Value Diluted

Oil and minerals, beef, grain, metals. Shortages in all of them make headlines. Consumer prices rise, industry margins shrink. Public policy remedies are debated and competitiveness is a constant worry.

But one of the most urgent problems rarely gets attention. And then only because people can't sprinkle their lawns or launch their boats on pretty lakes.

The disappearing commodity is water and it effects literally every business in every industry. Some more than others, of course, and those are of particular concern: consumer staples - like food - or utilities, which supply electricity.

The reasons for the problem are varied, but climate change is an issue, which is why industry has grown rather less vocal on the subject. Even the energy industry needs water - lots of it, actually - so its growing scarcity is raising costs at a time when prices for the end product are in decline.

Ultimately, water will become more expensive. Those who receive a monthly bill from their local municipality - as I do - will have noticed the cost spike by now. But as business becomes more attuned, prices will rise even more as hedging and attempts to secure stable supplies outstrip our ability to provide them. It may also inspire research that will lead to increased productivity from old stand-bys like desalination as well as newer innovations. The only thing that wont change is the rising demand and the decrease in supply. JL

The Economist reports:

Water is a growing business problem. Many companies haven't noticed.
IN 2013 a Chilean court ruled that Barrick of Canada, the world’s largest gold-mining firm, could not go ahead with its Pascua Lama mine until it could guarantee not to pollute downstream water or damage nearby glaciers. The company eventually suspended the project, taking a $5 billion write-down. This week it said it was in talks with Zijin Mining, a Chinese state-owned firm, to become its partner, if the development ever restarts.
Water—its scarcity, quality and the regulations affecting it—is becoming a new corporate headache. A survey by CDP, a research firm that works for institutional investors, finds that in almost two-thirds of the world’s largest listed companies responsibility for dealing with water problems lies at board level. An increasing number of bosses say water is or will soon become a constraint on their firm’s growth. They are right to worry, but most firms are not doing much about the problem.
Shortages do not only affect those that use millions of gallons in their industrial processes (miners, say) or whose products are made of water (beer and soft-drinks makers). It also affects those whose inputs depend on the stuff (food companies) and, indirectly, almost all firms that do business in water-stressed countries, which include China.According to the CDP survey—sent to 2,200 firms—two-thirds of respondents think water risk could produce a substantial change in their business, mostly within three years. For example Diageo, a drinks firm, said the growth in its operations in Nairobi is likely to be constrained within five years by growing scarcity there.
But not many firms make detailed assessment of such risks. General Motors says it requires all component suppliers to report the water risks they run. But 60% of respondents to CDP’s survey do not vet their supply chain. Every year, Lafarge, a French cement-maker, carries out a risk assessment of river basins in areas where it operates. But only 25% of companies do assessments at the watershed level.
Companies’ reactions to water problems have been patchy, too. Diageo says it has cut its total water usage by almost 1m cubic metres in its current financial year. Unilever, a consumer-goods company, says its factories will use the same amount of water in 2020 as they did in 2008, despite higher forecast output.
But targets like that are uncommon. Two of the industries in which firms say they are most exposed to substantial water risks are oil and gas, and power utilities (with over 80% of respondents reporting this in each case). Yet only 14% of utilities and energy firms say they have targets for cutting their water intake. Many companies take the issue seriously but it is hard to conclude that most do. Only half the firms to which CDP sent its questionnaires even bothered to reply.