Can Good Food, Good Life and Bad Environment Co-Exist? Nestle’s Response to Climate Change
Nestle is the biggest purchaser of cocoa in the world. How will they respond if cocoa ceases to exist by 2050, as some scientists predict to be the case?
Nestlé, #66 on the Fortune Global 500, is the world’s biggest food company with over US$90 billion in sales per year. [1] The company is celebrating 150 years of “good food, good life” this year, but rather than looking back its leadership is focusing on the future. To survive the looming threat of climate change, Nestlé will need to build sustainability into its operations.
Climate change poses a significant threat to Nestle’s value chain. The company is the biggest buyer of cocoa in the world. [2] Cacao trees grow require a specific set of conditions to prosper – uniform and high temperatures between approximately 20°-30°C, high humidity, abundant rain, nitrogen-rich soil and protection from the wind. [3] These conditions are unique to the “cocoa belt” – a belt of countries within 10° north and south of the equator where cocoa trees prosper. Currently, the largest producing countries within this belt are Côte d’Ivoire, Ghana and Indonesia. [4]
Higher temperatures and lower rainfall associated with climate change have already decreased cocoa yields and threaten to eliminate cocoa production altogether in the future. According to a recent study by the International Center for Tropical Agriculture (CIAT), farmers will begin to see declines in cocoa production by 2030, and nearly 90% of current cocoa producing regions will be unsuitable for production by 2050. [5]
Declines in cocoa supply are expected to drive higher cocoa prices, ultimately increasing Nestle’s raw materials costs significantly. However, Nestlé must approach the increase in prices with a view towards long-term sustainability of the supply chain. 90% of the world’s cocoa is grown by small-scale family farmers. [6] Since the late 1980s, the share of the final value of a chocolate bar that growers in West Africa receive has dropped from 6.4% to 3.5%, while the manufacturer’s, such as Nestlé’s, share has increased from 56% to 70%. [6] The shrinking of farmers’ margins has resulted in low productivity, poverty in farming communities and the abandonment of cocoa production for more profitable alternatives, such as rubber production. As climate change continues to threaten the livelihood of cocoa farmers, Nestlé needs to protect the profit margins for the farmers in its supply chain.
Nestlé is already taking steps to respond to the threat that climate change poses to its cocoa supply chain. For the last several years, the company has committed to protecting the profit share of farmers, instead passing additional costs through to the consumer. Jose Lopez, Nestle’s former Vice President and Global Head of Operations, commented in 2014 that “farming has to become a different player in the eyes of the consumer” and Nestle needs to “educate everyone about the real value of their purchasing activities.” [2] In other words, consumers need to be prepared to pay up for their chocolate or risk one day having no chocolate at all.
Additionally, in May 2016, Nestle announced a collaboration with the World Cocoa Foundation (WCF) and other chocolate companies to help cocoa farmers adapt to weather and climate impacts. With support and expertise from USAID and ACDI/VOCA, Nestle and its partners will “develop a common strategy to address climate’s impacts on cocoa and develop innovations to assist farmers in adapting to changing weather patterns, such as research and development of climate resilient planting material, improved farming practices, and new agroforestry models.” [7]
Ultimately, however, despite Nestle’s efforts, imminent changes in the climate will inevitably limit cocoa sources. Thus, Nestle should also invest in identifying more sustainable substitutes. Carob is one such potential substitute. Made from the pulverized fruit of a Mediterranean evergreen, carob approximates the color and consistency of cocoa when mixed with vegetable fat and sugar. [3] Nestle should explore carob and other substitutes to diversify its supply chain away from cocoa.
Nestle is truly a leader in thinking about the impact of climate change and creating sustainable business practices to address the threats. Just this year, the company earned a place on CDP’s Climate A list and received a score of 100 in the environment and climate change dimension of the 2016 Dow Jones Sustainability Index. [8] As the largest food company in the world, Nestle is paving the way for us to be able to have “good food, good life” far into the future, despite the effects of a changing climates.
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Sources:
[1] http://beta.fortune.com/global500/nestle-66
[3] https://www.climate.gov/news-features/climate-and/climate-chocolate
[4] http://www.icco.org/about-cocoa/growing-cocoa.html
[5] https://www.climate.gov/news-features/climate-and/climate-chocolate
[7] http://www.worldcocoafoundation.org/wp-content/uploads/FINAL-CSC-program-announcement-5-31.pdf
[8] http://www.nestleusa.com/sustainability/climate-change-leadership
Nestle is synonymous with chocolate. Is looking for chocolate substitutes really the right direction, or could this have more downstream impact to their brand equity. Instead, Nestle may want to look at Mars Candy, who has had similar problems with cocoa production. Mars has made a commitment to to change their operation to be more “green”–which will not have an impact on product quality. Not only is this maintain the product integrity, but it also matches their ambition to help climate change at a larger scale.