Water Use and Pollution

Issue Overview

Growing competition for water supplies, combined with climate change and water pollution, threaten the food sector’s water security and contribute to a water availability threat that the World Economic Forum recently ranked as the world’s “top global risk.”

Water Use:  Agricultural production is the most water intensive activity, consuming roughly 70 percent of the world’s freshwater. Moreover, one-third of the world’s food is produced in areas of high or extremely high “water stress” or competition.

  • About 21 percent of rainfed production and 56 percent of the world’s irrigated crop production takes place in high stress regions.
  • An estimated 20 percent of the Earth’s groundwater basins are being over-exploited, many of them in regions of significant agricultural importance, including California and the Midwest’s Ogalalla Aquifer.

Water Pollution:  Fertilizer, manure and pesticide runoff from farm fields is a major source of water pollution in most regions of the world. Global chemical fertilizer use, which hit 180 million tons in 2012, has increased 500 percent over the past 50 years, with nitrogen use alone growing by 800 percent. Much of this fertilizer runs off into waterways, polluting rivers, groundwater and oceans. The number of hypoxic “dead zones” linked to fertilizer runoff (also called nutrient pollution) has increased exponentially since the 1960s, affecting more than 400 aquatic ecosystems worldwide, including the Gulf of Mexico and South China Sea.  Nutrient pollution is the most significant water quality challenge in the United States, according to the EPA, which spends an estimated $4.8 billion annually treating nitrogen pollution.

Commodity Exposure to Water Use and Pollution Issues

Business Risks From Water Use and Pollution

Operational

South African sugar producer Illovo reported a 36 percent drop in full-year profit in 2016, largely due to the worst drought South Africa has experienced in 100 years.

IMPACTS

  • Revenue decline resulting from decreased production 

Reputational

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. 

IMPACTS

  • Damages to brand equity from public criticism by advocacy groups and failure to meet local needs
  • Monetary costs of abandoning part of a strategic plan

Regulatory

Molson Coors was fined $124,000 in 2016 after pleading guilty to two offenses in the U.K.: causing an illegal water discharge activity and breaching its environmental permit per the England and Wales 2010 Environmental Permitting Regulations.  

IMPACTS

  • Legal fees and monetary settlements for violating laws and regulations

Priority Commodities

Among the most commonly sourced commodities profiled in Engage the Chain, water use and pollution impacts are significant in the production of beef, corn, dairy, sugarcane, wheat. 

The following summarizes how the production of beef, dairy, and corn contribute worldwide to water use and pollution. It is important to consider that the scale of the impacts depends on the practices used by individual livestock operations and feed growers, as well as regional and local conditions.

Beef

Cattle operations can contribute significantly to water pollution when manure and feed crop production are poorly managed. The nitrogen and phosphorus nutrients from the manure and synthetic fertilizers used to grow crops can run off fields or leach into the water. 

This contributes to “dead zones” that are devoid of life and contaminate local drinking water supplies. In 2014, a toxic algae bloom on Lake Erie caused primarily by agricultural runoff poisoned the water supply for nearly half a million people in Toledo, Ohio. Surface water and groundwater can also be contaminated by sediment from poor grazing management.

As the global cattle industry expands, so have the beef slaughter and leather industries. Slaughterhouse and tannery waste—rich in organic matter, heavy metals and caustic solutions—is highly polluting when it isn’t treated. Producing beef uses a lot of water—for irrigating pastures, producing feed, watering animals, managing manure and processing products. Though beef’s “water footprint” varies based on production and feeding systems, in most cases the crops used as cattle feed make up a large part of that footprint. Among these different feed crop options, corn and alfalfa use the largest volume of irrigation water. As water stress increases, the vulnerability of beef production to drought and competition for other uses can increase. 

Dairy

Dairy operations can significantly contribute to water pollution when manure and fertilizers for feed crops are poorly managed or used. The nitrogen and phosphorus nutrients from manure storage, handling and land application, and from synthetic fertilizers used to grow crops, can run off fields to surface water or leach into groundwater. 

Runoff contributes to “dead zones” and are a growing concern around the world, while leaching to groundwater pollutes the water supply of communities, agriculture and industry. To minimize pollution worldwide, dairy producers need robust nutrient management plans, the infrastructure and tools for tracking nutrient flows. They also need innovative technology to more precisely apply manure nutrients, and options for exporting excess manure.

Milk production typically requires a lot of water to grow the feed, nourish cows, manage manure and process products. Since crops and pasture used as feed could have significant water demands, efficient use of water to produce these commodities is important, especially if the feed is grown in areas of water stress. In the U.S., for example, among the potential feed crops (corn, alfalfa, other hay, pastureland, soybeans), corn and alfalfa use the largest amounts of irrigation water. Corn-based feed is particularly vulnerable since 35 percent of global production is grown in regions of high or extremely high water stress, meaning that existing water supplies face intense competition.

Corn

High water demand contributes to drought vulnerability and groundwater depletion. Corn is a thirsty crop, and in the United States, corn requires more water for irrigation than any other crop. Twenty-one percent of U.S. and 26 percent of global production respectively is irrigated. 

Some 35 percent of corn is grown in regions, including the U.S. and China, where there is high or extremely high-water stress. In those areas, existing water supplies face intense competition and, in some cases, growing regulation.

In the United States, around 87 percent of irrigated corn is grown in regions with high or extremely high water stress, and production often relies on groundwater from critical aquifers, such as those in California’s Central Valley and the High Plains Aquifer. In at least 20 counties across Nebraska, Kansas and other states that lie above the High Plains Aquifer, groundwater is dropping precipitously. This poses a risk to the harvest in those counties, which is estimated at $2.5 billion annually.

Many waterways in the U.S. Corn Belt suffer from high levels of nutrient pollution linked to agricultural fertilizers that run off farm fields. Too much fertilizer in streams, rivers and lakes contributes to “dead zones” that are devoid of life and contaminate local drinking water supplies. In 2014, a toxic algae bloom on Lake Erie caused primarily by agricultural runoff poisoned the water supply for nearly half a million people in Toledo, Ohio. Corn and soybean production in the Mississippi River Basin contributes 52 percent of the nitrogen that enters the Gulf of Mexico, creating a seasonal dead zone the size of Connecticut.

Priorities for Investor Engagement

Feeding Ourselves Thirsty

Feeding Ourselves Thirsty ranks more than 40 of the largest food sector companies on how they are responding to water risks and how performance has shifted since the first round of benchmarking in 2015.

This analysis provides company and industry level data on four industries most at risk: packaged food, beverage, agricultural products and meat. This analysis also provides insight on the water and climate risks food sector companies are exposed to and how these risks impact their current and future profitability. Companies were assessed on a 0-100 point basis across four categories of water management using publicly available data, such as 10-K filings and sustainability reports.