6 Aug, 2007

Bottled Water Industry In Hot Water

Imtiaz Muqbil

The bottled water industry is under fire to account for the environmental impact of the millions of plastic bottles it uses.

In this dispatch:

1. BOTTLED WATER INDUSTRY IN HOT WATER: The bottled water industry is under fire to account for the environmental impact of the millions of plastic bottles it uses.

2. THE PRESSURE IS ON: FURTHER READING ON BOTTLED WATER

3. LATEST STATEMENT FROM “PRIVATE EQUITY BUYOUT WATCH”: With rising long-term interest rates and the cost of insuring high-risk bonds against default at a record high, the buyout business is in trouble. What does this mean for the millions of workers employed by companies taken private by the buyout funds?

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1. BOTTLED WATER INDUSTRY IN HOT WATER

The bottled water industry has come under pressure to account for the environmental impact of the millions of plastic bottles it uses. A resolution passed by the US Conference of Mayors last June calling for a study of the impact of bottled water on city waste was warmly applauded in an editorial by the New York Times. As the issue gained traction, the International Bottled Water Association last week issued a rebuttal to the NYT article and launched an image-fixing advertising campaign.

With global warming, climate change and other environmental issues now shifting to centre-stage, it is only a matter of time before the travel & tourism industry becomes accountable for its own usage of bottled water in the same vein as the aviation industry is being held accountable for emissions of greenhouses gases. Bottled water has become a major money spinner for hotels and F&B outlets worldwide where it is being served with wasteful abandon. Filtered water that was served free for years has now become virtually a thing of the past.

On June 25, 2007, in a resolution headlined, the “Importance of Municipal Water,” the 75th US Conference of Mayors agreed to “encourage a compilation of information regarding the importance of municipal water and the impact of bottled water on municipal waste.” [http://usmayors.org/75thAnnualMeeting/resolutions_full.pdf]. Stressing that high quality, safe drinking water is already available at most public locations in the US, the resolution noted that local governments invest approximately $43 billion a year for pure drinking water and treating wastewater, while US consumers spend more than $11 billion a year on bottled water.

“Bottled water costs more than an equivalent volume of gasoline, equivalent to 1,000 to 10,000 times more than tap water,” the resolution said, adding that more than a quarter of bottled water is sourced from municipal tap water. It said that bottled water “must travel many miles from the source, resulting in the burning of massive amounts of fossil fuels, releasing CO2 and other pollution into the atmosphere.” Moreover, plastic water bottles are one of the fastest growing sources of municipal waste. In the U.S. the plastic bottles produced for water require 1.5 million barrels of oil per year, enough to generate electricity for 250,000 homes or fuel 100,000 cars for a year.”

BIGGEST CHALLENGES

Tom Cochran, Executive Director of the Conference of Mayors stated, “Our cities are world leaders in providing high quality water to protect public health, for public safety and fire protection. Although cities have achieved much success in providing water infrastructure and services in America, we may soon be facing our biggest challenges as population growth, climate change and potential shortages in the near future pose an increasing cost burden.”

The resolution was hailed by the watchdog group Corporate Accountability International (CAI) which said the US mayors had “rejected efforts by the American Beverage Association and Coca-Cola to stop” it. [http://www.stopcorporateabuse.org/cms/page1536.cfm] Said the NGO’s spokesperson Gigi Kellett. “There is growing concern about the impact of bottled water on our environment and confidence in our public water. Corporate Accountability International is working with mayors as part of its ‘Think Outside the Bottle’ campaign to challenge the impacts of bottled water and to raise awareness about the importance of strong public water systems.”

The resolution was introduced by Mayor Gavin Newsom, Salt Lake City Mayor Ross “Rocky” Anderson, and Minneapolis Mayor R.T. Rybak. According to CAI, Mayor Newsom has already announced that San Francisco would phase out the purchase of bottled water. Others like the Ann Arbor (MI) City Council has announced that they would no longer have bottled water available at city sponsored events. “Restaurants are also joining in, proudly serving municipal tap water in lieu of bottled water.”

Ms Kellett was quoted as saying that “Momentum is building in support of our public water systems. We congratulate all of these mayors — and the U.S. Conference of Mayors — on their leadership passing a resolution that places the political will of mayors behind full support of municipal water. It is a critical step toward keeping our public water supply strong. The ripples of leadership will be felt in cities and towns across the country. Our mayors are standing up for the environment and standing behind public water systems.”

HUGE FUNDING GAP

According to CAI, there is a $22 billion funding gap between what US cities need to spend on water infrastructure and the money available to them. “In 2006, at least four billion pounds of plastic bottles ended up in city waste streams. It can cost cities more than $70 million in dumping and incineration fees, not including the costs of collection, trucking and litter removal,” CAI said in a media release.

“Many people have become convinced that bottled water is safer and healthier than tap water. The reality is that public water is actually better regulated. The explosive growth of bottled water consumption also increases the waste disposal costs for municipal governments. This resolution is important because we need to know what the overall impacts of bottled water are in our communities to make sound decisions for our spending and our environment.”

