Is JBS doing a good job for reducing greenhouse gas emission?
According to the United Nations, the world population is expected to reach 9.7 billion by 2050[1]. In that context, food production will need to increase, which poses a series of challenges. Food providers, specifically meat producers, account for a high release of greenhouse gases (GHG), contributing to climate change. In this post I will analyze the threats that JBS S.A., the world’s largest meat producer[2] is facing in its food production platform.
In recent years, JBS has adopted several actions in order to track and manage the climate change risks imposed to its businesses, specifically the greenhouse gas (GHG) emissions[3]. Among those risks, are the extreme changes in temperature or rainfall pattern that could influence agricultural productivity, animal welfare, and availability of energy. These changes can directly affect JBS costs and therefore impact its corporate performance. So, in order to deal with this problem, JBS created a plan to reduce GHG emission. For that, the company quantified[4] the emissions that it is subjected in three categories[5] (i) direct emissions, (ii) indirect emissions related to energy generation and consumption and (iii) indirect emissions resulting from their operations, and have adopted mitigation strategies to treat each one of them. Among those strategies are; (a) monitoring the farms supplying cattle[6], in order to avoid deforestation, (b) investing in power generation from renewable sources, (c) tracking efficiency gains in logistics (by managing the operating performance of in-house and third party vehicles) in order to reduce fuel consumption and related costs[7].
Although JBS was very efficient in monitoring the farms supplying cattle, it failed to fully explore the environmental adverse effect generated by cattle production. In fact, cattle contribute to the GHG emission by two forms (i) by requiring wide fields where it can grow and feed (which results in deforestation-which was addressed by JBS) and (ii) by generating emissions thought breathing and farting[8] (which is not mentioned, nor regarded by JBS). On average, cattle take 18-22 months to reach average market weight[9] and be processed. JBS has a capacity to process 81,500 head of cattle per day, so annually the company consumes almost 30 million cattle, a number higher than the Australian population[10]. So, it seems to make sense for JBS to work together with its suppliers to reduce cattle emissions resulting from breathing and farting. For that, the company can explore many strategies like (i) adjusting the cattle diet[11] and (ii) becoming part of innovative studies aiming at genetically understanding and improving cattle[12].
Also, JBS seems to fail to assess the risks involved in using renewable sources for power generation. In fact, JBS relies in cogeneration (with the Biolins facility) to get thermoelectric steam energy from biomass waste from sugarcane. The company does that because sugarcane has received a lot of incentives in the past years. However, those incentives may not last for longer periods, and therefore JBS should look for alternative biomass sources as a way to minimize the risks it is subject to. Renewable sources normally suffer from high variability and uncertainty in demand due in large part to uncertainty and lack of continuity in government policy and incentives. As a result, JBS should try to avoid those variabilities.
Finally, while tracking its efficient gains in logistics, JBS should consider energy efficiencies. As mentioned by Erica Plambeck[13], cost reduction through energy efficiency is the most obvious source of business value associated with the reduction of greenhouse gas. So far, JBS has focused its efforts in reducing car emissions by changing its fleet every 3 years. However, there is no clear evidence that owing its own fleet is the most efficient thing to do. In fact, JBS could take a step further and consider third-party logistics providers, which can potentially use larger vehicles, by pooling shipments from multiple firms, and therefore reduce costs and emissions associated with the transport.
In sum, there are still some improvements that could be made by JBS in order to better contribute for the reduction on GHG emissions. The question, however, is if JBS will be willing to invest the money, and time, to do so.
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[1] “World Population projected to reach 9.7 billion by 2020” available at http://www.un.org/en/development/desa/news/population/2015-report.html
[2] In fact JBS is ranked 766 in The Global 2000 list of the world’s biggest companies according to Forbes, in the article “JBS: The Story Behind The World’s Biggest Meat Producer” http://www.forbes.com/sites/kerenblankfeld/2011/04/21/jbs-the-story-behind-the-worlds-biggest-meat-producer/#5ebd29abc557
[3] As mentioned by Erica Plambeck (in Energy Economics, Volume 34, Suplement 1, November 2012, Pages S64-S74, also available at http://www.sciencedirect.com/science/article/pii/S0140988312002010), it is normal for companies to assume a supply chain perspective while addressing the greenhouse gas emission issues. The reason for that is because by doing so companies can at the same time deal with the emissions under their direct control but also those caused by their suppliers and customers.
