From Cocoa Beans to Coffee Berries: How Nestlé is Preparing for Climate Change
“Good Food, Good Life” is Nestlé’s promise to its customers, yet that promise may soon be challenged by the adverse impacts of climate change on this Swiss conglomerate’s suppliers.
From Cocoa Beans to Coffee Berries: How Nestlé is Preparing for Climate Change
“Good Food, Good Life” is Nestlé’s promise to its customers, yet that promise may soon be challenged by the adverse impacts of climate change on this Swiss conglomerate’s suppliers.
Less Land + Greater Demand = Supply Chain Problems
Lagunes and Sud-Comoe in Ivory Coast, two key areas of cocoa production, are projected to be unsuitable for production by 2050[1]; climate change is also expected to halve the areas of land suitable for coffee production within this same timeframe.[2] As the world’s leading global food and beverage company, and as a purchaser of 10%+ of the world’s coffee and cocoa stock,[3],[4],[5] Nestlé’s supply chain is highly susceptible to the impacts of climate change. From greenhouse gas emissions to water usage, Nestlé’s expansive product lines touch every aspect of climate change.
Cocoa and coffee are just two out of dozens if not hundreds of commodities Nestlé sources from local suppliers. In agriculture, production tends to be concentrated among a few countries, as often crops require very specific environmental conditions. Ivory Coast and Ghana collectively produce over half of the world’s cocoa crop, while Brazil and Vietnam combine to represent half of the world’s coffee crop.[6] Tropical areas such as these regions are particularly susceptible to climate change, as a positive feedback loop has led to increased sensitivity to carbon release per degree increase in temperature.[7] With each degree increase in average tropical temperature, rainforests are releasing two billion additional tons of carbon per year when compared to the 1960s or 1970s[8], roughly the same amount of carbon absorbed by the entire Amazon rain forest each year.[9] The concentration of production areas and increased impacts of climate change in tropical regions poses serious risks for Nestlé, particularly as the global population continues to increase, inherently building demand for agricultural commodity products.
Nestlé’s Mitigation & Adaptation Efforts:
- Reducing Greenhouse Gas Emissions (Mitigation)
Nestlé has implemented a number of key objectives to reduce overall GHG emissions. These include baseline assessments to cut per product direct GHG emissions by 35% in 2015 versus 2005 (Nestlé surpassed this goal with a reduction of 42.7% versus 2005), the use of natural refrigerants in freezers instead of ozone-depleting synthetic refrigerants, and renewable energy.[10] The company joined the list of RE100 companies by committing to transition entirely to renewable electricity by 2020.[11] The company has set new goals for 2020, including an overall reduction of 35% in GHG emissions per product from manufacturing operations versus 2010, a reduction of 10% in GHG emissions per product from distribution operations versus 2014, and a reduction of 10% in GHG emissions per product in the 100 major warehouses versus 2014.[12]
- Nescafe Plan & Cocoa Plan (Adaptation)
The Nescafe Plan is a half-billion-dollar investment announced by Nestlé in 2010 to improve sustainability across Nescafe’s supply chain.[13] The Plan leverages a partnership with the Rainforest Alliance and the Sustainable Agriculture Network to promote more prudent farming in the wake of climate change. This includes more direct sourcing from farmers and distribution of disease-resistant plants through 2020.[14] The Cocoa Plan, in a similar vein, provided West African cocoa farmers with higher-yielding, disease-resistant plantlets in order to battle the adverse effects of climate change. The Cocoa Plan also trained more than 21,000 cocoa farmers sustainable growing practices, including pruning and harvesting practices.[15] The United Nations’ Framework Convention on Climate Change (UNFCCC) recognized this work as an example of best practice.[16]
Spilling the Beans: Why Nestlé Needs to Adapt its Adaptation
Though it is encouraging to see Nestlé stepping up and addressing the adaptation portion of the climate change equation, there is still much more that they can and should do in this area:
- Expand Nescafe Plan & Cocoa Plans Beyond Leading Supplier Regions
It is understandable why Nestlé is focusing on their key production areas, but they are neglecting the fact that other smaller producers may become larger players in the future should climate change improve suitability in those regions. Additionally, these plans may be causing farmers in leading production areas to think myopically about the future; the fact of the matter is farmers in areas like Brazil and Ivory Coast may find more value in exploring other crops, like cashews (See Exhibit A).[17]
- Greater Partnership with Governments
The majority of the work that has been accomplished through these plans has been undertaken by Nestlé. There is a missed opportunity here for greater collaboration with governments, ministries of agriculture, and development partners across these producing regions. A stronger private-public partnership model would allow for greater size and speed of these adaptation efforts.[18] Additionally, incorporation of this model would likely improve Nestlé’s ability to scale this program to other commodities, thereby diversifying the company’s adaptation strategy.