Although the mayors’ resolution got some coverage in local media, it gained traction only when the New York Times ran an editorial headlined “In Praise of Tap Water” on August 1, 2007 [http://www.nytimes.com/2007/08/01/opinion/01wed2.html?_r=2&oref=slogin&oref=slogin]. It said “Instead of consuming four billion gallons of water a year in individual-sized bottles, we need to start thinking about what all those bottles are doing to the planet’s health.” Referring to the mayors’ resolution, the editorial said, “Access to cheap, clean water is basic to the nation’s health.” It called on “millions of ordinary consumers (to) realize that they can save money, and save the planet, by turning in their water bottles and turning on the tap.”

The following day, the International Bottled Water Association, issued a rebuttal [http://www.bottledwater.org/public/2007_releases/2007-08-02_position_nyt.htm] with a series of “facts about the bottled water industry’s outstanding record of environmental stewardship, safety and quality, and role as a bottled beverage of choice.” The rebuttal claimed that “any actions that discourage the use of this healthy beverage choice are not in the public interest.”

It added, “If the debate is about the impact of plastic packaging on the environment, a narrow focus on bottled water spotlights only a small portion of the packaged beverage category and an even smaller sliver of the universe of packaged products. Despite their popularity, PET water bottles accounted for less than one-third of one percent of all waste produced in the United States in 2005. Any efforts to reduce the resources necessary to produce and distribute packaged goods-and increase recycling rates–must focus on ALL packaging. Any other approach misses a real opportunity to arrive at a comprehensive solution to protecting and sustaining the environment.”

IT IS ABOUT BEVERAGE CHOICE

However, it also admitted that “bottled water …. relies on safe, quality ground water resources as well as municipal water systems and is as interested in strengthening, not undermining, municipal water sources.” It claimed that bottled water consumption has nothing to do with tap water infrastructure funding or drinking water system improvements. “It is about beverage choice, available to consumers in all walks of life who choose, or rely upon, bottled water for refreshment and hydration.”

The IBWA followed up the statement by running full-page ads in The New York Times and The San Francisco Chronicle to “bring balanced, positive and factual bottled water information to consumers and community leaders.” It criticised the “misguided and confusing criticism by activist groups and a handful of mayors who have presented misinformation and subjective criticism as facts.” An IBWA statement said it is also “moving forward on a variety of fronts (communications, government relations, technical/research) to best represent the bottled water industry and bring facts to the forefront of this emerging national dialogue.”

Clearly, the debate is raging, making it only a matter of time before the travel & tourism industry also comes under fire. All part of the ever-widening controversy over global warming/climate change, who is responsible and how it should be tackled.

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2. THE PRESSURE IS ON: FURTHER READING ON BOTTLED WATER

BOTTLED DRINKING WATER

http://www.who.int/mediacentre/factsheets/fs256/en/

“Water, water everywhere, but not a drop to drink” from the Rhyme of the Ancient Mariner is perhaps a fitting description of the attitude of many consumers living in urban areas today who are increasingly looking toward bottled water as a means of meeting some or all of their daily requirements. As fresh water supplies are further stretched to meet the demands of industry, agriculture and an ever-expanding population, the shortage of safe and accessible drinking-water will become a major challenge in many parts of the world.

In the wake of several major outbreaks involving food and water, there is a growing concern for the safety and quality of drinking-water. While bottled water is widely available in both industrialised and developing countries, it may represent a significant cost to the consumer. Consumers may have various reasons for purchasing bottled drinking-water, such as taste, convenience or fashion, but for many consumers, safety and potential health benefits are important considerations. Since such considerations are often not founded on facts, these will be specifically addressed here.

THE BOTTLED WATER LIE

http://www.alternet.org/story/43480/

The corporations that sell bottled water are depleting natural resources, jacking up prices, and lying when they tell you their water is purer and tastes better than the stuff that comes out of the tap.

PEPSI AGREES TO REVEAL SOURCES OF AQUAFINA BOTTLED WATER

http://www.stopcorporateabuse.org/cms/page1559.cfm

Boston, MA – After being subject to months of intensive campaign activity, Pepsi has agreed to provide consumers with more information about the source of the water used for Aquafina. In direct response to a national day of action yesterday, Pepsi agreed to spell out “Public Water Source” on the Aquafina label.

As part of the “Think Outside the Bottle” campaign, thousands of people across the US have been urging Pepsi to make changes in the Aquafina label, which includes an image of snow-capped mountains and states “pure water, perfect taste”. Though the image implies that the source of Aquafina is mountain spring water, it actually uses tap water as its source. In fact, up to 40% of bottled water uses tap water as its source.

