Highlights

Water conservation will become increasingly important over the coming decades as cropland in many of the world’s largest food-exporting countries face exposure to water stress, S&P Global Sustainable1 physical risk data shows.

About half of major food and beverage producing companies have a publicly available commitment to sustainable agriculture, which focuses on preserving natural resources such as fresh water; not all of those commitments cover the full scope of their supply chain, according to the 2022 S&P Global Corporate Sustainability Assessment (CSA).

Food and beverage companies chose environmental management and climate strategy as two of their top material issues, and reducing water consumption was the most common sustainable agriculture program companies had in place, according to the CSA.


Authors
Matt MacFarland | S&P Global Sustainable1, Thought Leadership Editor
Denise Di gennaro | S&P Global Sustainable1, Associate ESG Analyst
Kuntal Singh | S&P Global Sustainable1, ESG Innovation and Analytics Manager
Moritz Brugger | S&P Global Sustainable1, Equity Research Analyst 

Food producers face the challenge of feeding a growing global population while conserving the natural resources agriculture relies on. The UN Food and Agriculture Organization (FAO) estimated in its 2017 report, The future of food and agriculture – Trends and challenges, that demand for food will rise 50% by 2050 compared to 2012 and undergo structural changes due to population growth, urbanization and evolving consumer trends. Competition for natural resources such as water is likely to increase even more as climate change leads to fresh water scarcity in more parts of the world and intensifies in areas where water is already limited.

Agricultural practices vary widely around the world, from the large-scale industrial farms in Australia and the western U.S. to smallholder farming systems more common in South and Southeast Asia, but all farming relies to some extent on fresh water. Much of the world’s crop production — about 60% — is from farming that is entirely reliant on rainfall, according to the FAO report The State of Food and Agriculture 2020: Overcoming water challenges in agriculture. The remaining portion draws at least some of its water needs from fresh groundwater, and as climate change disrupts rainfall patterns and increases the frequency of drought in different parts of the world, more demand for groundwater could come from cropland previously supplied by rainwater.

Demand for fresh water for growing crops, alongside domestic demand for drinking water and water’s use in many industrial and manufacturing processes, will put increasing strain on water supplies in the coming decades, without efforts to adapt. S&P Global Sustainable1 physical risk data shows that cropland in some of the world’s largest food-exporting countries, such as Brazil and Ukraine, will face significantly more water stress between the 2020s and the 2050s. While farming systems in these countries face the challenge of water scarcity, support for the sustainable agriculture practices that can conserve natural resources such as fresh water is not yet universal among major global food and beverage companies, according to data from the 2022 S&P Global Corporate Sustainability Assessment (CSA).

Major food-producing nations face water stress

Efficient water usage is a top priority for food and beverage producers, as it is a major input for nearly every agricultural product across their supply chains and is often an input in the production of food products and beverages. Groundwater and irrigation play a part in raising crops even in areas that receive substantial rainfall, and arid regions rely on groundwater even more. Irrigated agriculture accounts for 70% of all freshwater withdrawal globally, according to the 2022 United Nations World Water Development Report.

Access to adequate supplies of fresh groundwater for food production will become more critical over the coming decades, as climate change disrupts weather patterns and temperatures become more extreme. S&P Global Sustainable1 data on climate hazards such as water stress shows that the largest food-exporting countries face heightened water stress by the 2050s — a trend that could have significant implications for food and beverage companies, considering their presence in and dependence on exports from these countries.

This analysis measures water stress, in line with the World Resources Institute water risk tool Aqueduct and UN sustainable development goal 6.4, as a ratio of total water withdrawals, including domestic, industrial, irrigation, and livestock uses, to available renewable surface and groundwater supplies. Water stress reflects the level of competition for the supply of freshwater held in surface water basins, such as lakes and streams, and in below-surface aquifers.

The S&P Global Sustainable1 analysis models the percentage of cropland exposed to significant water stress in 14 major food exporting countries based on metric tons of food exported in 2021 in two decadal periods, the 2020s and the 2050s. The analysis uses a business-as-usual climate change scenario known as SSP3-7.0, in which total greenhouse gas emissions double by 2100 and global average temperatures rise by 2.8 degrees C to 4.6 degrees C by 2100.

The percentage of water-stressed cropland will rise in 13 of these 14 countries from the 2020s to the 2050s, across several continents. The largest food exporters in this group, the U.S. and Brazil, will see their share of water-stressed cropland rise 24.9% and 46.8%, respectively, absent adaptation. Other major increases include Ukraine, known as the breadbasket of Europe, which exported 61.8 million metric tons of food in 2021, making it the fourth-largest agricultural exporter in this list. The percentage of water-stressed cropland in Ukraine is projected to rise 44.8% from the 2020s to the 2050s, to more than one-third of its farmland by the 2050s.

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The most drastic increase is projected for Indonesia, where the percentage of cropland exposed to significant water stress will more than triple. Indonesia exported about 35.8 million metric tons of food in 2021, roughly one-sixth the amount of food as the U.S.

Other large exporters, including France and Australia, will see the share of cropland facing significant water stress rise by 39% or more. For one of the top exporters, Argentina, the opposite trend is forecast: A smaller share of cropland is projected to face significant water stress by the 2050s compared to the 2020s. Argentina exported roughly one-third the amount of food as the U.S., and about 5 million more metric tons than Ukraine, in 2021.

