Nestlé makes case for water pricing to boost efficiency gains

Nestlé chairman Peter Braback-Letmathe has argued that more value must be put on water use through market pricing mechanisms that could drive greater efficiency measures.

Braback-Letmathe – who is an authoritative voice on water scarcity issues – outlined three options that could help accelerate resource savings across business and industry, but cautioned that the notion of pricing was “a very delicate issue” in terms of how water is perceived.

Acknowledging that pricing regulation could be one way forward for water management, he also pointed to two other possible solutions – cost curving and shadow pricing. All three were “not necessarily conflictive” he added.

“For every water basin of the world we are establishing a cost curve – what it would cost, what we would need to implement, in order to balance out the demand and supply side,” Braback-Letmathe said.

He highlighted India as an example, where the work of Water Resources Group – a global public-private collaborative platform – has shown that for a total cost of $5.6bn (US) per annum, the country’s water demand and supply needs could be balanced out.

This amount of money, he explained, was “a drop in the ocean for India” and added that the Indian government is now considering it as a potential workable solution.

“The third possibility is what we are doing at Nestlé,” Braback-Letmathe continued. “Here we have established a shadow price [for water] … in order to see whether economically we can invest in water efficiency.”

The shadow price is set from one franc per cubic metre of water up to five francs per cubic metre depending on whether it is sourced from a water poor region or not.

“Once you have that shadow price you then can justify the investments which are necessary to increase your water efficiency. If the water has zero value there is no economic justification for any investment,” Braback-Letmathe explained.

While admitting that striving for greater water efficiency was in the interest of large global corporations such as Nestlé – “We wouldn’t have a business if we went into a major water crisis” – Braback-Letmathe maintained that the benefits were clear to see.

“When we started to look at this issue, we needed 4.5 litres of water to produce one dollar of turnover. Now with all the efficiency measures we are down to 1.5 litres of water for one dollar of turnover,” he said.

“You look into any other industry and you will see that they need 200 to 400 litres in comparison. Take the bio-diesel industry – that requires 9,100 litre of water to produce one litre of bio-diesel,” he added.

Braback-Letmathe’s comments came during a interview with the IMD Corporate Learning Network, part of the International Institute for Management Development in Switzerland.

Maxine Perella

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