Innovation Blog

Global Water Shortage:  A Simple Matter of Supply and Demand

By Shlomo Maital

        Writing in the latest issue of McKinsey Quarterly,   three authors show in stark terms the enormous global risk inherent in the current developing shortage of water, worldwide, and suggest why there are huge business opportunities in this risk. [1]

         Using McKinsey analysis and data from the IFPRI International Food Policy Research Institute,  the authors show the following:

            1.  Global annual demand for water, based on estimates from 154 water basins or regions,  for the year 2005   is 4,208 billion cubic meters.  Of that, 512 b. m3  is for home use, 693  b. m3  for industry, and by far the largest proportion, 3,003 b. m3  , is for agriculture.  In other words,  71 per cent of water use goes for producing food.

            2.  Assuming 2 per cent compound annual growth (a conservative assumption),  water demand will grow to 6,906 b. m3   by 2030 assuming no improvement in technology or water efficiency, or a rise of 65 per cent between 2005 and 2030.   The fastest growth will be in water demand by industry, but  agriculture (where demand will rise by 50 %, to support hungry growing populations) will still capture two-thirds of water demand.

        3.  Without a technological breakthrough, the world’s water supply will remain essentially constant in 2005-2030, at 4,222 b. m3   .   This will be the world’s existing reliable water supply in 2030.   The shortfall in the year 2030 will be huge:  Almost 2,700 b. m3   .  

       4.   If we project improvements in technology and infrastructure, up to 2030, world water supply will be 4,866 b. m3   .   This still leaves an enormous shortfall, or excess demand, in the year 2030 of some 40 per cent of 2030  water supply, or 2,040  b. m3   .

      5.  Conclusion:    Either the price of water will rise dramatically, all over the world, to ‘ration’ the short supply,  or major technological advances arising out of massive R&D projects will reduce demand and increase supply.  Of course, both will occur.  Higher water prices will make large R&D investments in water technology profitable.  

       The world water shortage, like the world supply of oil and gas, will be inherently and massively unfair.   Some countries like Canada will greatly benefit, if they have large supplies of fresh water relative to their population.  Some countries which lack water (India) and where agriculture is important will greatly suffer. 

         Every country should calculate its own water balance in 2030 and build a strategic plan now.  And innovators should begin to work on the key question:  How can the world save water?  

[1] Giulio Boccaletti, Merle Grobbel, and Martin R. Stuchtey.  “The business opportunity in water conservation”.  McKinsey Quarterly, 2010, no. 1.