Clouds on the horizon? Nestle, climate change, and the future of bottled water.
As climate change increases droughts near Nestle's water resources, how can they respond to ensure a future for the bottled water industry?
An industry is born
In 1976, a little-known French company named Perrier, opened an office in New York, marking the start of the US bottled water industry . Exactly forty years later, bottled water passed soda as the largest US beverage category, with Americans consuming 12.8 billion gallons in 2016 . Nestlé has benefited massively from this astronomical growth, selling $4.5 billion of bottled water in North American in 2016 . However, increased climate change-related droughts and changing precipitation patterns present a threat to Nestlé’s North American bottled water operations.
Clouds on the horizon
Climate change is shifting global hydrological patterns, increasing precipitation in some regions while decreasing it in others . Unfortunately, many of Nestle’s key spring resources are located in drought prone regions, such as in Southern California (see Figure 1) , which experienced the most significant drought in state history from 2012-2017 . While citizens faced severe water restrictions, Nestle extracted 700 million gallons of groundwater in 2015, resulting in petitions, lawsuits , and even plastic pitchfork-bearing protestors . As Nestle continued operations, competitors, such as Starbucks, decided to end bottling operations in California in 2015 . Additionally, for the first time in thirty years, the U.S. Forest Service reviewed Nestle’s permit to withdraw water from the San Bernardino Mountains .
Nestle faces similar opposition elsewhere in the US (Michigan, Colorado, Arizona, and Washington ) and in Canada (British Columbia and Ontario) . For example, in 2013, the Ontario Environment Ministry placed restrictions on Nestle’s water withdrawal permit  and proposed a “moratorium on new or expanded groundwater takings”  following protests about Nestle’s continued daily withdrawal of 1.1 million liters from the Hillsburgh Well throughout a 2013 drought .
As climate change continues to stress historical water sources, Nestle will likely face new restrictions, higher permit fees, and renewed public criticism.
In the short term, Nestle has responded by committing to internal water reduction goals while simultaneously working with governments to ensure continued access to water resources. For instance, amidst the 2015 drought in California, Nestle committed to an 8% water efficiency improvement in their California bottling through new technology investment . In their non-bottled water factories, Nestle also invested in water conserving technologies, such as moving to “zero water” in their Modesto, California milk plant .
On the government front, Nestle Waters North America spent $120,000 in 2016 to lobby the US Government on water-related issues . In Ontario, in 2017, Nestle worked with the government to avoid the proposed withdrawal moratorium and increase their permit fee from $3.71 to $503.71 per million liters, a 135x increase  (though tiny compared to the $300,000 that one million liters sells for at Walmart Canada .)
Finally, Nestle has attempted to engender goodwill with local communities through actions such as donating a $45,000 playground to the District of Hope, British Columbia – where it extracts 265 million liters annually .
By 2020, Nestle has committed to “reduce direct water withdrawals…35% [compared to] 2010”  and carry out forty new “Water Resource Reviews” across global sites . In addition, Nestle has committed to reducing greenhouse gas emissions by 35% by 2020, addressing the climate change underpinnings of their water issues .
Shifting the tide
As none of Nestle’s responses have addressed the issue of disappearing groundwater sources, there are three options that Nestle should consider:
First, Nestle should explore new water resources in regions where climate change is decreasing drought, such as in the Pacific Northwest and the Upper Great Plains, which could serve the Western and Midwestern markets, respectively. Figure 2 suggests some target regions for such exploration.
Second, rather than sourcing exclusively from natural watersheds, Nestle should explore technologies to convert non-potable water into bottled water. This concept is already used in water-strapped Israel and Singapore, and is gaining traction in the US . For example, in June 2017, Orange County Water District was the first entity in the Western Hemisphere to bottle and distribute water from recycled wastewater . Nestle already has much of the technical expertise to pursue this path, as it already employs reverse osmosis, micro-filtration, and ozone disinfection in its water bottle production facilities .
Finally, Nestle should build an active voice in the global water community. As water demand is expected to exceed sustainable demand by 40% by 2030, there will be increased discussion on how to correctly price water, which will likely result in price hikes . While Nestle currently benefits significantly from the underpricing of water, it is vital they join the debates that will shape the future of water prices.
Thinking about H2O
Nestle’s bottled water operations raise two key questions to ponder:
- What role do governments have in pricing and selling natural resources for-profit corporations? Does this role change when scarcity increases?
- Does it matter that Americans drink 35 million gallons of bottled water daily when the rest of the US uses 306 billion gallons daily? 
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Student comments on Clouds on the horizon? Nestle, climate change, and the future of bottled water.
