Water stress is driving the AgriFood sector to thirst for startups
How Deep Tech Startups Are Tackling Global Water Scarcity with Game-Changing Innovations
Framing the Water Stress Problem
Water is a fundamental resource that supports all economic, social, and environmental activities.
Of the many ways that water impacts humans, its intersection with agriculture is perhaps the most widespread. The agri-food matrix represents 70% of freshwater use and empowers healthy communities, economies, and societies.
However, agriculture is facing a serious water scarcity problem, and without water, crops cannot grow, leading to food shortages, economic losses, and environmental damage.
It is predicted that the gap between the world's renewable water supply and demand should be
40% by 2030, making water scarcity one of the most urgent problems, a problem that will become increasingly urgent with the increase in the world population and the worsening effects of climate change.
All this will lead to a growing demand for water efficiency and management solutions, opening up a range of investment opportunities in new technologies, infrastructure, and innovation.
In this article, we will explore the problem of water scarcity in agriculture, the main market trends and drivers, and the investment landscape for technologies that solve this problem.
Let’s start with a quick roundup of what we’ll deepen today.
Quick Facts
If you only have a few minutes to spend, here's what you should know about Deeptech startups facing water stress in the agri-food sector:
Freshwater Scarcity. Less than 3% of Earth's water is freshwater, and a small portion of that is available for human use, leading to an increasing demand for freshwater while the supply is decreasing due to overuse, pollution, and other factors. By 2030, global demand for freshwater is expected to exceed supply by 40%.
Agricultural Threats. Agriculture is the largest consumer of freshwater, accounting for about 70% of all freshwater withdrawals worldwide, and 40% of the world's food is currently grown in irrigated areas, threatening to dry up ecosystems and compete with the daily water needs of people.
Water Footprint. The water footprint, which measures direct and indirect water use to produce goods and services, is mostly due to agriculture, with 92% of the global water footprint, of which 74% is green water, 11% is blue water, and 15% is gray water. Efficient water management is needed to ensure the sustainable use of water.
Business Risks. Water scarcity is increasing risks for businesses, with rising water rates, reputation risks, and decreased agricultural productivity, impacting economic accounts and corporate balance sheets. Technological solutions can combat the problem of water scarcity in agriculture.
Technologies. Smart Water Management Technologies, including AI, sensors, drones, and micro-irrigation systems, can improve irrigation efficiency and reduce water waste in agriculture. Startups using renewable energy to desalinate seawater or generate distilled water from atmospheric vapor can increase the quantity and quality of water supply.
Water Investment. Water-focused investment funds are emerging, raising significant funding to invest in innovative solutions aimed at solving water quality and equitable access problems.
And now, let’s dive into this exciting trend.
Why water could be the next big technological breakthrough for climate
Since 1983, humans have increased their water consumption by about 1% every year, the vast majority of which is used for food and agricultural processes.
Today, factors such as the increase in the world population and climate change lead to an estimated 20% increase in global water demand for agriculture by 2030…
However, water, especially freshwater, is not an unlimited resource on planet Earth...
This may be surprising because over 70% of the Earth is covered in water, but in reality, less than 3% is freshwater (the rest is too salty for our use).
As many freshwater aquifers and surface water systems are depleted or polluted at a faster rate than natural replenishment, we are in the unfortunate situation of having global water stress, with global demand for freshwater expected to exceed supply by 40% by 2030.
Think about what your dining table would look like if water were not used to irrigate crops. Do you think you could survive for long without portions of eggplants, beets, Brussels sprouts, and turnips?
Irrigation water is essential for growing fruits, vegetables, and cereals to feed the world's population, and this has been a constant for thousands of years.
Large-scale agriculture could not provide food to the world's large populations without irrigation. However, today agriculture is by far the largest consumer of freshwater available on Earth, with around 70% of all global freshwater withdrawals being used for irrigation - three times more than 50 years ago - and about 40% of the world's food is currently grown in artificially irrigated areas.
So, it can be said that agriculture is already in competition with people's daily use and environmental needs, especially in areas where irrigation is essential, thus threatening to literally drain ecosystems.
Water Footprint
Nowadays we all know the term "carbon footprint", but what about our water footprint? The concept of water footprint was introduced in 2002 by Arjen Hoekstra, a professor at UNESCO-IHE, to improve global water management.
Whether it is an individual, a community, or a company, it measures the volume of water used directly and indirectly to produce goods and services. Water consumption is measured in terms of the amount of water consumed, evaporated, and/or contaminated per unit of time.
It also serves as an indicator in pursuing more efficient water management.
The water footprint can be divided into three types of water: green, blue, and grey.
Green water refers to rainwater that is absorbed by the soil and used by plants during photosynthesis. This water is not counted as "consumption" because it is naturally absorbed by the hydrological cycle and not removed from the environment.
Blue water, on the other hand, refers to surface and groundwater that is extracted for irrigation, hydroelectric power production, domestic and industrial use, etc. This is the water that is most often considered as "consumed" because it is removed from the environment and thus no longer available for other uses.
Finally, grey water refers to polluted water generated by the production of goods and services. This water is not suitable for human or animal consumption and requires treatment to remove pollutants before it can be reused or discharged into the environment.
Agricultural production accounts for 92% of the global water footprint:
74% of green water,
11% of blue water,
15% of grey water.
