T. Boone Pickens has declared that “water is the new oil.” And in a sense, Pickens is correct, given the distinct interplay that exists between water, oil and food. If you have water, you can grow food. If you have food, you can manufacture biofuels. And if you have energy, you can produce fresh water through desalination. Pickens, by the way, owns more water than any other individual in the U.S.
Much of the water that exists on this planet is not fit for human consumption. Only about 3% is considered safe to drink. Of that, two-thirds is locked up in glaciers and not available for consumption. That leaves just 1% of total water potable.
What is nearly as remarkable as its relative scarcity is the relative abundance of fresh water beyond that which can be seen with the naked eye. As impressive as the Great Lakes are, the reality is that surface water accounts for just 3% of that readily accessible drinkable water. The remaining 97% is found below ground in aquifers. And it is here where we find Pickens’ interest. Specifically, his ownership interest lies in that part of the Ogallala aquifer that runs beneath Texas. (The entire aquifer, spanning portions of eight states, is sufficient to cover the entire U.S. in nearly two feet of water. Yet in North America, we are regularly reminded of our profligate consumption of water. On average, the typical person draws about 400 litres per day out of the tap. The average European uses just 200 litres per day, and in the developing world, a person will use just 10 litres. For survival, we need just slightly less than three litres of water per day.However, the whole calculus of water consumption becomes upended once we consider the concept of “virtual water.” Our virtual water footprint incorporates much more than just the tap water we drink and cook and bathe with. Instead, it broadens the concept of consumption to incorporate the water requirements associated with the entire production chain. Consider for a moment that morning cup of coffee. The virtual water footprint, which is to say the water used to grow, clean, process, roast and brew the beans, took the equivalent of 140 litres of water. A full breakfast including juice, newspaper, milk, coffee, toast, two eggs and bacon weighs in at a hefty 2,800 litres. A kilogram of beef, 16,000 litres of water. Pair of jeans and cotton shirt, 10,000 litres.
One’s virtual water footprint is largely related to choice of diet. A survival diet alone leaves a footprint of 1,000 litres per day. A vegetarian diet needs 2,600 litres, while a high-protein, North American–style meat-based diet runs the meter up to 5,000 litres of water per day. As more people in the developing world move toward a meat-based diet, the level of stress applied to the world’s water table will dramatically increase.
The UN estimates that groundwater is already being used at a rate of 4% beyond its replenishment rate. The International Water Management Institute estimates that China, India and Pakistan pump 400 cubic kilometres of water out of the ground each year, twice as much as is recharged by rain. The Indian Punjab has seen electricity consumption rise dramatically as a declining water table necessitates the adoption of the biggerpumps needed to pull that deeper water up to the surface.
By contrast, Canada may be considered a water-rich country. Canada contains one-fifth of the world’s fresh water and about 6% of the world’s supply of renewable fresh water along with an abundance of cheap arable land, all of which positions Canada as a net exporter of water. This is not to suggest that we drop a big pipe into the Great Lakes. Shipping physical water is far too inefficient. Rather, we are talking about exporting virtual water ? one grain at a time. Trade in agricultural products creates a virtual flow of water between partners. In other words, a country that is water-poor can import products that are water-intensive, from a water-rich country rather than producing them domestically. Under this framework, importing one kilogram of rice is the equivalent of importing 3,400 litres of water.
For Canada, it broadens our export story. We are not just about energy but a potential powerhouse in the trade of agricultural products, or in the context of this story ? virtual water. It suggests that we will need to invest in and embrace technological innovation on the farm and in agricultural genetics. It may not be sexy technology, but it is marketable and, over time, will become critical to our prosperity. It suggests that Canada continues to benefit from flows of investment capital, not only in the energy patch but extending into the concept of virtual water. Above all, in the competition for human capital, Canada with its surfeit of food, energy and water, offers that which is most sought after ? stability.
Stewart Hall is an economist and market strategist with HSBC Securities (Canada) Inc.