Nestle’s position in the US is both large and interesting (both with regard to water rights and how they’ll respond to climate change), but their footprint is much larger than this – and the consequences much greater. They are the largest bottled water company in the world  (operating under dozens of brand names ), and while moving operations to wetter climates is possible, I don’t think it solves a few of the underlying problems Nestle is apt to face.
In the U.S., there is quite a bit of controversy over the fees they pay for the rights to access clean water (in some places just hundreds of dollars per year! ), especially when they’ve come under fire for pumping water out of places like Michigan during the Flint water crisis and California when locals were forced to adhere to water restrictions during droughts. I would speculate that these rates will exponentially rise as access to clean drinking water become less secure in the U.S. and that Nestle will need to decide whether it makes sense to continue to operate in U.S. under these high rates – and poor press.
Moving more operations overseas, though, is not without consequence. Rather, Nestle has frequently entered developing nations, extracted (and sometimes contaminated) clean drinking sources, and then attempted to sell this bottled water back to locals. The people in these communities, though, had free and clean drinking water previously and do not have the financial means to pay for bottled water (nor do I think they should have to). This has left locals without access to clean drinking water, which, the United Nations recognizes as a human right. This is especially problematic since, as you state, “water demand is expected to exceed sustainable demand by 40% by 2030.” I imagine it’s only a matter of time before the privatization of water – especially in the developing world – comes under serious fire. It will be interesting to see how Nestle responds (perhaps with a robust corporate social responsibility initiative in the communities in which they operate) or if their sheer size in the water market lets them skirt by.
It will also be interesting, as you mention, to see how pricing plays into this. I don’t think most people know how large Nestle’s play in the bottled water market is and the power they have to determine access to drinking water.
Super interesting post!
In response to your second question: 35 million gallons related to daily consumption of 300+ billion gallons is only drop in the bucket. But I think the key issue – and one that you get at in your post – is the geographic distribution of consumption. I wonder what the picture looks like if you were to layer onto your two maps 1) daily agricultural water consumption and 2) personal water consumption (homes etc). Looking at those two consumption patterns in the face of climate trends would likely identify that in certain areas a few million extra gallons being taken out of the ground for bottled water are a bigger deal than in other areas.
I think there is huge promise in using recycled waste water – perhaps recycling that water for home uses though, not necessarily bottled water. I would worry about the effect that any news about a bottled water company using recycled waste water might have on the brand. I think using desalination presents a more palatable option for bottled water. My understanding is that technology is still very expensive but the cost is coming down and would be a good long term investment. The economics are investing in such technology is difficult though. And this is an area where government can be helpful in encouraging businesses to invest in technology development that supports a public good. Not sure if that will happen in the current administration but potentially in the future?
I also wonder the extent to which climate change related demand shocks threaten the bottled water supply chain. For example, large volumes of bottled water are distributed whenever there is a major hurricanes or other disaster events. We anticipate these types of events will become more frequent and extreme as global warming continues. How prepared is the supply chain to respond to such shocks? What is the current “shelf life” of bottled water, how and where is inventory stored? My guess is Nestle and others aren’t trying to hold any excess inventory given costs of doing so, so this consideration likely falls to the government. I’d be curious about how organizations like FEMA partner with companies like Nestle to keep stock prepared for disaster events like hurricanes and whether they have any plans to adapt this as climate change related events increase.
Related to the policy question: water is definitely public good just like clean air is. Without water people cannot survive. I see two policy tools: 1) regulation use of current natural water shed supply and 2) investing in technologies for recycling, desalination, and other tools to generate more drinkable water supply. On 1), it is absolutely the government’s role to regulate the usage of water such that there is sufficient supply but I think however until very recently, there wasn’t sufficient technology to test how much ground water was remaining in certain regions and to predict trends in future climate change related supply changes and agricultural demands. Water is thus very underpriced in the U.S. because I think we’ve assumed we have a larger supply. I worry that the current pro-business administration will forsake the regulation of water – both in terms of supply and investing in new technologies. My hope is that private business have recognized the extensive potential market for technologies that efficiently convert nondrinkable water into drinkable water and will take risks to invest in such technology without waiting for government to create programs and policies to encourage such investment.
Super interesting topic and would love to discuss further!
Great article! Nestle is facing tremendous climate and regulatory headwinds that seem difficult to overcome in the long term. With water becoming scarcer and scarcer, I agree with all of Nestle’s actions to date and your proposed actions. Unfortunately, I don’t believe any of these actions will be enough to fully mitigate the industry’s long-term challenges. Additionally, most of these actions will increase the costs of bottling water making Nestle and others less competitive in the marketplace.
Your question regarding the role of governments in pricing and selling water further illustrates the challenge Nestle is in. As water scarcity increases, I believe governments will get more involved in regulating water distribution, which will in turn increase the costs to bottle water.
With climate change trends increasing supply chain costs, Nestle and the bottled water market may be fighting a losing battle.
