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 With global population rise and the growth of emerging markets, finite supplies of fresh water are being put under ever greater pressure. So will we be forgetting gold, diamonds and oil in the future? Will 'blue gold' become the world's most precious asset?
In 2000, Fortune magazine wrote: “Water promises to be to the 21st Century what oil was to the 20th: the precious commodity that determines the wealth of nations.”
This is something that leaders of the food and grocery industry are also starting to highlight. Peter Brabeck, chairman of Nestlé, the world's biggest food group, was quoted last week in the Financial Times saying: "[If] we continue to treat water as we do today, [as] a commodity without any price. Under those circumstances the world will run out of water long before we [run out] of oil."
The increase in the demand for water
The Earth Policy Institute believes that water scarcity is now the single biggest threat to global food security. The World Bank has predicted that by 2025 two-thirds of the world’s population will not have enough drinking water. With scarcity making water an increasingly valuable commodity, private companies are already starting to corner both water supplies and distribution.
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| Will water become our most precious commodity? | |
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Within developed countries there is a general misconception that there is an abundant supply of fresh water. This is not the case; around 2.5% of the water on Earth is freshwater, most of which is stored in glaciers, ice caps or deep in rock-strata (aquifers) making it difficult to access. Around a fifth of the water used worldwide comes from the 30% of the world’s fresh water which is stored in aquifers.
Already globally more than 1 billion people lack clean drinking water and 2.6 billion lack sanitation, according to the Human Development Report 2006. This water crisis is likely to worsen in many parts of the world as a result of urbanisation and population growth, increased food production, changing consumption patterns, industrialisation, deforestation, pollution and climate change.
Global consumption of water is doubling every 20 years, more than twice the rate of human population growth. If current trends persist, by 2025 the demand for fresh water will rise by 56% and as many as two-thirds of the world’s population will be living with serious water shortages or absolute water scarcity, according to the United Nations.
Water shortages in the UK?
The UK’s Met Office reported the summer of 2007 (May - July) as the wettest since rainfall records began in 1766. In light of these events, with torrential floods in the West Midlands and Yorkshire it would be an easy mistake to think that talking about water as a finite resource is not an issue that the UK needs to worry about.
However, according to Waterwise the UK has less water available than any other EU country apart from Belgium and Cyprus. The South-East of England has less water available per person than the Sudan and Syria, and London is drier than Istanbul.
Furthermore, during the period of torrential rain and floods the availability of fresh drinking water in the worst effected areas was limited with mains supplies being turned off to many residents.
The summer floods of 2007 also damaged many crops that were grown within the effected regions; this subsequently was a contributing factor to the increase in both food prices and UK food imports.
A market for water
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A challenge in China
According to the World Bank, around 90% of the rivers in China near urban areas are seriously polluted.
The Economist has reported that the overall cost of water scarcity – from pollution and depletion of groundwater – is estimated to be 147 billion yuan ($2,121.4 billion) each year. This is almost 1% of China’s annual output.
In 2007, poor water-quality cost China some $12 billion in lost industry alone. However, it seems unlikely that China will reduce the amount of water it uses for industry. |
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The global population is increasing by 70-80 million every year and is likely to reach 7 billion in a few years. Climate-change is likely to increase temperatures in many parts of the world. Water, therefore, is seen as a vital resource.
James Cameron, vice-chairman of Climate Change Capital, a UK bank focused on low-carbon projects says: “Managing water will be a premium business to be in”.
Water markets are becoming common in arid regions of the US and other parts of the world. Water trading takes place throughout the states of Victoria and New South Wales in Australia. At the end of 2007, water prices hit an all-time high of $1,000 (£438) a megalitre (one million litres) due to the "Big Dry" - the most severe drought that Australia had experienced in a century. One resulting factor of this is that the Sydney Futures Exchange has proposed the creation of a national water market and a water futures exchange.
The high demand for water has not only increased its potential value in monetary terms but has led to traditional water use changing. Private companies are realising that water has a value and are taking ownership of supplies. The demand has even encouraged land owners to sell their water supplies. Farmers in Southern India have already begun to abandon farming so they can sell their ground water at a premium rate to water-intensive industries and urban users.
Planners estimate that a given amount of water used in industry generates more than 70 times the economic value of the same water used in agriculture (source: Postel 1999). This change in water use from agriculture to industry is extremely prevalent in China and could have a vast knock-on effect on global food supplies.
Demand for water threatens food security
The Worldwatch Institute warns that an unexpectedly abrupt decline in the supply of water for China’s farmers could threaten world food security. China could face severe grain shortage in the near future as a result of water depletion due to the current shift of limited water resources from agriculture to industry and cities.
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| (Source: World Business Council for Sustainable Development) | |
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Future water demand trends in China
The graph on the left shows a predicted rapid increase in water use in industry with a decline in water use in agriculture by 2050 in China.
This shift could result in China increasing its global demand for grain which could exceed the world’s available exportable supplies. While China might be able to survive with its continually booming economy and huge trade surplus, the resulting higher grain price could create social and political upheaval in most major developing countries and shake global food security.
The UK already relies heavily on imported food to meet the nation’s demand. If this need for imports were to increase, the UK could find itself depleting water reserves from the nations that it imports from, and if these nations were to change their attitudes to food exportation or water use the UK could be put in a compromising situation.
A managed solution
An important key to using and allocating water more efficiently could be the phasing out of subsidies, allowing water prices to reflect the true cost of supply. Price reforms in Chile reduced irrigation water use by 22-26% and saved $400 million in costs for developing new water supplies.
This is something that Peter Brabeck, Nestlé, believes in: “Nintey-three per cent of all water consumption is in agriculture, and as water has no price there is no economic incentive to improve the productivity.” (source: FT)
However, effective water pricing, particularly of irrigation water, remains a moral challenge especially in low-income countries where agriculture dominates the economy and most farmers have limited incomes.
The greatest worry regarding water supplies is that there is no substitute. For this reason, there is a need to improve global water management and develop technological solutions that could solve the problem of extravagant water usage.
More information:
Visit our free online resources on water use within the food and grocery industry by clicking on the links below:
The Increasing Demand for Water
Food and Grocery: Water Reduction Commitments
Water Use in the Supply Chain
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