Climate Change will change the way we farm and eat!
Food and beverage companies such as Cargill need to mitigate climatic change and adapt to it in order to ensure food security and protect their earnings.
Climate change and food
Human emissions of greenhouse gases (GHGs) have led 2016 to be the 3rd consecutive hottest year since recordkeeping began. At this rate, by 2100, Earth may experience global mean temperature increases of 3.7o C– 7.8o C compared to pre-industrial levels1.
Climate change threatens food security around the world through increase in the frequency and intensity of some disasters such as droughts, floods and storms, ground water depletion, spread of pests and ocean acidification.2 Climatic changes over the last 30 years have already reduced global agricultural production between 1–5%, per the First Assessment Report of the Intergovernmental Panel on Climate Change.
This trend can be particularly disruptive to global food security given how complex food supply chains are today. For instance, if soybean grown in Brazil is shipped to China to feed livestock, and the meat is then distributed throughout Chinese cities, a drought in Brazil could affect the food supply halfway around the world.3
Besides food security, climate change also adversely impacts profits of the food industry. For example, in 2010, Fresh Del Monte Produce Inc. faced a $9M loss due to heavy rains and flooding in Guatemala, which affected banana production. In the same year, severe droughts in Russia led the country to ban wheat exports, which created a disastrous ripple across global stock markets and prompted a 2.2 percent drop in the share price of General Mills.4
Impact of climate change on Cargill
Cargill is the largest privately-owned company in the US5 with a focus on providing food, beverage, and agricultural products to the world.
Figure 1: The following infographic visualizes Cargill’s work along global supply chains
Cargill faced a 200,000T shortfall in supply in September 2016 due to dry weather conditions in West Africa. Such instances will only increase in frequency and intensity going forward as higher temperatures, variable precipitation, and water constraints lower crop yields. As noted in a ‘Risky Business’ report, crop yields may decrease in the US by up to 20% within the next 25 years and some individual states may see their yields decrease by up to 70%.6
Cargill’s efforts to address climate change
While Cargill is impacted by climate change, it also contributes to climate change through deforestation, change in land use and energy use for agricultural purposes, all of which lead to a sizeable GHG emission. In fact, the food industry accounts for 25-27% of GHG emissions globally.7
Cargill has a two-pronged approach to tackling these problems. Their focus is on “reducing their impact while helping farmers adapt to a changing climate”.8
- Reducing environmental impact of its operations8: Cargill’s goal is to reduce its GHG intensity by 5% against a FY2015 baseline and they have they achieved a 2.2% reduction in FY2016. Similarly, they have achieved a 1.5% improvement in energy efficiency against a goal of 5% and of 14% in the use of renewables to meet energy needs against a goal of 18%.
- Partnering with farmers8: Cargill partners with farmers to help them adapt against changing climates and pushing for more investment in the areas of biosciences, agronomics and best practices in sustainable agriculture. For example, the Cargill Cocoa Promise has so far supported more than 145,000 farmers worldwide with market access, training and resources, while working with almost 500 farmer organizations and cooperatives.9
Opportunities for Cargill to do more
Cargill has the potential to do more to adapt to climate change. Firstly, it can reevaluate its entire supply chain to reduce waste. For instance, in processing fresh red meat, there can be losses of more than 10% within supply chains. Given that 600 gallons of water are required to produce one pound of beef, those resource losses add up quickly10. Cargill needs to start focusing on that waste.
Additionally, Cargill should identify and invest in technological solutions that promote sustainable farming.11 For instance, technology like multispectral analysis lets a farmer see which crops are doing well by looking at how the plants absorb or reflect different wavelengths of sunlight. If Cargill invests in companies like CropX that use sensors to detect moisture in the soil, farmers can become more sustainable by customizing water applications to the soil.12
Looking ahead
On Nov 4, 2017, the United Nations issued a statement – “The last time carbon dioxide concentrations in the atmosphere were this high was three to five million years ago. We are still emitting far too much and this needs to be reversed. What we need now is global political will and a new sense of urgency.” 13 With US’s recent exit from the Paris Climate Agreement, the looming question is – in the absence of political will in US – the second largest GHG emitter14, will US companies be able to go through with their commitments to address climatic change?
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Endnotes
1 Rebecca A. Henderson et al., “Climate Change in 2017: Implications for Business,” HBS No. N2-317-032 (Boston: Harvard Business School Publishing, 2017), pg. 2.
