A water balancing act

As climate change threatens us with more extreme weather conditions, Agri Investor editor Clare Pennington looks at global water-management challenges around the world.

As world leaders prepare for the climate change summit in Paris in December, cutting the world’s increasing levels of carbon emissions is at the top of the agenda. For investors in agriculture, the fight against carbon is worth participating in, for instance by backing research into feeds to reduce methane produced by cattle, investing in more efficient machinery or allocating capital to sustainable forestry.

However, there is more to the climate change than the emissions problem. Another major climate change-related challenge investor must prepare for is water.

Last year was the hottest on record, and although there will be cycles of reprieve in our weather systems, nobody can ignore the ongoing threat of continued droughts in the United States, Australia and Africa. In June, NASA scientists told us that 21 of the world’s 37 largest aquifers can no longer be sustainably maintained.

In Asia, water management is also a tricky issue that has left potential agri investors with mixed feelings. Some fund managers have spoken to Agri Investor about future plans to invest in water management projects in China and surrounding Asian nations, but many are wary of investing in land that has been over-cultivated and polluted by industrial wastewater. In the Pacific, climate change could mean increasingly violent typhoons, and floods followed by drought.

Investors know that access to good quality water and resourceful irrigation systems also means more food can be produced more efficiently. Around the world, 795 million people continue to suffer from hunger according to the Food and Agriculture Organisation’s The State of Food Insecurity in the World 2015, with sub-Saharan Africa the worst-affected region. And as populations in African and Asian countries continue to grow, so will their demand for food.

There is a wealth of opportunities where investors can develop and benefit from better water management globally. In Africa, a viable water management plan is a must-have cornerstone for any strategy aiming to reduce the amount of food the continent will need to import. Countries like Nigeria, as Agri Investor reported are seeing increasing amounts of investment going into agriculture. But not enough is going into enabling infrastructure, and local governments lack basic data sets and maps that can tell investors about local water conditions in areas that they might otherwise consider putting capital into. More cost-effective irrigations systems are also needed: those running on gas and diesel are often too expensive for the continent’s subsistence farmers.

In the US, on the other hand, agribusinesses are already paying close attention to how best to manage their water resources. Investors are quickly learning from their counterparts in Australia that droughts must be tackled to prevent them from getting worse over the long term. This week Australian manager goFarm led a $3 million funding round for American water management tech company Swiim. Swiim’s chief executive Kevin France told my colleague Chuck Stanley in New York that his company’s technology could help American farmers monitor their water use. Soon, he said, agribusinesses could be selling the water that they can record as saved onto others – rather like what is being done with carbon emissions through the trading of credits.

Consultants, investment firms and the state of California are actively studying Australia’s experience of drought in order to apply lessons in water management. Expect increased regulation of agricultural water-use from the world’s governments, in particular the United States. Firms like BlueSky in Australia and Equilibrium in the US have made water management and saving a crucial part of their long-term investment plan, to mitigate some of the primary risks affecting agricultural production.

With an increasing emphasis on using technology to good effect, the developed world is getting ready to meet water-related challenges head on. And there is also a debate of what fiscal value we attach to water. KPMG New Zealand’s head of agribusiness Ian Proudfoot told me this week how he hopes his country, where he says 90 percent of fresh water reaches the sea unused, can increase the amount of liquid milk it sells abroad instead of dehydrating it to make powder. “We are asking [consumers] to use some of their very limited resources,” he said. “I see that business model as being ripe for disruption.”

Wherever you look, it is clear that water management offers investment opportunities at every level – from revolutionary data systems in America and Australia, to building roads, ditches and commissioning studies for reliable water data sets in Africa.

What do you think of the opportunities in water? Get in touch at clare.p@peimedia.com