Special Report | April 2012 | By Stephanie Ogburn

The State of Our Water

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“Climate change will take a serious toll on water supplies throughout the country in the coming decades, with more than one out of three U.S. counties facing greater risks of water shortages,” says Dan Lashof, director of the environmental group’s Climate Center, who commissioned the research on climate change–related drought. “Water shortages can strangle economic development and agricultural production in affected communities.”

When drought comes to regions unaccustomed to dealing with water shortages, it often causes conflict. Take, for example, South Carolina and North Carolina, two states in a part of the country typically considered water rich. State leaders have quarreled in recent years over North Carolina’s use of the Catawba River, which flows from North Carolina into South Carolina. Drought in the region escalated the dispute, as growing cities in North Carolina sought more water from the Catawba, and South Carolina feared it would not receive its fair share.

In the nation’s Midwestern breadbasket, where corn and soy prices set the tone for commodity and wholesale prices around the country, unexpected drought could ripple across the country. Midwestern grain crops provide feed for the majority of beef, pork, and chicken producers around the country, and commodity prices directly influence the cost of most other food prices, and even impact land prices.

A drought in this region could send food prices sky high, as livestock producers would have to pass additional costs on to customers, and ingredient prices for everything from bread to bacon would skyrocket.

Climate change isn’t the only problem. As the U.S., and the world, becomes more urban, city dwellers are demanding water that used to go to agriculture. Southern California’s Imperial Valley farmers, who grow hay and grain for animals, citrus, avocados, and other warm-weather crops, are increasingly competing with residents of San Diego for water. The source of their water is the Colorado River, which starts in the Rockies and flows through seven Western states before reaching Mexico. It’s where these Southern California farmers get irrigation water, and today it is over-allocated, meaning that states that depend on water from the river are guaranteed more water than it carries.

When there is a big Rocky Mountain drought, as there was in 2002, there could be a fight over which states get water, a socio-political battle that would be guaranteed to disrupt supply for farmers.

The Texas Drought

While scientists forecast climate changes and extreme droughts several years in the future, Midland, Texas, could be out of water in less than a year. The town’s water source, O.H. Ivie reservoir, is drying up fast, and if projections for rainfall hold true, will be empty in early 2013.

“It’s a race as to whether they can get to water before it’s a real dire situation,” says Jose Cuevas, referring to a $140 million pipeline project to access underground water.

Cuevas runs Jumburrito, a group of seven quick-serve burrito stores in the area.

The city entered Stage 2 water restrictions in July 2011, which means Jumburrito’s parking lots and sidewalks haven’t been washed since.

“As you know, in the restaurant industry we have all kinds of spills and trash, and it’s hard to have your lot looking clean and presentable when you’re not allowed to wash it,” Cuevas says.

A dirty lot and withered landscaping are not the biggest problems facing Cuevas, though. Oil and agriculture rule the area’s economy, but tourism also adds a boost to the service industry’s coffers. Hunters come from across the state and nation to shoot waterfowl on the many reservoirs in the region, or deer in its preserves. When there is no water, there are no ducks or deer.

“[There’s] no boating activity, no swimming activity, they are just completely dead,” he says. “So we’ve seen a lot of recreational people who come by, the hunters, they are not there this year. And we don’t expect it to get any better. That’s a big deal, because people enjoy coming out to deer hunt. Coming into town, most of them stay in hotel rooms, so they eat out. And that’s one less sale we have.”

The town’s answer is to drill for untapped water reservoirs underground, but that’s expensive, and the municipal water district will have to pass those costs on to its customers. Cuevas says he’ll likely have to raise prices to account for his added costs.

“You always have to look at [raising prices], because the ever-increasing cost of doing business, the energy costs, or because of water, you always have to be cognizant of the fact that price increases are natural,” he says. “Fortunately here in Midland, Texas, we live in an economy that is booming, we only have 4 percent unemployment, so raising prices is not as much an issue.”

In other parts of Texas, where unemployment remains high, price increases could affect customers more.

Yuen Yung, CEO of How Do You Roll?, a 10-unit custom sushi shop, says his Austin-based chain has seen utilities go up as a result of the Texas drought, although there have not yet been water restrictions for commercial businesses. He expects food prices for the fresh produce his restaurants use will also increase as water shortages take their toll.

“We are anticipating that [the drought] will probably push our food prices up some,” Yung says. “The crops and the availability of those crops are going to be lessened. So because of that, the price of those crops will go up some.”

Yung speaks from experience. When California experienced its big drought in 2007 and 2008, Yung noticed jumps in some of his ingredient costs.

“We saw certain things just go way up,” he says, “like avocados and things like that, just took a pretty big hit.”

One way to combat price increases is to have a diversified supply chain, he says. Another: “Diversification of offerings.” For example, if cucumber prices go up, How Do You Roll? can swap them out for sweet peppers or carrots.

The eastern part of Texas, which is traditionally the wettest, is probably the least impacted by the state’s drought so far, local restaurateurs say. But even there, franchise owner Ernie Stith has noticed shifts in business caused by the drought.