Climate Change and the Future of General Mills
Extreme weather events have a significant impact on grain yields, which General Mills depends on to manufacture snacks from Cheerios to Pillsbury cinnamon rolls.
How many times a day do you eat something that contains rice, wheat, or corn? If you’re like the rest of the world, chances are you consume one of those grains on a daily basis. These three cereal grains directly contribute more than half of all calories consumed by human beings, and US farms supply nearly 25% of all grains.[1], [2]
What’s Global Warming Got to Do with It?
Global warming is causing rapid changes in water supply and weather around the world, threatening to be detrimental to the growth of these crops. While in certain circumstances an increase in CO2 can increase plant growth, the additional variability in temperature and extreme weather will eliminate any possible benefits.[3] In addition, elevated levels of CO2 have been associated with reduced protein and nutrient content in various crops.[4]
The following chart from the US Environmental Protection Agency illustrates the impact of extreme weather events on annual corn yields.[4] Despite significant agricultural advancements since the 1960s, extreme weather events due to global warming still cause significant reductions in corn yields.
General Mills
With brands such as Cheerios, Pillsbury, and Betty Crocker, and 2016 global sales of $16.6 billion, General Mills is one of the largest food manufacturers in the world.[5] Their global operations span 13 countries, making them particularly susceptible to the impact of global warming on food production. Their principal raw materials are wheat, oats, and corn, and in 2015 General Mills shipped more than 247 billion grams of grains.[6] The majority of their inputs are purchased on the open market, and the costs may “fluctuate widely due to external conditions such as weather, product scarcity, […] and changes in governmental agricultural and energy policies and regulations.”[7] Upstream, they will be affected as their suppliers experience crop declines. Downstream, they may have to pass on increased costs to their end consumers.
The State of Sustainability at General Mills
In their 2014 Policy on Climate, General Mills laid out their approach to mitigate their internal environmental footprint, as well as adapt to support their external partners to advance sustainable agriculture in a changing environment.[8]
Internally, their approach includes reductions in areas such as greenhouse gas emissions, energy use, fuel use, packaging, waste, and water consumption. They are working to decrease Scope 1 and Scope 2 emissions from their directly controlled operations, which represents 11 percent of their carbon footprint.[9]
Externally, they also collaborate with others to reduce Scope 3 emissions across the value chain, which represent the vast majority of their carbon footprint. To this end, they have invested in proprietary plant breeding programs with the goal of providing farmers with seeds that are optimized for high-yield, high-quality crops despite climate variability. They also support innovation for farmers to reduce their environmental impacts, and provide technical assistance to growers in partnership with suppliers, NGOs, and industry round tables. They are also working with businesses and policymakers to advocate for innovative and impactful climate and clean energy policies.[8]
Additional Steps
General Mills recognizes the impact climate change will have on the food industry, and is taking many steps to do their part in mitigating their impact. However, while they have spent time working upstream with their suppliers and farmers, they have not spent much time focusing on their end consumer. A recent Nielsen global online study found that 66% of respondents and 72% of Millennials are willing to pay more for products from a company that is committed to positive social and environmental impact.[10] Publicizing the steps that General Mills is taking to fight climate change will allow consumers to vote with their dollars, and help push the entire food industry in the right direction.
Another large contributor to global warming is the methane generated from food waste in landfills. General Mills should use its position as a large food company to educate consumers on the importance of food waste reduction. The company can take further steps to make its packaging out of compostable or recyclable materials. By implementing numerous changes and mitigation efforts along its supply chain, General Mills is working to ensure that it will have a steady supply of grains going forward.
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Sources:
[1] Awika, Joseph M. “Major Cereal Grains Production and Use around the World.” American Chemical Society, 2011. Web. 3 Nov. 2016. <http://pubs.acs.org/doi/pdf/10.1021/bk-2011-1089.ch001>.
[2] Office of the Chief Economist. “World Agricultural Supply and Demand Estimates.” United States Department of Agriculture: 12 Oct. 2016. Web. 3 Nov. 2016. <http://www.usda.gov/oce/commodity/wasde/latest.pdf>.
[3] USGCRP (2014). Hatfield, J., G. Takle, R. Grotjahn, P. Holden, R. C. Izaurralde, T. Mader, E. Marshall, and D. Liverman, 2014: Ch. 6: Agriculture. Climate Change Impacts in the United States: The Third National Climate Assessment, J. M. Melillo, Terese (T.C.) Richmond, and G. W. Yohe, Eds., U.S. Global Change Research Program, 150-174.
[4] “Climate Impacts on Agriculture and Food Supply.” US Environmental Protection Agency, 16 Oct. 2016. Web. 3 Nov. 2016. <https://www.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply#ref1>.
[5] “General Mills: Company Overview.” Web. 03 Nov. 2016. <https://www.generalmills.com/en/Company/Overview>.
[6] “General Mills: Our Foods.” Web. 03 Nov. 2016. <https://www.generalmills.com/en/Health/our-foods>.
