Navigating New Storms: How The Body Shop is Building a Resilient Supply Chain
The Body Shop's global supply chain relies on thousands of smallholder farmers — among the most at-risk groups to a changing climate. How is the company transforming an emergent threat into a competitive advantage?
In 2011, heavy rains cut off Achuapa from surrounding communities for nearly two weeks. The northern Nicaraguan municipality is home to the Juan Francisco Paz Silva (JFPS) Cooperative, a collection of smallholder farmers.[1] As an Oxfam report detailed, “crops have been weakened and left vulnerable to disease and pests, and roads have been washed away.” Some families were forced to migrate.[2]
JFPS is the sole supplier to The Body Shop, a global cosmetics company, of sesame oil. The Body Shop’s supply chain – which sources ingredients from 25 smallholder cooperatives across 21 countries[3] – illustrates its unique ‘win-win’ value proposition: to deliver products with high-quality ingredients while driving social impact, such as benefiting vulnerable populations.
And yet it also exemplifies the acute risks posed by climate change. As adverse weather destabilizes small-scale agriculture, supply reliability is imperiled. Strategies to improve local resiliency, however, may yet transform these risks into a competitive advantage.
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As developing countries increasingly open agricultural markets to foreign direct investment, multinationals are incorporating smallholder farmers into supply chains.[4] With lower comparative labor costs, these 525 million farmers have become attractive opportunities for the sourcing of labor-intensive commodities.[5] Yet a changing climate that disproportionately affects poor countries[6] presents heightened risks to supply chains where smallholder farmers constitute critical links.
The Global Climate Risk Index recently ranked Nicaragua the fourth most affected country by weather-related losses.[7] Among Nicaragua’s most at-risk sectors is smallholder agriculture where “prolonged droughts followed by flash flooding in recent years have wreaked havoc,” according to USAID.[8] Less predictable planting and harvesting cycles now characterize the sector’s increasingly precarious situation.
This poses a unique threat to The Body Shop, which sources 15 percent of all ingredients from smallholder farmers. Whereas The Body Shop has traditionally relied upon a regularity of low-cost, high-quality supply from its cooperatives, adverse events – as illustrated by Achuapa – now impugn this promise.[9] In light of these emerging uncertainties, how can the company reliably source key ingredients?
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Two current approaches suggest a viable strategy.
First, partnerships with cooperatives diversify risks across multiple farms. However, as adverse weather increasingly affects all farms in a given region, the company is now expanding its cooperative relationships so that when a “community faces crop losses, they… [can] source seeds for the oil from other cooperatives.”[10] Expanding partnerships in the near-term dampens supply variability.
Second, the company is scaling efforts to aid farmers’ own resiliency over the coming decade. When household income is dependent upon a small farm, a single adverse event can spell disaster. To decrease this dependency, the company is funding a credit and savings scheme through JFPS for women to start small businesses, diversifying household income and providing farming families with a safety net in the face of adverse events.[11] After an event, families are better equipped to re-invest in the farm – ensuring a less volatile supply base for the company.
The Body Shop has also recently piloted a crop insurance scheme. After large climate-related losses, farmers “receive vouchers for farm inputs, providing resources for production to recover in the next season.”[12] Successful micro-insurance initiatives elsewhere, from India[13] to Kenya[14] [15], are providing an evidence base to expand such programs. Both income diversification and micro-insurance build resiliency by ensuring adverse events are not devastating to local production.
Whereas competitors may shy away from smallholder farmers in light of emergent risks, risk diversification and building local resiliency are keeping high-quality ingredients flowing through the company’s supply chain.
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What more can be done?
Beyond its current efforts, The Body Shop should encourage producers to diversify their own supply base. Rather than simply diversify the company’s supply base through more cooperatives, this suggests building sector-wide resiliency by diversifying smallholder production. For example, whereas droughts may devastate sesame plants, maize proves more tolerant to dry weather.[16] Crop diversity can ensure the sustained existence of the cooperatives themselves.