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3. LATEST STATEMENT FROM “PRIVATE EQUITY BUYOUT WATCH”

http://www.iufdocuments.org/buyoutwatch/2007/08/the_harsh_world_of_leveraged_b.html#more

THE HARSH WORLD OF LEVERAGED BUYOUTS HAS SUDDENLY GOTTEN HARSHER

The abundance of cheap credit which has fueled the leveraged buyout boom is evaporating. Investors fleeing the collapsing US “subprime” property market (based on the sale of mortgages to first-time low income home buyers on ostensibly easy terms which rapidly become onerous) are seeking safety in government bonds and steering clear of the debt which greased the takeover of companies employing millions. Billions of dollars’ worth of buyout debt scheduled to hit the markets this year is in financial limbo, effectively putting on hold the funding behind some of the biggest recent private equity deals. Banks have had to peddle small tranches at a discount, eat the losses, and keep the rest of it on their books, where it was never intended to settle.

Suddenly there are no buyers for the 8 billion dollars in junk bonds behind TPG’s USD 23.2 billion takeover of Alltel, or the 7-billion dollar junk bond sale underpinning KKR’s USD 26 billion buyout of First Data. Financing for the KKR takeover of the UK’s Alliance Boots – Europe’s largest buyout ever – has been delayed, as has the sale of debt to fund the Cerberus Chrysler deal. In the IUF sectors, Cadbury Schweppes has cancelled the projected sale of its US drinks division, the debt sale to finance the takeover of Ahold’s US Food Service has been cancelled, and funding of the TPG Harrah’s buyout is delayed.

With rising long-term interest rates and the cost of insuring high-risk bonds against default at a record high, the buyout business is in trouble.

The Wall Street Journal’s July 30 list of “Six Ways Private Equity’s World Will Be Harsher in Years to Come” views the matter through the prism of the investor, pointing out that “quick flips” and sales of companies between private equity funds will become more difficult as credit dries up. Dividend recapitalizations – the funds’ preferred vehicle for getting their money out faster by issuing new debt to finance “bonus” dividends – will likewise become stickier, costlier and quite possibly undoable. As the WSJ points out, this kind of financial engineering is only practicable when debt to earnings multiples are growing, credit is cheap, and a quick, profitable “exit” through sale of the company is within easy range.

WHAT DOES THIS MEAN FOR WORKERS

What does this mean for workers, particularly for the millions of workers employed by companies taken private by the buyout funds?

An abundance of cheap credit has made it possible for private equity owners to steadily drain corporate cash flow through predatory financing which under normal circumstances would push a company into insolvency. When the exit doors are blocked, and new debt can no longer be obtained cheaply to refinance the old, cash flow is squeezed even harder. The result is likely to be even more pressure to cut costs through layoffs, closures, outsourcing and further reductions in productive investment. Collective bargaining power, already eroded under the buyout onslaught of recent years, will come under heightened pressure. And more company pension funds will face deficits, capping and closure.

The sterile terminology of the finance industry carefully conceals the social reality behind their transactions. The massive eviction of working people from their homes can thus be described as “turbulence in the subprime property market.” The leveraged buyout binge of recent years – experienced by most workers as a social disaster – has been hailed for “bringing efficiency to financial markets.”

The Financial Times recently suggested that homeowners defaulting on 15% mortgage payments are the real culprits behind the current credit market woes. By the same logic, we may soon be reading in the financial press that a company taken private through an LBO was pushed into bankruptcy by insufficiently thrifty employees.

At the heart of current developments is a massive failure of government regulatory authority, and workers are paying the price. Only now has the US Treasury Secretary seen fit to mumble a few words about “excesses.” Regulatory agencies worldwide have simply sleepwalked while the buyout funds and the investment banks offloaded their risk by flooding markets with cheap debt, encoding the funding of debt by more debt in exotic names like “covenant-lite”, “toggle loans”, and “payment in kind”.

ENRICHING A SMALL NUMBER OF PEOPLE

Financial markets require regulation because they can wreak enormous social damage when left on automatic pilot. Regulation is also a tool for pursuing democratic policy objectives. Loansharking in the mortgage market cannot substitute for a policy to promote affordable home ownership for working people. The massive transfer of wealth to private equity funds, through tax and other regulatory subsidies, has succeeded spectacularly in enriching a small number of fund managers and bankers who underwrite the deals. It is hardly a method for encouraging an optimal flow of resources into productive investment which benefits society as a whole.

Rather than protecting the public interest by responding vigorously to steadily escalating risk in financial markets, governments have been building the legislative basis for the further expansion of private equity activity. Employee and union pension funds, seduced by the promise of high returns, have been fueling this expansion by systematically increasing their allotments to “alternative assets” even as the unmistakable warning signs accumulated. The credit rating agencies have played a central role in promoting the sale of debt issues which deserved legal investigation rather than a “buy” rating.

It is too early to predict the full impact, scope and duration of the current credit crunch. What has long been clear, however, is that the exponential leveraging of corporate balance sheets is the root cause. For workers and their unions, the world of private equity has always been a harsh one. Now is the time for regulatory action, before it becomes even harsher.

[The leveraged buyout boom and its impact on companies, employees, unions and public policy is described in the IUF publication A Workers Guide to Private Equity Buyouts, available in English, French, German, Japanese, Spanish and Swedish from the IUF secretariat. Regular reports and analysis on buyouts and the IUF sectors are posted on www.buyoutwatch.info]