Climate Change – Project Rainforest Alliance of Lipton in 2016
A brand with purpose prevents climate change and contribute to environmental sustainability.
Corporate Social Responsibility (CSR) has been more and more important today in consumers mind. People started to care not only about themselves, but also their environment. Unilever, Consumer Package Goods (CPG) company, launched “Unilever Sustainability Living Plan” (USLP) in 2010. The plan drew a vision that before 2025, the company is going double the business while halving environmental footprint. It is a challenging and unconventional mission statement. Traditionally, people perceived there is a trade-off between economy development and environmental impact. Unilever sent an extraordinary signal that it’s going to improve both at the same time. Rather than simply focusing on charity or donation, Unilever built each brand with purpose. For example, Dove stands for “Real Beauty”, saying that women shall be confident in themselves regardless of their ages, races or body shapes; Lifebuoy dedicates to promote sanitary concept by educating people in remote, developing areas.
The brand which address climate change and environmental issues is Lipton. Its Yellow Label Lipton Tea is now selling in more than 100 countries. To make commitment to environmental sustainability, Lipton volunteers to cooperate with an NGO called “Rainforest Alliance” (RA), which aim to fight climate change by reducing negative impacts from agriculture. Lipton set an ambitious goal that, by the end of 2015, all tea bag products under the brand should be sourced by Rainforest Alliance certificated tea farms.
The concept was highly recognized by consumers in Taiwan. As soon as it was deployed and communicated to consumers, the sales of the tea bag products grew 13.2% versus the same period in preceding year, which was a significant turnaround of Lipton tea bag’s business in 2016 H1 while the product line was suffering from decline in previous years. After the business success, more farmers were committed to join the certificate. Moreover, competitors followed Lipton’s pace to certify their tea farms to attract consumers. Lipton literally changed the face of the competition in Taiwan in 2016.
Despite of the success on business, Lipton team faced significant challenges on the whole supply chain. Firstly, tea leaves sourcing was a big issue. The procurement team had to find farmers who were willing to cooperate with Lipton to meet the standards required by the Certificate, which was extremely strict and complicate. For example, the pesticide usage was divided to 3 categories – green light (safe), yellow light (moderate toxic) and red light (dangerous to soil and human body). The certified tea farms could only adapt the pesticides in the first 2 categories, most of the farmers having to their previous behaviors. Beside pesticide regulation, there were ten regulatory categories, consisting of 100 sub-rules. The efforts put on communicating, persuading and changing incentive system was huge and costly. Moreover, production site audit was required. The factories used to produce Rainforest Alliance certificated tea products should pass the audit by the NGO. The process often takes half an year preparation and 3 days dedicated on-site audit, which were extra investment and complexity on factory operation.
Furthermore, there were several problems faced by the supply chain of Lipton tea bags. Firstly, the reaction of demand of tea leaves was slow. When the demand went up, it usually ends up with supply shortage because Lipton products can only use the tea leaves which came from the certificated tea farms – the flexibility suddenly became low. To avoid Out of Shelf (OOS) in trade, the only thing the team could do was to ask supplier to build higher safety stocks and absorb the cost of inventory or potential write-off of the remaining unsold tea leaves. Moreover, the difference in government regulation across different countries posted complexity on global supply. For example, the factory in Indonesia supplied Yellow Label tea bags to 8 Asian countries including Taiwan. Taiwanese government changed pesticide restriction on imported tea leaves frequently in response to the uncertainty of the safety of the raw materials. When Lipton team raised request on pesticide requirement to Indonesia supply chain, the reaction of the factory was often lagged. On one hand, Indonesia procurement team had to push back to farmers to improve pesticide usage, which was troublesome and time-consuming; on the other hand, Taiwan’s demand of tea leaves accounts for relatively small portion of total supply volume, the Indonesia team simply reluctant to help or change anything.
Although the excellent business result, the project was still suffering from huge complexity on sourcing, which raised cost of the product. The low margin was frequently reviewed by upper management team and stress was put on Lipton team. What’s the best way to drive business and sustainability while improving the gross margin? How should Taiwan Lipton team negotiate with Indonesia supply team to provide products that conform to local regulations? Should Taiwan team keep investing on Rainforest Alliance Certificate project?
[word count – 793]
*Source:
Mostly from personal experience when I was the Product Manager of Lipton Tea in Taiwan.