[4] Mitigation through monitoring the environmental impacts of direct operations (industrial, logistics and transport) and actions to reduce the impacts of our operations and those of our suppliers. The monitoring is done through the development of a global inventory of direct and indirect GHG emissions, in accordance with the international methodology of the GHG Protocol. The results of this inventory are published annually in the CDP platform. JBS also monitors indicators related to the amount of energy and water used in its activities in order to optimize production processes, gradually leading to reduced consumption. To reduce the impacts of its activities and create opportunities, it has an annual plan of investments in environmental improvements, aimed at optimizing the use of natural resources, reuse of energy from waste and water, among others.
[5] The numbers used by JBS are reported on the annual inventories of the Brazilian operations (disclosed in JBS’s annual Report) and have been carried out since 2009, and as of 2011 these surveys have included JBS’s global operations. The information contained in the emissions inventory is managed by a computerized system developed by the company, with sustainability and production indicators, which allows the performance of each unit to be tracked through their emissions history through the years. This information is also reported annually in the Brazilian GHG Protocol Program, the CDP – Driving Sustainable Economies – Climate Change module, and the Carbon Efficient Index (ICO2) of the BM&F Bovespa (the Brazilian stock exchange).
[6] JBS global food production platform has a capacity to process 81,500 head of cattle per day. That means that the supply of cattle is enormous.
[7] Additionally, the company also has developed some actions for its operations of Moy Park in Europe, which according to the company 2015 annual report include (i) seeking energy efficiency projects at the UK plants, (ii) implementing technologies that reuse the heat generated during the production process for the benefit of the industrial system, (iii) replacing fossil fuels with renewable fuels in the production units, (iv) installing floaters in the wastewater treatment process, (v) improving efficiency and reducing biological processes that generate emissions; (vi) reducing gas leakage in refrigeration systems through preventive management and (vii) replacing old cooling systems with systems that do not use gases that cause global warming. In the US, similarly, JBS has been installing technology that controls fuel gas pollution, which not only regulates emissions but reduces odors.
[8] In fact cattle breathing and farting has been a big issue and the state of California passed a law to reduce such emissions as reported by USA today in the following link: http://www.usatoday.com/story/news/2016/09/21/california-going-after-its-farting-cows/90776396/
[9] For more details on the stages of beef production please refer to http://www.explorebeef.org/cmdocs/explorebeef/factsheet_modernbeefproduction.pdf
[10] Not coincidently, researchers at Australia’s Commonwealth Scientific and Industrial Research Organization and James Cook University have been conducting lab tests on a variety of seaweed species for their methane-reducing properties in cattle as showed in the article of David Kirby available at http://www.takepart.com/article/2016/10/25/solution-planet-warming-cow-farts-seaweed
[11] As mentioned by the Institute of Agriculture and Natural Resources of the University of Nebraska, cattle diet can be used to alter microbial populations in the rumen and in turn increase animal performance and reduce methane emissions. Dietary factors such as type of carbohydrate, fat inclusion, processing of forages and level of feed intake has been shown to influence methane emission in cattle. More information can be found in the link http://beef.unl.edu/reduce-methane-production-cattle
[12] Please refer to the research and studies in that regard mentioned in the following link: https://www.sciencedaily.com/releases/2014/01/140110131013.htm
[13] “Reducing greenhouse gas emission through operations and supply chain management”, Energy Economics, Volume 34, Supplement 1, November 2012, Pages S64-S74, also available in http://www.sciencedirect.com/science/article/pii/S0140988312002010
I agree with your post in the sense that JBS needs to deepen its practices towards climate change. However, I tend to disagree on the logistics comment, as switching for an entirely third-party operation – assuming JBS would not just be “renting” the fleet, and yes letting the third party run the operations – could create more variability and increase the bullwhip effect, in my view.
