Water, Water Everywhere, and Not a Drop to Source: PepsiCo Mitigates the Risk of Global Water Scarcity
The “deceptive abundance” of water makes it an especially interesting litmus test for evaluating companies and their commitment to long-term sustainability. PepsiCo is an example of a company that has taken early steps to mitigate the risks of global water scarcity to its supply chain and business strategy more broadly.
When we consider “scarce resources,” we rarely think of water – after all, we encounter it every day, with virtually limitless access and at low cost. Unfortunately, this perception is at odds with predictions that we are entering an age of increasing water scarcity.[1] In fact, water scarcity has escalated to a crisis in many areas of the globe, driven in large part by a drastic increase in global water withdrawals in the past 50 years.[2] This misconception – what some refer to as “water’s deceptive abundance” [3] – has hindered management within companies from proactively preparing their operations for a future in which water is more difficult and costlier to source.
As a global food and beverage manufacturer, PepsiCo should have great cause for concern. For one, PepsiCo’s massive agricultural supply chain is particularly vulnerable to water scarcity, as one-third of all food production currently occurs in areas of high water stress.[4] PepsiCo would feel the impact not only in higher direct costs (both through reduced crop yield and higher water prices) but also in the costs of supply chain disruption (i.e., the cost of not meeting demand or relocating operations from water stressed areas). In addition, PepsiCo’s incredible scale – its products are consumed over a billion times each day[5] – make it uniquely vulnerable to reputational risk if the company fails to move quickly enough on consumer expectations for sustainability.
Fortunately, PepsiCo has already taken steps to mitigate the impacts of water scarcity on its business. First, PepsiCo has a goal of improving the water use efficiency of its agricultural supply chain by 15% and its manufacturing operations by 25% in high-water-risk areas.[6] To achieve these goals, the company is working to provide more efficient irrigation equipment and training to growers. In India, PepsiCo has replaced flood irrigation with drip irrigation on more 2,600 acres and trained farmers in the practice of using cover crops to help the soil retain more water.[7] In manufacturing, PepsiCo is working to uncover and disseminate best practices and new technologies (e.g., the use of membrane bioreactors[8]) for wastewater treatment and water recycling.
Second, PepsiCo is working to replenish 100% of water consumed in manufacturing operations in high-water-risk areas to the local watersheds where extraction occurred.[9] Here, PepsiCo is focused on partnering with local organizations on projects like water harvesting and reservoir rejuvenation. For example, in Jordan PepsiCo is working with the Ministry of Water to construct a dam to collect rainwater to replenish underground water reserves.[10]
While PepsiCo demonstrates a unique thought leadership in sustainability, there is room to improve. On the supply side, PepsiCo could apply similar efficiency goals to its entire supply chain, versus focusing only on high-water-stress regions. By limiting its focus, PepsiCo is missing crucial opportunities for knowledge transfer and the creation of a unified operational culture around water conservation. In the short-term, PepsiCo could undertake an audit of its water efficiency across its entire supply chain (1) to establish a baseline for performance today and (2) to provide greater opportunities for knowledge transfer across the business. Longer term, this shift could help PepsiCo to develop a unified “kaizen” culture of improvement around water efficiency across its entire supply chain.
On the demand side, PepsiCo could increase efforts to educate consumers on the value of water efficiency in agricultural production and operations. Short-term, PepsiCo should seize the opportunity to own a powerful message around water conservation and drive mass awareness of the issue among consumers. Longer term, PepsiCo can leverage this new consumer awareness to drive internal support for investing in more sustainable products and brands, both in terms of new product development, acquisition strategy, and marketing spend.
While there is clearly much to be done, this review of PepsiCo’s efforts around water scarcity raises some important questions. When confronted with a problem as macro as resource scarcity, how big should a company’s ambitions be? Should it triage supply chain improvements, tackling the most impactful areas first (i.e., production in high-water-stress areas), or should it work on instituting sweeping, system-wide changes? Should companies focus on improving internal operations or invest in educating consumers to drive broader demand shifts?
[1] “GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” 2013 Report by the United Nations Environmental Programme, p. 11.
[2] “GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” 2013 Report by the United Nations Environmental Programme, p. 11.
