NEW YORK (TheStreet) -- One of the most significant future risks to the packaged food industry isn't consumers losing interest in their products -- it's the difficulty in delivering products of any kind amid a shrinking water supply thanks to global warming. Another big problem: surging demand for food on a global scale.
The statistics on global warming are getting worrisome. They're causing executives at the food industry's biggest players, such as PepsiCo (PEP) - Get Report , General Mills (GIS) - Get Report and Coca-Cola (KO) - Get Report , to take action. According to the U.S. Environmental Protection Agency, the Earth's average temperature has risen by 1.5 degrees Fahrenheit over the past century. And it is projected to rise another 0.5 to 8.6 degrees Fahrenheit over the next century.
The byproduct of climbing temperatures on Earth is already visible in extreme weather conditions such as the recent prolonged droughts in California and Australia. These changes will make it a priority for food companies to secure enough water to produce their foods and beverages.
A 2013 study of 40 aquifers across the U.S. by the U.S. Geological Survey said that the rate of groundwater depletion has increased dramatically since 2000, with about 6 cubic miles of water per year being pumped from the ground. From 1900 to 2008, the average depletion per year was 1.48 cubic miles. The Worldwide Fund for Nature says that by 2025, two-thirds of the world's population may face water shortages, leading some observers to predict all-out catastrophe.
So what are companies doing to face these challenges?
California's drought is over four years old, and is greatly impacting the farming industry.
Insurance provider Lloyds of London estimates that wheat, maize and soybean prices could quadruple by 2025, thanks to a vanishing water supply.
It could wallop the bottom lines of packaged food manufacturers if more measures aren't taken today to conserve what is increasingly becoming a precious commodity.
"We absolutely have a fresh water problem. Just look across the U.S.," said PepsiCo vice chairman and Chief Scientific Officer Dr. Mehmood Khan in an interview with TheStreet. Khan's primary role is to develop new products while working hand in hand with PepsiCo's supply chain team, government and industry. And Khan must look at whether the right crops are being grown in the right parts of the world from a water efficiency standpoint.
"Water is no longer free for everybody. Water has a cost to it, in that it impacts our planet, cities and society," Khan said. "If we keep looking at water as something that is available to us for free, then I think we will end up with challenges."
These sober pronouncements about the water supply are echoed at General Mills, which needs oats and various grains sourced from farms to produce its Cheerios cereal and Nature Valley snacks.
"The odd thing about water is that the world has just as much water as when the Earth was new. It's not going anywhere. It's just not in the right places-- there is a supply chain problem," said John Church, executive vice president of General Mills' supply chain.
In other words, the water to power manufacturing plants and supply farms is not necessarily available right there. It has to be siphoned long distances from aquifers and reservoirs, creating inefficiencies.
Not helping matters for food manufacturers is the projected long-term surge in the world's population, which will require the production of even more food. The agricultural community will be forced to tap depleting water supplies, as well as farm land that is already being overused.
PepsiCo is moving aggressively to use water more efficiently at its manufacturing plants.
The current world population of 7.3 billion is expected to reach 8.5 billion by 2030. It will likely be 9.7 billion in 2050 and 11.2 billion in 2100, according to a recent report from the United Nations Department of Economic Social and Social Affairs.
"We will have 2 billion more people to feed by 2050, and if you think about consumption as populations become more affluent and hunger is addressed, we will need about 40% more food than we produce today," PepsiCo's Khan said.
Thus far, the bottom line of the packaged food industry has largely sidestepped the wrath of Mother Nature.
"What you are seeing are micro areas of risk that have become problematic," said General Mills' Church, pointing to the droughts in California and Australia, and ones that gripped the Midwest in 2012 and led to sizable price increases for various grains.
"It hasn't brought us to our knees, but it would be inappropriate not to take action and mitigate the risks that come along with this issue," said Church.
Actions taken to reduce greenhouse gases and protect natural resources such as water and fossil fuel -- and to guard hard-won profits -- are beginning to proliferate among food manufacturers.
On Thursday, PepsiCo announced that from 2006 to 2014, it improved its water efficiency by 23% per unit of production, saving 1 billion liters of water and $17 million in expenses in 2014. Specific projects that drove these savings ranged from fixing leaks in beverage plants to recycling and reusing water.
In 2014, the company maintained absolute greenhouse gas emissions for businesses it has owned since 2006 (like Pepsi soda and Frito Lay snacks) flat compared to 2008, even as production volume continued to grow. PepsiCo says that the energy efficiency of its legacy operations has improved by about 16% since 2006, supported by the use of items like electric and natural gas-powered vehicles to ship Frito Lay chips and soda.
In August, Coca-Cola announced that it's well ahead of schedule in its efforts toreplenish 100% of the waterthat it uses around the world to produce its beverages. What that means is that for each gallon of water Coca-Cola uses, it will recycle or conserve a gallon somewhere else in the world.
Coca-Cola uses approximately 300 billion liters of water each year to produce about 160 billion liters of what it calls "finished beverages" that include Coke, Sprite, Fanta and hundreds of other brands. Further, the company's energy efficiency has improved 21% since 2004.
General Mills has an aggressive goal to source some of its top ingredients more sustainably.
But Coca-Cola admits on the sustainability portion of its Web site that while energy efficiency improvements continued in 2014, its renewable energy program "has not scaled up as quickly as originally intended."
For its part, General Mills disclosed in 2013 that it was on track to sustainably source 100% of its top 10 ingredients by 2020, which collectively represents about 50% of its total raw material purchases. Sustainable farming involves producing crops without relying on toxic chemical pesticides, synthetic fertilizers, genetically modified seeds, or other practices that could degrade soil, water, or other natural resources.
Some of the top ingredients used by General Mills include wheat, oats and corn.
To address the larger issue of global warming, General Mills recently announced a commitment to reduce greenhouse gas emissions by 28% in 10 years' time. Over the last 10 years, the company has lowered its greenhouse gas emissions by 13%.
In spite of these moves by the kings of the supermarket aisles, even more may need to be done to mitigate the potential for food and water shortages -- and to limit the risk to shareholders those shortages represent. Some of the solutions need to go beyond working more closely with farmers or monitoring water usage at manufacturing plants.
"Free trade will be an important part. We will have to let countries make what they are best at, and allow trade barriers to drop such that we can feed 9 billion people, because the food to feed 9 billion people won't necessarily be where [the] 9 billion live," said Church.
Church believes that product innovation will play an integral role, meaning food manufacturers will need to attract consumers to products that lend themselves to recyclability and require fewer resources to produce.
As Khan remarked, "You can have the best product in the market, but if you don't have supply then you can't get the product into the hands of people."