Too much water, or too little, could affect companies in 2015

Too much water, or too little, could affect companies in 2015

If you thought global insecurity was at an all-time high last year, then the World Economic Forum (WEF) has some bad news.  

At the launch of a new report last week, experts from the international organisation, which hosts the annual Davos meet-up, admitted that while 2014's global risks do not concern them as much as before, that's only because this year they have been overtaken by far more dangerous threats to world safety. 

The report, called Global Risks 2015, is certainly a sobering read. Topics include the growing dangers of interstate conflict, a rise in regionalism, as well as heightened environmental pressures, all of which are expected to shape the coming year, mostly for ill.

But what does it mean for the drinks industry? The report, now in its tenth year, makes clear the growing interconnectedness of threats, meaning that all companies, no matter where they are and what they do, will be affected by what it outlines.

However, there are a few risks that are of particular concern to our industry.

Interstate conflict

This was the main topic at last week's press conference, but it won't be news to companies such as Carlsberg, which is dealing with the consequences of regional conflict in Ukraine

According to the WEF, however, the industry can expect more shockwaves from war, as conflict shifts away from so-called asymmetrical fighting (within states) towards symmetrical (between states).

A caveat, however - though the biggest drinks firms are multinational, the nature of the market means that many of them, particularity brewers, have strong local presences. With that comes experience of dealing in dangerous markets. Once, when I asked a top Heineken executive how the firm manages to build its brands in inhospitable territory, the executive replied simply: “We're Heineken, this is what we do.”

Rise in regionalism

Hand in hand with interstate conflict is a growing insularity around the world that could have grave consequences for global business.

Espen Barth Eide, who is the WEF's managing director and also a former defence minister of Norway, warned that following the opening up of the global economy during the 1990s, the world is now seeing a return of protectionism in the form of sanctions and trade wars.

“There is also an increasing distrust between societies and increased demand to retract from integration, which you see in Europe, but also in Asia,” Barth Eide added. He highlighted a WEF development programme in the ASEAN region that is coming up against “some of the counterforces that we Europeans recognise”. 

“We don't want to give up the privileges that we enjoy with national protection,” Barth Eide said.

Urbanisation

In Africa, brewers such as Heineken have praised the flow of people from the countryside into the city as a main growth driver. But according to the WEF that dynamic is under threat as “unplanned rapid urbanisation” grows and a previous propagator of the rising middle class and average wages turns into an economic drag.

Today, about 50% of the population live in cities, however by 2025 that number is predicted to reach two-thirds. And though 80% of the world's GDP currently comes from cities, an estimated 40% of urban residents live in slums.

“There are a lot of benefits (to urbanisation) but unplanned too-rapid urbanisation will touch all of the risk dimensions -  infrastructure, health, climate, societal issues,” said Axel Lehmann, chief risk officer for Zurich Insurance Group, at last week's conference. 

Water crises

This issue factors in two extremes - too much water and too little water.

So while India and the Middle East could see shortages further raise already high social tension, flooding in Europe risks affecting both homes and farmland. The drinks industry is at heart agricultural and therefore sensitive to environmental changes. Future water fears could impact heavily on companies that require a clean constant supply. Combine that with the need as a supplier of fast-moving consumer goods to manufacture close to the consumer base, and the problem is multiplied.