encourage them to do much more.
The views expressed in this article belong to the authors and do not necessarily reflect the editorial policy of Water Deeply.