Agcapita Update
January 30, 2012
Agcapita Update
In my last briefing I began to discuss two of three trends I want
to cover in detail over the course of 2012 - pension solvency and
EROEI. Today I want to examine the third trend which is water
availability.
As people in the emerging economies make the transition to
western standards of living there is a growing and overlooked
issue - their water consumption will rise dramatically. The world’s
population is expected to increase 1.7 billion people by 2030
which at today’s average per capita water consumption would
require an additional 2,040 cubic kilometres of water per year. To
place that number in perspective its approximately 24 Nile rivers.
Let’s examine the water needs of the two most populous emerging
markets in more detail - China and India:
China (population - 1.3 billion): China has only 8% of the world’s
fresh water to meet the needs of 22% of the world’s population.
China is already facing shortages as water resources are 2,200
cubic meters per capita, 31% of the world average. By 2030,
China’s water resources are expected to drop to 1,760 cubic
meters per capita - almost 25% lower than today. Seventy
percent of the grain produced in China comes from irrigated land,
but the country’s irrigation supply is being depleted by urban
water use; the depletion of underground aquifers; and pollution. At
current crop prices, China’s farms can’t compete with factories for
water. A thousand tons of water produces one ton of wheat, which
has a market value of around $300, whereas the same amount
of water used in industry might yield $14,000 of output - over
40 times as much. A 2001 Chinese groundwater study revealed
that the water table under the North China Plain, an area that
produces over half of the country’s wheat and a third of its corn, is
falling quickly. A World Bank study confirmed that China is mining
underground water. By way of example, the shortfall in China’s
Hai basin is estimated at nearly 40 billion tons of water per year
which means that when the aquifer is depleted, the grain harvest
in this region will drop by 40 million tons - enough to feed 120
million people (1,000 tons water = 1 ton wheat). At the same time,
Chinese non-irrigation water consumption is expected to increase
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Agcapita Update (continued)
by 75% by 2025 (over 1995 levels), leaving even less Obviously water is difficult to import - it currently
water available for irrigation and creating additional has a low value to weight/volume ratio. Water is
need to import food crops. also a difficult commodity in which to invest directly.
As it is much easier and cost effective to import
India (population - 1.1 billion): By 2025 urban water by proxy - by importing food - the solution
water demand is expected to double and industrial is obvious. For investors seeking to invest in water
demand to triple. India’s 100 million farmers operate demand the simplest route may just be to invest in
approximately 21 million wells. A 2005 World Bank wheat producing farmland in a country that is a net
study reported that 15% of India’s food supply is agricultural exporter. As the Canadian prairies have
produced by mining groundwater. Stated otherwise, been massive net exporters of wheat for decades,
175 million Indians are fed with grain produced with they are effectively one of the worlds leading water
water from irrigation wells that will go dry. exporters without anyone having given it much
thought.
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