Squeeze on water hits global food and drink groups

Drought and other water supply problems are taking a financial toll on some of the world's biggest food and drinks companies, it has emerged.

Campbell Soup Company of the US and GrainCorp, one of Australia's largest grain handlers, have blamed drought conditions in California and eastern Australia respectively for a dip in earnings over the past six months.

Coca-Cola was last month forced to abandon plans to build an $81m bottling plant in southern India after farmers protested the US drinks group would strain groundwater supplies.

JM Smucker, the US food group, raised the prices of its Folgers coffee packs after the worst drought in decades hit Brazil's bean harvest.

The problems are highlighted in a report that warns the food sector is confronting unprecedented water risks in many countries.

The study of large food and drinks groups by Ceres, a US non-profit environmental group, said growing competition for water, weak regulations, pollution and ageing infrastructure are among the risks already affecting some companies' balance sheets.

"The twin challenges of global water scarcity and pollution are contributing to a water availability emergency that threatens the profitability of food companies and long-term food and water security," said Brooke Barton, senior water programme director at Ceres.

The report, which ranks the water management of 37 companies, found only a few are taking action to handle water risks in their operations and supply chains, including Unilever, Coca-Cola, Nestle, PepsiCo, General Mills and Kellogg.

Most have a long way to go in using water more sustainably, the study says, posing problems for those operating in countries such as Mexico, where demand is far outstripping groundwater supplies, leading to significant price rises for industrial users as well as new usage limits.

That has helped push up operating costs for food companies, the report says, while Diageo, the world's biggest spirits company, says it may face growth restrictions on its operations in Kenya in coming years as a growing population outpaces water supplies.

The California Public Employees Retirement System, the largest US public pension fund with $300bn assets under management, has backed the report's findings, which include a recommendation for investors to press companies to improve their oversight of water risks.

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Water crises were named the biggest global risk in terms of impact in the World Economic Forum's latest assessment of top business threats.

The strain on food producers is being felt in many parts of the US, not least California, the largest state, which is entering its fourth year of drought.

Dried out pastures in Texas, a beef producing state that has also been hit by drought, have affected companies such as Cargill, one of the world's largest agricultural businesses.

David MacLennan, the chief executive, has warned about the impact of California's drought, saying the state may need to reconsider whether it is the best place to grow almonds, a crop critics claim uses too much water.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation