Coca-Cola and Nestle Are Sucking Us Dry Without Our Even Knowing

The droughts currently ravaging California, which will likely send food prices soaring down the road, have highlighted the importance of available freshwater supplies. As 17 communities in California are within 60 days of running out of drinking water, the ability of companies like Coca-Cola (NYSE: KO  )  and Nestle (NASDAQOTH: NSRGY  )  to effectively privatize water supplies feels awfully disconcerting. While the rains that just began to fall out west may bring some measure of relief, the fact remains that the world is coming up hard against a water crisis. 

Source: Jonathan McIntosh, Wikimedia Commons.

In thirsty regions of the world, Coca-Cola and Nestle have repeatedly clashed with communities over the perception that the companies were commandeering scarce water supplies at the expense of small farmers and poor villages. While both companies have deployed aggressive water conservation campaigns, with an understanding that water is an essential input to their businesses, Nestle and Coca-Cola have long faced accusations that they suck vulnerable communities dry in pursuit of their profit motives.

Nestle's chairman, Peter Brabeck-Letmathe, believes that water privatization is the key to solving water scarcity issues. Activists see water as a fundamental human right. What should we believe? More importantly, which approach actually improves access to water for the thirstiest among us?

Water, water, everywhere ... right?
Most people view water as an infinite, inexhaustible resource, much like air. After all, it's part of a whole natural cycle, right? For most practical purposes, though, water -- especially clean, safe drinking water -- is resolutely finite and exhaustible. It's getting worse as the global population hurtles toward the 9-billion mark, as agricultural and fuel extraction guzzle more and more water, and as climate change adds growing stress to existing supplies.

Consider a few alarming indicators:

  • One in seven people around the world lack access to safe drinking water.
  • The Global Economic Forum identifies water crises as the third most serious risk the world faces in 2014.
  • The poorest 20% of households in El Salvador, Jamaica, and Nicaragua spend up to 10% of their income on water. 
  • From 2003 to 2010, parts of Turkey, Syria, Iraq, and Iran lost 144 cubic kilometers of stored freshwater -- about the same amount of water as there is in the Dead Sea. Many scholars draw a solid line between water scarcity and the recent conflicts in those regions, and the U.S. director of national intelligence sees global water overuse as a potential threat to national security.
  • NASA data from Jan. 17 showed California's backup groundwater reserves to be so depleted that the losses could be detected from satellites 400 kilometers above the earth's surface.

Source: California Department of Water Resources.

Water: human right or commodity?
Because the stakes are so high -- water is perhaps the single most critical factor to sustaining human life, and no part of our economy can function without it -- the discourse around this issue has reached a fever pitch. Many people view the whole matter in moral terms: water is an essential human right, and so any attempt to commoditize it is fundamentally wrong.

Certainly, water privatization has a checkered history. There are plenty of cases where it has been done poorly, leading to rate hikes, diminished water quality, corruption, and the marginalization of the poorest and thirstiest members of communities. Activists were horrified, then, when Nestle's chairman dismissed the right to water in a 2005 documentary as an "absurd notion."

To be fair, that was one unfortunate comment -- on which Brabeck-Letmathe has since backtracked -- in the context of a much broader, more nuanced discussion that has some merit. The point Brabeck-Letmathe and others make is that right now, the cost of vital drinking water for the poorest of the poor is the same as the cost of massive, wasteful withdrawals for non-essential purposes by wealthy interests: namely, almost free. This imbalance encourages inefficient use of our water resources, and there is no incentive for that to change.

"Americans are spoiled. We turn on the tap and out comes a limitless amount of high-quality water for less money than we pay for cell-phone service or cable television," explains Robert Glennon, author of Unquenchable: America's Water Crisis and What We Can Do About It. "Because water is so cheap, people don't value it."

Public, private, or something in between
The proposal from Glennon's ideological quarter is that while we first have an obligation to assure that people's most essential water needs are met, we need to introduce an appropriate price for water beyond that basic threshold. Price signals and market forces can lead to more efficient water allocation. Brabeck-Letmathe's argument largely tracks along the same lines.

