Half Empty: Business Grapples With Potential Water Crisis

Half Empty: Business Grapples With Potential Water Crisis

Will world water conditions affect your firm’s future? If that question isn’t one you’ve pondered, you soon will. Drought conditions are growing in the U.S. and around the world, with no signs of relief. And the economic impacts are being felt in a growing number of sectors.



Last month’s Johannesburg Summit highlighted the linkages between global resources and the health and well-being of the world’s citizens. Water ranked high among the concerns, with reports and studies offering a stream of depressing facts.

In a nutshell: To feed the planet’s 8 billion inhabitants in 2025, we will need as much extra water for food production as is currently used for all drinking, sanitation, industrial, and irrigation. Already, more than a billion people lack access to safe drinking water; another 2.5 billion lack adequate sanitation. Five million people die annually from preventable waterborne diseases -- ten times the number killed in wars.

What makes the issue particularly urgent is that demand for water will grow increasingly fast as larger areas are placed under crops and economic development. The growing likelihood that the planet is experiencing climate change also adds to the urgency.

In the U.S., drought conditions affected half of the 48 contiguous states at the end of July, according to the government’s National Climatic Data Center. The effects are far-reaching, causing more than 75% of range and pasturelands in Western states to be classified by the Agriculture Department as poor or very poor. The drought also impacts energy, most obviously hydropower, though fossil-fuel and nuclear plants also use huge volumes of water to cool steam pipes, boilers, and other equipment. Moreover, the drought-borne drop in hydropower is leading to increased air emissions. In North Carolina, fewer than 30% of the dams that produce hydropower can be used, due to low water flow. That means relying on more-polluting coal-fired plants.

Assessing the Business Impacts

The total economic impact of the current U.S. drought isn’t yet known; the record was set in 1988 when a Midwest drought caused some $40 billion in damage. South Dakota estimates this drought will impose costs of $1.8 billion, equal to 8% of its total economic output, reports the Wall Street Journal. The damage will be higher in Nebraska.

For businesses, droughts can mean chemical companies sell less weed killer, grain companies have fewer goods to store or haul, and barges have a tougher time plying rivers. The U.S. Forest Service reports that lumber firms will feel the sting of the 2002 drought for years, because drought-damaged trees lose their resistance to pests. Farmers are struggling with the poorest corn crop in years and limited water for livestock, likely raising food prices.

In more general terms, it’s critical to understand that globally, water use breaks down as roughly 70% agricultural, 10% residential, and 20% industrial.

The implications for business are implicit, if not explicit: During water shortages, agricultural and residential uses are the least likely to be cut back, leaving the private sector with the onus of accounting for shortfalls.

Some firms already have faced water-related shortages severe enough to pose risks, according to the Global Environmental Management Initiative, or GEMI. For example:

  • Anheuser-Busch, the world’s largest brewery, last year saw a sharp rise in price and drop in availability in two key inputs -- barley and aluminum -- as the result of a drought in the U.S. Pacific Northwest. The experience forced the company to take a more comprehensive, strategic, and sustainable approach to water. It subsequently initiated large-scale conservation measures, including installing meters and information systems to provide real-time data on water use throughout facility processes.

  • Procter & Gamble, for its part, understands that water is essential for the use and disposal of virtually all of its 250 brands sold worldwide. Nearly 85% of P&G sales are associated in some way with household water use.

    As a result, P&G has established a water sustainability guideline for its product development efforts: "As you improve current products, or develop new-to-the-world products and services, think about how you could apply our technologies to use less water, use water differently, or use no water at all." The company is developing cleaning and laundry products that use less water, cold water, non-potable water, even salt water -- including shampoo and other personal cleaning products that use no water at all.

  • Intel has faced pressures in its water-intensive chipmaking operations, especially in such drought-prone areas as the U.S. Southwest and Northeast, and in Israel. It has responded to each challenge at the plant level, reflecting local concerns and conditions. For example, in New Mexico, it used an integrated water-management system to increase water purification efficiency and to improve water reuse, cutting freshwater needs by half. In Massachusetts, a water-management facility allowed Intel to boost production by more than 50% without increasing levels of discharge to the local treatment plant. And in Israel, wastewater is treated and used for irrigating crops. Water reduction, reuse, and recycling is now applied across Intel sites worldwide.

    The ‘Soft Path’

    At the macro level, several strategies are emerging to address water shortages. One of the more controversial is the privatization of water systems, a phenomenon supporters say will ensure adequate and affordable water, and detractors liken to the "Enron-ization" of water, with large companies finding yet another means to wealth by manipulating supply of a critical resource. The critics are further concerned that the three largest U.S. water companies -- U.S.Filter, United Water, and American Water Works -- are now owned by French and German companies.

    While the privatization debate continues, a book published last month promotes a "soft path" for global water strategy, a term derived from Amory Lovins’ 1970s vision of a soft path of renewable energy and efficiency to reduce the need for oil. The World’s Water, by Peter H. Gleick, director of the California-based Pacific Institute, promotes water strategies that provide for the needs of people and the natural world by asking policy makers to rethink how, and what, we use water for. Its central insight: people don’t so much want to "use" water as to accomplish certain tasks -- they want to drink and bathe, produce goods and services, grow food, and so on. Gleick challenges government agencies, private companies, and individuals "to work to meet the water-related needs of people and businesses, rather than merely to supply water" -- for example, by creating water systems that supply water of various qualities, with higher quality water reserved for those uses that demand it. (A chapter from Glieck’s book on this topic can be downloaded for free online.)

    Will the "soft path" for water emulate Lovins’ energy-related version, engendering innovation, decentralization, and more human-scale technology? Could it forestall a global water crisis?

    The answers, as with energy, will be long in coming. In the mean time, forward-thinking companies would be wise to learn to save, and value, every drop.