Commentary: Blue is the new black

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As water rights, supplies and availability become even larger priorities for industry, the provision of the resource itself is endangered by local funding constraints — but that’s about to change.

A looming challenge facing all of agriculture is expressed neatly by the line, “Blue (as in H2O) is the new black (as in black gold, Texas tea).”

In fact, some analysts feel that by mid-century, wars will be fought over water, not oil.

The meat and poultry production sector is a huge consumer of water of both water resources and wastewater services. Indeed, one of (many) reasons that meatpacking deserted its traditional urban locations in the early postwar era was the escalating costs associated with water consumption and wastewater disposal.

Globally, everyone from the UN Food and Agriculture Organization to the World Bank to the Rand Corporation is also predicting a coming crisis with water resources. Not only will the resource itself be in danger of falling seriously behind worldwide demand, but the necessary infrastructure needed to collect, treat and deliver water needed for food and industrial production is also failing to keep pace with the requirements of even the world’s most prosperous, developed countries.

The meat and poultry industries are squarely at the intersection of both agricultural and industrial water demand. The live side of the industry needs significant access to water for its food animal herds and flocks, while the production of feed crops also requires massive amounts of irrigation.

And on the processing side, the anti-animal agriculture forces are having a field day disseminating data — though much of it is wildly exaggerated — purporting to show that each pound of beef, pork or poultry represents hundreds of gallons of water to bring to market.

An intriguing solution

Domestically, the crisis in this country is twofold: Depletion of vital aquifers, for which there are no easy answers, and deterioration of water-related infrastructure, for which at least one promising solution has surfaced.

The challenge with maintaining, expanding and eventually rebuilding the reservoirs, pipelines, treatment facilities and industrial distribution architecture is straightforward: Money — specifically, the lack thereof.

Most water systems are municipally or regionally owned, and those jurisdictions almost universally are facing severe funding shortfalls, with no dramatic turnaround in sight.

Until now.

In the past several years, the emergence of what is collectively known by its P3s shorthand — public-private partnerships — has been recognized as having the potential to effectively deal with the massive funding needed to upgrade and expand the nation’s rapidly aging water systems.

And “rapidly aging” might qualify as a generous interpretation of the state of virtually every publicly owned water system in the United States. In a scathing report published in the Governing online magazine, “essential improvements, replacements and general maintenance” on tap (no pun intended) for municipal water infrastructure has officially reached a price tag of more than $1 trillion through 2035, according to estimates from the American Water Works Association.

That’s on top of the “D” grade on its 2013 Report Card for America’s drinking water and wastewater infrastructure issued by the American Society of Civil Engineers. 

Obviously, to expect cities, counties and states to pony up a trillion dollars is beyond even the wildest bureaucratic fantasies. Not for water systems, certainly. But a solution may be possible, although it involves overcoming the often acrimonious fight over privatization of public assets.

The new types of partnerships being proposed sidestep the debate over whether governmental entities should sell off publicly owned assets, according to a panel of experts participating in a Governing-sponsored “Transforming Water Management” symposium last year. The private financing and operational parties, in essence, lease municipal facilities for a set number of years, in return for cash upfront to finance needed construction.

These innovative P3s have emerged as viable options because the “landscape [of financing] has shifted,” said Bradford S. Gentry, director of the research program on Private Investment and the Environment at Yale University, noting that the interest rate differential favoring tax-exempt bonds — the traditional funding vehicle for public infrastructure projects — versus taxable financing has been reduced considerably. That creates an opportunity for private investors, Gentry suggested.

Stephen Goldsmith, a Transforming Water Management panelist, the former mayor of Indianapolis and currently a professor at Harvard’s Kennedy School of Government, suggested the best-structured P3s are able to truly integrate the needs of the public and private sectors.

“The best-run systems [combine] the best of both public and private,” said Goldsmith, who set up a P3 during his tenure as mayor to operate Indianapolis’ wastewater treatment facilities and sewage collection system.

Some of the results of the more successful P3s are nothing short of spectacular, as these two examples from the Governing report suggest:

  • The Bayonne (New Jersey) Municipal Authority received an initial upfront payment of $150 million, which will be used to eliminate the authority’s existing debt and half of the city’s debt. The private partner is committed to investing another $157 million over the life of the 40-year contract.
  • Allentown, Pa., leased its water system to a partner, gives control of the system to the partner for 50 years in exchange for a $220 million upfront, which the city plans to use to eliminate its unfunded pension liability of $160 million.

Of course, these P3 deals come with locked-in rate increases for consumers, in some cases annual rates. Much like cable and telecom franchises awarded by cities, there needs to be regulatory oversight in place so that water users don’t get soaked.

In Bayonne’s case, though, the citizens were facing a 30 percent one-time increase in residential water rates, with commercial users not far behind. That sudden and substantial jump was avoided when private financing allowed the city to spread out the increases over a much longer period.

These public-private partnerships are important, if for no other reason than to fill the gap in funding needed to keep the water flowing for livestock production and meat and poultry processing. It’s critical that such a vital sector of the food industry have the energy and water it needs to remain competitive.

Equally important, success with these P3s as they affect water and wastewater infrastructure might provide the proverbial crack in the wall that currently separates the political partisans on almost every issue related to taxes, revenues and spending. Unless and until such a détente can be engaged, the gridlock that has curtailed effective governance will only worsen.

And that’s not good for the rest of the country that’s not engaged in animal agriculture.

The opinions expressed in this commentary are solely those of Dan Murphy, a veteran food-industry journalist and commentator.

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Jim Ruen    
Lanesboro, MN  |  June, 19, 2014 at 08:18 AM

Such public, private partnerships where public entities are "leased" to a private corporation certainly appear good on the front side. What a deal? Too bad the politicians and we citizens haven't been willing to make the investments all along that are needed in any infrastructure. Unlike taxpayers who can vote out politicians with the good sense to fund infrastructure and repair, the consumer of water will have no choice. His rates will climb and water will go to those who can afford it. This is a sad note about us as a society and a government.

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