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Exhibit A
[1] Centro Internacional de Agricultura Tropical, “Predicting the Impact of Climate Change on Cocoa – Growing Regions in Ghana and Cote d’Ivoire,” http://www.eenews.net/assets/2011/10/03/document_cw_01.pdf, last accessed 4 November, 2016
[2] The Climate Institute, http://www.climateinstitute.org.au/articles/media-releases/coffee-quality-and-cost-to-be-impacted-by-climate-change,-but-there-are-things-we-can-do.html, last accessed 4 November, 2016
[3] Forbes, http://www.forbes.com/sites/maggiemcgrath/2016/05/27/the-worlds-largest-food-and-beverage-companies-2016-chocolate-beer-and-soda-lead-the-list/#393b58fcc719, last accessed 4 November, 2016
[4] Nestle Company Website, http://www.nestle.com/asset-library/documents/media/news-and-features/2009-october/nestle-and-sustainable-cocoa-and-coffee.pdf, last accessed 4 November, 2016
[5] Fair Labor Association, http://www.fairlabor.org/sites/default/files/documents/reports/cocoa-report-final_0.pdf, last accessed 4 November, 2016
[6] FAOSTAT Database, http://faostat.fao.org/, last accessed 3 November, 2016
[7] Scientific American, “Tropics Feel the Heat of Climate Change,” https://www.scientificamerican.com/article/tropics-feel-the-heat-of-climate-change/, last accessed 4 November, 2016
[8] Scientific American, “Tropics Feel the Heat of Climate Change,” https://www.scientificamerican.com/article/tropics-feel-the-heat-of-climate-change/, last accessed 4 November, 2016
[9] The Wall Street Journal, “Amazon Absorbs Less Carbon Dioxide as Trees Die Off, Study Says,” http://www.wsj.com/articles/amazon-absorbs-less-carbon-dioxide-as-trees-die-off-study-says-1426701926, last accessed 4 November, 2016
[10] Nestle Company Website, http://www.nestle.com/csv/environmental-sustainability/climate-change, last accessed 4 November, 2016
[11] RE100 Organization, http://there100.org/nestle, last accessed 4 November, 2016
[12] Nestle Company Website, http://www.nestle.com/csv/environmental-sustainability/climate-change, last accessed 4 November, 2016
[13] Nestle Company Website, “Nestlé launches CHF 500 million global plan for sustainable coffee,” http://www.nestle.com/Media/NewsAndFeatures/nescafe_plan, last accessed 4 November, 2016
[14] Nestle Company Website, “Nestlé launches CHF 500 million global plan for sustainable coffee,” http://www.nestle.com/Media/NewsAndFeatures/nescafe_plan, last accessed 4 November, 2016
[15] Nestle Cocoa Plan, http://www.nestlecocoaplan.com/nestle-helps-farmers-adapt-to-climate-change/, last accessed 4 November, 2016
[16] Nestle Cocoa Plan, http://www.nestlecocoaplan.com/nestle-helps-farmers-adapt-to-climate-change/, last accessed 4 November, 2016
[17] Centro Internacional de Agricultura Tropical, “Predicting the Impact of Climate Change on Cocoa – Growing Regions in Ghana and Cote d’Ivoire,” http://www.eenews.net/assets/2011/10/03/document_cw_01.pdf, last accessed 4 November, 2016
[18] Booz Allen Hamilton, http://m.boozallen.com/content/dam/boozallen/documents/2015/01/Federal_Public_Private_Partnerships_Viewpoint.pdf, last accessed 4 November, 2016
Very interesting, David! One question that I have is whether the company is internalizing the costs or passing them onto customers.
