Business frets about growing 'water gap'

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Emerging economies such as China and India should adopt strict policies to curb their water use in key sectors such as agriculture, argues a new report by McKinsey & Company, warning that increasing scarcity threatens the stability of countries in which companies operate.

If no action is taken, projected population and economic growth will lead to global water demand "that is 40% in excess of current supply" and even "more than 50% higher" in the most rapidly developing countries, warns a new report by global management consulting firm McKinsey & Company.   

This means that a third of the world's population would have access to only half the water they need, living in water basins with a 50% supply deficit, the report says. 

The study was sponsored by a group of food, beverage and agribusiness companies and financial institutions concerned about the business risk represented by "growing competition for scarce water resources". Sponsors included the likes of Coca-Cola, Barilla, Syngenta, Nestlé and SABMiller. 

Water scarcity is an issue that has "serious implications for the stability of countries in which businesses operate, and for industries whose value chains are exposed to water scarcity," the report underlines. 

Emerging economies in the spotlight

At the basis of the report lies an analysis of four case studies on China, India, the state of São Paulo in Brazil and South Africa. Collectively, these countries are expected to account for 40% of the world's population, 30% of world GDP and 42% of projected global water demand by 2030, according to the report.  

While the four countries are challenged "by dramatically different water issues," the drivers of the water challenge are "fundamentally tied to economic growth and development," such as urbanisation, industrial demand, agriculture and food provision, the report stresses.

The main themes of the global water challenge identified by the report are: 

  • Competition for water from multiple uses within a river basin;
  • agriculture for food, feed, fibre and bioenergy;
  • the water-energy link;
  • urbanisation and water resource management, and; 
  • sustainable growth in arid and semi-arid regions. 

Technical solutions, political choices

"Solutions to these challenges are in principle possible and need not be prohibitively expensive," notes the report, listing three "fundamental ways" to close the demand-supply gap.

The first two focus on technical improvements, such as increasing supply and improving water productivity. The third "is tied to the underlying economic choices a country faces and involves actively reducing withdrawals by changing the set of underlying economic activities". 

On pricing, the authors note that an assessment of the full cost of water provision is often unavailable, with the true number "buried under subsidies, taxes and sunk costs of municipal and regional water departments". They say that many Indian farmers rely on groundwater for irrigation, for example. The water is abstracted using energy-intensive pumps, but energy subsidies, which represent up to 80% of expenditure in some states, "hide the true cost of water" and provide little incentive for farmers to conserve water.

According to the report, agriculture accounts for around 71% of global water withdrawals today. Improving agricultural productivity was identified as a fundamental part of the solution to "closing the water gap" in all four case studies.

Increasing the "crop per drop" yield by using water more efficiently and "net water gains through crop yield enhancement" can contribute towards closing the water gap in all four countries studied, the authors argue. Meanwhile, they stress that some solutions "may require potentially unpopular policy changes" and the adoption of water-saving techniques and technologies by millions of farmers.  

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