Exclusive: THE BOTTLED LOOT

By M H Ahssan

The structure and economics of the Indian bottled water industry.

At the fourth World Water Forum held in Mexico City in March, the 120-nation assembly could not reach a consensus on declaring the right to safe and clean drinking water a human right. Millions of people the world over do not have access to potable water supply. But it is good times for the bottled-water industry, which is cashing in on the need for clean drinking water and the ability of the urban elite to pay an exorbitant price for this very basic human need.

The fortunes of this more-than-$100-billion global industry are directly related to the human apathy towards the environment - the more we pollute our waterbodies, the more the sales of bottled water. It is estimated that the global consumption of bottled water is nearing 200 billion litres - sufficient to satisfy the daily drinking water need of one-fourth of the Indian population or about 4.5 per cent of the global population.

In India, the per capita bottled water consumption is still quite low - less than five litres a year as compared to the global average of 24 litres. However, the total annual bottled water consumption has risen rapidly in recent times - it has tripled between 1999 and 2004 - from about 1.5 billion litres to five billion litres. These are boom times for the Indian bottled water industry - more so because the economics are sound, the bottom line is fat and the Indian government hardly cares for what happens to the nation's water resources.

India is the tenth largest bottled water consumer in the world. In 2002, the industry had an estimated turnover of Rs.10 billion (Rs.1,000 crores). Today it is one of India's fastest growing industrial sectors. Between 1999 and 2004, the Indian bottled water market grew at a compound annual growth rate (CAGR) of 25 per cent - the highest in the world.

With over a thousand bottled water producers, the Indian bottled water industry is big by even international standards. There are more than 200 brands, nearly 80 per cent of which are local. Most of the small-scale producers sell non-branded products and serve small markets. In fact, making bottled water is today a cottage industry in the country. Leave alone the metros, where a bottled-water manufacturer can be found even in a one-room shop, in every medium and small city and even some prosperous rural areas there are bottled water manufacturers.

Despite the large number of small producers, this industry is dominated by the big players - Parle Bisleri, Coca-Cola, PepsiCo, Parle Agro, Mohan Meakins, SKN Breweries and so on. Parle was the first major Indian company to enter the bottled water market in the country when it introduced Bisleri in India 25 years ago.

The rise of the Indian bottled water industry began with the economic liberalisation process in 1991. The market was virtually stagnant until 1991, when the demand for bottled water was less than two million cases a year. However, since 1991-1992 it has not looked back, and the demand in 2004-05 was a staggering 82 million cases.

Bottled water is sold in a variety of packages: pouches and glasses, 330 ml bottles, 500 ml bottles, one-litre bottles and even 20- to 50-litre bulk water packs. The formal bottled water business in India can be divided broadly into three segments in terms of cost: premium natural mineral water, natural mineral water and packaged drinking water.

Premium natural mineral water includes brands such as Evian, San Pelligrino and Perrier, which are imported and priced between Rs.80 and Rs.110 a litre. Natural mineral water, with brands such as Himalayan and Catch, is priced around Rs.20 a litre. Packaged drinking water, which is nothing but treated water, is the biggest segment and includes brands such as Parle Bisleri, Coca-Cola's Kinley and PepsiCo's Aquafina. They are priced in the range of Rs.10-12 a litre.

Attracted by the huge potential that India's vast middle class offers, multinational players such as Coca-Cola and PepsiCo have been trying for the past decade to capture the Indian bottled water market.

Today they have captured a significant portion of it. However, Parle Bisleri continues to hold 40 per cent of the market share. Kinley and Aquafina are fast catching up, with Kinley holding 20-25 per cent of the market and Aquafina approximately 10 per cent. The rest, including the smaller players, have 20-25 per cent of the market share.

Consumption of bottled water in India is linked to the level of prosperity in the different regions. The western region accounts for 40 per cent of the market and the eastern region just 10. However, the bottling plants are concentrated in the southern region - of the approximately 1,200 bottling water plants in India, 600 are in Tamil Nadu. This is a major problem because southern India, especially Tamil Nadu, is water starved.

Economics and the law
The majority of the bottling plants - whether they produce bottled water or soft drinks - are dependent on groundwater. They create huge water stress in the areas where they operate because groundwater is also the main source - in most places the only source - of drinking water in India. This has created huge conflict between the community and the bottling plants.

Private companies in India can siphon out, exhaust and export groundwater free because the groundwater law in the country is archaic and not in tune with the realities of modern capitalist societies.

The existing law says that "the person who owns the land owns the groundwater beneath". This means that, theoretically, a person can buy one square metre of land and take all the groundwater of the surrounding areas and the law of land cannot object to it. This law is the core of the conflict between the community and the companies and the major reason for making the business of bottled water in the country highly lucrative.

Take for instance the case of Coca-Cola's bottling plant in drought-prone Kala Dera near Jaipur. Coca-Cola gets its water free except for a tiny cess (for discharging the wastewater) it pays to the State Pollution Control Board - a little over Rs.5,000 a year during 2000-02 and Rs.24,246 in 2003. It extracts half a million litres of water every day - at a cost of 14 paise per 1,000 litres. So, a Rs.10 per litre Kinley water has a raw material cost of just 0.02-0.03 paise. (It takes about two to three litres of groundwater to make one litre of bottled water.)

However, water is not that cheap in the United States, home to Coca-Cola and PepsiCo. The average cost of industrial water in the U.S. was Rs.21 per 1,000 litres in the late 1990s. It was Rs.90/1,000 litres in the United Kingdom and Rs.76/1,000 litres in Canada.

Treatment and purification accounts for the next major cost. Even with the state-of-the-art treatment system with reverse osmosis and membranes, the cost of treatment is a maximum of 25 paise a litre (Rs.0.25/litre). Therefore, the cost of producing 1 litre of packaged drinking water in India, without including the labour cost, is just Rs.0.25. In a nutshell, in manufacturing bottled water, the major costs are not in the production of treated and purified water but in the packaging and marketing of it.

The cost of a bottle, along with the cap and the carton, is the single biggest cost - between Rs.2.50 and Rs.3.75 for a one-litre bottle. For water sold in big plastic jars (20-50 litres), which are also reused, or in pouches, this cost is much lower. It is precisely owing to this that companies sell water at even Re.1 a litre in a 20-50 litre jar and still make profits. Labour and establishment and marketing costs are highly variable and depend on the location and size of companies. Informal discussions with industry members reveal that the gross profit of this industry can be as much as between 25 and 50 per cent.

Huge real costs
The reason that companies do not have to bear the cost of the main raw material - water - has made this industry highly profitable. But the real cost of the industry is huge.

The cost of fast-depleting groundwater is incalculable and so is the cost of disposal of plastic bottles and pouches. These are hidden costs that society and the environment pay and will pay in the future. The sale of bottled water is therefore not environmentally sound by any stretch of the imagination.

There are much cleaner ways to access clean and healthy water and for this we will have to rethink our water paradigm.

Groundwater is the cleanest and cheapest source for all, but we have over-extracted and polluted it with natural contaminants, agro-chemicals and industrial waste. We will have to recharge and revive our groundwater bodies and for this the existing archaic law must change.

Our surface water bodies are in a deplorable condition. We dump our sewage and industrial waste in rivers and ponds, try to clean them in massive centralised treatment plants and then supply the water to urban households - to be discharged again as wastewater into the same waterbody. This vicious cycle must be cut and stopped. The cost of dirty water is just too great for society to bear. Bottled water and domestic treatment systems are a cheap as well as fill-and-forget solution for 30 per cent of the population, but in doing so we have not left any solution for the 70 per cent of the poor and the marginalised.