Battling the bottle

From the wind to the water to the ground beneath our feet, it seems the last few years have brought an unprecedented demand for this region’s natural resources.

A common element in all the initiatives is the involvement of big business. A multibillion dollar U.S. hedge fund backs the Highland Companies’ proposal for a huge new quarry in Melancthon. Asian and western Canadian investors play roles in the development of wind power.

Then there’s water.

Nearly all of us have done it. We’re on a trip, on our way to the gym, on a night out. We step up to the cashier, lay down our hard-earned cash, and buy a bottle of water. According to industry statistics, more than 60 per cent of Canadians buy it every day. Agriculture and Agri-Food Canada estimates bottled water has an 11 per cent share of the Canadian non-alcoholic beverage market.

Buying a bottle of water seems like a little thing. In reality, though, it’s a very big thing. One that has spread throughout the world, and that some say threatens a basic tenet of society: water as a shared human resource.

It’s a classic case of big business versus the little guy, and – no surprise, considering we call this region Headwaters – one corner of this international battle is playing out right here at home.

The debate has come up here before, but most recently residents of Erin have been fighting Nestlé Waters Canada’s efforts to extend its permit to pump up to 1.1 million litres a day from a well near Hillsburgh. Nestlé is as big as they get, dominating the bottled water business with an estimated 17.1 per cent world market share.

First, a curiosity. Why do we buy something that’s available, if not free, for at least a tiny fraction of the cost, from the kitchen tap?

Commercial water bottlers argue there’s nothing new about what they do, claiming it’s one of the oldest business models in the world, dating back as far as 10,000 bc, when the containers were earthenware vessels and animal skins.

Meanwhile, the Polaris Institute, a Canadian social action organization, points to a much more modern, and cynical, genesis.

By its account, it’s all about soft drinks.

In the 1970s, the major soft drink manufacturers, which had enjoyed impressive market growth for years, started to see things level off. Realizing there’s only so much pop a person can drink, and eyeing an increasing consumer trend toward healthier alternatives, soft drink producers turned their attention to water.

As the Polaris Institute recounts it, to get people to pay for something they could get free, companies such as Coca-Cola and Pepsi, equipped with massive public relations budgets, undertook a four-step process called “manufacturing demand.”

Step 1 : fear

The first step was to scare people about what was coming out of the tap. “When we’re done,” one bottled water executive is quoted as saying, “tap water will be relegated to showers and washing dishes.”

step 2 : seduction

Once people became worried about what was coming out of the tap, the next step was to seduce people into believing bottled water offers a safer, more reliable alternative. We’re all familiar with the images of mountain streams and pristine nature that adorn bottled water products. Brand names, such as Iceland Pure Spring or Nestlé Pure Life Natural Spring Water, are also designed to reinforce that concept. Notably, these companies never come right out and say their product is better, or safer, than tap water. It isn’t, and they can’t. In reality, a third of bottled water in the U.S., including Pepsi’s Aquafina and Coke’s Dasani, is simply filtered tap water. Ironically, taste tests have frequently shown people prefer the taste of tap.

step 3 : sleight of hand

A full-page Nestlé ad claimed, “Bottled water is the most environmentally responsible consumer product in the world.” The boast became the subject of a misleading advertising complaint in 2008, which John Challinor II, Nestlé’s director of corporate affairs, says was eventually dismissed for lack of cause.

Nonetheless, does the complaint have merit? By Polaris’s estimate, in the United States bottled water accounts for 26 billion empty plastic bottles a year, and the oil required to make them would fuel a million cars. Nestlé’s website spins that number differently, claiming it needs “just three hours” of annual global oil extraction to meet its yearly requirements for plastic bottle manufacturing. And Challinor disputes his own company’s information, claiming the bottles are made using natural gas, not oil.

Then there’s the environmental impact of shipping that product all around the world. Residents of Erin, for example, take exception to the traffic of up to 50 trucks a day that haul water from Hillsburgh to Nestlé’s bottling plant in Aberfoyle.

