Climate change, food security, and General Mills
In the face of climate change, food manufacturers like General Mills must transform their supply chains. Our future and food security depends on it.
AN URGENT NEED
Climate change is arguably the most pressing issue of the 21st century. In particular, climate change will dramatically shift our global food equation. On the supply side, we can expect volatile and harsh weather conditions to threaten access to raw materials and disrupt supply chain deliveries. Today, global agriculture alone “produces up to 35% of the world’s greenhouse gas emissions (and uses 70% of the water)” [3]—and it’s about to get worse. The demand for “agricultural products is estimated to increase by about 50% by 2030 as the global population increases” [1] and an “estimated 1.8B people are expected to join the global consuming class by 2025” [2]. Going forward, it is likely that food manufacturers will face increasing pressures from all sides—governments, regulatory bodies, and consumers—to produce more food in a more sustainable way.
CALL TO ACTION
In order to provide reliable, affordable access to high-quality ingredients over the next several decades, the food industry must evolve. Specifically, food manufacturers must transform their supply chains to be both sustainable and resilient. General Mills has set an industry-leading example of this.
General Mills has committed to an ambitious goal of reducing 28% of its total greenhouse gas emissions by 2025 across its entire value chain, “from farm to fork to landfill” [4]. The company’s long-term aspiration is to reduce total emissions up to 72% by 2050—in line with global scientific consensus, as mandated by the Intergovernmental Panel on Climate Change [4]. This aspiration is particularly ambitious because General Mills intends to reduce emissions across the entire supply chain, beyond its own direct operations. In fact, “nearly two-thirds of greenhouse gas emissions and 99% of water use occur outside General Mills’ operations, primarily in agriculture” [5]—beyond the company’s direct control and line of sight.
WHAT’S NEXT?
To achieve this, General Mills has committed to sourcing its top ten priority ingredients from sustainable, traceable sources by 2020. “These ingredients represent 50% of the company’s total raw material purchases and have significant impact on its total environmental footprint” [4]. Additionally, the company has conducted a global water risk assessment of its factories and pledged to “develop a global freshwater stewardship program with public commitments, public education and advocacy, and funding for key watersheds” [5].
Given that the majority of General Mills’ greenhouse gas emissions occurs upstream of its direct operations, the company must partner closely with suppliers and growers to implement sustainable farming and sourcing practices. Such practices include:
- Expanding industry partnerships with organizations, such as Field to Market and the Innovation Center for U.S. Dairy, that provide farmers with tools, resources, and best practices [7]. These industry coalitions also help growers “gather information about how their farming practices are impacting the environment” and “give them access to data that can help guide everyday decisions” related to soil and water management [5].
- Focusing on supplier engagement across the value chain. General Mills rarely handles production agriculture directly, and thus needs to obtain supplier buy-in and align incentives across the value chain. To do this, General Mills has invested “more than $100 million in energy efficiency and clean energy” [6].
- Sourcing from an additional 250,000 organic acres by 2025. “Organic farming’s focus on healthy soils can help sequester carbon, enable farms to have a higher tolerance to drought and heavy rains and promote biodiversity so the farm can continue to be more successful in adapting to changing climate conditions” [7].
I would make some additional recommendations to help General Mills achieve its ambitions. First, the company should establish a governance committee that sets policy targets and makes key investment decisions, with additional members embedded in the relevant business functions (e.g. procurement and supply chain management). Second, the company should develop and monitor robust performance metrics, and establish a mechanism for adjusting targets as climate science continues to evolve over the next 40 years. Third, downstream improvements can be made in packaging design and materials, which represent “14% of total greenhouse gas emissions across the value chain” [7]. General Mills should move towards low-impact, zero-waste packaging through packaging innovation, partnerships with more progressive suppliers, and truckload packing-efficiency optimization. Finally, General Mills should invest to close data and technology gaps at the farm level. Currently, there is a lack of granular data available at the farm level: most data measurement and analysis tools used in the field today are simplistic and lack the capabilities required to account for key differences in growing regions, farming methods, etc.
FOOD FOR THOUGHT
In the interim, how should industry leaders like General Mills balance short-term financial performance versus long-term investments necessary for survival? What role should shareholders and consumers play? More broadly, should companies be held to the same standards as nations when it comes to compliance on climate change?
