Kellogg Changes so the Climate Won’t
Kellogg is adapting its global supply chain to adapt to and mediate its contribution to climate change.
Kellogg’s global supply chain is under growing pressure due to climate change. Kellogg both contributes to and is adversely impacted by climate change. Patterns of increasingly extreme weather pose significant threats to the suppliers from which Kellogg sources many of its ingredients. However, the company is taking steps to address the threats posed by climate change by curbing energy use, reducing water use, limiting waste, and sourcing products from responsible partners1.
Climate change is concerning to Kellogg because it threatens to disrupt the company’s supply chain. Kellogg procures its main ingredients, including wheat, corn, rice, potatoes, and sugar, from a complex global network of farmers around the world2. Many of these growers live in developing countries and have historically relied on precise climate conditions to prosper. However, the impacts of climate change, including hotter average temperatures, more severe weather patterns, and rising global sea levels, threaten the delicate climate balance that has allowed farmers in developing countries to be competitive in the global market3. If these farmers can no longer produce reliable crop outputs, Kellogg’s supply chain will be interrupted, as the company’s partners will no longer be able to grow enough crops to meet demand. If we amplify this issue across the entire food and beverage landscape, it is plausible that there will be significant global food shortages in the future due to the impacts of climate change.
Kellogg has taken several steps to address climate change4, utilizing a strategy combining adaptation (responding to climate change) and mitigation (lessening the company’s contribution to the drivers of climate change). The company’s short-term goals revolve around adaptation. Kellogg is making efforts to help its suppliers increase acreage outputs and become less vulnerable to the impacts of climate change by educating farmers on smarter, more adaptable farming practices. In the medium term, Kellogg plans to implement mitigation strategies to reduce its contribution to climate change. The company has committed to reducing greenhouse gas emissions and energy consumption by utilizing renewable energy, rather than fossil fuels, in many of its facilities. Kellogg also plans to reduce the amount of material used in its packaging, thereby reducing the amount of fuel consumed (and, therefore, greenhouse gases emitted) transporting materials to manufacturing plants. Additionally, Kellogg is seeking to reduce the amount of water used in its production facilities to lessen its burden on the global clean water supply, thus increasing water availability for its supply chain partners globally and aiding in their survival and the supply chain’s continuity. Finally, the company plans to thoroughly vet its suppliers and focus its procurement efforts on sourcing from responsible producers who practice sustainable and environmentally friendly farming practices.
In addition to the climate change adaptation and mitigation steps to which Kellogg has already committed, I would suggest that Kellogg explore packaging material alternatives in the short term and identify supply chain localization opportunities in the medium term. Many of Kellogg’s products include plastic components, a major ingredient of which is petroleum5. Petroleum is a fossil fuel whose extraction has been linked to geological instability6 and whose use is a major source of greenhouse gas emissions7. By switching to alternative packaging materials, Kellogg will be able to help the world move away from its reliance on fossil fuels like petroleum and further mitigate its contributions to climate change. Additionally, Kellogg should explore building a more localized supply chain. Currently, Kellogg procures ingredients from around the world, ships them to factories, and distributes the final products to its global customer base. If Kellogg can move major operations closer to its main ingredient sources or procure ingredients from suppliers closer to its production facilities, the company would be able to minimize the amount of transportation used in its supply chain. Transportation, especially the use of petroleum product-burning cargo ships and trucks, is a major producer of greenhouse gases, which contribute to climate change8.
One of my main open concerns about the context of climate change as it relates to Kellogg’s supply chain surrounds how the company plans to balance shareholder financial demands with the increased cost basis required to address climate change concerns. Will shareholders accept depressed financial returns in exchange for a more environmentally friendly business model? Are consumers willing to pay more for products created using sustainable supply chains? If so, is Kellogg able to educate the population on its practices and pass the increased costs through to customers in the form of higher prices?
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1Kellogg Company, “Kellogg 2016/2017 Corporate Responsibility Report,” June 2017.
2Kellogg Company, “Kellogg Company Global Sustainability 2020 Commitments Goals,” July 2015.
3Port of Long Beach, “Port of Long Beach Climate Adaptation and Coastal Resiliency Plan,” Fall 2016.
