The Future of Water: Nestlé's Vision for Sustainability

The Water Crisis: Insights from Peter Brabeck-Letmathe on Nestlé's Role in Conservation

In an era where climate change and resource depletion are top-of-mind, Peter Brabeck-Letmathe, the chairman of Nestlé, has been vocal about the looming water crisis. His warnings are stark: water is becoming increasingly scarce, especially in agricultural hotspots like India, where water tables are dropping rapidly as agricultural demand rises. “The water crisis that seems possible within the next 10 to 20 years will therefore quite probably trigger significant shortfalls in cereal production and, as a result, a massive global food crisis,” he states.

Brabeck-Letmathe is not just a corporate executive; he is also a prominent figure in organizations like the European Roundtable of Industrialists and the World Economic Forum’s foundation board. He uses these platforms to raise awareness about water issues, but what about Nestlé itself? How is the company responding to this critical challenge? McKinsey Quarterly reached out to him to find out more about Nestlé's strategies for water conservation.

The Challenge of Water Scarcity for Nestlé

When asked about the challenges posed by water scarcity, Brabeck-Letmathe emphasized that water is a strategic issue for Nestlé. The greatest challenge lies in ensuring water security for the farmers who supply the company’s factories worldwide. With farmers accounting for a staggering 70% of global water withdrawals and over 90% of consumption, they are the most vulnerable to the impacts of a water shortage. He referenced a concerning prediction from Frank Rijsberman, former head of the International Water Management Institute, who warned that “if present trends continue, the livelihoods of one-third of the world’s population will be affected by water scarcity by 2025.” Such a crisis would have far-reaching effects, impacting not just food production but businesses across various sectors.

Brabeck-Letmathe also pointed out that the water Nestlé uses in its manufacturing processes is not just about quantity; it’s also about quality. For instance, in the production of bottled water, the quality of water is paramount. Furthermore, many of Nestlé's products require safe, high-quality water for preparation, underscoring the importance of this resource in their operations.

Nestlé’s Commitment to Water Conservation

So, what measures is Nestlé taking to tackle these pressing water issues? Brabeck-Letmathe explained that water conservation has long been on Nestlé's corporate agenda, dating back to the establishment of its first wastewater treatment plant in the 1930s. Despite being a relatively modest water user—drawing less than 1.8 liters per dollar of sales—the company has made significant strides in reducing water withdrawals. In the last decade, they’ve managed to cut back from nearly 5 liters per dollar to below 2 liters, and they are committed to further reductions. Moreover, they ensure that the water they withdraw is returned to nature in good condition.

Creative supply chain solutions also play a key role in Nestlé’s water conservation efforts. Brabeck-Letmathe provided a compelling example: in a traditional milk supply chain, where milk is transported in open, uncooled containers, losses can range from 16% to 27%. In contrast, when Nestlé collects milk directly from farmers using refrigerated trucks, losses plummet to less than 0.6%. By optimizing logistics and processing, Nestlé saves an estimated 815 million to 1.375 billion cubic meters of water annually—more than five to eight times their total annual water withdrawals.

The Need for Water Pricing

Brabeck-Letmathe also discussed the concept of water pricing, arguing that water is one of the planet's most valuable resources but is often treated as if it’s free. He highlighted the inefficiencies in agricultural water usage, where farmers frequently use water without proper incentives to conserve it. To address this, he advocates for full-cost recovery for those currently benefiting from subsidized municipal tap water. This would not only help finance infrastructure improvements to reduce leakage but also extend access to those without it.

Interestingly, he offered a real-world example from Oman, where a 4,500-year-old water system still functions effectively. The system allows community members to access water for free until it becomes private property, at which point rights can be traded among farmers. This approach incentivizes efficient water use and provides a market-driven solution to water management.

Local Leadership: The Key to Success

When it comes to leadership on water issues, Brabeck-Letmathe argues that local public leadership is crucial. Political leaders, in collaboration with stakeholders, must craft strategies for efficient water management to mitigate the risks of water shortages. He believes that success in this area cannot be achieved in isolation; it requires a collaborative, multi-stakeholder approach. On a global level, a framework is needed to support local initiatives, including addressing harmful water subsidies and liberalizing agriculture to enhance water efficiency.

Final Thoughts

The water crisis is a pressing global issue, and companies like Nestlé have a significant role to play in addressing it. With leaders like Peter Brabeck-Letmathe advocating for sustainable practices and efficient water use, there is hope for a future where water is valued appropriately and managed effectively. As consumers, we can also contribute by being aware of our water usage and supporting companies that prioritize sustainability. The time to act is now, and every drop counts.