Climate Change and ABI
Global beer company AB-InBev has made great strides over the past few years to address global climate change's affect on their supply chain.
Companies that are heavily reliant upon agriculture should be worried about climate change. While some laboratory studies have shown that warm weather and higher levels of CO2 in the atmosphere can generate better growth, these benefits are largely offset by the other changes that occur as a result such as extreme weather and thriving pest populations. Additional stress will be placed on this system due to population growth. By 2050, the population is estimated to grow to 9 billion people and agricultural production will need to double in order to feed everyone. Previous production increasers, such as clearing rainforests and heaving fertilizer usage will only continue to exacerbate the growing climate issues. Addressing this changing environment will be especially important for an organization like AB-InBev, whose grain use does not go towards feeding the population, but goes towards “extracurricular” uses – alcohol. As the population increases, it stands to reason that alcohol consumption will also increase, but alcohol producers will likely need to watch their sustainability practices much closer than food producers.
AB-InBev is doing quite a lot already to address climate change and its potential affect on their supply chain. They have about eight overarching environmental goals that they had hoped to achieve by 2016 including protecting watersheds and reducing greenhouse gas emissions per hectoliter of production by 10% globally and 15% in China. They surpassed many of these goals before 2016, indicating that they have the potential to do even more (as they should) to reduce their footprint. Just recently, in September, ABI partnered with Thunder Ranch, a wind farm set to open in the next several months. The amount of energy purchased represents about half of the Anheuser-Busch annual usage, a good step in parent company ABI’s goal to use 100% green energy by 2025.
Specifically related to agriculture, they are leveraging their size and resources to help the many growers in their supply chain to improve productivity and competitiveness. AB-InBev started a program called SmartBarley in 2013, a global platform for barley growers to document trends and yields. It has created a community in which growers can share best practices moving forward. ABI has also provided technology to help measure different metrics such as nitrogen content (for the purposes of fertilizer management programs). Currently, the program is open to growers who have contracted with ABI in the past but will be open to new growers in coming years. While barley is a good choice for ABI considering their use of the project, it would be interesting to see them not only open this platform to all barley growers but to other crop producers as well. Many of the best practices learned in increasing yield are likely transferrable to other major crops as well.
Along this vein, ABI has been working to support the communities as well as the agriculture. They have invested in resources for small growers, such as the Nile Breweries Limited program in Africa. These programs provide training for smallholder farmers and provide a steady income stream. That said, not everyone can or should grow barley. ABI has worked to develop beers out of local ingredients such as sorghum and cassava. Similar partnerships exist with small distributors all over the world. While not directly related to climate change, these partnerships have the dual benefit of helping local communities and allowing ABI to have tight control of how the famers operate. Best practices can spread down the line.
Watershed protection is one of ABI’s most important initiatives. Similar to their look at agriculture, they have addressed water protection both internally by reducing water usage (outside of water used for the product) and externally by partnering with organizations such as water.org and protecting watersheds in the communities in which they work and serve.
ABI is one of the largest CPG companies globally and they’ve taken several steps to address the stress climate change will place on their supply chain, but they can do more. As mentioned, they have the resources to invest in knowledge and best-practice spreading outside of their core competencies. Additionally, after looking at their Better World Report, while they have made some strides in reduction of waste – including over 99% of production waste used in some other process – there is still a significant amount of work to be done in recycling efforts and packaging waste management.
My two questions to my classmates are the following:
- Do you think that as company producing something like alcohol, ABI has a greater responsibility to address their global footprint? Why or why not?
- As a company producing goods that are largely recyclable, how would you encourage consumers to be serious about waste management?
Sources used:
http://www.ab-inbev.com/better-world/how-we-manage-sustainability.html
http://nca2014.globalchange.gov/report/sectors/agriculture#intro-section-2
https://www.nationalgeographic.com/foodfeatures/feeding-9-billion/
http://www.smartbarley.com/en/ndvinitrogenmanagement.html
Thanks for the thought provoking read! In regards to your second question- while ABIs products are usually themselves recyclable, they are often consumed in contexts with extra waste (solo cups etc.). ABI could consider taking advantage of their strong brand equity to use their ads and packaging to educate customers about waste management in the settings in which alcohol is consumed.
Meghan – great summary of how climate change is affecting companies like ABI! To your first question, I don’t think ABI has a greater responsibility to address their global footprint because they are a company that produces alcohol but I do think their sheer size should compel them to adopt more sustainable practices. ABI is in a similar position as IKEA; as one of the largest consumers of timber, IKEA felt a strong responsibility to improve its global footprint for long-term sustainability of both its business model and the planet. I wonder if ABI could adopt certain sustainability standards for their growers in the way that IKEA did for timber manufacturers.
Thanks for the perspective! It is encouraging to learn about how proactively ABI is approaching this very serious environmental threat. To your second question regarding how consumers can be incentivized to recycle more and use less product, I had a few ideas:
1. Align incentives: I think that the biggest driver of future behavioral change will be through monetary incentives. One way to do this is to develop a discount program where consumers can re-fill or return their bottles for an economic return. Bottled water companies do this already, where consumers go to the grocery store to refill their water. This type of behavior also incentivizes sticky consumer behavior and can build brand equity & positive brand perception.
2. Invest in additional ventures: ABI is already doing this; however, continuing to invest in additional, recycling-related companies (e.g. bottle recycling depots) may generate additional synergies. For example, ABI could buy up a recycling company and have an entirely integrated supply chain, where the recycled bottles could be used for new future products.
Meghan – this is an awesome read, thank you! Thinking through your first question, I agree with a previous comment that ABI is uniquely positioned to have a positive impact on their global footprint and sustainability practices with food and beverage production. Many of the initiatives you wrote about (ABI encouraging local sharing of farming best practices, watershed protection, metrics tracking environmental impact of farming, etc.) are all important and certainly should not be discontinued but I would argue ABI is thinking too near-term and within the bounds of their current business model. As global warming becomes a bigger concern and the global population grows, ABI will not be able to meet the same % demand – there will be a point where despite best training / learning efforts, current inputs to beer production will not be possible to produce at necessary scale. I think ABI should focus equal if not more effort on researching alternate solutions like those we saw with Indigo Agriculture, leveraging science to fundamentally change plant yield. ABI should also devote R&D funds to study laboratory-engineered beer production. Though potentially challenging to sell lab-produced beer from a PR perspective, moving toward science as a solution will help ABI reduce their climate change footprint and manage a changing agriculture landscape.
How provocative is your first question?! I love it! I’m firmly in the camp that a company producing a poison should 100% be set at a higher standard of sustainable production. There are two specific layers to my opinion. The first is that they are creating a poison, one I enjoy myself, so if we are heading towards a future in which companies will fight for commodities, the company that produces an item without nutritional benefit should be sacrificed. The second layer was somewhat alluded to in Meghan’s fantastic essay, but is that beer is also consuming our most precious resource: water. While ABI has already made significant progress on this front, (for instance, they removed the equivalent of how much water it takes to brew 4 billion cans of beer from their brewing process between 2013 and 2014, http://www.csrwire.com/press_releases/38011-Anheuser-Busch-InBev-is-Most-Efficient-in-Terms-of-Water-Use-Among-Global-Brewers-), they were still consuming water at a rate of 3.2 hectoliters of water per hectoliter of beer as of the end of 2015. Long story short, if it comes down to agriculture and water for a growing population, ABI will most likely (or should) lose.