2 Emily Logan, “5 Ways Climate Change is Challenging our Food Security”, 60+ Earth Hour, 16 Oct 2015, https://www.earthhour.org/content/5-ways-climate-change-challenging-our-food-security, accessed 15th November 2017
3 Sealed Air staff, “Climate change having a domino effect on the Food & Beverage industry”, Sealed Air Re-imagine, https://sealedair.com/insights/climate-change-domino-effect-food-beverage-industry, accessed 15th November 2017
4 Rebecca Pearl-Martinez and Tim Gore, “Feeding Climate Change”, Oxfam Briefing Paper, June 2016, https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-feeding-climate-change-270616-en.pdf, accessed 15th November 2017
5 Sarantis Michalopoulos, “Food industry focuses on sustainable sourcing to mitigate climate change”, EurActiv.com, November 20, 2015, http://www.euractiv.com/section/food-chain-sustainability/news/food-industry-focuses-on-sustainable-sourcing-to-mitigate-climate-change/, accessed November 2016.
6 Michael R. Bloomberg et al., “The Economic Risks of Climate Change in the United States,” The Risky Business Project, June 2014, https://riskybusiness.org/report/national/, accessed 15th November 2017
7 Rebecca Pearl-Martinez and Tim Gore, “Feeding Climate Change”, Oxfam Briefing Paper, June 2016, https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-feeding-climate-change-270616-en.pdf, accessed 15th November 2017
8 Cargill, “Climate Change”, https://www.cargill.com/sustainability/priorities/climate-change, accessed 15th November 2017
9 Cargill, “Cargill sets clear course for cocoa sustainability”, https://www.cargill.com/2017/cargill-sets-clear-course-for-cocoa-sustainability, accessed 15th November 2017
10 Sealed Air staff, “Climate change having a domino effect on the Food & Beverage industry”, Sealed Air Re-imagine, https://sealedair.com/insights/climate-change-domino-effect-food-beverage-industry, accessed 15th November 2017
11 IPCC, 2014: Summary for Policymakers. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 1-32.
12 Jennifer Kite-Powell, “Take A Look At How Technology Makes Smart And Sustainable Farming”, Forbes, Dec 31 2016, https://www.forbes.com/sites/jenniferhicks/2016/12/31/take-a-look-at-how-technology-makes-smart-and-sustainble-farming/#1ac6f9f03deb, accessed 15th November 2017
13 Daniel Arkin, “Alarming Rise in CO2 Levels Looms Over Global Climate Change Summit”, NBC News, November 4 2017, https://www.nbcnews.com/news/world/scientists-sound-alarm-global-warming-ahead-world-climate-conference-n817046, accessed 15th November 2017
14 Duncan Clark, “Which nations are most responsible for climate change?”, The Guardian, 21 April 2011, https://www.theguardian.com/environment/2011/apr/21/countries-responsible-climate-change, accessed 15th November 2017
Thank you for this fascinating analysis of Cargill’s initiatives to combat climate change, including the company’s deep driven target to reduce GHS intensity by 5%, as well as implementing change measures across the supply chain to enhance sustainability in food production. Cargill’s actions are encouraging especially in light of the recent drawbacks in the consolidated efforts by the global community to tackle the challenges related to climate change. While I am fully supportive of Cargill’s initiatives, their case would strengthen if they were to provide the estimate of the impact that the company’s initiative will cause to the global emissions levels, and how much impact they would ultimately have. One excellent case I would like to share is Google X’ negative carbon projects which focuses on harvesting specific types of plants that, through photosynthesis, captures up to 10 times the CO2 ordinary plants, while utilizing the remains of the ‘carbon-negative’ plants as bio-fuel to generate electricity. (https://www.youtube.com/watch?v=zkYVlZ9v_0o) While the viability of such project could be debated, the project clearly lays out an ecosystem of production/emissions cycle, and one could grasp the potential net impact of the project to the greater ecosystem – namely the earth. Another aspect that I wish to highlight is the effect of rising sea levels and the potential impact it would cause to the farming practice across the world. Farming, by its core requirement, is often carried out close to water source, and as sea levels continue to rise, it could force a significant proportion of global farming population out from their homes, fundamentally shifting the landscape of farming. (http://www.eco-business.com/news/climate-change-will-force-mass-migration-of-1-billion-by-2100/)
Really interesting look into how one of the country’s largest food producers is taking steps to decrease their impact on global warming. Their expansive network of farmers and agriculture partners provides the opportunity to implement and influence sustainable changes at scale. However, I do still question the responsibility these agricultural players have to addressing underlying root causes propagating warming in our society. For example, should a powerful player like Cargill lobby for and support alternative food, energy, and power sources, rather than just seeking to decrease the impact of their existing practices? Livestock alone contribute 14% of GHG emissions (http://time.com/4266874/vegetarian-diet-climate-change/), illuminating the potential opportunity to shift fundamental eating patterns within the US.
Very interesting article!
