Water Use and Pollution
Issue Overview
Growing competition for water supplies, combined with climate change, population growth 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.
Yet food companies are not only at risk from water challenges, they contribute to them. Agriculture drains aquifers in many regions of the world, and meat production is one of the biggest polluters of waterways worldwide. See how major food companies compare.
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.
Water is a material risk: Ceres’ Feeding Ourselves Thirsty analyses provide company and industry level data on the four industries most at risk: packaged food, beverage, agricultural products and meat, as well as ratings for 42 of the largest food sector companies on how they are responding to water risks.
In the Report, 85 percent of the companies scored cited water as a material risk in their financial filings. More than 90 food companies highlighted water risks on their earnings calls with investors. These risks can mean large future losses: a recent MSCI analysis of food companies in its All Country World Index (ACWI) found that $459 billion in revenue may be at risk from lack of water availability for irrigation or animal consumption, and $198 billion is at risk from changing precipitation patterns affecting current crop production areas.
Commodity Exposure to Water Use and Pollution Issues
-
Beef
-
Cocoa
-
Corn
-
Dairy
-
Fiber Packaging
-
Palm Oil
-
Soybeans
-
Sugarcane
-
Wheat
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
Companies that fail to understand and manage impacts related to water pollution may face operational, reputational and regulatory risks (see more at Ceres' Feeding Ourselves Thirsty). For example, in Ohio, a toxic algae bloom on Lake Erie in 2014 caused primarily by agricultural runoff poisoned the water supply for nearly half a million people in Toledo. In response, the governor of Ohio signed legislation requiring dairies and livestock producers to change the way they handle manure.
Runoff contributes to “dead zones”, areas of water bodies where aquatic life cannot survive because of low oxygen levels. In the Gulf of Mexico (into which runoff from production in the Mississippi River watershed flows), the National Oceanic and Atmospheric Administration (NOAA) reported that the dead zone in July 2017 was the largest ever measured, covering an area about the size of New Jersey. The economic impact is significant with NOAA estimating that the harmful algae blooms causing the dead zones cost the seafood, restaurant and tourism industries about $82 million every year.
To minimize pollution worldwide, dairy producers need robust nutrient management plans as well as basic infrastructure and tools for tracking nutrient flows. They also need innovative technology to more precisely apply manure nutrients and clear options for exporting excess manure.
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.
Business Risks From Water Use and Pollution
For additional examples of risk, explore Ceres’ Feeding Ourselves Thirsty analyses.
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.
A number of dairy farmers have been fined for contributing to water pollution and harming aquatic ecosystems. In Iowa, one dairy operator was fined $24,000 in 2018 when manure leached from his facility killing more than 60,000 fish. In 2017, another farmer was found by the U.S. Department of Justice to have violated the Clean Water Act multiple times and fined $160,000. Dairy operators in Wisconsin, Washington and other states have also faced financial penalties from polluting local waterways.
IMPACTS
- Legal fees and monetary settlements for violating laws and regulations
Priorities for Investor Engagement
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.