A spike in the amount of cropland experiencing water stress in Brazil, Ukraine and other major exporters could have far-reaching consequences for food supply chains that rely on agricultural inputs, from grains such as barley, wheat and maize to sugars and oils. Rising water stress at this origin point of large food and beverage companies’ supply chains increases the importance of implementing water conservation programs that extend throughout companies’ supply chains beyond Tier 1.

Water stress reflects scarcity due to demand from other industries and activities, not just agriculture. Demand for fresh, clean drinking water will rise as the world’s population grows and becomes more urbanized. Water is also a key input or coolant to many industrial and energy processes. CSA data shows that water consumption among the world’s largest companies is highest for electric utilities, chemicals companies and oil and gas companies. The CSA’s water consumption data reflects the assessed companies’ operations and does not capture water consumed across supply chains, where most of the agricultural water consumption that supplies the food products industry occurs.

 

Corporate commitments to sustainable agriculture

Sustainable agriculture refers to a set of practices that can help food producers conserve vital natural resources like fresh water and reform existing practices that cause much of the sector’s greenhouse gas emissions contributing to climate change. Because their supply chains source inputs from the farm systems on the front lines of water demand and natural resource use, major food and beverage companies can advance sustainable agriculture by adopting programs and policies that actively seek to make resource use more efficient and avoid environmental damage.

Data from the 2022 CSA shows that about half of the 213 assessed companies in the food products, beverages and food and staples retailing industries have a publicly available commitment to sustainable agriculture. The CSA is a research framework that captures data from thousands of companies annually on relevant sustainability topics.

Sustainable practices were most common in Europe and North America, where 68% and 58% of assessed companies, respectively, provided a publicly available commitment. The commitments generally apply to companies’ supply chains.

Nearly every company with a sustainable agriculture commitment showed that its policy applied to Tier 1 suppliers, or companies one step away in the supply chain that provide direct inputs. But only about half of the commitments covered non-Tier 1 suppliers that provide inputs farther up the supply chain. This finding, combined with the fact that only half of companies had a commitment to sustainable agriculture in the first place, shows that some companies are not taking a long-term view on how to preserve the natural resources that agriculture ultimately depends on.

 

Sustainable agriculture practices

Sustainable agriculture covers a range of practices with the goal of conserving the natural systems that underpin food production, such as protecting soil health; preventing the pollution of fresh groundwater; lowering greenhouse gas emissions to slow climate change; and avoiding the destruction of ecosystems.

About 42% of the 213 assessed companies provided detail on at least one program they have in place. Most of these companies (85%) have a program in place to reduce water consumption, and a similar percentage (84%) have a program in place to reduce environmental pollution. Agriculture is a source of pollution in many countries due to the pesticides, nitrate and phosphates that can leach into the local freshwater, marine ecosystems, air and soil.

Nearly three-quarters of the companies have a program or policy to prevent the destruction of ecosystems. Agriculture is responsible for 80% of deforestation, according to the 2022 FAO study The future of food and agriculture – Drivers and triggers for transformation. In some countries, particular crops or commodities drive much of the damage. Livestock grazing is a main cause of the shrinking Amazon rainforest, parts of which have become a net carbon source rather than sink. Marine aquaculture — raising fish and other seafood in coastal waters — can be detrimental to important ecosystems such as coastline mangrove forests, which also act as natural buffers against climate hazards like tropical storms and cyclones.

Similarly, 73% of assessed companies are actively seeking to reduce agricultural greenhouse gas emissions, much of which are due to ecosystem destruction. Deforestation removes the natural carbon sinks of expansive old-growth forests. Raising livestock on this cleared land contributes even more to climate change. In a 2021 study, the FAO found that 31% of human-caused greenhouse gas emissions originate from agri-food systems, with more than half of those emissions coming from activities within the farm gate and from land-use change such as clearing forests.

 

Materiality and innovation

The world’s major food producers appear to understand that environmental concerns are key to their success. The 2022 CSA asked companies to list the three issues they consider most material to their business performance, and among the 213 food, beverages and food retailing companies assessed, environment-related topics were among the most chosen.

Companies were able to select up to three issues, resulting in a total sample of 494 responses. The environmental management, climate strategy and long-term environmental trends topics received 36.4% of responses in aggregate.

This focus on the environment as a material concern contrasts with the data showing that only about half of these companies have a publicly available commitment to sustainable agriculture covering their suppliers. Similarly, only about 42% of assessed companies provided detail showing they had at least one sustainable agriculture program in place.

A range of innovative practices exist for farmers to preserve soil health, conserve water resources and reduce their environmental impact while also increasing their crop yields, according to the FAO. Conservation or minimum tillage, for example, has benefits across the spectrum of sustainability in agriculture, from reducing erosion and runoff to retaining moisture in the soil to improve water conservation.

These practices take place at the origin point of food supply chains, within the farm gate. But major food and beverage companies can help drive higher crop yields and better water conservation across their supply chains by adopting sustainable agriculture programs. Support for on-the-ground innovation at the corporate food production level could help agriculture rise to the dual challenges of water scarcity and population growth.  

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