Water worries

Mexican politics, policy and business increasingly challenged by water scarcity.

Coinciding with World Water Day, the UN held its first freshwater-focussed event in almost 50 years: the UN 2023 Water Conference at the UN Headquarters in New York City from 22-24 March 2023. The various lectures, panels, and discussions underlined the fact that water is an economically strategic resource which underpins many business activities.

Water scarcity is an increasingly important concern for all kinds of businesses across the world and is a particularly acute challenge at present for manufacturing businesses in Mexico.

Although the south-east of Mexico is tropical jungle, vast swathes of its north and central regions are arid, even desert. Low rainfall in recent years has meant that aquifers are running low and that breweries must now compete with farmers and other businesses for “concessions”, which are effectively the right to extract a given volume of water. A water industry executive explained the importance of water for Mexico, “It’s not just a matter of buying up rights because the dams and reservoirs that provide drinking water to millions of Mexicans are running low; it’s therefore a sensitive social and political issue, and water-intensive industries must walk a tightrope between providing essential employment and using up the resource that their employees need to live.”

“It’s not just a matter of buying up rights … it’s a sensitive social and political issue.”

Executive, water industry, Mexico

Millions of Mexicans face a water emergency with shortages leading to increasing social and economic conflicts, particularly in the north of the country. According to the government agency Comisión Nacional del Agua (“CONAGUA”), in 2022: 1,546 of the country’s 2,463 municipalities suffered water shortages, 8 out of 32 federal states reported drought conditions and 42% of the country’s aquifers were currently overexploited.

The current situation is caused by a combination of extreme weather conditions and poor governance decisions. These include bad water management under previous administrations, obsolete infrastructure unable to cope with urban growth, and poor communications from the administration.

A study from the National Institute of Statistics and Geography in Mexico (“INEGI”) established that the agricultural sector accounted for 76% of the use of water in the country. It is followed by public supply, 14.4%, the industrial sector, 4.9%.; and electricity generation, 4.7%.

The unequal use of water was aggravated after the former President Enrique Peña Nieto lifted a ban on the use of water from 300 of the 756 water basins in the country. This decision awarded state and local governments the power to award private companies water exploitation rights for 50-year periods. An executive at a water management consultancy was appalled that nothing had been done to reverse this, “Despite promises that he would repeal all ten of Peña Nieto’s water decrees, President AMLO has yet to take decisive action either by executive decree or by legislating through the federal Congress.”

The main beneficiaries of these concessions were the brewing and beverage, mining, pulp production, and automotive industries, in addition to the state-owned energy companies Pemex and Comisión Federal de Electricidad (“CFE”). According to CONAGUA, 304 companies control 22% of the water consumed under concession in Mexico.

Water scarcity has an impact on all sectors of the economy but its first impact is felt on the agribusiness sector. Sorghum, corn, and beans are expected to be among the most affected crops in the region. Notably, Mexico is the sixth largest exporter of sorghum worldwide and the drought is expected to decrease production levels back to that of the 1990s.

“Whether it is by introducing better technology, reducing waste, reusing water, sanitising, or whatever, businesses need to do more.”

Water management consultant, Mexico

Mexico’s beer industry, which consumed 222 million cubic metres of water in 2021, has also suffered from exposure to water scarcity. President AMLO recently supported a popular consultation which rejected the construction of a beer production plant in Baja California. In August 2022, he also announced that the government would not provide additional water licenses to the brewing industry in north Mexico, a measure of difficult implementation from a regulatory point of view. An industry executive commented, “At the moment, the question is: how long will the water last? Any investor should think hard about brewing in northern Mexico.”

The water management consultant explained that businesses should be doing more: “Whether it is by introducing better technology, reducing waste, reusing water, sanitising, or whatever, businesses need to do more or soon there won’t be any water left.”

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