4Kellogg Company, “Kellogg 2016/2017 Corporate Responsibility Report,” June 2017.
5U.S. Energy Information Administration, “Frequently Asked Questions,” https://www.eia.gov/tools/faqs/faq.php?id=34&t=6, accessed November 2017.
6Anna Kuchment, “Drilling for Earthquakes,” Scientific American 315 (2016): 46-53.
7Lee Chapman, “Transport and climate change: a review,” Journal of Transport Geography Volume 15, Issue 5 (September 2007): 354-367.
8Ibid.
I thought the article below was an interesting expansion on this topic. It mentions data collection as another area of challenge in Kellogg’s pledge to reduce emissions from its suppliers. Emissions measurements on farms are simplistic today and may be substantially misestimating the true emissions produced. If Kellogg is genuinely committed to reducing agricultural emissions, it may need to invest in improving the science and application behind this measurement issue.
https://hbr.org/2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions
A key question for me here is food waste. Currently, many Kellogg products have “expiration” and “sell-by” dates that don’t actually indicate an underlying health risk in the food, but are just meant to show when the food is ideal to eat. As a result consumers dispose of food that is fine to eat – causing increased waste and greater turnover of Kellogg products without full usage. This is good for Kellogg’s bottom line – they sell more food – but bad for sustainability and the environment. How will they balance this if they choose to use this lever at all to improve sustainability?
Given how broad climate change’s impact is for companies’ supply chains across industries, I do think that both shareholders and customers are prepared to adjust their expectations when it comes to returns and prices respectively, especially for those that seek to engage with a given company in the long run.
In fact, for several companies, operating sustainably has become a competitive advantage both by decreasing operating costs, and subsequently maintaining, if not actually lowering, product prices. Examples include Walmart, Goldman Sachs and Caterpillar, all of whose commitment to this issue made them not only industry leaders in sustainability but also significant contributors to the education needed to reset both investor and consumer expectations. (https://hbr.org/2007/03/competitive-advantage-on-a-warming-planet)
In Kellogg’s situation, one in which its supply chain rests on raw materials that have always been subject to multiple yield-impacting variables, I will be curious to see if their sustainability efforts push them to focus on any products in particular depending on whether the production of corn, wheat, rice, potatoes or sugar contributes more or less to ongoing climate change.
This is a really interesting article Grant and I agree with your perspective and the issues you raise. The aspect of ingredient sustainability was particularly interesting to me – and for corn specifically where over-reliance is a broader issue for the US food industry. Corn as a crop is not particularly sustainable from a farming perspective, as it depletes nitrogen and requires significant water usage to farm, even more so than other crops. This also means corn is more vulnerable to climate change, particularly droughts (https://modernfarmer.com/2014/06/thing-sustainable-corn/), which could impact on corn availability and prices over the coming decade.
I see that Kellogg have a policy in place to identify corn as one of their 10 priority ingredients for responsible sourcing (http://www.openforbreakfast.com/en_US/content/sustainability/responsible-sourcing.html), however, this effort appears to be focussed on “taking into account social and environmental considerations when sourcing these ingredients with suppliers”. In my mind, this does not go far enough and Kellogg should more actively consider the implications of their corn usage on the environment and their future cost structure. As such, to your question on whether consumers are willing to pay more for products created using sustainable supply chains – I would argue that whilst this might be true in the short term, in the medium term, Kellogg might actually benefit from reduced prices through reducing the composition of corn in their products.
To your questions, I don’t think that consumers will be willing to pay more for products created using sustainable supply chains. This is because Kellogg’s products can be easily substituted with their competitors. With increase competition there is also competition in lowest prices. Furthermore, sustainability is now considered a “given” criteria for many companies and not something which consumers feel they will need to pay for. I do believe that some measures towards tackling climate change will lead to lower costs such as reducing transportation and packaging materials mentioned in your article.
However, I question Kellogg’s procurement efforts and enforcement of sustainable practices. Yes they should vet the suppliers and implement sustainable criteria however they should not abuse their leverage power to the extent that it directly impacts the farmer’s level of income. Kellogg has started educating farmers and suppliers on sustainable practices but who absorbs the costs? Do they enforce these regulations and still pressure the suppliers to supply very low cost raw material goods which substantially impact their financials?