Human beings need five liters a day for hydration and 25 liters a day for minimum hygiene. That accounts for a whopping 1.5% of freshwater extraction for human purposes. Unconventional fuel-source extraction and ever-thirstier agriculture account for a wildly disproportionate share of the rest. The thinking goes that if there were a value placed on that remaining 98.5% of the water we use, we might use it in a more appropriate manner.

There is evidence from privatization schemes around the world that there can be benefits. Many water systems in poor countries would not exist at all if it had not been for private funding. Water infrastructure across multiple countries is in need of massive investment, whether because no system yet exists or because the system has aged well beyond its functional life. Evidence also shows that consumers of all stripes tend to conserve water when it has a price.

So, then, Nestle and Coke for president?
Does that mean that Nestle and Coca-Cola are our water saviors? Well, no, not really. While Brabeck-Letmathe's assertions have real merit that warrant serious consideration, Nestle itself remains a big part of the problem, as does Coca-Cola.

Source: DeviantArt/Latuff2.

The companies' conflicts with communities in Latin America, Asia, and Africa are too numerous and sordid to be invented from whole cloth. Moreover, the simple fact is that sucking groundwater out of one place, bottling it, and shipping it for sale in another place that typically already has perfectly safe public water ranks high on the list of stupid things to do with scarce water.

So yes, Coca-Cola and Nestle are indeed sucking us dry. So are our modern agricultural practices and unconventional oil and gas extraction, to an even greater extent. A blended privatization scheme may indeed be part of the solution, but if it's done right, it will only make life harder for Coke and Nestle.

Huge demand for another resource
Water isn't the only thing we can't get enough of. Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Read/Post Comments (21) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2014, at 3:36 PM, saron1 wrote:

    "Many water systems in poor countries would not exist at all if it had not been for private funding. "

    This is exactly the model we DON'T want for the US. Imagine if the Hoover Dam project had been outsourced to private corporations. Most development of the west would be at their mercy.

    The high cost of cell service and cable is an endictment of the privatization of public airwaves, not public water works.

    If "Amercans are spoiled" by free tap water, why are they paying for bottled water? Water demand for daily use is stable per person. But demand from Corporations is growing steadily. Therefore THEY should be the ones paying rising costs - in a properly functioning free market. "Privatization" of public resources is just another word for monopolization.

  • Report this Comment On March 02, 2014, at 4:32 PM, EquityBull wrote:

    Isn't bottled water a zero sum game? If a person is drinking a liter from a bottle or from the tap what is the difference? There is no water wasted from the bottlers so if the ultimate destination is in a human being where the water would have ended up anyway it makes no difference. 5 liters a day for drinking is 5 liters a day. Tap or bottle.

  • Report this Comment On March 02, 2014, at 7:32 PM, NYrByChoice wrote:

    Why do we keep promoting population growth in water limited California and water starved Arizona and allow cities of the Great Lakes to decline.

    Water levels in the Great Lakes is at a record high and the massive reservoirs of the east coast megalopolis will be overflowing this spring.

  • Report this Comment On March 02, 2014, at 7:44 PM, JimGerrish wrote:

    We waste our own water with outdated water systems. We could begin by changing the way cities store and deliver water. The usual water system in linear- water from a well or reservoir travels to a city, is dispersed to individual buildings. Waste water is collected from the buildings and travels to a treatment plant and then dumped in a river or the ocean. Wasteful, wasteful, wasteful! Better plan: Each home or building needs to have TWO sources of water from two separate pipelines. One source, the clean water from the well or reservoir goes to kitchen sinks bathroom sinks and showers as pure, drinkable water. The water from sinks and showers then goes down the drain to a local treatment plant, which sends the treated "gray" water back into a second system that is connected only to toilets and for yard (agricultural) use. The water flushed from toilets goes to the main treatment plant for disposal as usual. In addition, towns should assist home-owners to collect rain water to be used for watering lawns, etc. In the meantime, there is a need for water walls (hollow and waterproof) to replace rain barrels to do a better job of collecting rain water. The water wall should be on the sunny side of the house to take advantage of solar heating of the water. The water from these water walls should be connected to the house for flushing toilets, and to irrigation for yards and gardens. It's time to get serious about water! It's time to ask politicians running for elective offices what plans they have for better use of our water resources and cast your vote for the one who knows what you are talking about.