Next comes the question of what happens to that bottle once it’s empty. Nestlé Canada’s website points out that the bottles are 100 per cent recyclable, and spouts a bevy of statistics about high recycling rates in Canada, including an average recovery rate for plastics of 60 per cent. It says plastic water bottles account for only one-fifth of one per cent of the overall municipal solid waste stream, and further, they are the third most valuable item in recycling programs, behind newspapers and aluminum. It also points out the company and its industry partners have entered a $7.2 million, three-year agreement with Quebec to support the province’s recycling efforts, and funded development of recycling systems for public spaces, like schools and parks, in a number of locations across the country.

Nestlé’s claims about recycling rates appear to be borne out by the City of Toronto, which estimates 65 per cent of the 100 million plastic beverage bottles of all types that enter the city’s waste stream each year are recycled. However, that means 35 million still end up going to the dump.

The Polaris Institute insists the picture of a pristine mountain on the container should be a mountain of plastic, because global recycling rates are much lower and, overall, 80 per cent of plastic water bottles end up in landfills or incinerators. It also takes issue with how the term “recycled” is defined, arguing that plastic water bottles are not recycled, but rather are “down cycled,” meaning they aren’t turned into new water bottles, but instead become things like carpeting.

step 4: defend the market

Once the market had been manufactured, the focus shifted to protecting it. In this case, however, the competition is a basic human right to clean, safe drinking water. Pepsi’s vice-chairman is quoted as stating publicly, “The biggest enemy is tap water.”

The optics of that quip may have made the industry uneasy. The Canadian Bottled Water Association, Nestlé and other producers go out of their way to insist they don’t compete with tap water. By their reckoning, most people who buy bottled water do so as an alternative to other packaged beverages, such as soft drinks, milk, juice and energy and sport drinks. Perhaps that’s so, but if it is, why do people spend up to 2,000 times as much as it would cost them to fill up a container from the tap at home?

Reverting to tap

While opposition to bottled water has grown over recent years, the impact on the industry isn’t clear. Several studies show that, after decades of steady growth, the bottled water market shrank between 2006 and 2008.

A 2009 British survey of over 2,000 restaurant patrons indicated almost two-thirds said they always asked for tap when they dine out, and the number was thought to be on the rise after high-profile campaigns about the environmental cost of bottled water.

However, a second U.K. study attributed the sales drop to water being “the ultimate discretionary purchase,” and found “consumer confidence is inextricably linked with bottled water consumption.” As a result, this study predicted sales growth would return as economic conditions improved. John Challinor of Nestlé agrees, “It is a mature market, but sales are growing at roughly the same pace as the economy.”

The bottled water refusniks are achieving some success in the public realm. Bowing to their pressure, to date as many as 42 Ontario municipalities, including the City of Toronto, have banned bottled water at public facilities, and several others are considering following suit.

The movement to turn away from the product has found favour with young people, and a number of university campuses have also instituted bans. The University of Guelph, for example, has installed water fountains specially designed for use with refillable bottles.

However, habit is hard to change, especially in the face of powerful corporate marketing. In Wellington, home to Nestlé Waters’ Canadian head office and bottling plant in Aberfoyle, there is usually a bottle of Nestlé Pure Life Natural Spring Water at every councillor’s seat at county council. Following a public meeting in Hillsburgh this spring, marked by a heated public protest against Nestlé’s application to extend its Permit to Take Water, Liz Armstrong, a member of the Climate Change Action Group of Erin, attended county council and discovered only one councillor – Erin mayor Lou Maieron – had converted to drinking tap water from a glass.

When drinking becomes a private matter

Whether, as opponents would have it, the bottled water market is shrinking, or as Nestlé’s John Challinor tells it, the market is “mature,” the situation is not unlike that which existed in the 1970s when soft drink manufacturers first took an interest in water. Just as with pop, there’s only so much bottled water that can be sold, and consumers are growing more health-conscious. However, while in the 1970s it was about personal health, now it’s about the health of the planet.

