Can a Water Bottler Invigorate One Town?

Wall Street Journal – 6/9/05 By Jim Carlton, staff writer

MCCLOUD, Calif. -- Trucks that once rolled through these parts loaded with freshly cut logs have been replaced with trucks hauling a new, and controversial, load: bottled water.

Three bottled-water plants have opened at the foot of 14,162-foot Mount Shasta over the past few years, and a fourth has been proposed by Nestlé SA's North American water-bottling unit. The plants are providing sorely needed employment to help replace logging jobs that are rapidly disappearing because of restrictions on cutting trees in the surrounding national forests.

But some long-time residents of this economically depressed area aren't buying the notion of a reversal of fortune. Critics say the highly automated plants have created only a few meaningful jobs. They also contend that by bottling so much water, local aquifers, springs and creeks could dry up.

Here in McCloud, Nestlé signed a contract with the local water district to use up to half a billion gallons of spring water annually, amounting to nearly half the water the town of 1,400 uses in a year.

"It's the scale of this that has all of us so worried," said Brian Stewart, a local contractor, as he gazed over McCloud from a nearby ski park recently.

Similar controversies have broken out in other parts of the country as water bottlers have rushed to meet a boom in demand. U.S. wholesale sales of bottled water tripled to about $9 billion in 2004 from $3 billion in 1994, according to Beverage Marketing Corp., a consulting firm in New York.

Bottlers are finding that Western rural communities in need of an economic boost can make rich water sources. In Sitka, Alaska, the True Alaska Bottling Co. produces glacier-fed bottled water on the grounds of a closed pulp sawmill. In the desert outside San Bernardino, Calif., the San Manuel Bottled Water Group bottles Big Bear Mountain Premium Spring Water from springs on the reservation of the San Manuel Band of Mission Indians, helping to diversify the tribe's revenue beyond bingo and a casino.

For much of the past century, timber -- not water -- dominated the local economy here. Indeed, McCloud, home of the former McCloud River Lumber Co., has been a company town for much of the time since its founding in 1897. But environmental restrictions sharply curtailed local logging in the 1990s, and the timber industry imploded. With an exodus of hundreds of jobs, enrollment at McCloud's high school dove to just 10 students from 250, while unemployment ballooned into the double digits in percent terms.

Residents opened bookstores and antiques shops, struggling to fill the job vacuum. But that hasn't been enough. "This town is dying," said Ron Berryman, a 60-year-old forestry consultant who has lived here most of his life.

So when bottled water companies started showing interest around Mount Shasta, McCloud officials took notice. In 1990, a water bottling plant later acquired by a subsidiary of the French food conglomerate Groupe Danone opened in Dunsmuir, about seven miles south. In 1997, McCloud officials began negotiating with Danone for a plant in their town, but the deal didn't work out amid disputes over pricing and other issues, recalled Rich Toreson, a board member of the McCloud Community Services District, which operates the McCloud water system.

Danone ultimately opened a water plant in 2001 in Mount Shasta City, about 10 miles away. The plant has since been acquired by Coca-Cola Co. Mr. Toreson said his district began negotiating with several other companies, including Crystal Geyser Roxane Water Co., an Olancha, Calif., concern that in 1998 opened a bottled water plant in nearby Weed, Calif. But no deals with McCloud materialized.

Then, in June 2003, McCloud started talking with Nestlé, which had been scouting sites for a new plant to produce Arrowhead Mountain Spring Water, the company's second-largest water brand in the U.S. At a public meeting three months later, the district's board approved a 50-year deal under which Nestlé agreed to pay McCloud between $300,000 and $400,000 a year, not including assorted other payments, for spring water. To house a proposed million-square-foot bottling facility, Nestlé acquired the 250-acre site of an abandoned sawmill last year. It can't begin operations without state and federal environmental reviews, which are expected to be completed later this year.

Some residents are furious, complaining, among other things, that the deal was made before an environmental analysis was conducted to ascertain what might happen to the springs. "If they start pumping water out of here, I'm afraid this could be at risk," said Richard McFarland as he leaned to drink from an ice-cold spring gurgling out of a nearby forest. Mr. McFarland, who owns a local wood-refurbishing business, moved here 20 years ago from the San Francisco area.

Bottled water plants probably wouldn't have much impact in the short term on underground water supplies from a place like Mount Shasta that gets a lot of precipitation, said Andrew Chang, director of the University of California Center for Water Resources in Riverside, Calif. But long term, Mr. Chang said, "there could be a concern, depending on the quantity taken out."

Officials at the water district say the plant's intake won't harm local water supplies. Peter Kampa, who recently resigned as the district's general manager to run another municipal services district, said a retrofitting of a dilapidated pipeline had saved enough water from numerous leaks to almost offset the amount Nestlé would take.

Nestlé officials say data from the springs suggest there's more than enough water to go around. "We count on long-term environmental monitoring to ensure that a spring will stay high quality, good tasting and abundant," said Jane Lazgin, a spokeswoman for Nestlé Waters, the Greenwich, Conn., subsidiary that operates 23 U.S. plants. The company officials also say as many as 240 jobs could be created at the McCloud plant.

Opponents argue it would be better to build up McCloud as a resort. But others say tourism jobs would be poor replacements for the higher-paying manufacturing jobs that have been eliminated.

For now, Nestlé's plant is stalled in the courts. Last year, the Concerned McCloud Citizens, a group that was formed to oppose the project, filed suit in California Superior Court in Yreka asking that the Nestlé agreement be thrown out pending a state environmental review. In March, a judge in the case ordered the agreement set aside until that review is done. Nestlé said it plans to appeal. #

http://online.wsj.com/article/0,,SB111828361424555065,00.html?mod=todays_us_marketplace