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Works Cited:
[1] Tim Wheeler and Joachim von Braun, “Climate Change Impacts on Global Food Security,” Science no. 341 (August 2, 2013): 508-513, http://science.sciencemag.org/content/341/6145/508.full, accessed November 2017.
[2] Anne-Titia Bove and Steven Swartz, “Starting at the source: Sustainability in supply chains,” McKinsey, November 2010, https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/starting-at-the-source-sustainability-in-supply-chains, accessed November 2011.
[3] Andrew Winston, “How General Mills and Kellogg Are Tackling Greenhouse Gas Emissions,” Fortune, June 1, 2016, https://hbr.org/2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions, accessed November 2017.
[4] “General Mills announces new commitment on climate change,” press release, August 30, 2015, on General Mills website, https://www.generalmills.com/en/News/NewsReleases/Library/2015/August/Climate-Commitment, accessed November 2007.
[5] Jerry Lynch, “Supply Chain of the Future: An Inside View of General Mills’ Commitment to Sustainable Sourcing,” CSR Wire, April 8, 2014, http://www.csrwire.com/blog/posts/1294-supply-chain-of-the-future-an-inside-view-of-general-mills-commitment-to-sustainable-sourcing, accessed November 2017.
[6] John Kell, “General Mills has big plans to go green,” Fortune, August 31, 2015, http://fortune.com/2015/08/31/general-mills-going-green/, accessed November 2017.
[7] John Church, “Inside the General Mills roadmap to a sustainable food future,” The Guardian, October 23, 2015, https://www.theguardian.com/sustainable-business/2015/oct/23/general-mills-sustainable-supply-chain-un-climate-conference-paris, accessed November 2017.
Thanks for choosing this topic, I really enjoyed this! Even more daunting than the impact of global population growth on consumption is General Mills’ ambition given that two-thirds of greenhouse gas emissions in the company’s plan are outside the company’s operations. While the targets are admirable, the macro environment points to the fact that implementing these changes to General Mills’ supply chain are critical for the company’s long-term sustainability. With that in mind, it is best to begin implementing the required changes now, so that 1) General Mills’ suppliers have time to make changes to their operations and 2) General Mills can help shape the regulatory narrative and stay ahead of its competition. Consumers can provide a vote of confidence to General Mills in the short-term by buying more of the company’s products, and shareholders must be vigilant in overseeing that the execution of this supply chain transformation occurs in the most efficient manner.
Consumers have to play a massive role for initiatives like these to be successful because of the impact on shareholders. The trend in CPG over the last several years has been away from the General Mills-like big brands, either in favor of niche offerings on the high end or private label on the low end. Though General Mills could succeed in hitting its emissions target even with decreasing sales, setting the industry standard for food security requires demonstrating a commercial advantage as well. As General Mills undertakes more of these initiatives and truly establishes its leadership position, they should be more active in marketing their actions so that conscientious consumers stop thinking of their big brands as problematic. By translating the sustainability initiatives into increased sales, General Mills will be able to maintain shareholder support, which is a particular concern at a time when CPG companies are focused on cutting costs in the face of flat top lines. Without these initiatives supporting revenue, it will be challenging for General Mills to continue investing in food security without shareholder dissension.
This was a great read, and I found it particularly interesting to learn that such a significant portion of the greenhouse gas emissions are outside of the company’s operation. To answer your question, I think it is necessary to balance short-term performance with long-term investments via a phased approach. General Mills should start by explaining to each part of their supply chain – both within and outside of their operation – how they intend to make their strategy a reality so that all parties are on the same page at a high level. From there, I agree with you, StarP, that they should create a Governance Committee to oversee this transition. I think what is key here is that members of this committee are in the “relevant business functions,” understanding what is working and what needs to be adjusted as they move towards their goal. This constant feedback process will make the journey towards their goal run that much more efficiently.
I also think there are interesting opportunities that lie within their packaging design and material selection. While there are innovative ways to package cereal, for instance, I wonder how this will be perceived by consumers. Will they still purchase the cereal that they may no longer immediately recognize? What can be done to maintain a certain level of recognition but also comply with better design and material selection? Can some of the different packaging sizes be eliminated?
