A Taste of Water

Investors are always looking for the next Big Play  -  the consumer product that everyone will want (iPhone), the service innovation that puts competitors out of business (Uber’s on-demand taxi service) or the technology that will color an entire generation’s accomplishments (Intel’s 4004 computer central processing unit).  They want a ‘taste’ of the growth, the earnings, the bragging rights!

No Big Plays available (or priced out it), investors will settle for a stake in the solutions to the most vexing problems the world faces.  The problem of toxic flood water has been the focus of the most recent posts.  Indeed water-related hazards are responsible for nine out of ten natural disasters.  Climate change is expected to increase the number and intensity of big watery storms as well as drought.  This is expected to worsen an already significant problem of inadequate potable water.  The issue is summed up on one fact:  3 in 10 people around the world do not have access to safe water (World Health Organization). 

Many investors reading the above paragraph might assume that since they have ample water at the touch of a faucet handle, water supplies are not an issue that is of importance to them.  That would be short-sighted thinking.  Without adequate water supplies, sustainable development goals cannot be achieved.  In other words, without solving water resource problems investors will find it increasingly difficult to reach economic growth targets embedded in their earnings projections.

The extent of the issue can be observed in the following:

·        Estimated 40% shortfall between forecast demand and available water supply by 2030;  this will be manifested in higher costs for those companies that rely extensively on water supplies, including natural gas producers, food and beverage producers, pharmaceutical developers, and a host of others.

·        Expect the problems to become obvious first in the agriculture sector, which represents about 70% of global demand for water.  World population is estimated to reach 9 billion by 2050, necessitating a 60% increase in agriculture output and approximately 15% increase in water demand.

·        Groundwater is being depleted at a faster rate than is being replenished.  By 2025, at least 1.8 billion people will be living in regions with an absolute water shortage. (World Bank)

·        Water scarcity, made worse by climate change, could reduce gross domestic product in at-risk regions by as much as 6%.  This is expected to trigger more conflict and migration.  (World Bank)

It is not likely that these imminent economic impacts related to inadequate water supplies are reflected in investors’ outlook.  The next few posts will focus on companies with solutions for fresh water.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.