Many nations, particularly populous places like China and India, are investing heavily in water-related infrastructure to secure their control of the available water supply. Consequently, ‘water wars’ have become a genuine feature of the global economy; interstate conflicts can inflame already fiery relations between neighbouring countries, such as the current dispute between India and Pakistan over the Jhelum River’s water supply. Another example is China’s control over Tibetand its contentious ownership over all the water coming out of the Himalayan plateau feeding India, Pakistan and Burma.
With water so crucial to industrial and agricultural production, a nation’s access to fresh water is also liable to impact not only its living standards but also its growth prospects. Water is fast becoming a serious political and economic concern, and its supply is increasingly commoditised. In a phenomenon increasingly referred to as virtual water trading, countries without sufficient water resources are forced to trade with wetter nations to bolster their supplies of certain goods, particularly agricultural produce. For instance, China is unable to produce enough soybeans to feed its farm animals due to dry growing conditions, and so must rely upon imports to make up the shortfall. The beneficiaries in this case are the well watered nations of Braziland the US, who are expected to pick up most of the 55 million tonne Chinese order book (equating to around 127 billion m3 of ‘virtual’ water).
But those nations naturally abundant in water need not be the only winners of the global water scarcity trend. As the world finds itself increasingly populated, the pressure to increase agricultural yields using the same amount of water is leading to impressive innovations and increasingly sophisticated water management and technology. Companies with the chemical expertise to treat water for recycling, and agricultural specialists finding less wasteful ways to irrigate fields (such as the innovative ‘drip’ system, which wastes significantly less water than flood or even pivot irrigation systems) are likely to be the beneficiaries in a world looking for ways to make its water work harder.
At Sarasin and Partners, the scarcity of the globe’s natural resources is just one lens through which we view the investable universe. Our thematic process naturally steers us away from riskier investment choices, such as companies limited by excessive government control or heavy regulation, or those too easily affected by meteorological conditions (in effect, where the outcome could be binary and therefore unpredictable). In seeking companies which have proven themselves innovative in water management and water-related technologies, in particular those improving agricultural yields in an overpopulated low-water world, our thematic process continues to provide exceptional ideas and exciting investment opportunities.