  • Report this Comment On March 02, 2014, at 8:24 PM, fooledusall wrote:

    best water comes from Graeagle, Califoreignia. but they dont bottle it, everytime I go there I bring back 5 gallons.. I talked to the owner of the utilities and he has no interest of bottling it. plus it is a great distance from the interstate 80....

  • Report this Comment On March 02, 2014, at 8:33 PM, TheAncient wrote:

    Privatization of fresh water supplies is one of the worst ideas that will lead to blackmail, extortion and eventually to war, internal and global. Simple minded people turn on the tap and see water flowing. So they tend to disregard the reports of water shortages, thinking it doesn't include them so it's not their problem. They couldn't be more wrong. The best way to get people to be more water conserving is through their wallet. Car washes that us fresh water should be closed down especially in the desert and other low water availability areas 75%-80% of my water usage is for the trees and plants. I use about 15 gals 3 times a year to wash the 2 cars, but I can cut that to 3 gals and just wash the windows.

  • Report this Comment On March 02, 2014, at 11:10 PM, stevor86 wrote:

    BOYCOTT them both!

  • Report this Comment On March 03, 2014, at 12:20 AM, Lexloeb wrote:

    Oh what nonsense. If you want more quality water supplies we need more private ownership of water resources. Water water everywhere and not a drop to drink is most often the real problem.

  • Report this Comment On March 03, 2014, at 12:22 AM, bigfoot wrote:

    The Fool should have a box to check that reads I wouldnt recommend this article to anyone. We are in a bad situation storage wise in Calif. but showing the picture of Folsom Lake is very misleading and just used for shock value. The major resevoirs of Calif. are VERY low but all the water in Folsom wouldnt be an inch in the major three.

  • Report this Comment On March 03, 2014, at 1:49 AM, scott4402 wrote:

    Such companies that have the ability to get their water elsewhere, to supply their business interests, should be restricted from taking excessive volumes of water from any one single water source, to help prevent the excessive pulling down of aquifiers.

  • Report this Comment On March 03, 2014, at 2:51 AM, Ardadius wrote:

    From shilling for obamacare to socialist articles like this, Motley Fool has gone off the deep end and is rapidly losing any value it may have had. Sad, the liberals strike again.

  • Report this Comment On March 03, 2014, at 8:53 AM, wazeldazel wrote:

    "Isn't bottled water a zero sum game?" Not really. Drinking water from a tap restricts how many people can drink the water from a particular aquifer. Bottling it and shipping it around the world means millions of people are now consuming a local resource.

  • Report this Comment On March 03, 2014, at 9:11 AM, fujidan wrote:

    Wasn't this the basis for a villain in a recent James Bond movie ?

  • Report this Comment On March 03, 2014, at 9:12 AM, mapsguy wrote:

    Why does every article that espouses anything related to conserving resources or protecting the environment noted as "Liberal" or Socialist" by some people? That is simply wrong.

  • Report this Comment On March 03, 2014, at 9:24 AM, CALOSER wrote:

    Given the opportunity our government would sell their grandmother. If the they sell our rights to water you better believe that they have bought stock in or own those corporations. Private water companies are a rip off. Where I live $110 per month for my house, The house next door pays the same. The problem is they have 3 teenage girls, I live alone. We are surrounded by rivers, sit over a giant underground lake and still pay higher rates than Southern CA. Any water deals should not be made by the politicians but by the people. Corps will clean house if and when they own the water. Ca already sold rights to a huge underground lake. A Farm corporation in the central valley that grows mostly almonds owns it now. They kill off the small family farmers, the government (Feinstein) cut the water off blaming the smelt so small farms had to buy from the farm corp at a much higher rate. They can't sell their almonds as low as the corp, lose the farm and the corp buys up the land all the while politicians make bank on their investment in the farm corporation. Liberals are the devil in disguise, all are good at lying, they do not have your best interest in mind, and they are all filthy rich. That says it all. None of them can be trusted

