Coca Cola in India
Coke’s woes in India
Climate change is decreasing natural water storage capacity from glacier/snowcap melting, and is subsequently reducing water availability for more than 1/6th of the world’s population that lives in ice fed river basins. The situation is worsened due to extreme changes in precipitation patterns and intensity. In particular, the subtropics and mid-latitudes, where much of the world’s poorest populations live, are expected to become substantially drier.
This reduction in supply is being complemented by a massive increase in demand. Population growth and economic development are driving increases in agricultural and industrial demand for water. Some research estimates an over 40 percent increase in irrigated land by 2080. Freshwater consumption worldwide has more than doubled since World War II and is expected to rise another 25% by 2030. The percentage of global land classified as “very dry” has doubled since the 1970s.
In India, this impact is even more severe. The Central Water Commission data shows that India’s major reservoirs are 79% empty, and 75% of India’s basins are holding less water than the 10-year average. India is currently in the midst of one of the worst droughts ever, with over 330 million people affected. At current rates, the World Bank estimates that India will have exhausted available all water supplies by 2050.
Coke’s (Coca Cola) management is acutely aware of this situation. Listing some of the issues that were affecting the company, Jeffrey Seabright, Coke’s vice president for environment and water resources, mentioned “Increased droughts, more unpredictable variability, 100-year floods every two years,”
For Coke, freshwater is the most valuable resource required. Nearly 2.7L of water go into producing 1L of Coke. The company has been criticized for causing extreme water shortages in developing countries where supplies are scarce. Not only does Coke suffer from direct business risks from scarcity of its as its primary raw material, it suffers an even larger reputational and legal risk as its business puts it in direct conflict with one of humanity’s most basic needs.
Coke has said India could be one of its five biggest markets within the next few years. However, the company has faced crisis in India due to their mismanagement of water resources, including the forced closure of their bottling plant by government authorities in Kerala in 2005, the closure of its 15 year old plant in Varanasi in 2014, the refusal by government authorities to allow a fully-built expansion plant to operate in Varanasi in August 2014, a proposed plant in Uttarakhand cancelled in April 2014, and the withdrawal of the land allocated for a new bottling plant by the government in Tamil Nadu due to large scale community protests in April 2015.
To respond to this challenge, in India and globally, Coke has made this one of its key priorities and instituted a bunch of measures including –
- Plant assessments and local plans: Coke now requires all bottling plants to conduct a local source vulnerability assessment, following which Coke and its partners develop a locally relevant water resource sustainability program. Often, the plans include partnerships and mitigation initiatives with local governments and communities, water agencies and NGOs.
- Operational efficiency improvements: The Coca Cola system water use ratio (average plant ratios for liters of water used per liter of Coke produced) has consistently been dropping from 2.61 in 2005 to 2.16 in 2011.
- Recycling wastewater: Coke is attempting to reduce its impact on water systems and trying to contribute to improved water quality by appropriately treating wastewater and returning it to the environment. In 2011, Coke released 159B liters of treated wastewater across our system (usage of 293B liters)
- Replenishing the water used: Since 2005, Coke has engaged in 382 projects with partners to improve access to water and sanitation, providing water for productive use and raising awareness about water issues, including engagement on water policy.
At the end of 2011, Coke in India had installed more than 600 rainwater-harvesting structures across 22 states to capture monsoonal rains for aquifer storage. Ponds are being restored in Sarnath and Varanasi and check dams have been constructed at several locations, including areas near Bangalore and Mumbai. In Rajasthan and elsewhere, Coke has been working to advance water-efficient agriculture through drip irrigation, helping 300 farmers install and use the systems. This long-term initiative is lowering farmers’ water and fertilizer costs, increasing their yields and conserving an estimated more than 1.5 billion liters of water every year across approximately 100 hectares of farmland.
It does seem that Coke is doing a lot to mitigate the risks spoken about. One additional area that the company should look at is significant marketing push to protect against the reputational damage, through campaigns and advertising. <777 words>
Sayan – I am very impressed with your post. It is great to see some pushback on Coke’s actions. I remember seeing a Wall Street Journal article on this issue in February. After reading your post, I pulled it back up (http://www.wsj.com/articles/coca-cola-closes-plant-in-india-1455122537). One of the most surprising aspects of the efforts to prevent Coca Cola’s erosion of the water supply is how the local farmers are generating results. In the article, it states that construction of the $73m plant at Tamil Nadu was met with opposition because farmers feared that it would further reduce groundwater availability and pollute neighboring bodies of water. Despite the Company’s efforts, the farmers were able to draw enough attention to these issues and convince the regulatory authorities construction would cause irreversible damage. Its refreshing to see normal people take on one of the world’s largest brands over an ethical issue and ultimately win!
I did not realize how much water it took to make coke! I’m not sure how the distribution channels for coke work, but if India is a regional hub for manufacturing, then maybe it’s time to move some of that capacity to places with more water resource.
Aside from water, do you know if the coke-making and distribution process is very carbon intensive? I guess they have received a lot of push back when it comes to water, but it seems like they may be able to make a significant dent on carbon as well given their extensive operations.
Sayan,
Thanks for this post. I wrote about Coca-Cola as well, and really appreciate the deeper insights your post provided on the impact of Coke’s bottling process on a large developing economy. I agree that Coca-Cola executives are highly incentived to ensure that their international bottling operations are conducted in a sustainable way, not just for social responsibility and reputation impact, but also for a commercial reason as well: to ensure the prosperity of the local communities who also make up the product’s consumer base. In class we talked about the two primary reasons why companies care about sustainability: 1) save the world and 2) profitability. I think your post does a great job illustrating these two concepts in action in a real world example.