Very interesting article!
I was shocked to see the price difference between what Nestle is charged to withdraw water versus what it sells for in stores. This is, no doubt, an immensely profitable operation for the company. To address your first question, I think the most recent drought in California really underscored the fragility of the nation’s water supply, especially in the American SW. Without true market forces being applied to the price, the state ends up running out of water instead of the price increasing, which largely hurts the environment, farmers, or both. I think the government should take a far more aggressive role in pricing water to corporations like Nestle, especially given their insane margins. It makes sense to use higher pricing as a tool to incentivize Nestle to move bottling plants to regions where water is less scarce.
To your second question, it is also important to realize that bottled water is just a drop in the bucket compared to the water used for industrial, agricultural, and environmental purposes. There are larger water issues at play and Nestle can be viewed as a scapegoat in some ways. However, even a few million liters of water on the margins can make a big difference in the overall ability of a region to meet its water needs.
Really interesting article! I read it paying thorough attention to the measures Nestle has taken so far to address this issue, and in my opinion these measures do not have any real impact.
The problem in this situation is that Nestle’s business model relies precisely on water consumption, so there are no solid incentives for the company to reduce its impact, rather there are incentives for it to try to somehow offset or even hide that impact – as we have seen with the strong lobby they do.
Regarding your first question on the role of governments when it comes to natural resources used by corporations, I believe there should always be public offices actively following these topics, and even if unfortunately it goes against some companies’ P&L, enough constraints must be set in place so that companies see no other option more than taking meaningful measures – as it would be if Nestle started investing heavily on converting non-potable water.
Thank you for sharing! The topic is extremely relevant! Nestle will certainly have challenges ahead. Regarding your question, I believe it is the governments’ responsibility to charge for profit organization. Ultimately, companies should be pay a fee equivalent to the costs the government will incur to treat the same amount of water the companies are extracting. Given that, I would expect prices of water bottles to rise in the US, leading to decrease in demand. In order to revert this trend, I would recommend Nestle to invest in innovation (e.g. different flavors, “functional waters”, etc) aiming at improving the product’s value proposition.
Building on the essay, as Nestle, I wouldn’t be only worried on the water supply perspective. It’s also important to highlight that water bottles have also significant implications in the consumption of plastic and in the CO2 emitted transportation, which is mostly done by trucks. These components will also imply in increasing costs. The main solution in this case is to invest in R&D to try to decrease the amount of plastic per bottle to the extent possible or to try to develop a biodegradable substitute.
I really liked your questions. The article serves a good way to open the debate for a larger issue.
To continue speaking in the framework of CA’s groundwater and Nestle, it does seem egregious that the company can tap into an arguably non-renewable resource (or that takes a lot of time to recharge) for next to no cost and then sell it for healthy profits. One on hand, they are serving a customer demand (whether that should exist or not is a separate question).
I believe that the best way to regulate is to have a public water authority set market rates for water and have consumer and business be on a similar price framework. These rates should be dynamic and adjusted for simple economic conditions like supply and demand and take into account longer term conservation costs that no one pays into today.
This achieves the overall goal of conserving water and also instills conservation in the home. Harvesting water from places like CA will become naturally costly, end consumer price will likely go up and ultimately corporations will be pushed to go to “water positive” locations and consumers will consume less.
Thank you for this very enlightening article – especially the three recommendations you proposed in the article: the current measures taken by Nestle do not help address the fundamental issues, while your suggestions can help the company tackle the challenge head-on. In particular, I love your idea about converting non-portable water into portable water. With more adoption of the innovative technology mentioned in your post, water, which is currently a limited resource, can be reused and become more abundant. With more investment and advancement of such technology, the cost of recycling and reusing water can – hopefully – be lower than the cost of extracting more water; and therefore, more companies may be incentivized to adopt such technology to further help protect our limited water supply. (Reference: http://www.cnn.com/2014/09/23/living/newater-singapore/index.html)
I am also curious to see how Nestle plans to react to the trend that more companies are now selling water bottles – such as Swell – to encourage less consumption of bottled water.
Thank you for sharing this article. I think it would be interesting to see which route Nestle along with other bottled water producers take in the light of this situation. Looking at initiatives Nestle put forward, I agreed with you that it has done nothing to solve the issue of depleting underground water sources. As you recommended several course of actions, one particular suggestion stood out to me – use technology to recycle wastewater into bottled water. Although this makes a lot of sense rationally, I feel that consumers would not react positively to it. Consumers’ perception on recycled water would definitely be a challenge to Nestle or to any producers that choose to go down this route.
In addition, I do believe that higher fee should be imposed on water resources permit to reflect the scarcity just like other products with limited supply. The government must be responsible for protecting and limiting the exploitation of natural resources by for-profit corporations.