Based on the article, I noticed 2 ways of reducing GHG emissions for Cargill
1. Reduce usage and wastage across the supply chain (renewables, less water consumption etc.)
2. Educate farmers in using more energy efficient procurement techniques
However, one area which I additionally noticed is the mix of their agriculture vs poultry business. Based on an article in the guardian citing research conducted by Oxford Martin School [1], a vegan diet could be unto 63% more energy efficient vs a meat-based diet. Hence, I wonder if Cargill is focused on expanding their agriculture business rather than its poultry business and whether they are placing any dollars into vegetarian awareness campaigns.
[1] https://www.theguardian.com/environment/2016/mar/21/eat-less-meat-vegetarianism-dangerous-global-warming
This is an fascinating article wrestling with the chicken-and-egg relationship between farming and the environment. Cargill as the leader in food production has to shoulder some of the social responsibility, even though it contributes to less than 5% of carbon emission. I somewhat disagree that changing the product mix is a good solution both short-term and long-term without responding to the market demand. The ultimate goal is to reduce the (CO2 emission)/productivity. One solution that does not involve reducing CO2 is to invest or collaborate with firms that are taking looking into how to use CO2 as a resource (e.g. fuel) rather than a waste (http://www.theenergycollective.com/ed-dodge/341971/carbon-dioxide-resource-not-waste-product). One other solution is to focus on reducing the carbon emission from the packaging without compromising on the product mix.
To your question as to whether companies will go through with their environmental commitments even if the Trump administration will not at a federal level – I believe that they will for a couple of reasons:
– Companies may be incentivized in the short term to ensure their share price is stable or growing but they also realize that they will likely outlast most political administrations which come and go every 4 or 8 years. As a result, they have incentive to plan for the long term. Their brand equity is closely tied into the actions which consumers see them making for the long term and failure to have responsible policies with respect to environmental change will certainly harm their brand equity in the long term.
– Companies are also seeing the financial benefits of investing in long term sustainable practices as these do require some investment today but will help them achieve bottom line goals a few years out.
There are of course many reasons to think companies will not act unless they are forced, but I’m choosing to opt for the optimistic view here!
Thanks, Tanvi, for sharing this analysis. I likewise examined the effect of climate change on agricultural supply chains, focusing on the work of Nestlé. Like Cargill, Nestlé is working with smallholder cocoa farmers to promote sustainable agricultural practices, as are many other companies in the sector. In fact, recognizing that this is a common challenge across the industry, food and beverage companies have partnered together under the World Cocoa Foundation (WCF) to create a sustainable and productive cocoa sector. The includes “cocoa and chocolate manufacturers, processors, supply chain managers, and other companies worldwide, representing more than 80 percent of the global cocoa market.”[1] This is a potentially interesting example of how company’s that are traditionally competitors, are banding together in a pre-competitive fashion to tackle major global issues (such as climate change and rural poverty) that no one company can solve alone. It will be interesting to watch the degree to which these companies are able to effectively collaborate, and what the limits of that collaboration will be.
[1] “The World Cocoa Foundation (WCF) is an international membership organization that promotes sustainability in the cocoa sector,” World Cocoa Foundation website (http://www.worldcocoafoundation.org/about-wcf/history-mission/)
Very interesting article and the facts are overwhelming. This is certainly a topic that needs to be discussed further (beyond the word limit allowed on this assignment) and you have done a great job summarizing it. I would be interested to hear your thoughts on the greater impact it will have on the company as the market for commodity futures is also greatly impacted by the climate change. Does the price fluctuation for various grains and commodities impact where companies will invest in farming and producing? If so, how would that impact the future decisions such companies are making? If possible, I would greatly appreciate further discussion on the multi-layer impact of climate change.
Thank you for this eye-opening analysis! As someone whose meat consumption levels have risen meaningfully over the past decade, I was shocked to hear the quantity of resources and potential losses associated with meat supply chains. Upon further research, I was even more disheartened to learn that according to a recent study, three of the largest meat companies in the world (one of which is Cargill) are estimated to have emitted nearly as much GHGs last year as oil companies like ExxonMobil [https://www.grain.org/article/entries/5825-big-meat-and-dairy-s-supersized-climate-footprint]. Moreover, it is not just meat but also dairy companies that are substantial contributors to global GHG emission levels. Thus, considering your final thought around the US pulling out of the Paris Climate Accord and how that might impact corporations’ ability and willingness to undertake independent climate control measures, I believe that the third major stakeholder in this equation, namely the individual, ought to shoulder some responsibility as well. A modest change to one’s lifestyle in the form of lower meat and dairy consumption, or the substitution of these resource-guzzling foods for more sustainable alternatives like almond milk (almond requires an order of magnitude less water than dairy), might be a good place to start.