April 2012 was the wettest April for over 100 years in the UK, with some areas seeing three times their usual average rainfall, according to the Met Office. As a result, drought status has been lifted in 19 areas in the South West, the Midlands and Yorkshire.
Nevertheless, groundwater levels are still low at two-fifths (42%) of monitored sites across the country, and parts of East Anglia and the South East remain in drought with hosepipe bans in place. According to the Environment Agency, it is going to take more than a few weeks of rain to undo the effects of nearly two years of below average rainfall.
The recent rain is good for farmers and the cool temperatures ease the pressure on fish and wildlife in rivers. However, the wet weather also was blamed for UK grocery retailers’ poor sales growth in April 2012.
Weathering the storm
Weather has a significant effect on the food and grocery industry. It can be too wet, too dry, too cold or too hot for farmers and shoppers alike. In April 2012, UK like-for-like retail sales fell 3.3% versus the same month in 2011, when the weather was less wet. Conversely, the rain was a welcome relief for farmers.
In the future, extreme weather events are likely to have a greater impact on the industry. According to the Government’s UK Climate Change Risk Assessment (CCRA) report, two of the major risks among 100 identified were:
- Increasing pressure on the UK’s water resources - without action to improve water resources, by the 2050s, the supply-demand imbalance may increase in parts of the north, south and east of England, with the greatest challenge in the Thames basin. This could make growing some rainfed crops more challenging within the UK
Impact of climate change on future land suitability
Source: Cranfield University
- Risks of flooding are projected to increase significantly across the UK - if no further plans were made to adapt to changing flood risks, by the 2080s, the annual damage to buildings and property due to the effects of climate change and population growth could reach £2.1 billion – £12 billion, compared to current costs of £1.2 billion
Fact: The total economic cost of the summer 2007 flooding is estimated to have been about £3.2 billion at 2007 prices. Around £50 million of the total cost resulted from damage to agriculture, associated with the inundation of over 40,000 hectares. (Source: Environment Agency)
It is not just in the food and beverage industry that there is a growing awareness of the risks associated with water management and availability. Water is becoming a concern for shoppers too.
Rising shopper interest in sustainable water usage
'Drought' mentions in mainstream UK press
Source: www.factiva.com, May 2012
The recent drought and the related media coverage have begun to resonate with shoppers. A quick and simple analysis shows that in April 2012 there was a significant spike in drought-related media stories. There was roughly a threefold increase in the mentions of ‘drought’ in national UK tabloids and broadsheets compared with January 2012.
Along with the increased media coverage, a number of water companies ran campaigns to encourage consumers to become more water conscious. For example, Thames Water ran a number of poster campaigns in the London Underground, highlighting drought in the UK and encouraging people to save water.
The media focus on drought seems to have made an impression on UK shoppers. At this point, we do not know if this is merely a short-term phenomenon or if it is the start of a longer-term trend.
Our ShopperVista research, IGD’s monitor of British shopper sentiment, reveals an increase in shopper interest in products that display sustainable water usage credentials.
In fact, more shoppers say they will buy products indicating their sustainable water usage in the next 12 months (9% in April vs 5% in January 2012). Although this is a relatively small base, the increase since the start of 2012 is interesting given the high profile of water issues in recent months. We will continue to monitor this behaviour and how it evolves.
Drought raises interest in sustainable water usage
Source: IGD ShopperVista, base: main shoppers, Apr’12
At a time when many shoppers are focused on value and saving money, shoppers are still showing interest in ethical issues. The industry would be wise to monitor short-term environmental issues which can drive relatively rapid changes in shopper behaviour.
Monitoring if these changes are ‘blips’ or represent long-term trends will be important. Grocery companies could increase shopper loyalty and offer differentiation if they can communicate to shoppers any sustainable water credentials that their brand has, therefore enhancing their brand values.
Water threatening industry
Water quality, availability and flooding are not just issues within the UK. Water is impacting industry on a global scale.
According to a study by risk analysis company Maplecroft, water use is threatening global agriculture. The Middle East and North Africa are the most at-risk regions.
However, the widespread use of irrigation for agriculture, combined with increasing domestic and industrial water demand in India (ranked 34th in the index), China (50) and the USA (61) means that those economies’ water resources are coming under increasing pressure – potentially increasing the impact on the wider world.
With worldwide supply chains, the effects of water shortages will have an impact on the industry and could potentially alter future procurement. According to Maplecroft, the effect of water stress on global food inflation has already been illustrated by recent price hikes for soya beans, which have been pushing all-time highs. In 2010, the drought in Russia which devastated the wheat harvest also had a significant impact on wheat prices and the wider industry.
IGD’s Water Stewardship Working Group
IGD is facilitating a working group to help the industry understand the complexities and difficulties associated with better water management and stewardship. The aim is, to identify what is required to incentivise water users to embrace water stewardship and significantly improve water resource management. The workgroup will do this by developing a crisis-based scenario project, which explores how the food and grocery industry should act now to avert the effects of increased pressure on water resources.