Wow, 35% of our greenhouse gases! As our population grows and we move towards more sustainable energy sources in other industries, this percentage is likely only going to increase in the near-term. You mentioned population growth – I agree that this is a big problem, and this chart showing our population growth trajectory terrifies me: http://www.worldometers.info/world-population/ . As a resident of California, I know agriculture sucks up a tremendous amount of water in my home state – roughly 80% according to some sources [1]. When the recent drought hit and people were talking about conserving water at homes and restaurants, I found it frustrating how people weren’t focused on the issue of water being wasted by inefficient agriculture techniques (as opposed to, say, drip irrigation techniques [2]).
In response to your questions, my opinion is that General Mills isn’t moving to sustainability because it’s the right thing to do – they’re doing it for competitive reasons. Like we discussed in the Ikea case, General Mills can establish cost effective ways to reach sustainability in the short-term and ask consumers to demand it from all competitors, giving them a cost advantage in the long-term. While consumers can play a role in accelerating the adoption of sustainable business practices (by giving sustainable companies a marketing advantage), I disagree with Alex Robinson above that “they have to play a massive role.” Even if shareholders continue to care only about cash flow and consumers completely ignore sustainability, these companies should still want to reduce greenhouse gas emissions as long as regulators do a good job enacting policies that make it costly for them to ignore sustainability.
[1] https://www.kcet.org/commentary/drought-by-the-numbers-where-does-california-water-go
[2] https://en.wikipedia.org/wiki/Drip_irrigation
Very interesting piece! Glad to read General Mills is committed to reducing emissions across its entire supply chain, from farm to landfill. I wonder, however, how the cost to develop and adopt more environmentally friendly technologies will be distributed across the chain. Through partnerships, General Mills might be able to provide access to information, tools, and best practices to suppliers, but will it also provide enough resources to bear a significant portion of this technology shift?
Regarding your question about companies being held to the same standards as nations when it comes to compliance with climate change, I believe companies should be held accountable to an even higher standard. Their activities have very significant environmental externalities for which companies need to be accountable and compensate for. Furthermore, they have much more control over emissions than governments do, so companies can take much more direct, targeted and efficient measures. It is up to governments, however, to provide the right incentives through regulation as to encourage companies who are more environmentally and socially responsible over those who are not.
StarP, thanks for a great article! It has been interesting to hear about how a large producer like General Mills is working to improve sustainability and act in a more environmentally-friendly way.
Alec makes a great point above around the potential role of consumers and regulators, and I agree. I believe the role of consumers in this shift is very important. One could argue that a large player like General Mills is better able to shift its supply chain towards sustainability because of its size and leverage it has. While firms like General Mills can act as leaders in these discussions, it’s up to consumers to support and encourage this shift through their purchase decisions. This hopefully creates both pressure and momentum for other players to follow suit.
From a shareholder perspective, Jen D’s article pointed out that investments in reducing emissions can lead to improved financial performance for a business. If that also applies in this industry, it could be a helpful fact to satisfy shareholders. It would also be a concept that General Mills would want to emphasize to suppliers, who may view new sustainability requirements from General Mills as concessions in the context of a negotiation.
Very insightful article around climate change. I think it is great that we have companies like General Mills that are industry leaders that have decided to set clear sustainability goals and strict timelines. To me one of the main questions is how do you push other companies in the industry to strive to meet similar standards that General Mills has set.
One way you can do that is to create legislation that sets industry standard or you could create a coalition in which members of the collation agree to try to meet certain goals, such as a reduction in greenhouses by a certain date. If neither of those options catch on, key stakeholders such as consumers will become more important as they will need to assert their buying power in order to drive change in the industry.
Thank you for the interesting essay! General Mills might strengthen its effort to combat climate change by launching a consumer marketing and education effort. With a marketing campaign, General Mills could build consumer awareness about their investments in water conservation and environmental protection. This would have two benefits. First, General Mills may need to increase prices to offset its investments in environmental protection; educating consumers could make them more likely to accept these pricing changes. Second, advertising may lead consumers to pressure General Mills’ competitors to increase their own investments in environmental protection, which would help reduce the competitive disadvantage of incurring these costs.
Ultimately, I think General Mills should invest in mitigating climate change because it is the right thing to do – not because consumers demand it. However, with the right marketing strategy, General Mills might be able to align consumer preferences with doing what is right.