So, for the industry, what comes after the bottle? Many believe the next step is privatization of water on a mass scale.

Mike Nagy, chair of Wellington Water Watchers, says, “Bottled water is the thin edge of the wedge.” In his view, selling it by the bottle gets people used to the idea of buying it, and at the same time allows businesses like Nestlé to accumulate provincial water rights that fall outside the jurisdiction of local municipalities.

Attempts at water privatization are being made around the world, though at least some have met with spectacular failure.

In what is perhaps the most notorious case, in 1999 the Bolivian government leased water rights – even for rain falling from the sky – to an international consortium that included American Bechtel Corporation. The move was touted as a way to expand infrastructure and provide clean water to residents of South America’s poorest country. Instead, water rates doubled or tripled, and even where new pipes were laid, peasants couldn’t afford the water they supplied. Eventually, the population revolted, resulting in mass violence and a number of people killed by riot police. Ultimately, the government was overthrown and its replacement ripped up the contract.

In an article in the May 2012 issue of The Monitor, published by the Canadian Centre for Policy Alternatives, author and researcher Joyce Nelson spells out how the corporate world smells money in water these days.

Nelson reports that Goldman Sachs, along with General Electric, Calgary-based Talisman Energy and a number of other corporate giants have formed a partnership called The Aquaduct Alliance.

The group has developed a water index and mapping tool to analyze hydrology, social, economic and governance factors by watershed. They started with the Yellow River Basin in Northern China, and are moving on to Africa, the U.S. and Australia, to be followed by 15 other regions around the world. Nelson describes this as “an ‘opportunity index’ for water investors.”

Australia, by the way, is another case where water privatization backfired. In the 1990s, the Australian government implemented a water market for the Murray-Darling River Basin, a major centre of agricultural production in the country. A few years later, significant drought struck the region, and by 2010, the government had spent at least $1.4 billion buying back water rights.

Critics liken the Australian water market implementation to what’s currently happening in Alberta and British Columbia, where proposed policy changes would, as Nelson puts it, “allow licencees holding water allocations they are not currently using or no longer need to lease or sell this surplus to others within the watershed at a price set by market forces of supply and demand.” Whoever purchases the licence may be able to change what the water is used for. Nelson adds, “The government would lose its ability to alter or revoke water licences without spurring lawsuits.”

With such developments on the western horizon, back here at home it is perhaps little wonder Nestlé is fighting hard for every drop it can secure in Hillsburgh, even though, according to John Challinor, the company typically takes only 25 to 35 per cent of its permitted 1.1 million litre a day maximum.

Between a rock and a wet place

In another Monitor story, “Beware Private Water Speculators,” Nelson takes a look at the Highland Companies’ proposed mega quarry in Melancthon Township, backed by the Baupost Group out of Boston.

As Nelson points out, the foray into potato farming and aggregates has financial analysts scratching their heads, because neither are typical of Baupost’s successful investment style. But she points out Baupost’s involvement in the Melancthon scheme may be more savvy than it first appears.

Coastal Management Resources, another Baupost-backed partnership in water-starved southern California, bought 25,000 acres of ranchland near Vandenberg Air Force Base, even though its location and pristine environment mean development potential is restricted.

However, a January 2011 report in the Santa Barbara Independent revealed that Coastal Management/Baupost “is seeking to purchase a massive amount of state water rights from the Carpinteria Valley Water District” – to the tune of 1,000 acre-feet per year. (An acre-foot is a unit of volume commonly used in the U.S. to measure large-scale water resources. It’s the volume of one surface acre to a depth of one foot. A typical southwestern American family uses about 0.25 acre-feet per year.)

While the thinking in California is that Baupost is planning a large-scale estate development, Nelson questions whether it may instead be planning to speculate in water, using a buy-and-hold strategy to eventually sell the water back to the government for local needs or to private interests.