You mention that Nestle has invested $0.5B to improve sustainability, by directly sourcing from farmers and investing in disease-resistant plans. Would these measures increase the price of chocolate for the customers? And if so, how will customers react? I can imagine both coffee and chocolate to be very competitive industries, since they’re made directly from commodities, but perhaps there is less competition for more luxury products where customers are brand loyal.
It’s clear that there are large regions, such as Brazil and the Ivory Coast that have predominantly produced cocoa beans. You suggest that Nestle focus on some other smaller regions that may emerge as better regions as climate change occurs – Have these regions been identified, or has Nestle done any research to identify these regions? It does seem like a potential opportunity if such regions can be identified.
It is interesting to see the similarities between Nestle and Mars and how each are setting benchmarks to reduce GHG while simultaneously implementing programs to help farmers learn and practice more sustainable practices going forward. I do think that from the perspective of Nestle, it is important to focus on the farmers in the leading production areas and incentivize them to continue to produce cocoa rather than other crops. As demand continues to grow in the years to come, if suitable areas shrink and the main production areas shift to harvesting other crops, this could cause a big production issue, even if the company is able to identify smaller regions to make up some of the loss. Will the production in these regions be able to make up the loss of the larger regions? Are these regions located close to each other? Could the fragmentation of these producers lead to less consistent quality as well increased transportation and shipping costs? In an ever changing environment, it is important for Nestle to maintain the known commodity of its large producers.
David, I loved getting to see how agricultural industry is thinking about sustainability. Especially since coffee and cocoa are produce that affect majority of the world’s population. If the mitigation and more effective farming don’t offset the effects of climate change enough, do you think the commodities market would experience change in price as well? I wonder if change in price would affect demand since they are such staple commodities.
Also on the topic of governmental cooperation, I would guess that cooperation is harder because production is happening in countries with unstable regimes and weak ministries of agriculture. Do you think Nestle should become more involved in helping legitimize the ministries of agriculture and other help governmental bodies set up sustainability campaigns?
Well done David! I think it was really interesting to read your post about Nestle. Especially it is a huge food company, I liked your explanation about the link between cocoa, coffee and special condition appropriate for the agriculture. It was rich information especially because you could leverage your previous knowledge about agriculture business! Thank you so much.
Great piece, David! I really enjoyed learning about an industry (and company) that I know very little about. I am shocked at the extent of Nestle’s initiatives toward reducing its carbon footprint.
One thing that really stood out to me about your post was the recommendation for Nestle to form stronger relationships with governments to help implement some of these policies. When it comes to climate change, I feel like the current approach is (as we discussed in class) a hedge by companies to try to forecast where government regulators are taking the fight on climate change.
With the Kyoto Protocol, the American Clean Energy and Security Act, and other “cap-and-trade” type regulation popping up across Europe, I wonder if the general sentiment between municipalities and private companies has been too contentious- a big brother type of approach. I personally believe that this was the case in the first decade of the 2000’s. From my research, around 2010 there was a tick up in the number of companies that began to take it upon themselves to be more sustainable and carbon-friendly. I fear that a lot of the motivation, however, was due to government pressure and a feeling to “stay ahead of regulation.” I believe you offer and effective “next stage” for the relationship between private organizations and governments- a collaboration between the two to effectively tackle the problem together. I fear that too much of the time it is Government OR Private Companies. Why can’t it be Government AND Private Companies?