Climate and water risks to the food and beverage industry

In the latest CDP Global Water Report 2014 77% of respondents in the consumer staple sector, including food and beverage (F&B), report exposure to water risks (water stress/scarcity, flooding, drought, poor water quality and regulatory uncertainty) in their direct operations and 77% report exposure to supply chain water risks, with the majority of risks expected to materialize now or within the next five years. However, only 52% of respondents require key suppliers to report on water. According to the CDP, the worry is the majority of concrete targets or goals remain focused on direct operations and the proportion of respondents requiring key suppliers to report water use, risks and management strategies has declined since 2012.

Climate change and water risks to the F&B industry

The World Resources Institute’s Weeding Risk report states the Food and Beverage (F&B) sector is especially vulnerable to climate and water risks because of its close ties to agricultural productivity and changing consumer preferences:

  • Access to water supplies and stable climatic conditions are prerequisites for the reliable production of agricultural inputs required for the F&B industry.
  • The agricultural sector’s high reliance on chemical inputs and mono crops (growing the same one variety of crop every year on the same land) has made food systems more at risk for disruption from climate change and water scarcity.
  • Consumer trends towards more processed foods and increased meat and dairy consumption are requiring more agricultural and natural resources, including water, per unit of food sold.
The F&B industry is vulnerable to climate and water risks

     The F&B industry is vulnerable to climate and water risks

Together, these trends are increasing the sector’s use of natural resources at the same time that climate change and water risks threaten to reduce their supply. Climate change and water risks can raise agricultural commodity prices and increase price volatility by decreasing yields. In particular:

  • Climate change and water risks can directly impact the availability, quality and price of key food commodity by adversely impacting animal and crop yields.
  • Food commodity prices are vulnerable unpredictable extreme weather events, while animal yields are most at risk from increased water temperatures and access to clean water supplies.
  • Climate change and water risks can increase processing costs through operational disruptions and treatment costs:
    • Water risks can create operational disruptions since water is a base ingredient and integral to production processes. Water pollution, which contributes to scarcity, requires investments in filtration technology.
    • Climate change can create operational disruptions by damaging manufacturing plants and infrastructure.
  • Climate change and water risks can create food safety and stakeholder challenges:
    • Climate change and scarcity of clean water can increase exposure to diseases and contamination, especially for animal-based products, increasing food safety risks.
    • Competition for water is a source of tension between food processors and stakeholders, creating reputational risks.

The take-out

The F&B sector is extremely vulnerable to climate change and water risks therefore F&B companies need to track their key suppliers’ water use, risks and management strategies to limit their exposure.

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Author: Robert C. Brears

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