Water insecurity will be “one of the defining financial and economic challenges of the next few decades,” particularly where intensive animal agriculture is concerned, says investor network FAIRR in a new research briefing.
“Water withdrawal in intensive animal agriculture is a matter of urgency,” according to the research. “Poor water stewardship exposes the trillion dollar livestock industry—and its investors, both direct and indirect—to large risks across the agri-food value chain.”
The cost of inaction will be “significant” for investors with direct access to animal ag companies.
Roughly 60% of global GDP depends on access to water, says FAIRR, “and economic growth forecasts will be curtailed by low access to renewable, naturally replenishable water resources.”
Not only could this lead to higher operating costs, supply chain disruptions, and stranded assets, it may also lead to decreasing shareholder returns for livestock companies.
FAIRR estimates that water scarcity could cost companies across all sectors between $200 billion and $300 billion—about five times more than the cost of directly addressing water scarcity risks.
Water no longer a renewable resource
About 70% of all global freshwater withdrawals come from the agriculture sector; most of this is used to grow water-intensive crops such as rice and corn used as livestock feed or ethanol.
Simultaneously, intensive farming leads to environmental degradation overall, says FAIRR, and freshwater scarcity is increasing worldwide. As another study put it, “considering the current water usage patterns, it is no longer adequate to consider water as a renewable natural resource.”
The intensity of water usage varies by sector within agrifood. Dairy currently requires roughly 2,714 liters of water per kilogram of product, followed by lamb (1,803 liters/kg), beef (1,451 liters/kg), and pork (1,796 liters/kg), according to FAIRR’s report.
By comparison, poultry water requirements are low: just 600 liters per kilogram.
Water insecurity also varies by geography. Currently, major breadbaskets in the midwestern US, northern China, India, and the Middle East, experience baseline water stress of over 80%.
Given all this, FAIRR’s own research notes that it is now “crucial to transition to business models and production systems that support water resilience.”
“Water resilience” in this context is defined as “the ability of water and wastewater utilities to adapt to, mitigate, and recover from natural and human-made disasters.”
Towards water resilience
While the transition to water resilience will take action at every level (“from policymakers and global leaders to businesses and consumers”), FAIRR recommends specific steps for investors and their companies in the agrifood value chain.
Among other things, investors can:
- Work with companies and supply chains to improve their disclosures around water insecurity risk. At present, says FAIRR, these disclosures are “exceptionally low, “making it difficult for investors to understand the risks they face at an individual or portfolio level.” Beef producers currently lead in reporting such disclosures; dairy especially needs to improve.
- Define useful metrics for quantifying water withdrawals. “Moving forward, companies can better understand their water risk by defining their current withdrawals from water sources (at the basin level) across the supply chain and evaluate future water dependencies,” says FAIRR.
- Set targets for water resilience. Investors can work with companies to set strategies that restore and conserve non-renewable water resources and adapt to shifting rainfall patters, says FAIRR. “Depending on how advanced companies are in setting their water resilience strategies, investors can encourage them to set water efficiency or reduction targets, link them to executive pay or support them to increase the ambition of such targets, as appropriate.”
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