Unilever website: https://www.unilever.com/
Rainforest Alliance website: https://www.rainforest-alliance.org/
In the essay, the cooperation with the “Rainforest Alliance” certificate is celebrated as a successful and effective Corporate Social Responsibility effort by Unilever. This view ignores the fact that Rainforest Alliance has been repeatedly attacked by NGOs for “greenwashing”. It has been criticized as “a program unqualified to ensure farmworker justice” [1] and as “Fairtrade Lite – an attempt to benefit from the appearance of doing good, at less financial cost” [2].
This debate raises a fundamental question: In the light of major trends such as climate change, is it morally acceptable if management pursues CSR efforts mainly for the sake of financial profit, but without caring about the actual impact? Investigations repeatedly raised many concerns regarding Rainforest Alliance:
* Weak on-farm monitoring mechanisms: Reports of child labor, unprotected spraying of pesticides, widespread cases of gender discrimination, ethnic discrimination, sexual harassment, bad housing, hampered freedom of association and collective bargaining [2], [3]
* Missing enforcement mechanisms and audits to ensure compliance with prescribed standards [2]
* Insufficient focus on paying living wages [4] and on paying minimum prices [5]
There is ample evidence that Rainforest Alliance has weaker standards and less effective enforcing mechanisms than other Fair Trade labels. Yet, its marketing achieves the main goal of making consumer feel better about products such as Lipton tea: Given the “label”, they are willing to buy the products at a premium. Does management – in all seriousness – address the root causes of climate change and poor working conditions when partnering with a “Fairtrade Lite” label? Probably not. Does management live up to its obligations? Unilever’s shareholders might be happy for now, but consumers should be more skeptical.
____
[1] http://fairworldproject.org/wp-content/uploads/2016/10/Justice-In-The-Fields-Report.pdf
[2] https://www.triplepundit.com/2010/07/greenwashing-profiteers-part-ii/
[3] https://www.somo.nl/certified-unilever-tea/
[4] https://www.revealnews.org/blog/beware-the-little-green-frog-logo-on-your-sustainable-food/
[5] https://benclapton.id.au/2013/04/17/fair-trade-rainforest-alliance-or-utz-seeing-the-wood-amongst-the-trees/
(all accessed on Nov 19, 2017)
In your essay you mentioned the interesting supply/demand relationship in the tea market, which made me think of the bullwhip effect we discussed during the Beer Game and Barilla case. Essentially, the ability to fulfill demand in the tea market became the bottleneck of the value chain due to the restrictions enforced on suppliers. I am not sure that the only way to resolve this inefficiency is through safety stock, especially when I think of inventory holding costs and the long-term ability to react to changing marketplace trends.
If Lipton recently created regulations regarding tea sourcing, I wonder what or if they did anything on their end to educate their suppliers and help their partners transition to a more complex approach. Though “natural and organic” are some of the major purchasing drivers in today’s tea market [1], to what extent did Lipton take it too far? Are +100 sub-rules and 3-day audit checks necessary for a product that has less than a $10 price point? And do customers even understand the difference between these nuances?
I am interested to see how Lipton will continue to evolve their approach towards sustainability, especially in an industry that has been shifting towards smaller and more authentic niche brands.
[1] “Tea-Based Beverages’ Growth Potential and Sustainable Sourcing,” Natural Products Insider (with information from Euromonitor International), October 2017, https://www.naturalproductsinsider.com/articles/2017/10/tea-based-beverages-growth-potential-and-sustainable-sourcing.aspx
The essay refers to a 13.2% pop in overall sales when the rainforest alliance aspec was announced and I find that quite refreshing. Being a long-term skeptic on the effectiveness of “values-based” advertising, it is interesting that you mention this aspect. It appears to have triggered a “network effect” of coercing some of the competitors into also upholding an environmentally responsible stance. A wonderful byproduct of Lipton taking the lead in this initiative in the market!
On driving business and sustainability while improving profit margins, I don’t think the tradeoff is that straight forward. If it were, most firms would be embracing sustainability and we wouldn’t have this issue. Ultimately, disruptive innovations in the business model might trigger something that challenges the conventional profit maximization vs. negative societal externality trade-off but until then I would say that the Taiwanese consumer’s clear support of the initiative might be the best way to self-regulate the industry into behaving responsibly