ATLANTA — Three sentences inserted into Coca-Cola Co.’s 113-page annual report carried a prescient warning.
“Water represents another issue that will increasingly require our company’s attention and collaboration with the beverage industry,” the 2004 document stated. “Water is the main ingredient in every product our industry offers. It is also a limited resource facing unprecedented challenges from over-exploitation, increasing pollution and poor management.”
The warning was not just corporate boilerplate. Water availability is potentially one of Coca-Cola’s most pressing risks. Two and a half years into Muhtar Kent’s term as chief executive officer, water has become one of his signature issues.
Water “is essential to the future viability of The Coca-Cola Co. and our system of bottling partners around the world,” Kent said in a speech last year in Istanbul.
But critics say Coke needs to stop causing water problems before it starts offering solutions. Earlier thisdecade, a dispute erupted in India over Coke’s use of water, in part because of the sheer volume of water the company requires to make its products.
In a country where water already is in short supply, the years-old controversy has not entirely gone away, as critics say Coke’s water campaigns are an attempt to distract the public from ongoing problems.
From southern Europe to parts of India and China, Mexico and the U.S., many of Coca-Cola’s territories are facing or could face water stress. According to the United Nations, almost 900 million people worldwide do not have access to clean water. In a decade, two-thirds of the projected population of 8 billion could live in waterstressed areas.
“Let’s put Coca-Cola to one side,” Kent said. “Water faces serious challenges around the world.”
In one $20 million project, Coke is working with the World Wildlife Fund to conserve seven of the world’s biggest freshwater river basins, including the Yangtze in China, the Mekong in south-east Asia, the Rio Grande in North America, and the Danube in Europe.
“I see our role not only as what we do for Coca-Cola, but leading the way to raise awareness in the world,” Kent said. “We’re not doing this to impact consumer behavior. We’re doing this to make sure we can be a meaningful part of this debate.”
Coca-Cola uses 309 billion liters of water annually to produce its beverages. In 2008, the company said, Coca-Cola used 2.43 liters of water to produce an average 1-liter beverage. One liter goes into the beverage itself, and 1.43 liters are used for manufacturing processes such as rinsing, cleaning and cooling.
The company said its global system of about 1,000 bottling plants is on track to improve water efficiency by 20 percent between 2004 and 2012.
According to a goal announced by former CEO Neville Isdell in June 2007, Coca-Cola by 2020 will offset the water it uses in production by using water more efficiently, returning clean water to the environment, protecting watersheds, harvesting rainwater and helping farmers use water more efficiently.
“Overnight, that announcement jolted a lot companies that had not been thinking about it yet,” said Linda Hwang, manager of research and innovation at corporate responsibility group BSR.
Kent said Coca-Cola’s role as the world’s best-recognized brand should be tospur businesses, governments and nongovernmental organizations to collaborate on difficult water issues.
“We are a communicating organization,” he said.
But the controversy over water refuses to go away in India, one of Coke’s most important developing markets.
A panel convened this year by the government of the state of Kerala recommended that Coca-Cola be held liable for at least $47 million in damages for alleged pollution from a local bottling plant. Coca-Cola stopped production at the plant in 2004 as protests and boycotts raged over pollution and groundwater depletion.
Coca-Cola said the committee appears to have been set up with a predetermined conclusion. Coca-Cola argues that scientific studies have shown that its bottler did not cause local watershed problems.
“This is indicative of the arrogance of the company as it operates in India with impunity,” said Amit Srivastava of the India Resource Center. “If Coca-Cola does not agree with the rules and decisions of such a body ... it is time for the company to get out of India. It cannot operate on its own rules and regulations and dismiss the rules and regulations of the state.”
Meanwhile, critics accuse Coca-Cola of exacerbating water stress in the village of Kaladera. The area is waterscarce and drought-prone, according to a January 2008 report by the Energy and Resources Institute. Kaladera’s groundwater levels fell about 55 feet in the decade leading up to 2009, according to the state government of Rajasthan. The pre-monsoon water levels were more than 98 feet below ground level in 2009.
Coca-Cola said it has reduced its water usage ratio in Kaladera by more than 55 percent between 2004 and 2009.
The company is working to replenish groundwater by capturing rainfall and said groundwater depletion would have been even worse otherwise. Coke said it uses less than 1 percent of the area’s available water.
Still, “Coca-Cola has no business operating a bottling plant in such dire conditions, and we are not sure why they opened the factory in the first place,” said Srivastava.
Although it disputes many of the accusations, Coca-Cola said it has set ambitious goals to improve water usage around the world.
Agriculture accounts for about 65 percent of freshwater usage around the world, according to UNESCO. “When we talk about challenges related to water availability, if we don’t deal with agriculture, we’re missing a huge segment,” said Denise Knight, water and sustainable agriculture director at Coca-Cola.
Coca-Cola buys vast quantities of sugar cane, a notoriously thirsty crop that serves as the raw ingredient for sweetener in many of its drinks. Sugar cane production occurs in tropical nations including Brazil, India, Thailand and El Salvador, where water stress can be serious.
The company said it plans to help cane farmers use water more efficiently. The acreage in a pilot project aimed at cutting nitrogen runoff fromAustralian farms will grow by 150 percent.
By the end of this year, Coca-Cola wanted to return all water it uses for manufacturing processes to the environment at a level that supports aquatic life and agriculture.
The company will fall a bit short, with 96 or 97 percent of its plants abiding by the standards by year-end. Coca-Cola expects its lagging plants in rough places like Albania and the Congo to come into compliance next year.
Coca-Cola said its plants abide by local regulations and the 3 or 4 percent noncompliance rate refers to the internal standards, which are tougher than government regulations in some areas.
“All of our plants have started projects,” said Greg Koch, Coca-Cola’s director of global water stewardship. “They are all under way, and it’s a matter of delays and timing.”
Coca-Cola also is trying to reduce water use. Its bottling plants have instituted relatively simple fixes like plugging leaks and turning off the water to bottle rinsers when the bottling line is shut down. Some Coke plants also use waste water, once it’s been filtered and cleaned, to rinse bottles, irrigate vegetation, wash trucks and floors, and cool refrigeration systems.
In many cases, Coca-Cola’s bottlers are coming up with improvements, rather than just implementing directives from headquarters. “That is something I’m both personally and professionally proud of - the level of collaboration with the bottlers,” said Koch. “We have done things almost exclusively without edict.”
Business, Pages 73 on 11/28/2010