SABMiller’s Andy Wales on how to manage the inevitable trade-offs between scarce resources.
By 2050, demand for resources is set to increase significantly as the global population grows to nine billion and becomes more prosperous. Global economic growth is being driven largely by emerging markets. Over the medium term, the World Bank estimates economic growth of 6% in developing countries, compared to 2.7% in higher-income countries.
This is good news: the leap forward in quality of life for so many millions is something to celebrate. But this growth could be jeopardized by the resource challenge being felt across the world. The expanding population will need 70% more food, and growing and processing this food will increase water stress. The Water Resources Group, of which SABMiller is a member, estimates that there could be about 40% shortfall between water demand and available freshwater supply by 2030.
Water, food and energy are interconnected. Agriculture accounts for about 70% of global freshwater use and can pollute freshwater supplies if mismanaged. Water is also used to generate electricity: in the USA, power generation accounts for about 50% of all freshwater withdrawals, and drought in countries that use hydropower – Ethiopia and Ghana, for example – can lead to black-outs. Energy, in turn, is needed to fertilize and transport crops, which can themselves be used as biofuel to create energy. Large amounts of energy are also required to pump water to drier regions and, as water scarcity increases, so will the energy needed for technologies such as desalination.
Given these trade-offs and interactions, successfully addressing the triple challenge of water stress, food security and energy supplies means taking a holistic view and balancing the many competing demands. We call this interconnected issue the water-food-energy nexus and it is a buzzword which is growing in popularity.
If you were to search the programme at World Water Week in Stockholm held in August 2012, you would find 17 sessions containing the word ‘nexus’ – more seminars that a single person could possibly attend. It’s a good sign that policymakers, companies and non-governmental organizations are aware of and debating the interconnectedness of resources. But it is critical that there should be substance behind jargon. A nexus approach must result in positive action that enhances water, food and energy security for real people; or, at the very least, manages the trade-offs to minimize harm.
Forward-looking companies must assess not only the risks of mismanaging this resource nexus, but also understand and grasp the opportunities created by integrating resource-saving initiatives into long-term business plans.
And it’s already happening – companies across food and beverage, consumer goods, chemicals, engineering and many other sectors are making great efficiency gains and targeting even more. And through setting these targets and considering how we will meet them, companies often find hidden value they hadn’t realized was there – operating cost savings they might otherwise not have found.
At SABMiller, by reducing the water we use in brewing and packaging our beer we are then able to cut the amount of energy required for heating and cooling that water. We are also increasingly generating renewable energy from by-products of the brewing process, such as spent grain biogas captured during wastewater treatment. Of course just doing this within our own operations is not enough – global companies are now pushing these targets down into their supply chains – and this will have a big impact.
To improve resource efficiency in our supply chains the private sector needs support, particularly from governments. Companies can engage with suppliers and farmers directly, but to make a bigger shift will require resource scarcity to be priced into the cost of raw materials. For example, in agriculture, farmers use water for which they often pay very little, if anything, meaning that there is little economic incentive to grow more ‘crop per drop’.
To reach a point where resources are priced to reflect their scarcity, governments themselves need to work more effectively. Government departments work in silos – often with water, food and energy policy set with no or little regard to each other. An agriculture department may say they will double land under irrigation to maintain food security, whilst the water department says there is no more water available for irrigation and the energy departments might be promoting a huge biofuel plantation which will need irrigation. And climate change will mean there is less water available overall. All of those things cannot happen at once.
Governments must, therefore, become more connected – to use nexus thinking in order to help manage the inevitable tradeoffs between scarce resources, and to create a firm basis from which markets are better able to understand their true value. The nexus presents us all with an intimidating challenge. But the potential upsides are there for those organizations – whether they are .org .gov or .com – which approach it in a joined up way, to manage the trade-offs and reap the efficiency rewards.