[7] General Mills. (2016). Annual report 2016. Retrieved from http://investors.generalmills.com/quarterly-earnings.
[8] “General Mills: Climate Policy.” Web. 03 Nov. 2016. <https://www.generalmills.com/News/Issues/climate-policy>.
[9] “General Mills: Reducing GHG Emissions.” Web. 03 Nov. 2016. <https://www.generalmills.com/en/Responsibility/Environment/environment-approach/reducing-ghg-emissions>.
[10] “Green Generation: Millennials Say Sustainability Is a Shopping Priority.” Web. 03 Nov. 2016. <http://www.nielsen.com/us/en/insights/news/2015/green-generation-millennials-say-sustainability-is-a-shopping-priority.html>.
General Mills (GM) makes Cinnamon Toast Crunch (CTC). I love Cinnamon Toast Crunch and if I were to guess, more than 50% of my total calories come from eating this delicious cereal. Though I support the sustainability efforts GM is taking to reduce their impact on the climate, the price of CTC is already too high and I would caution GM if they are considering charging a premium for their efforts to remain committed to a positive social and environmental impact. Perhaps I’m in the 28-34% of people who would not be OK with paying more for what I believe a company like GM should already be doing – running their business in an efficient, thoughtful, and sustainable way.
As a consumer, I’m confident that GM can strategically change to improve their internal operations to meet their sustainability efforts without having to charge me more. Given that they span 13 countries, GM can likely cost cut from within and innovate throughout the supply chain to reduce their carbon footprint. While some consumers may tolerate a price hike, others have been conditioned, through coupons and other promotions aimed at driving sales, to expect to pay a lower price for yummy cereals like CTC. Perhaps by investing in technology focusing on the framers and shrinking their carbon footprint at the supplier level, GM can continue to make progress and serve as an industry leader in corporate sustainability.
Thanks for writing – fun to read about a CPG trying to take steps to improve its environmental impact! I thought the point you raised about millennials’ willingness to pay more for sustainable products was an interesting one to think about, especially in light of some of the class discussions we’ve had about Nike’s approach to advertising its sustainable products. In the case of cereal or other grocery products, consumers do develop affinity towards certain brands but also are actively comparing products based on price point, coupons, promotions, etc. I’d advise against increasing grocery products’ prices significantly more than relevant peers and/or historical prices based on consumers’ buying patterns. I liked the points you raised about the areas where General Mills is currently trying to focus in terms of improving its sustainability. It would be interesting to hear about whether they have set any specific targets or if this could be construed as ‘greenwashing’ in any way.
Roanna, thanks for the post! A few thoughts:
I know that almost every company nowadays has its own “sustainability initiative,” but General Mills actually seems to be setting legitimate targets–which was great to see. I’m not sure if you saw, but there was a recent independent report by Oxfam International that claimed that General Mills’ GHG emission targets are based on credible methodologies and that the company’s sustainability plans are indeed achievable. [1] The report concluded the same about Kellogg’s aggressive sustainability initiatives (by 2050, planning to cut its own and suppliers’ emissions by 65% and 50% respectively). [1]
Given that Kellogg’s seems to be making very similar investments, I would argue that General Mills should focus more on supporting its suppliers vs. utilizing resources to educate end users. I appreciate your point about consumers being willing to pay more for environmentally-friendly products, but I wonder how well these dynamics apply to commoditized products like cereal. Regardless, even with the admirable steps that General Mills is taking, I don’t think that consumers would necessarily “vote with their dollars” for General Mills if the other major players are moving in the same direction.
[1] https://hbr.org/2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions
“Nearly two-thirds of the company’s total greenhouse gas emissions occur upstream of its direct operations, particularly in agriculture, ingredients and packaging.” To reduce emission levels, General Mills would need to further exert influence and fully mobilize the growers, suppliers, customers and industry partners along the value chain (http://www.industryweek.com/supply-chain/general-mills-we-want-be-around-150-years-so-will-reduce-emissions). Besides, with more and more companies appeal to consumer on sustainability, I would argue that it becomes less of a differentiated value proposition. Given the number of consumers who are environmentally conscious is still small, General Mills should also think carefully about the weight and efforts they put into marketing “sustainability”.
It is very interesting to learn that millennials are willing to pay for products from a company that is committed to environmental sustainability and social impact. To assess whether how effective publicizing the steps that General Mills have taken to address climate change will generate additional demand from millennials, it would be helpful to see the breakdown of General Mills customers (% of millennials to total). In addition, what marketing channels do you think General Mills should employ to publicize its environmental sustainability initiatives?
Interestingly, it seems that recently General Mills faced some negative publicity. According to bizjournal, General Mills donated approximately $100,000 to politicians who tend to underestimate the threat of climate change. How do you think General Mills should respond?
http://www.bizjournals.com/twincities/news/2016/10/10/target-general-mills-pledged-to-help-climate-then.html