It is my opinion that companies in this sector have to deal with several logistics challenges. Those range from the number of trips they need to make if they are distributing to small moms-and-pops or to large retailers, to the fact that trucks usually have to be technologically advanced to carry perishable products that require different levels of temperature to remain conserved.
I believe that passing that responsibility to third-parties, considering the complexity of the logistics chain in Brazil, as well as the lack of enough reliable players to hire, would be risky.
However, in order to optimize emissions the company could work on some of your solutions by optimizing its own logistics operation. That could be done not only by investing in systems that mathematically assign better ways to allocate products within trucks, according to mix, order, clients and even weight, among other factors, but also by optimizing sales and delivery routes, orienting drivers to utilize the most efficient ones (and making sure they adhere to the routes established by the company). On the later, the company could also work with clients to understand how often do they really need products, and if it would be more cost efficient for both parties to reduce the number of trips required to keep the customer satisfied. Another important consideration would be to have direct distribution from the plant to the customer’s distribution center (without stopping first at JBS’ own distribution center) if such customer’s order is large enough (i.e.: large retailers). All these actions would not only help reducing emissions, but would also tackle demand forecast, inventory management, variability, among other issues.
T@HBS, I wanted to counter argue on your comment that the logistics would create more variability and increase the bullwhip effect. Verticalization is not a guarantee of low variability. Large companies do face the challenge of integrating all their business units and ensuring efficiency through the supply chain. One of the main root causes for the variability and bullwhip effect is lack of communication, which may happen independent of who owes the transportation structure. If JBS was able to work close from the supplier, with structured and frequent communication, it could minimize these effects.
One the other hand, I do agree with you that a transition may take time, money and compromise operations quality until they reach an optimal point. An alternative to this would be to require current transportation companies comply with environmental requirements. If JBS is able to push its whole chain to act on reducing the pollutive gas emition and other practices that impact to complement the Triple Bottom Line (Planet, People, Profit), it could have higher impact in actually leading a transformation on climate change and developing a more sustainable business.
I also really like Student12’s suggestion on regulating cattle’s diet. It should be simple to execute – although technology must be developed to avoid exhuberant costs – and might have a large impact on the amount of gas they currently release.
One was the JBS can help to reduce greenhouse emissions is to diversify away from cows. There is growing concern that red meat is worse for the environment than cars and there could be some backlash against the industry and overall demand. Raising cattle requires almost 30 times more land, over 10 times more water and is 5 times more damaging than raising pigs or chickens (https://d3.harvard.edu/platform-rctom/submission/is-jbs-doing-a-good-job-for-reducing-greenhouse-gas-emission/). I don’t think its realistic to give up the livestock business just to save the planet, but there is a way to continue the business and be more social responsible. Reducing the cattle livestock and increasing to more “green” meets will mean more yield for the land and water usage for JSB and less emission as a byproduct of the cows breathing and farting. While this won’t stop climate change, it can help to slow it down as we look for new ways to combat this global problem.
I agree theoretically with Ali’s comment above, yet have a couple of concerns. Effectively what you are asking them to do is to reduce one of their most profitable businesses in the name of sustainability. From an outsiders perspective, I agree, the single biggest way to decrease the emissions from livestock (specifically cattle), is to reduce the herd. I just struggle with the idea that JBS will knowingly move away from a business that is a cash cow. I think they may want to consider a campaign (either individually or as an industry) to try to move the consumer demand from red meat to pork and chicken. JBS already operates in both of these industries and would likely be able to turn a fair portion of their cattle raising operations into white meat production. The overall demand for meat as the population rises is an issue that we’ll have to face in the near future. Though not beneficial for JBS, lab grown meat may be a suitable solution for the meat demand going into the future.