Water Scarcity and How To Invest In It

water-scarcity-investment-opportunity Water is perhaps the most scarce resource on earth.  Yes, there is water everywhere.  But most of the water is not drinkable, not accessible, nor is the resource evenly distributed.  It’s not unlike the oil situation, where a small percentage of the earth holds the majority of crude.  But unlike oil, water is not replaceable.

So how bad is it?

A study by the University of New Hampshire shows that some 41% of the world population live in river basins under “water stress” – meaning the region is subjected to frequent shortages.

The most readily consumer able source of water, the freshwater variety, occupy less than 1% of the earth surface, yet it plays vital roles in agriculture, industrial productions, and our domestic lives.  Over 70% of water is used for agriculture, making population increase a squeeze on all aspects of our natural environment, particularly water.

The need and the necessity of water

On top of basic agricultural needs, the rise of a genuinely more affluent class in the developing worlds are consuming more meat.  As we know, animals require much more water to raise than its caloric equivalent in grains.  Additionally, industrialization and mass urbanization have placed unprecedented strains on infrastructure. Thus, the accessibility of clean water has been compromised by rapid growth in many parts of the world.

High pollution and habitat degradation makes clean water increasingly inaccessible to the poorer regions. Many demographers, geologists and political scientists have attributed the root of war and violence in conflict regions to the lack of resources, particularly water availability.

Businesses stepping in

If there’s demand, then the market will find a way to meet the need.  And it is hardly difficult to point to the existing challenging global eco-system, draughts and the ensuing human devastation to see some potentially lucrative opportunities. The explosion of bottled-water businesses is only the start.  Up and down the water security chain, from bottling rights, purification and treatment, to distribution of the product, the water business is big.

So far, GE has bought up numerous water filtration companies, and have seen success in distributing water purification systems that produce clean water from sewage. Dow Chemical’s water solution unit has also seen substantial success by licensing its variety of technologies. A small company named Water Health International, that seeks to deliver clean water to the poors, has attracted the likes of Dow’s venture fund, Johnson&Johnson, and the Acumen Fund.

Ethical issues

Of course, ethical issues will arise out of the question: Is water a basic human rights?  Officially, the UN forum designates access to safe drinking water a “basic human need”, but not a “human right”.  A number of advocacy groups are working to overturn the verdict, and prevent “price gouging of the poor by for-profit entities”.

Local conflicts over the private manipulation of resources is still a worry.  Bottle water companies, private municipal providers, shipping companies, and pipeline companies may eventually join force to move water in bulk.

Investment opportunities

Given the vital importance of water, and the potential for unscrupulous business dealings around it, it’s perhaps no surprise that water utility related companies are highly regulated in the US and elsewhere. But plans of industry-wide consolidation, particularly in the water purification sector, are still vibrant.  Holding on to those dreams, investment ideas are not exactly scarce.  A number of support companies, ranging from copper pipe and valve maker, to flow-control products maker, to developers of ocean-water desalinization plants and water distribution systems, can be looked at.  If stocks are not your thing – and it should not be most people’s thing, try limited exposure to water-based funds for more diversification.

picture source: abela

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