The searingly hot summer promised in July is something of a distant memory now, as record-breaking temperatures gave way to an overcast and drizzly August and a mixed September. Headlines screaming about global warming, droughts and hosepipe bans carry a little less urgency when you’re using your newspaper to shelter from the rain.
But there’s no escaping it. Water – or rather, the lack of it – is an increasingly important economic issue these days. Less than 1% of the world’s water is actually useable without cleaning or desalination.
Why a lack of clean water is Chindia’s biggest challenge
The biggest threat to the economic booms in both China and India is not high oil prices, but in fact, a lack of clean water.
In India, both urbanization and agriculture have been draining the country’s water table at an alarming rate. Cities need more water as growing populations put more pressure on sanitation – the amount of water a family uses tends to double when they move to the city. Meanwhile farmers have been drilling boreholes to pump up groundwater supplies to feed thirsty crops far more quickly than the monsoon rains replace them.
Meanwhile, two-thirds of China’s 600 urban areas are already threatened by water shortages. The country has among the lowest water resources in the world, and they are largely concentrated in the south. The north of the country has 45% of the population and 60% of the cropland, but less than 15% of the water. Pollution doesn’t help matters. More than 70% of China’s lakes and rivers are contaminated.
How can you invest in water supplies then?
All of this fretting about water supplies has not gone unnoticed by investors eager to dive into the ‘next big thing’. But it’s not the easiest sector to invest in.
You can’t buy or spread-bet on water the way you might buy oil. Utilities are too heavily regulated to offer much by way of investing excitement, and exposure to technologies such as desalination, or the infrastructure required to carry water tends to involve buying massive conglomerates which are frequently saddled with other divisions which investors may be far less interested in buying into.
Look to other resources affected by water shortages
So how can you play this shortage? Well, there’s another resource that’s vital to human life that requires rather a lot of water to grow – food.
It takes from 2,000 to 5,000 litres of water to grow one kilogram of rice, using irrigation. To grow the feed for enough cow to make a quarter-pounder hamburger takes 11,000 litres. In fact, two-thirds of all water that humans use is spent on irrigating crops.
Any way you look at it, a shortage of water means a shortage of food. Hopefully countries will get themselves organised enough to resolve the infrastructure problems that lie at the heart of the water shortage. But in the meantime, growing pressure on water seems likely to increase the difficulties of expanding the food supply to meet the growing population’s needs. And that makes soft, or agricultural commodities, a buy.
So how can you invest in soft commodities?
The good news is that just this week, softs became much easier to invest in. ETF Securities has launched 19 Exchange Traded Commodities (ETCs) on the London Stock Exchange. Each ETC will track an individual commodity, including soybeans, wheat and lean hogs. There is a 0.5% management fee, but otherwise the ETCs trade exactly like a share listed on the LSE. (For more on ETCs, read: How to profit from the commodities bull)
Softs are very volatile, so private investors need to be careful – they may prefer to go with one of the 10 ‘baskets’ of commodities which are also available. Each covers a group of commodities, ranging from energy to grains to livestock. This will enable you to spread your risk across several commodities, rather than putting all your money on just one.
First published on MSN Money 29/9/2006
Recommended further reading:
Want to know more about this investment trend? We previously featured it on our cover, see: How to profit from the world’s water crisis. Then read MoneyWeek editor Merryn-Somerset Webb on a country that’s bound to benefit from water shortages.