By Maria Gallucci -
On California’s carrot farms, sprawling fields of orange and leafy green vegetables are turning to a shriveled brown. Cattle are vanishing from Texas pastures, where grasses have given way to dirt and dust. Across the western U.S. and around the world, enduring drought and water scarcity are straining the operations of major food companies.
Yet few of these businesses are confronting the problem, researchers say. While most companies acknowledge that water poses a risk to supply chains, only a handful are actively working to slash water consumption and protect the rivers and watersheds that sustain their fields and livestock.
“The business model of most food companies is premised on the assumption that water is limitless and cheap,” said Brooke Barton, the water program director at Ceres, an advocacy group for environmentally focused investors. “That should be alarming to investors.”
By many accounts, the water challenge will only get worse. Withdrawals of freshwater supplies have risen by at least 1 percent a year for the past three decades, and could rise by a staggering 55 percent in the next few decades, the United Nations water agency estimates, as billions more people join the population and agriculture, manufacturing and energy production expand to meet the rising demand. Climate change will exacerbate and intensify the world’s droughts and cause erratic weather patterns, making it harder to produce food in the same areas and in the same ways as farmers do today.
“For a lot of reasons, we’re coming to a tipping point in water supplies,” Barton said.
In a report released Thursday, Ceres studied 37 major U.S. and global food companies, including packaged food firms like General Mills (NYSE:GIS), beverage giants like Coca-Cola Company (NYSE:KO), meat producers such as Tyson Foods (NYSE:TSN) and agricultural companies including Chiquita Brands. Researchers found that only 30 percent of the firms had set a goal to reduce water use in their operations. While most companies are evaluating water risks in office buildings and warehouses, about two-thirds are still not targeting their agricultural supply chains, where the vast majority of water is consumed for food production. Only six have sustainable agriculture policies focused on water risks.
At the same time, these companies are seeing their profits squeezed and investments stymied because of water-related challenges.
Campbell Soup Company (NYSE:CPB)’s carrot division reported a 28 percent decline in profits in its fiscal second quarter, which ended Feb. 1, citing extreme weather in California. Agribusiness giant Cargill last year closed a beef harvest facility in Milwaukee and said it would shutter a corn milling feed facility in Tennessee this year after drought helped push the U.S. beef cattle herd down to its lowest level in more than 60 years. In April, Coca-Cola scrapped plans for an $81 million bottling plant in southern India due to opposition from local farmers, who feared the facility would strain groundwater supplies.
“Agriculture and food production as we know it in the United States is at risk, perhaps at far greater risk than we realize,” Jay Famiglietti, a senior water cycle scientist at NASA and professor at University of California at Irvine, said on a Thursday press call, noting that 80 percent of the world’s freshwater supplies are used to produce food.
Amid California’s four-year drought, Famiglietti said, farmers are increasingly pumping groundwater to sustain crops and livestock. As a result, California’s groundwater supplies are quickly depleting, and the state has lost about 8 million acre-feet of groundwater since 2011. In the Colorado River basin in the U.S. Southwest and Ogallala Aquifer in the Midwest, groundwater is disappearing at a similarly rapid rate.
“This is largely tied to agricultural production,” Famiglietti said. “If we’re going to manage our way through our U.S. and global water crises, we need the food industry to step up and play a leading role as environmental stewards.”
For the Ceres report, researchers assigned the 37 food companies an individual “water risk management” score, based on how the firms address water issues at a corporate level, in direct operations and across agricultural and manufacturing supply chains. On a scale of zero to 100, two companies earned just one point: Monster Brands, which makes highly caffeinated soft drinks, and Pinnacle Foods, a packaged food company whose brands include Birds Eye frozen foods and Duncan Hines cake mixes. The low scores indicate the companies are hardly giving water a second thought, the report found.
Unilever (LONDON:ULVR), the British-Dutch consumer goods behemoth, earned the highest score, with 70 points. The company has deeply evaluated the water risks its direct operations and supply chains, and its code of conduct for agricultural producers defines rigorous standards for water use and pollution control. Unilever has previously estimated that natural disasters linked to climate change, including water scarcity and reduced food production, already cost the company about $400 million each year.
Jerry Lynch, the chief sustainability officer for General Mills, said tackling water risks is “a business imperative” for the maker of Cheerios cereal and Yoplait yogurt, which earned 57 points in the Ceres report. “We spend a lot of time thinking about and working on water.”
The Minneapolis company gets much of its dairy supply, almonds, berries and tomatoes from California, and General Mills has several processing facilities across the state. Lynch wouldn’t say how California’s drought crisis has affected the company’s operations, explaining General Mills doesn’t comment on specific commodities. But in a 2014 disclosure to the Carbon Disclosure Project, General Mills said it was a large buyer of U.S. wheat and noted that “if water becomes scarcer, it will likely cost more to obtain ingredients such as wheat grown in this region.”
General Mills hired the Nature Conservancy in 2012 to evaluate the 85 watersheds that sustain the company’s operations and food production around the world, including the San Joaquin and Los Angeles rivers in California. The groups identified eight watersheds where scarcity and pollution poses the biggest long-term threats to agriculture, including the Irapuato region in Mexico. Farmers there grow broccoli and cauliflower for General Mills’ Green Giant frozen food brand.
Lynch said the team found the Mexican watershed could become “inoperable” within two decades as water supplies dry up or become polluted due to overuse and climate conditions. “Twenty years is a very real time horizon,” he said. To help protect the watershed, General Mills provides interest-free loans to its vegetable growers to help them adopt drip irrigation technology, a more efficient way to water crops. The company estimates the irrigation initiative has already helped save about 1.1 billion gallons of water a year.
Barton of Ceres said the organization’s water risk report is designed to help investors understand how climate change and water scarcity could affect the returns of their investment portfolios. “Our motivation is to help the investor understand which companies are best positioned to navigate the scarcer waters of agricultural production,” and which companies run the risk of losing profits and assets due to inefficient water use, she said. “We’re at a moment where companies have to really value every drop.”
