Special Report | April 2012 | By Stephanie Ogburn

The State of Our Water

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Not all restaurateurs were as fortunate as Bon Appétit’s Aquaro.

George Frangos, the owner and operator of Farm Burger, a two-unit quick-serve burger joint in the greater Atlanta area, says drought hurt the local suppliers he buys from, and that cost him.
Farm Burger falls into the growing category of quick-serve restaurants trying to sell healthy, fresh, and sometimes local and organic food at affordable prices. But when drought comes, that prized local produce becomes scarcer.

“From okra to heirloom tomatoes, if the farmers aren’t producing as much, their prices go up,” Frangos says.

At Salsarita’s, a fresh Mexican chain with locations in the Southeast, franchisees take pride in the fact that they make their salsas fresh every day. Myrtle Beach, South Carolina, franchisee Chris Tobin says getting consistent products to make that salsa, however, is challenging during water shortages.

“Fresh produce is a great deal of importance to me and our brand,” Tobin says. “During the drought it has been a challenge to get great-quality produce on a consistent basis. Our corporate office has spent a great deal of time working with vendors on providing us a quality, consistent product.”

Farm Burger’s Frangos says those higher produce costs hurt his margins.

“We don’t really transfer that [higher price] on to the customer, because I don’t think the customer gets it yet, so we kind of take it on the chin.”

In essence, customers are not yet ready to connect local water shortages with more expensive local produce—even if they value that a restaurant buys fresh and local.

Tobin, of Salsarita’s, agrees that water scarcity impacts his bottom line.

“Between the drought and higher fuel cost to deliver products, profit margins are getting slimmer,” he says.

While restaurants trying to source local produce may see higher prices in drought, it is also possible that small-scale farmers’ growing methods—particularly organic ones—might help them weather drought better, says Natural Resources Defense Council agriculture policy expert Claire Althouse. Bon Appétit’s experience with Harris Acres’ long-rooted hay is a prime example. In fact, farmers growing with more natural methods may be better equipped to outlast drought than traditional agricultural operations.

“Organic farming helps the soil conserve a lot of water that’s there, better,” Althouse says.

That’s also been the experience of Farm Burger’s sister restaurant, Farm 255, a full-service establishment in Athens, Georgia. As the name implies, its own group of farms supplies the restaurant. While much of the Southeast was in a drought, says managing partner Olivia Sargeant, its farms, which also supply some SKUs for Farm Burger, did just fine. That’s because the farm waters its plants using a technique called drip irrigation, where plastic hoses laid on the ground drip out water right at the plant’s roots. This reduces water loss from evaporation, uses less energy than overhead sprinklers, and delivers water right to the plant roots, where they need it the most, Sargeant says.

The result: “As restaurants or farms we’ve never been affected at all by shortage,” while other farms in the region were, she says.

The Global Factor

As the world’s climate warms and its population grows, global competition for resources once taken for granted like water and soil will play a role in how the U.S. restaurant industry operates. And some of the world’s biggest food and beverage companies providing ingredients for foodservice are paying attention.

From a sourcing perspective, even smaller restaurants are globally connected. How Do You Roll?, the Texas sushi outfit, gets its fish from farms in Scotland, Indonesia, and the Philippines. Its rice comes from Japan. McDonald’s gets some of its Angus beef from New Zealand.

Companies like the Coca-Cola Company, Nestle, and Unilever, the consumer goods company that produces salad dressings, Lipton tea, and cleaning products, have signed on to the CEO Water Mandate, a voluntary United Nations initiative where companies address the challenge of water scarcity worldwide by working with governments, nonprofits, and local citizens to use water resources more responsibly. The companies will benefit from joining the effort because planning and becoming more sustainable will keep them ahead of their competitors, says Jason Morrison, a researcher at the Pacific Institute, a California-based think tank that works on water issues around the globe.

“There’s a big recognition from food companies that they need to be more aware of what they are sourcing and the water impacts of the crops they source, the commodities,” he says. “You’ll see, for example, subsidiaries of PepsiCo, like Nabisco, working with rice farmers [in Asia] to better manage water. It’s about ensuring the long-term reliability of supply.”

Multinational food companies like PepsiCo, which source from all over and whose products are in many restaurants, face three kinds of risk related to water, Morrison says. The first is related to availability, or supply of the water they use to make their products and run their operations. The second is related to regulation, since poor regulation leads to poor water quality for the products they are making. The third risk is a newer one, and it’s about reputation. In the era of educated consumers, citizens won’t support companies that are perceived as wasting water, or which lay claim to water needed by communities.

In parts of India, the Coca-Cola Company and PepsiCo have both lost plant-operating licenses because of water shortages. Even in the U.S., Nestle Waters, which is opening a new bottled water plant in Colorado (and has tried to open one at the base of Mount Shasta in California) was fought by locals who perceived the plant as stealing one of their most precious resources: their fresh water.

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