Water Will Be the Critical Limiting Factor of 21st Century Production

Morgan Stanley’s Global Investment Committee recently released a report in which it argues that the “perfect storm” of declining water supply and rising demand are likely to make water the critical limiting resource of our time. The report, entitled Peak Water: The Preeminent 21st Century Commodity Story, paints a convincing picture of a world that is on the brink of a severe water crisis.

The many interrelated forces converging to exacerbate the water scarcity problem are likely to soon have a visible and painful impact on the world:

Steadily Increasing Demand: Although population growth is the major cause of increasing global water withdrawal levels, the overall rise in demand for water has outpaced population growth by a factor of two. The withdrawal rate in the US is expected to increase by between 10 and 20 percent over 1995 levels by 2025.

Extreme Drought Risk: Steadily increasing temperatures from climate change and global exploitation of water resources have significantly increased the threat of drought. By 2030, nearly two thirds of the US is likely to be drastically drier which will put large parts of the nation at risk for extreme drought.

Disappearing Snow Cover: In the Northern Hemisphere, monthly snow cover has declined 1.3 percent every ten years for the last decade. The United Nations Environment Programme (UNEP) predicts that Earth’s middle latitudes will experience snow losses of 60 to 80 percent by the end of the century.

Mounting Agricultural Pressures: Agriculture uses account for 70% of all water withdrawals. Growing global affluence is increasing demand for more water-intensive foods like meat, which requires 10 times more water than rice to produce. Global efforts to reduce poverty and famine will also require increasing agriculture output, and therefore water use.

Rapid Urbanization: Currently more than half of the global population lives in cities. In 1990, the world had 10 cities with populations of over 10 million; by 2020, the UN predicts that number to increase to 27. Urbanization, which is usually associated with an increasing standard of living, can increase a person’s demand for water to five times that of the basic water requirement.

Sustainable companies, especially those to whom water is already a critical resource (beverages, mining, paper, etc.) are already working to reduce their water intensity. This will obviously have significant ramifications beyond the commercial water usage, so each of us needs to consider this risk factor in our investing, and life, decisions.

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