An article on the IFAC Global Knowledge Gateway by researchers Dr. Martin Kuertz, Dr. Tony Colman, and Prof. Tony Allan tees off with a reference to a report that captured the opinion of experts and global decision makers in the run-up to the 2015 World Economic Forum meeting in Davos. In that report water was identified as the number one risk threatening global stability.
There are significant water issues in many regions around the globe, in both developing and industrialized nations. However, recent media “hotspots” include the US, where California recently implemented its most severe water restriction regulations, and Spain, where farmers are fighting developers over water rights.
This IFAC article focuses on the food supply chain, where at no stage do stakeholders have to account for how much water they use. It characterizes California, a naturally arid state, as a “net exporter” of water because of the water embedded in the food that it sells. While hugely expensive in many respects, the cost of this water is not captured in the prices charged for the vast volumes of fruits and vegetables grown there and exported out of state.
Noting that all inputs are accounted for in the $5-7 trillion food market, except for the environment, the authors argue that there is an opportunity, or responsibility, for the accounting profession to develop rules for pricing water and payment to farmers for caring for water. By incorporating these costs into food prices, as labor and energy expenses are, we will facilitate a more sustainable system for food production around the world.
The CGMA briefing Rethinking the Value Chain: Accounting for Natural Capital in the Value Chain highlights the importance of sustainable sourcing in the food industry, citing a Trucost statement about General Mills which has determined that 99% of its water use occurs outside of its operations. This CGMA briefing identifies the risks and opportunities associated with natural capital depletion in business, and the CFO and finance professional’s role in natural capital accounting through the entire value chain.