[3] “Does Your Supply Chain Risk Management Strategy Hold Water?”, MIT Sloan Management Review, December 22, 2016, Web.
[4] “Financial Risks in Agricultural Supply Chains,” Ceres Engage the Chain Report, June 1, 2017, p. 7
[5] PepsiCo 2016 Sustainability Report
[6] PepsiCo 2016 Sustainability Report
[7] PepsiCo 2016 Sustainability Report
[8] PepsiCo, Company Website, “Water,” https://www.pepsico.com/sustainability/water
[9] PepsiCo 2016 Sustainability Report
[10] “PepsiCo-Jordan to build dam in Amman,” Technical Review Middle East, Web, November 13, 2013
Given PepsiCo’s leading global position as a drinks manufacturer, do you think it has a responsibility to its customers in drought-prone areas to provide access to water during crises? Seeing as PepsiCo has enormous demands for water in some areas, as well as a supply chain to move liquids across the globe efficiently, PepsiCo is probably better suited than any governmental organization to respond quickly and effectively to water shortage crises. But is there a moral obligation for PepsiCo to “give back” some of the water it uses in times of need?
Great article Maggie. It was interesting to read about the steps that PepsiCo is taking in their agricultural supply chain and that they are trying to replenish 100% of the water used in high water risk areas. I agree with you that an audit across their entire supply chain is an important and potentially high impact next step. By looking at efficiency in non-high risk areas, they would be
1. Contributing to global water conservation efforts
2. Setting new standards and practices for themselves that would then be applied across all geographies
They also have the opportunity to lead change not just within their organization, but across many industries. With a giant like PepsiCo making a huge public commitment to water efficiency and showing improvement and action, hopefully they could set the standards for other companies as well.
Would it be thinking too big to say PepsiCo should shoot for water replenishment or be “water neutral” across all of their supply chain? They could challenge themselves with the impossible and then tackle it step by step, with the triage across supply chain units that you suggested.
I think every company has the responsibility to help solve persisting world problems such as resource scarcity; however, it is even more important for big international companies like PepsiCo to do so since its actions will create more impact providing its huge marketing and financial power and extensive international reach. PepsiCo can try to solve the water scarcity problem in 2 steps: internally and externally.
When thinking about how to solve a problem, it’s very useful to think about the cause of it. For water scarcity, the biggest cause is water consumption. PepsiCo had already set targets to improve the water use efficiency. Another cause which is also directly related to PepsiCo is water pollution. PepsiCo has to internally control the amount of pollution its factories produce to the surrounding environment and aims to drive down the pollution rate to 0%, not just in the United States, but also in all of the international markets it operates in.
For external step, PepsiCo can utilize its marketing knowledge and capacity in each of the countries it operates in to educate people about water scarcity. The campaign will not only help solve the problem but also increase PepsiCo brand image as a brand who cares about the world problem.
For me, it’s not the question of “Why should PepsiCo do it?” but “Why not?”.
Great article highlighting a company’s approach to both slowing their usage of a limited raw material (water) and reducing the impact this raw material shortage will have on their business operation. The water scarcity crisis is very concerning, especially considering that irrigation needs will only continue to increase as global warming takes effect.
I am impressed that PepsiCo is taking so much initiative in getting ahead of the water scarcity crisis. We so often see large companies waiting for government intervention to implement efforts to reduce negative environmental impacts (such as the government mandates to reduce carbon emissions). I’d imagine that PepsiCo has identified this as a real, urgent threat to their food production, which is motivating them to take action now. Increasing the efficiency of water usage in high-risk areas can help PepsiCo determine the best practices and standardize this approach to spread it to other areas.
While I think this is a good start, PepsiCo would benefit greatly by increasing its water efficiency efforts across the globe. Water is a limited resource across the entire globe, even if only a few areas have been hit with a scarcity crisis. To address the question raised in the article, PepsiCo should definitely educate consumers on water conservation to help inspire a shift in consumer behavior. PepsiCo should also partner with the government to construct water efficiency regulations that all large companies must follow. By leading the effort to reduce water consumption of companies across the globe, PepsiCo can help slow the depletion of this limited resource and help ensure that enough water is around for PepsiCo to use in the future.