  • Report this Comment On March 03, 2014, at 11:40 AM, axle57 wrote:

    I have to tell you that having worked in water resources, the people that will gladly privatize your water will hold you hostage. The EPA has been slowly increasing the standards for water quality for decades. The big reason that you are not drinking your sewage water is because of the extremely high cost of equipment to get it to that point. Technology is at the doorstep to bring that to fruition. The city of Colorado Springs has been recycling the effluent water of their wastewater plant since the early sixties; they irrigate all the cities golf courses, median strips, cooling water for all the asphalt plants, all the college campuses, all the parks and have built small reservoirs throughout the city. Where has the rest of the country been? In California, some cities still irrigate with drinking water because they refuse to upgrade their dilapidated systems and step into the 21st century. In New York City, the attitude is that you do not drink the city water because it is flawed. This is pure BS, I watched a show where the hosts played a trick on the citizens when they used water bottles filled with tap water. When asked how the water tasted, they couldn't believe the difference between the crumby tasting tap water they had to drink compared to this wonderful bottled water! When they found out that they were drinking tap water, they were flabbergasted. A lot of statestake their water from the reservoirs in Colo. and we suffer the consequences just like when the supreme court found in favor of Kansas when they complained about us taking water from the arkansas river. Now, we have to not only give our water away to the wasters in California, we have to meter evey well in the state so that we don't abuse our water rights. It is illegal now to collect water from our roofs in El Paso county to use for irrigation purposes during a drought, but we can let it run down the streets. But, what the hell, we're comfortable with it, so why bother doing anything about it right? Sheeple will always go along with the poor leadership in our country.

  • Report this Comment On March 03, 2014, at 11:48 AM, axle57 wrote:

    And, for those on here that think the bottled water business is the right way to go, you are sooo far in the dark: the costs of making the bottles alone is off the scale and the water in the bottles comes from questionable sources. The plastic in the bottles also effects the water from simple outgassing of chemicals. Nobody recycles the danged bottles because it takes initiative to throw it in a box and save it. This country's mind set is this: "Go ahead, take all my water, i'll just go get a coke."

  • Report this Comment On March 03, 2014, at 4:28 PM, jdy664666 wrote:

    I think that forced ethinol use should be added to this list.

    It takes 1000 gallons of water to make one gallon

    of ethinol. causing severe drops in the water tables

    in many parts of the country.

  • Report this Comment On March 03, 2014, at 7:46 PM, jdmeth123 wrote:

    Unless you are in China your computer wasn't locally sourced as is most of what we buy. Our lifestyles consume prodigious amounts of oil and water.

    I just read an issue of Organic Gardening, their wonderful little utopia can only exist if the other 95% of the world maintains it's high energy use economy.

  • Report this Comment On March 03, 2014, at 8:14 PM, acapoz wrote:

    Wait until the Keystone pipeline is built on the Ogallala Aquifiers which supplies 8 united states with clean drinking water.

    Wait until this pipeline ruptures into the water supply,

    Wait until the residents from S. Dakota, Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico, Texas. water is destroyed as is West Virginia now

    Wait until the bottled water corporations step in and take control of the supply & demand of their private water supply.

    Wait until you have to decide how much you are willing to pay to quench your thirst

  • Report this Comment On March 07, 2014, at 1:48 PM, seattleretro wrote:

    Looks like in another 20 years or so, Nestle and Coca-Cola will become the next ones to have their assets "nationalized" by third-world countries, so big oil will be joined by big soft-drink!

    On another note, this article seemed to accuse oil companies of fracking with drinking water--if that's true, why are the "environmentalists" complaining? :-)

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Sara Murphy

Sara has been writing about and analyzing companies from a sustainable investment perspective for the last 15 years. An ardent optimist, she believes that it is entirely possible for all stakeholders to benefit and profit from companies' ingenuity and innovation.

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