However, the introduction of new crops carries significant risks of failure; even if science suggests a ‘good fit’, largely unpredictable variables from local capacity to market demand structure the likelihood of success. Experimenting with new crops risks major losses – a risk the poor are unable to typically carry. The company could shoulder small-scale financing schemes to aid cooperatives with crop experimentation.
Looking towards the next decade, even bolder efforts are called for. As countries develop climate change adaptation strategies, how might The Body Shop take a pro-active role to ensure smallholder priorities are incorporated? With $100 billion committed for mitigation and adaptation support from 2020 to 2025 under the recent Paris Agreement[17], what can a private player like The Body Shop do to influence global financing for the benefit of an inclusive supply chain? How might the company leverage expertise and resources far beyond its own capacities?
How can a cosmetics company give a global voice to thousands of smallholder farmers?
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[1] Del Campo, Inc., “Cooperative Members Located in Leon,” http://www.delcampo.net.ni/coop_le.php, accessed November 2017
[2] Jodie Thorpe & Shelly Fennell, “Climate Change Risks and Supply Chain Responsibility,” Oxfam International, June 2012
[3] L’Oréal 2016: The Body Shop, 2016 Annual Report (London: The Body Shop, 2017)
[4] Miet Maertens & Johan Swinnen, “Agricultural Trade and Development: A Value Chain Perspective,” World Trade Organization (WTO) Economics & Research Division, April 2015, https://www.wto.org/english/res_e/reser_e/ersd201504_e.pdf
[5] International Finance Corporation (IFC), The World Bank Group, “Working with Smallholders: A Handbook for Firms Building Sustainable Supply Chains,” July 2013, https://www.ifc.org/wps/wcm/connect/8dc5628042112fdbba2fff494779b2ad/Handbook+-+Working+with+Smallholders.pdf?MOD=AJPERES
[6] The World Bank Group, “Shock Waves: Managing the Impacts of Climate Change on Poverty,” 2016, https://openknowledge.worldbank.org/bitstream/handle/10986/22787/9781464806735.pdf
[7] Sönke Kreft, David Eckstein and Inga Melchior, GermanWatch Think Tank & Research Division, “Global Climate Risk Index 2017: Who Suffers Most from Extreme Weather Events? Weather-related Loss Events in 2015 and 1996 to 2015,” November 2016, https://reliefweb.int/sites/reliefweb.int/files/resources/16411.pdf
[8] United States Agency for International Development (USAID), “Climate Change Risk Profile: Nicaragua,” January 2017, https://www.climatelinks.org/sites/default/files/asset/document/2017_USAID_Nicaragua%20Climate%20Change%20Risk%20Profile.pdf
[9] The Body Shop International PLC, 2011 Annual Report (London: The Body Shop, 2012)
[10] Oxfam International, “Climate Change Risks and Supply Chain Responsibility,” June 2012
[11] Felicity Butler, “Valuing unpaid labor in community Fair Trade products: A Nicaraguan case study from The Body Shop International,” Gender & Development 22 (November 2014): 3
[12] Oxfam International, “Climate Change Risks and Supply Chain Responsibility,” June 2012
[13]Ornsaran Pomme Manuamorn, “Scaling Up Micro-insurance: The Case of Weather Insurance for Smallholders in India,” The World Bank Group, Agriculture and Rural Development Discussion Paper: 36, 2007, http://siteresources.worldbank.org/INTARD/Resources/ScalingUpMicroinsurance.pdf
[14] “First micro-insurance plan uses mobile phones and weather stations to shield Kenya’s farmers,” Science Daily, March 4, 2010, https://www.sciencedaily.com/releases/2010/03/100304202242.htm, accessed November 2017
[15] “Security for shillings: insuring crops with a mobile phone,” The Economist, March 11, 2010, http://www.economist.com/node/15663856
[16] Oxfam International, “Climate Change Risks and Supply Chain Responsibility,” June 2012
[17] United Nations: Framework Convention on Climate Change, “Climate Finance,” 2016, http://unfccc.int/cooperation_and_support/financial_mechanism/items/2807.php, accessed November 2017
Another positive trend – that will hopefully contribute to increased sustainability for smallholder farmers – is growing collaboration and partnerships between sustainable cosmetic companies.
