Are companies prepared for a resource-constrained future?

Canadians pay more than Americans for the same books, cars, clothes and other products – fuelling a wave of cross-border bargain shoppers armed with a high Canadian dollar – but, relative to the rest of the world, Canadians enjoy cheap food, water, fuel, energy and other basic necessities. For example, Canadians spent only 9.3% of household expenditures on food in 2005; the only country that spends less is the United Stated at 7%. Canadian companies also enjoy comparatively cheap resources, low taxes and royalties and other cost advantages.

However, we are now on the verge of higher prices. Increased resource scarcity, difficulty of access and competition, and necessary environmental policy, will raise prices. Climate change will also create additional costs: it will increase the need for companies to make capital investments in the face of unpredictable risks, and necessitate unplanned spending to pay for damages to infrastructure. All of these factors will mean companies will face increased costs, which will be passed on to consumers in the form of higher prices where possible. Companies are taking different approaches to prepare for the high-cost, low-availability, resource future. Some are trying to get consumers ready to pay more for their product, as is the case in the tuna industry. Others are minimizing the use of resources in their production processes, such as in the food and beverage sector.

The tuna industry is trying to get consumers to stop thinking of its product as “cheap protein” through an advertising campaign touting tuna’s benefits such as its richness in omegas 3’s. The CEO of Bumble Bee, whose tuna sales are greater than USD $500 million per year, has called tuna “too cheap” given the declining global stocks of tuna. Aquaculture companies have united in efforts to manage the world’s remaining fish supplies, but given competing interests, joint management is an ongoing challenge.

PepsiCo, the maker of many snack foods in addition to its line of drinks, has been finding ingenious ways of reducing the amount of water it uses in its operations. For example, the water volume of the potatoes it uses to make its chips (80% of the volume of the potato) can be extracted and might even be able to provide enough water to run an entire factory, saving a lot of money in the process.

Companies that are preparing now should be better positioned to face the resource constraints of the future. They should be better able to maintain their profit margins since they will require fewer resources, or will be able to charge more for their product. A major source of competitive advantage in many sectors will shift (at least in part) towards resource (i.e. energy, water, etc.) efficiency, and control (e.g. water rights).

We see hints of the future in the actions of forward-looking companies. However, how competitive dynamics will play out when resource competition heats up, is more difficult, if not impossible, to predict. Not to mention the effect of higher prices on consumer spending and savings habits