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Dustin Moore is a researcher and analyst focusing on overlooked and undervalued investments. He enjoys analyzing under-the-radar companies with massive upside potential and those with favorable risk/reward ratios. On Twitter! @dustinrmoore https://twitter.com/dustinrmoore
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  • Company Benefiting from Global Food Inflation, Solving Water Scarcity 0 comments
    Mar 18, 2011 9:50 AM
    While Americans groan about the rising gas prices at the pump, a wave of massive protests have sprung up across the globe in response to the increasing cost of another vital product—food. Many experts point to the skyrocketing price of food as the foundation for the recent revolutions in Egypt, Tunisia, and other vulnerable places.
    World food consumption has surged in the last decade, at least in part due to the changing appetites of those in developing nations, such as China and India. These populations’ growing affluence enables them to afford higher calorie, more meaty diets. This has squeezed supply, which is now playing catch up to strengthening demand.
    This phenomenon is coupled with the expanding production of biofuels. The use of ethanol increases demand for many crops and tightens supply by syphoning off portions of harvests that could otherwise be used to produce food. On top of this, global warming has led to changing weather patterns that have damaged crop yields in many areas, putting even more pressure on supplies.
    All of these factors have combined for surging food prices, many of which have been increasing faster than the value of gold. World food staples corn, wheat, and rice have all risen a whopping 70% over the past year alone.

    Increasing Price of Food
    “We see the factors increasing the demand for food as systemic, rather than part of a cyclical trend,” says John McKowen, CEO of Two Rivers Water Company (OTCQB:TURV). The company has purchased a large water system in southern Colorado, and plans to leverage these reservoirs and canals to re-open 25,000 acres of previously unused or underproductive land through irrigation.
    McKowen explains how farming is particularly attractive with rising crop prices. The company is able to purchase land relevantly cheap, make it fertile with proper irrigation, and turn it into something much more valuable. 
    Two Rivers Water recently acquired an additional 1,000 acres alongside its existing irrigated farmland. The move is part of the larger plan to further expand its acreage and produce more exchange traded grains.
    But it is the company’s water rights and assets that may prove to be the most lucrative source of profits. 
    Two Rivers Water is restoring a system of reservoirs and canals it recently purchased, with the capacity to store massive 70,000 acre feet of water. This water will be used to irrigate farmland, but can also be sold to cities for municipal use.
    And water is exactly what many cities are looking for.
    The southwestern US is entering an era of water scarcity. For the first time in history, the supply of water from the Colorado River—the region’s most critical water source—is now exceeded by demand. The river is a water lifeline for 30 million people across seven states. But now, the river, drained by booming cities and farms desperate for water, no longer flows into the ocean as it once did. It now literally runs dry in a desert.
     “Water shortages in the western US and in the Front Range are becoming particularly acute,” McKowen explains. The region has seen a population explosion in the past several decades. But it is Colorado that is among the most vulnerable. The state’s population grew from about 3 million people to 5 million in just a few decades. By 2025, 6.5 million residents are projected to call Colorado their home. This boom in demand for water will occur in the midst of rapidly depleting supply.

    Source: Circle of Blue from data from US General Accounting Office
    McKowen sees irrigated farmland as the “water bank” for future municipal water use.
    “As current water supplies are drying up, cities are looking for other sources,” McKowen notes. Currently 85% of the water rights in Colorado are owned for irrigation use, while 85% of the population lives in the growing urban areas. This creates a situation where government officials are beginning to eye water owners’ assets to help quench their thirsty cities.
    And they are willing to pay up. Some suburbs are already offering farmers up to $15,000 per acre foot of water. Many others have begun buying up water infrastructure themselves or claiming stakes in water rights in their area.
    Two Rivers Water may be well situated to benefit from this trend. The company controls a large area of water infrastructure in Pueblo County, Colorado. “That gives us a huge competitive advantage,” says McKowen. 
    For now, the company is focusing on restoring their water irrigation infrastructure, purchasing more water assets and rights upstream, developing its irrigated farmland portfolio, and pursuing a path toward a listing on a major stock exchange.
    Water scarcity will continue to be a serious problem in the western United States. Luckily, Two Rivers Water Company may be able to contribute to the solution.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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