The risk of water scarcity is one of the key considerations in the risk management and ESG policies of food and agriculture companies. But where there’s acute risks, there are huge opportunities for change: Water scarcity concerns are driving innovation in the food industry and with members of the public.
We’re all taught at school that 70% of the earth’s surface is water. However, what we’re not taught is that only 2.5% of the world’s water is fresh, or that most of it is ice (68%), or deep underground (30.8%). In reality, only the 1.2% found in bodies of water on the earth’s surface, such as lakes and rivers, is easily accessible.
Something else we’re not taught is how much water goes into food production. Do you know how many litres of water are needed to produce 1kg of steak? 15,000 litres! And the production of 1kg of chocolate uses 17,196 litres of water! According to statistics from 2019, Europe produced 3.7 tonnes of chocolate which equates to an eyewatering amount of water! 63,625,200,000 litres to be precise!
With statistics like these it is easy to see why this sector qualifies as the biggest consumer of water: It is estimated, that around 60% of all water consumption in the EU is expended by the food and agriculture industry.
Why the EU food & agriculture sector uses the most freshwater.
And here’s why: As a key processing element and a major ingredient, fresh water is a vital, irreplaceable resource for the food processing industry. Animal products like meat, dairy and eggs have the highest water footprint of all foods. Most meat’s water footprint, for example, comes from the water that goes into growing the crops that livestock eat. Similarly for beer, it’s not just the water in the bottle that counts, but also all the water needed to cultivate the barley and hops necessary to brew the drink in the first place. Fruit and vegetable processing is also a heavy user of water largely because it requires water to grow the crops and an exponential amount of water to wash the end produce.
Fresh water is also used in different technological food processing operations; however, their demands are different to other industries because the quality of the water must guarantee food safety: in some specific sectors almost 70% of the total water used is for sanitation operations, whilst cooling and heating operations ranks second with a share of about 20% of the total water consumed. Although a proportion of the water used becomes a part of the food product, it is not higher than 20–30% even for the brewing and soft drinks sectors. What this means is that, in general, more than 70% of the total water used is discharged as effluent which has high levels of biological (BOD) and chemical oxygen demand (COD), as well as fats, oils, and grease (FOG). Among the different industries, at between 10-30%, the food and beverage industry emits the highest amounts of organic water pollutants.
The reality of water scarcity in Europe: More consumption means more risk.
The risk of water scarcity is one of the key considerations in the risk management and ESG policies of food and agriculture companies. In 2019, 77% of 35 publicly traded food & agri companies in the UK explicitly cited water as a risk factor in their annual reports, up from 59% in 2017. In addition, interviews with food processors in the UK conducted by Loughborough University’s Business School found that 50% of respondents rated water loss as a high or medium risk.
And it’s not just in the UK. Water scarcity is most prevalent in Southern Europe, particularly during the summer because of higher abstractions from agriculture, public water supply, and tourism. We regularly see intensive irrigation throughout the year leading to severe water scarcity in the Middle Apennines and the Po Basin (Italy), in Guadiana (Portugal and Spain), and in Segura (Spain). Similarly Mediterranean islands such as the Balearic Islands, Crete, and Sicily, experience incessant and severe water stress conditions throughout the year due to agriculture and tourism. Meanwhile in other parts of Europe, food and agriculture businesses are at risk of water scarcity caused by urbanisation combined with high abstractions from the energy and industrial sectors for cooling purposes, and from the public water supply sector. In addition, after unforeseen drought in areas such as Scandinavia in 2018, the Elbe basin in 2015, and the Black Sea basin in 2007, many companies are also including water scarcity in their risk evaluations where previously it might not have been perceived as a critical issue due to their geographical location.
What is more, it’s not just water scarcity that the food and agriculture industry is concerned about; it’s also risks posed by water quality, especially where insufficient water resources of a certain quality are available to satisfy the requirements of the industry and of the public. When the balance of water demand exceeds the water supplied by the natural system, governments are often required to employ temporary or permanent legal bans or restrict water usage. This in turn causes a major headache for food processing plants and other businesses in the sector.
The impact of water scarcity for the food industry.
When fresh water is scarce, there are many consequences for the food industry, and it’s like a domino effect which culminates in the termination of food production or food processing, leading to higher prices, food and drink shortages, and more. Let’s look at some of the knock-on effects: Reduced water availability impacts the ability of farmers to irrigate their crops, leading to lower agricultural productivity. This, in turn, can affect the supply and cost of raw materials for the food industry. Disruptions in the transportation of goods and the operation of processing facilities on the water ways can also occur which leads to delays in production and distribution, impacting the overall food supply chain and again increasing prices. In times of drought. stricter regulations related to water use and wastewater discharge are often enforced meaning the food industry faces additional compliance requirements, necessitating investments in water-efficient technologies and sustainable water management practices.
The industry is also having to take into account changes in consumer preferences. Increased awareness of environmental issues, including water scarcity, is leading many to favour products and companies that clearly demonstrate their water conservation efforts. Businesses that fail to address water-related risks could also face reputational challenges on top of the risks created by a marked reduction in water supply.
Insurance and environmental response
The problem of global water scarcity and the reduction in water availability has forced the food industry to make water management a top priority to ensure the industry as a whole is acting sustainably. Insurance, as a tool for financing losses, is used in the event of scenarios of acute water supply disruptions. Losses due to accidental water shortages can be covered through a conventional property damage and business interruption agreement as an additional extension of utility BI. When it comes to damage caused by third parties, losses can be compensated through contingent business interruption, trade disruption, or parametric policies.
But where there’s acute risks, there are huge opportunities for change: Water scarcity concerns are driving innovation in the food industry and with members of the public. Companies are investing in water-efficient technologies, sustainable agricultural practices, and water recycling systems to mitigate the impacts of scarcity on their operations. Spatial climate adaptation activities, such as the relocation of production plants from southern Europe to more water-rich areas are also taking place. Moreover, individuals are increasingly aware of their water footprint which is leading to the reductions of direct water use (less showering, flushing, turning off taps, using water butts to collect rainwater to water the garden etc.). This increased consciousness is creating an opportunity for long-lasting sustainable change in our individual food choices as we start to consciously opt to buy products which are sustainably made.
Publication bibliography:
Dani, Samir: Food Supply Chain Management and Logistics.
Tiwari, Brijesh K.; Norton, Tomas; Holden, Nicholas M. (2014): Sustainable Food Processing: Wiley Blackwell.
https://water.europa.eu/freshwater/europe-freshwater/water-framework-directive
https://h2oglobalnews.com/the-water-footprint-of-food/
Coca-Cola (accessed 20 February 2015) Using Water Wisely: A sustainable water policy to protect Coca-Cola’s main ingredient [Online] http://www.coca-cola.co.uk/environment/
Maksym Shylov
Group Practice Leader
Food & Agriculture
T +48 22 39 33 211
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