How much water do we eat?
Have you ever wondered how much fresh water is needed every day to feed us?
What if I told you that you eat 3496 liters of water every day?
You might be shocked to learn that the "water we eat" daily through the food we consume is much more than what we drink.
In fact, depending on our diet, we need between 3000 and 5000 liters of water to produce the daily food needs of one person!
So in a year, one person consumes on average 1,274,840 liters of fresh water just to eat. In other words, our food needs require about half an Olympic-sized swimming pool's worth of water...
As shown in the infographic below, depending on our diet, the food we purchase can have a huge water footprint.
For instance, if you buy 1 kg of beef for a weekend barbecue, an average of 15,415 liters of water are used in its production!
Further down the scale are fruits and vegetables, which require 962 and 322 liters per kilogram respectively. In terms of the most water-efficient way to consume calories, the best option from this list is grains: one calorie requires 0.51 liters.
If all this already seems incredible in terms of consumption, we are not taking into account food waste.
Because yes, wasted food = wasted water!
Impact of Water Stress on the Value Chains
Water scarcity in agriculture doesn't just impact the agricultural sector, but also various industries that extract groundwater.
In detail, industries like manufacturing, mining, oil and gas, power generation, engineering, and construction require a lot of water for cleaning and washing their products at the end of production.
According to the World Bank, water scarcity could cost some regions up to 6% of their GDP by 2050, and by 2030 global demand for water is expected to exceed the current supply by 40%.
Because climate change is already causing severe droughts worldwide, we are seeing reduced crop yields, job losses, and significant economic costs.
For example, Canada has seen a 45% decline in pea production and pea prices have increased dramatically by 120% compared to last year. In 2021, the severe drought in California caused a contraction of the agricultural industry by approximately 8,745 jobs and resulted in direct costs of $1.2 billion due to forced water cuts.
Moreover, the impact of water scarcity on agriculture can vary depending on the crop.
For example, tree crops such as almonds, peaches, citrus, avocado, and other fruits and nuts require a lot of water and turn every drop of water into a lot of money compared to other crops.
Here’s a data visualization about it:
The table shows the dependence of primary crop production on green, blue, and grey water.
To provide you with a reference point, nuts are among the most water-rich foods grown in the world, with an average of 4,134 liters of freshwater used per kilogram of harvested nuts.
It's easy to see how green water is a crucial factor in crop growth and development.
This dependence on rainfall implies that the success of primary crop production is highly vulnerable to weather changes and climate variability.
As more as water scarcity grows, as much will be important to introduce deep tech innovations in water reuse compensating for the loss of green water with an increase in grey ones.
This is a clear value chain gap that deeptech startups should target.
Main Drivers & Dynamics
To sum up the big picture: it is estimated that by 2050, 52% of the world's projected 9.7 billion people will live in regions where the water demand is greater than the supply.
This will have a significant effect on businesses: S&P estimates that 66% of major global companies will have at least one asset at risk due to climate change by 2050, with the greatest risk coming from water stress.
Additionally, the growing global population and our consumption habits are also promoting livestock production. Livestock farming uses a significant portion of global freshwater increasing water demand. Therefore, as we will see later, improving water productivity in livestock production is essential to address this challenge.
According to a study conducted by Ceres, a non-profit sustainability advocacy organization based in Boston, water risks are already influencing economic accounts and corporate balance sheets in the following ways:
The increase in competition for water is leading to steep increases in rates and water rationing.
For instance, in certain areas of Mexico, water demand is far exceeding underground water reserves, resulting in price hikes of up to 300% for industrial users and new water regulations and tariffs for food producers (like Kellogg, among others).
Water scarcity can lead to reputation risks and loss of ability to increase revenues for companies that are in competition with local communities for access to water supplies. This can lead to the loss of a company's social license to operate, business interruption, and brand damage.
For example, Coca-Cola Company decided not to proceed with an $81 million bottling plant development in southern India due to resistance from farmers because of pressure on local aquifers and competition for water.
Decreased agricultural productivity can impact procurement costs. While few companies grow their own inputs, margin risks increase as raw materials are influenced by weather patterns and water scarcity.
Price shocks related to weather conditions are not new, but the increase in weather variability, combined with growing competition for water in most major agricultural production regions, increases the risk of commodity price volatility.
Unilever reported that natural disasters related to climate change have reduced food security and decreased productivity in many parts of their agricultural supply chain, costing the company around $400 million per year.
The water risks can impact a company's revenues and profits. Here are some examples:
Landec (LNDC) recently revised its revenue growth forecast due to the impact of crop disruptions in California on the company's product packaging subsidiary.
Campbell Soup Company (CPB) recently recorded a 28% decline in profits from its California carrot division due to the variability of water supplies.
The stock price of Illovo Sugar Ltd. (JSE: ILV), the second-largest sugar producer in Africa, dropped 35% in the fourth quarter of 2015, partly due to lower earnings caused by the drought.
Investment Landscape - The Rise of Agricultural Water Tech
Like Liza Minnelli once sang, "Money makes the world go round."
If the song were to be rewritten, the word "water" might need to be included, as recent investments in the sector are certainly helping to spin the water world.
With the increasing threat of water scarcity, the market for water-saving technologies in agriculture is rapidly growing.