The Body Shop was sold by L’Oreal in September 2017 to Natura, a large Brazilian cosmetics manufacturer and marketer with a core strategy of being an eco-friendly and sustainable company.
Being part of a much larger group, representing c. $4 billion of revenue, will hopefully provide The Body Shop with increased supplier diversification, and provide additional resources for the company to have a larger voice and impact globally.
I think it is great (and news to me!) that The Body Shop, a company whose mission is built on ethical practices, is taking significant steps in empowering their supplier base through education and financing.
As Hortense mentioned, the recent acquisition by Natura will add both the scale and the framework to strengthen The Body Shop’s value proposition. L’Oreal was the parent company for only ~10 years and has competing philosophies for some of their core brands (animal testing, for example), so Natura is a better cultural fit. My worries are three-fold: 1) Can these sustainable practices be maintained with growth in mind, 2) Is this really a competitive advantage for the Body Shop or is it becoming the industry standard?, and 3) Do customers even care?
The beauty marketplace’s shift towards sustainable practices is evidenced by the emergence of “natural brands” like Lush and Aveda [1] and the standardization of these practices by bigger parent companies. Just a few weeks ago, Groupe Clarins, Coty, Groupe Rocher and L’Oreal banded together to create the Responsible Beauty Initiative, which focuses on “ethical, social and environmental performance and progress throughout the beauty supply chain” [2].
On the consumer end, there is a tipping point when it comes to willingness-to-pay. The “ethical consumption gap,” diagnosed by social scientists, acknowledges that customers are more vocal than action-oriented in their interest towards sustainable brands [1]. That being said, as more established companies start to take this approach and put the marketing spend behind it, I wonder how The Body Shop will fare.
[1] “The Body Shop Got Ethical Consumption Wrong,” Bloomberg, February 2017, https://www.bloomberg.com/view/articles/2017-02-08/the-body-shop-got-ethical-consumption-wrong
[2] “Four Beauty Giants Launch Sustainable Procurement Initiative”, Women’s Wear Daily, November 2017, http://wwd.com/beauty-industry-news/beauty-features/four-beauty-giants-launch-sustainable-procurement-initiative-11050079/
After reading this, I share Melissa’s concern that these practices may not be sustainable for the company as they try to grow.
I don’t see how The Body Shop gains a defensible, significant competitive advantage through these measures, and worry that some of their commitments will become too costly to continue. How loyal is this coop to The Body Shop: If the coop gets a similar offer from one of The Body Shop’s competitors, would they be willing to supply to that competitor instead? How scalable is this sort of relationship, in which the downstream manufacturer finances risk mitigation for loyal upstream producers?
My primary concern relates to the insurance offering, and how that financing will scale with worsening climate change. As weather patterns become more erratic and extreme events more frequent, the risk seems to universally increase. Is it possible to offer a profitable (or at least break-even) crop insurance product to such a geographically concentrated set of growers in the future as the weather worsens and delivering high yields becomes more difficult? I wonder whether this insurance offering will drive The Body Shop to further diversify its interests, not only by crop but also by geography.
That being said, I applaud the work that The Body Shop is doing to enable smallholder farmers and coops to develop sustainable practices and investing in these communities to better their future profitability.
It is very interesting to read this article. I was particularly intrigued how JFPS was the sole supplier for “The Body Shop”. I agree with your recommendation that diversifying would definitely help in terms of safeguarding themselves against climate change. This would also help them tackle above concerns as raised by Katie and Melissa.
On researching more about the issue, I found that “The Body Shop” are also employing clever ways to tackle climate change in other places – including putting up posters that filter out air pollution [1]. Along with the measures that they are taking right now and keeping in line with their tech solutions, I think digitization of agricultural processes would also long way in empowering the farmers of Nicaragua.
[1] Neal S., 2017, “Stunt of the week: The Body Shop gets clever for climate change”, NeoPR.