One hundred percent of California is experiencing some level of drought. Since the state is among the largest producers of agricultural products, that's a big deal. It's no wonder California is trying to assert some control over how water flows in the state. And that now includes the water under the ground. This could be setting the stage for a future battle over water, but that might just turn out to be an opportunity for companies with the right technology.
How bad is it?
All of California is in drought, but that doesn't really do the problem justice. That's because over half of the state is facing "exceptional drought" conditions, the worst possible drought rating. And another 20% or so of the state is dealing with "extreme drought" conditions, the next worst rating. So, this isn't just a water-your-lawn-twice-a-week situation -- it's bad.
That's true even if you don't live in California. Why? Because in 2012, California was the single largest agricultural state in the Union, producing $44.7 billion worth of food. That's 40% more than runner up Iowa, which produced $31.9 billion, and close to twice the amount produced by third-place Nebraska ($24.4 billion). Like grapes, almonds, or strawberries? All huge in California.
This is just one of the reasons some of the worst-hit regions of the state are seeing a doubling and tripling in the number of water wells being drilled. If you assume the water flowing under your house belongs to you, that makes complete sense. But if it's really a public asset, then your well is stealing water from everyone else. That's the idea behind legislation in California that looks to assert government control over ground water.
According to California assemblyman Roger Dickinson, "A critical element of addressing the water challenges facing California involves ensuring a sustainable supply of groundwater." He noted that letting people drill their own wells can contaminate water supplies and, ultimately, means less water for everyone. But California's current predicament isn't as unique a situation as you may think, even though water is fairly accessible in the United States.
For example, only 3% of the world's water is potable, or drinkable. Of that 3%, around half is frozen in the polar ice caps. In fact, 18% of the world, roughly 1.1 billion people, lack access to safe water. At the same time, water use has been increasing at more than twice the rate of the world's population. California isn't the exception, it's just the first time in recent history that the United States is dealing with the issue in such a big way.
But that doesn't mean we're doomed to fight over water. For example, military industrial giant Lockheed Martin (NYSE:LMT) is developing a cutting-edge membrane that makes water desalination easier. According to John Stetson, an engineer working on the project, Lockheed's filter is "500 times thinner than the best filter on the market today and a thousand times stronger." Moreover, "The energy that's required and the pressure that's required to filter salt is approximately 100 times less."
That's a huge advance, but why is Lockheed Martin doing this research? A U.S. government intelligence report explains it all: "Between now and 2040, fresh water availability will not keep up with demand," and "water problems will hinder the ability of key countries to produce food and generate electricity." The United States does not want to be one of those nations.
Investing right now
But Lockheed's filter is high tech and likely years away from commercial availability, and as California shows, the water issue is right now. That's why a company like Consolidated Water (NASDAQ:CWCO) is so interesting. This relatively tiny water utility operates over a dozen desalination plants in the Caribbean and Indonesia. It also has a project going in Mexico, just across the border from California. It's worth noting that one of the key cities mentioned in close proximity to this project is San Diego.
That makes Consolidated Water an interesting play right now on the California drought that appears set to change the rules of water ownership in the state. And with a nearly 3% dividend yield, you're being paid well, right now, to wait for the Mexican saltwater desalination project to be completed.
Water is a necessity of life, and there's a lot less of it than you think. Companies that are working on fixing that problem, from Consolidated Water to Lockheed Martin, among others, are worth keeping an eye on for investors. California is really just the tip of the iceberg.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.