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World's largest beer brewer cuts water use, braces for future risks

Drinking less beer and more water is usually a good diet plan -- unless you're the world's largest beer brewer. Instead, Anheuser-Busch InBev is planning to make more beer while reducing water use.

Every liter it produced in 2007 required about five times as much water to produce it. Faced with growing water scarcity around the world and increasing pressure to cut consumption, the company plans by 2012 to ratchet down that ratio to 3.5 liters of water per liter of beer, a 30 percent reduction, it announced today. Already, it says, it's about halfway to that goal.

AB InBev, which operates in 23 countries worldwide, is among the 60 percent of major beverage manufacturers -- as well as other water-intensive industries, such as power and mining sectors -- looking to reduce their water footprints, according to a recent water risk report by Ceres, a coalition of institutional investors pressing companies to adopt sustainable practices in the name of good business.

"We are acutely aware that water is a finite and precious resource and the principal ingredient in our products. Efficient water use is essential to the continued, sustainable growth of our business around the world," AB InBev CEO Carlos Brito said in a statement.

By meeting this goal, the company says it could fill 25,000 Olympic-sized swimming pools with saved water. Based on American Water Works Association statistics, that's also enough to meet one year's indoor water needs for more than half a million U.S. residents living in typical single-family homes.

In addition to a clear desire to burnish a "green" corporate reputation, other motivations underlie this and other companies' pledges to tighten their water belts.

"What this reflects is a growing trend of beverage companies realizing that the explicit and implicit price of water is likely to go up," said Brooke Barton, a senior water program manager at Ceres. "There will also be more regulation and more competition in the watersheds where they operate," she added.

Expanding markets pose expanding risk

Earlier this year, Ceres graded 100 companies' water risk disclosure practices. The beverage industry, including AB InBev, ranked relatively high on its list compared with other sectors and companies. That's important given guidance issued in January by the U.S. Securities and Exchange Commission requiring companies to disclose their financial and regulatory climate change risks, including future water supply constraints.

Water conflicts and risks are already coming to a head in expanding beer and beverage markets in the developing world, regions where 1.1 billion people still lack clean drinking water access and the agriculture sector demands its fare share.

Coca-Cola and PepsiCo bottlers have had groundwater licenses revoked during water shortages in India and face tensions in siting new plants in other emerging markets. AB InBev operates 140 breweries worldwide and sees current high-growth areas in China and Latin America, including Brazil, according to company reports and executives. Both countries also face major water supply and quality concerns in some regions.

What's more, competition for fresh water will get even stiffer as global population explodes and climate change causes more frequent droughts, shrinks glaciers and degrades water quality. The consulting firm McKinsey & Co. estimates that, by 2030, more than a third of the world's population will live in severely water-stressed areas.

Beer, the world's third most popular thirst quencher after water and tea, is still a relative luxury in the face of such statistics. In noting this, Barton predicted that beverage companies' handling of water issues could make or break corporate reputations as they expand into these markets, she said.

The Ga. experiment

AB InBev executives said that their moves are tied less to any particular growth strategy and more to the company's overall business plan. "Reducing water use and other natural resources is really part of how we drive efficiency in our operations. It's simply good business," said the company's environment and sustainability director, Bert Share.

One AB InBev brewery has already faced down waters issues a bit closer to home. This facility will serve as a model for AB InBev's water plan worldwide, executives said.

The Budweiser brewery in Cartersville, Ga., is less than 50 miles from Atlanta, a city exploding with growth. In late 2007, it was already one year into what unfolded as a historic nearly three-year drought that swept through the Southeast. It inflamed a 20-year-long water water among Georgia, Alabama and Florida, and caused $1.3 billion in overall economic damages in the state, according to one estimate. The electric utility Southern Co. was forced to buy $33 million in fossil fuel power to replace lost hydroelectric power in Georgia, for example.

"It was a real crisis. You had local governments wondering whether they were going to have enough water," said April Ingle, executive director of the Georgia River Network. During the drought, Lake Lanier, which supplies the Atlanta metro area, hit its lowest level in history. Lake Allatoona, which supplies municipal water to the city of Cartersville, was also dangerously dwindling.

That fall, the state stepped in, requiring that municipal utilities and industrial permit holders cut consumption by at least 10 percent, according to Kevin Chambers, a spokesman for Georgia's Environmental Protection Division. Cities in turn leaned on large water users to contribute to their cuts. When Cartersville officials asked the brewery to reduce their water use, plant managers who were already working in that direction took it to heart.

According to Greg Kellerman, AB InBev's North American utilities director, the 8-million-barrel-a-year capacity brewery conducted a difficult top-to-bottom audit of every single plant process. Though water is obviously a key beer ingredient, a big portion of each bottle's water footprint is devoted to cleaning, cooling and steam production, he said.

By reclaiming rinse water and reusing it for heating and cooling, the brewery reduced net water use in the power house to almost zero. Today, the brewery consumes only 3.1 liters of water per liter of beer, below the company's 2012 goal. "It was not easy to do because it [water] is such a critical part of process. It was a real success story," Kellerman said. "We did feel, as a large water user in the area, we needed to demonstrate leadership in our efforts to conserve," he said.

As temperatures rise, hops production may sink

As the company expands these efforts globally, executives said they would save water mostly with low-tech conservation efforts, rather than filtration or membrane technologies.

What could be most important is where the company plans to conserve, Barton said. "It's relatively easy and inexpensive to reduce water use in Wisconsin. It's harder in South Africa," she said. Share said the company will set targets specific to each region and based on individual brewery operations and ages.

Meanwhile, another major beer company, SABMiller, has gone even further to audit its larger water footprint, which includes water use through its supply chain and on its growers' farms. In South Africa, where irrigation is common, the total footprint was a whopping 155 liters of water per liter of beer; in the Czech Republic, the ratio was only 45 liters to 1.

These numbers present another risk to beer companies. According to the Ceres report, a 2009 study found rising temperatures were causing decreased production of a European hops variety used to make pilsner lager, for example.

Back in Georgia, with its recent drought and continued water conflicts that could see water from Lake Lanier diverted to other states, a "culture of conservation" has taken hold. "That drought really hit home for people. They could just look at the lake and realize the impact," said Chambers.