Coming back to Melancthon, Nelson quotes Maude Barlow of the Council of Canadians. In objecting to the quarry proposal, Barlow wrote, “Because the construction company (Highland) is backed by the Baupost Group, a Boston-based multibillion dollar hedge fund, it likely has NAFTA rights to sue the Canadian government if, at any time after the contract has been signed, any level of government changes its mind on the project or attempts to limit damage to the land and water of the area by imposing new restrictions on the company’s operations.

“As well, NAFTA’s Chapter 11 gives American corporations operating in Canada the right to claim the water sources they use in their operations … Even if we were to find that the water sources in the area were being drawn down too quickly or polluted, the company would have NAFTA investor-state rights not accorded to Canadian companies.”

Highland’s Permit to Take Water for its proposed Melancthon quarry would be a whopping 600 million litres a day. That’s the amount it says it would need to pump and divert around the 2,300-acre, 200-foot-deep quarry. But if Nelson is correct that water is the real pot of gold Baupost is chasing, the potential volume would make the 1.1 million litre permit Nestlé has in Hillsburgh look like a drop in the bucket by comparison.

Sorting through a rabbit warren of interconnected public relations firms, Nelson finds links between those who represent Highland/Baupost, and those who work for Nestlé and Coca-Cola. What’s more, they all have close ties with both the Conservatives and Liberals.

In summary, she says, “While Highland/Baupost could certainly make billions selling aggregate for Ontario construction, [Baupost hedge fund manager] Seth Klarman may well have his eye on another ‘commodity’ under Melancthon Township land.”

“Where does it stop?”

Of Nestlé’s activities in Wellington, Liz Armstrong from the Climate Change Action Group of Erin says, “Part of me gets so frustrated. It’s ridiculous.” By way of example, she says, “In times of drought, residents are asked to restrict their water usage, but that’s when Nestlé wants to pump the most.” (While Nestlé’s sales may be highest during summer drought conditions, it does have a voluntary agreement with the Town of Erin to restrict pumping during these periods.)

Armstrong is resigned to the likelihood that the Nestlé permit will be extended. Meanwhile Erin council would prefer to see the ten-year extension Nestlé has requested slashed to two, though as they have stressed, they have no more control over the provincial renewal process than local residents. A decision on the application is expected mid-summer.

Armstrong says there are two things she’s interested in at this point. “First, I want to take the issue and turn it into something positive by encouraging people to go to refillable bottles and developing the Blue W program, where businesses and public facilities make water available for refilling bottles. Second, we have to get the Ministry of the Environment to deal with the fact that their Permit to Take Water process flies in the face of their environmental values.”

Mike Nagy of Wellington Water Watchers is all over that second point. He says the Permit to Take Water process is “outdated, doesn’t account for solid waste, pollution or climate change, and isn’t balanced or equal.” Residents may feel empowered by the invitation to submit their concerns about applications such as Nestlé’s to Ontario’s Environmental Registry, but in reality, he says, there is no obligation for the comments to be taken into account.

When Nestlé last renewed its Permit to Take Water in Aberfoyle, Nagy says Wellington Water Watchers’ participation was “futile.” As a result, the group no longer contributes to the public consultation system for renewals.

“We’ve tried to work within the system, but at Aberfoyle we found it was highly flawed. Nestlé ran the technical meetings. They were held on Nestlé’s property. Nestlé chaired them, Nestlé prepared and sent out the minutes, and Nestlé decided who to invite. After Wellington Water Watchers questioned that, Nestlé forgot to invite us to the second meeting. The Ministry of the Environment says they lack the resources to oversee the process themselves. We’re sympathetic to the ministry, but it’s time for the whole system to be reviewed and overhauled.”

Wellington Water Watchers, together with the Council of Canadians and the Polaris Institute, filed a formal request to the ministry for just such a province-wide review, but it was turned down.

There’s a weary note in Liz Armstrong’s voice as she says, “What’s next, fracking? You know, it’s not just about the water. Whether it’s gravel, wind, water or natural gas, we don’t want companies coming in here and just having their way, regardless of the negative affect on our quality of life. Where does it stop?”