Kale or fracking? Farmers and corporations fight it out for water

Which would you rather have: lettuce and carrots for your salads, or affordable gasoline for your car? Affordable food prices or affordable electricity?

You’ll have to make the choice. In fact, if you like a ready supply of tasty, affordable produce – and low food prices generally – this may be the time to start worrying. And not just about the drought in California, where desperate, panicky farmers are responding to the years-long dry spell by hiring dowsers – water witches – to scour their land for hidden wells, or the the south-west, which is in the grip of a “megadrought”.

Even in areas where drought isn’t a problem, the stress on limited water resources is approaching perilous levels, according to a new report from MSCI Inc. Rainfall levels may be just fine in areas like Boston or Long Island, but these regions rely heavily on irrigation to keep crops growing, and competition for those water resources just keeps growing from big industries.

There are simply too many water-intensive industries competing for increasingly scarce water resources. “And now there are conflicts looming,” says Linda-Eling Lee, global head of ESG research for MSCI Inc in New York, who has delved into what this means for all of us.

“Right now in the United States there is a lot of attention to the problems that water shortages are causing for farmers and for residential users,” says Lee. California farmers have stopped growing avocadoes; house-proud residents of drought-stricken areas are banned from watering their lawns. “But there’s less attention to the conflict looming between industry and agriculture.”

Consider Kern County, California. It is home to the North Belridge and South Belridge oil fields, the country’s sixth largest oil areas. A lot of the production in the Belridge fields has come from fracking, or hydraulic fracturing, a process that involves injecting a mixture of water, sand and chemicals into shale rocks containing oil and gas to break them open, enabling the well operators to extract them.

The region, near Bakersfield, also is home to half of the country’s carrot crop and 40% of its pistachio production, Lee says.

These two industries are in direct competition for water. Last summer, Kern County was in crisis mode, getting only about a third of the water it had expected from the California State Water Project. So, who gets that water: the Shell/ExxonMobil joint venture now running Belridge, or the carrot and pistachio farmers?

We don’t know yet. And this conflict is a big threat, says CDP, an environmental non-profit organization that reports, in a study released Wednesday, that two-thirds of the world’s largest businesses now add “water risk” to the list of risks with which they have to deal on a daily basis. Of these, CDP says, 68% say this could result in “substantive change” to the way they do business and 22% believe it could end up hurting their growth potential. If you’re an investor in those businesses – or you work for one of them – that’s bad news.

It’s a worldwide problem. The reservoir that serves Sāo Paulo, one of Brazil’s largest cities, hit its lowest recorded level, about 4% of capacity, this year, thanks to a combination of drought and heavy usage. Even without the additional stress created by drought, worldwide, expanding population levels and increased demand from both agriculture and industry. Lee notes that in South Africa, ranchers and mining companies have ended up in conflict.

Water could end up being the new gold, or the new crude oil.

For now, however, it’s still an input. It is used to generate electrical power, to make paper and chemicals, to extract and refine crude oil. Within the US farming industry, cotton farmers are most reliant on water, followed by farmers who grow corn and hay to be used as animal feed.

There may be no perfect answers. We want low-priced carrots from Kern County and lettuce (44% of which is grown in water-scarce Monterey County, California).

We have a newfound obsession with almond milk, even though almonds – a $4bn a year crop – require immense amounts of water to grow, are almost entirely grown only in drought-stricken California where the climate is suitable but where the competition for water resources is fiercest. At the same time, higher gasoline prices fuel anxiety and anger.

It doesn’t much matter what is rising in price – electricity, gasoline, food. All are vital; none are discretionary purchases. And for all but the top 1% of Americans, our earnings haven’t risen to be able to cope with higher costs.

Ultimately, some of the battles over who gets to use the increasingly scarce water resources – not just in places like California, but in areas like Idaho, the Dakotas, across the midwest, Milwaukee and even pockets of the north-east, where rainfall is ample – may end up being settled by politicians or in the courts.

That means, now that one election cycle is over, it might be time to start looking around at your local politicians and asking them what their thoughts are on this topic, if it hasn’t already become a hot-button issue as it has in California. If water, a scarce resource, gets rationed, who gets cut off? Who will pay higher prices first?

If you’re an investor, you can reward companies who are taking steps to use water more efficiently.

CDP notes that changing a soldering practice at Cisco saved the company $1m a year (chump change for a company that big, perhaps, but still sound practice) and resulted in the electronics giant using less water. Look around for companies that talk openly about water management issues and report to investors about what they are doing to reduce their consumption – and avoid those that duck the issue.

“This requires reconfiguring the entire economy, over the long run,” says MSCI’s Lee. Then, too, beginning to reconfigure our personal economies can’t help, even if it is only in the planning stages for now. If you’re thinking of buying a house in the next five or 10 years, why not think about buying one that you can convert to operate on solar or wind energy and reduce your reliance on water-hungry utilities?

Oh, and reconsider that almond milk addiction.