Nestlé: Fostering climate change resilience among smallholder farmers
Nestlé, the world’s largest food and beverage company with $92 billion in revenue in 2016,[1] depends on a sprawling supply chain of over 680,000 largely independent, smallholder farmers.[2] The challenges this supply chain faces amid changing climate conditions include:
Adverse impacts on supply chain productivity and security
Climate change drives up costs and affects the quantity and quality of yields. Worldwide, the agriculture sector absorbs approximately 25% of damages related to extreme weather events.[3] Companies are already feeling the effects of climate-related production shocks. Diageo, an alcoholic beverage company, believes that climate change could cost the company US$77M in increased costs and production disruption in its supply chain.[4]
Food and economic insecurity for smallholder farmers
Climate change also threatens the food security, safety, and livelihoods of millions of workers in agricultural supply chains worldwide. Unstable conditions stemming from climate change contribute to poverty, involuntary displacement, and conflict. In 2008, food shortages led to political instability and riots in Egypt, Haiti, and Bangladesh.
Release of greenhouse gasses from agricultural activities, further exacerbating climate change
Not only is the food and beverage industry impacted by climate change, it is a major contributor. In 2005, agriculture accounted for 10-12 % of total global anthropogenic greenhouse gas emissions.[5]
Addressing climate change in the supply chain
Nestlé has chosen to outsource agricultural production, making its supply chain more flexible in the face of potential shifts in global agricultural productivity.[6] Nevertheless, with limited development in many of the countries where Nestlé sources raw inputs, the company is committed to mitigating the effects of climate change on its supply chain:
Helping farmers increase climate change resilience
In 2011, Nestlé provided technical assistance to over 200,000 farmers, including training more than 16,000 coffee farmers in techniques to adapt to changing weather patterns. Nestlé is also developing early warning systems, and has engaged governments, farmers, and others to develop vulnerability assessments and climate change adaptation strategies.[7]
Distributing new plant varieties to improve yields and minimize environmental impact
In 2016, Nestlé distributed over 2 million higher yielding cocoa plants through the Nestlé Cocoa Plan.[8] In West Africa, where the amount of land suitable for cocoa farming is expected to shrink substantially due to changing climate conditions, improving yield allows farmers to produce more on less land.[9]
Nestlé has also committed to a variety of other climate change actions, including cutting supply chain carbon emissions. In 2016, based on work to reduce emissions and lower climate-related risks in the supply chain, Nestlé was included in the top ranking of the Carbon Disclosure Project’s first Supplier Engagement Rating.[10]
Preparing for the day after tomorrow
With 680,000 farmers in its supply chain, it seems there is ample opportunity for Nestlé to scale its efforts. This may require closer partnership with other companies, local governments, and non-profits. With a more resilient and sophisticated agricultural supply chain, Nestlé and other companies may be able to reduce the dependence of smallholder farmers on their technical assistance and other supports.
Additionally, Nestlé could collect more data and increase transparency around supply chain emissions and productivity. Nestlé can get out ahead of other brands and establish a clear comparative advantage in this regard. For example, just 4% of companies responding to the 2016 Carbon Disclosure Project Supply Chain information request have supply chain carbon emissions targets in place, masking the fact that most companies’ emissions-reduction activities focus on direct operations rather than supply chains.[11]
As Nestlé considers how to fortify its supply chain, what is the company’s role vis-à-vis potential partners (companies, government, non-profits)? What is Nestlé’s responsibility in reducing smallholders’ carbon emissions?
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[1] McGrath, Maggie, “The World’s Largest Food And Beverage Companies 2016: Chocolate, Beer And Soda Lead The List,” Forbes (May 27, 2016)
[2] “Nestlé helps farmers adapt to climate change,” Nestlé website (Dec 17, 2012)
[3] Norton, T.; Ryan, M.; and Wang F., “Business Action for Climate-Resilient Supply Chains: A Practical Framework from Identifying Priorities to Evaluating Impact.” BSR Working Paper. BSR, San Francisco (2015)
[4] Way, Frances, “Food and drink companies found to be ignoring biggest impact on climate”, The Guardian (Sept 3, 2013)
[5] Intergovernmental Panel on Climate Change, IPCC Fourth Assessment Report: Climate Change (2007)
[6] Porter, Michael E., Reinhardt, Forest L., “A Strategic Approach to Climate,” Harvard Business Review, (Oct 2007, Vol. 85, Issue 10)
[7] “Nestlé Commitment on Climate Change,” Nestle website (February 2013)
[8] Nestle Cocoa Plan website, accessed Nov 15, 2017
[9] “Nestlé helps farmers adapt to climate change,” Nestlé website (Dec 17, 2012)
[10] Business for Social Responsibility, Carbon Trust, “Missing link: Harnessing the power of purchasing for a sustainable future: CDP Supply Chain Report,” (2016/2017)
[11] Norton, T.; Ryan, M.; and Wang F., “Business Action for Climate-Resilient Supply Chains: A Practical Framework from Identifying Priorities to Evaluating Impact,” BSR Working Paper, BSR, San Francisco (2015)
Thank you for sharing. Super interesting.
On the topic of food and economic insecurity for smallholder farmers, I wonder if Nestle has looked into promoting or subsidizing insurance options. Perhaps Nestle could partner with an innovative insurance partner. For example, Monsanto acquired The Climate Corporation for almost $1B in 2013, which enables Monsanto’s customers (farmers) to insure against specific weather occurrences (link to article below). Climate Corp has collected and analyzed trillions of data points to understand the financial implications of climate variability on various crops, and runs each insurance application through an algorithm that names a price for the risk. When bad weather hits, regardless of crop damage, a check is automatically sent to the policyholder. In this way, smallholder farmers are less at risk of having their livelihoods destroyed from both extreme weather events as well as longer term trends of drought, flood, etc.
https://www.forbes.com/sites/bruceupbin/2013/10/02/monsanto-buys-climate-corp-for-930-million/#4aed9260177a
It’s striking how many individual suppliers make up Nestle’s supply chain. It’s clear that they must both spread/develop new technologies and enforce stringent supplier standards in order to make an impact. Given that the company can only put in so many resources, I wonder what the split should be between these goals, and if one should be more of a focus than the other. Given Nestle’s immense resources and access to globalized information, as well as the mentioned success of the Nestle Cocoa plan, I think that the company has a unique advantage in developing new technologies that increase sustainability in a way that plays into the incentives of the farmers so that they spread quickly. In the short-run these new, centrally developed technologies can have an outsized impact while the company slowly re-orients its supply chain and policy partnerships towards accountability.
I think this essay was extremely well-structured and an argument that was easy to follow. I did have a question around the cost that Nestle is incurring as it tries to move toward sustainability. When they provided technical assistance to 200,000+ farmers and trained 16,000 coffee farmers in new techniques, how expensive was that for them? Additionally, were the techniques that these farmers learned reactive or will they be employable in all forms of future climate change? If it’s the former, I would hope that Nestle would find ways to develop these techniques to make them more holistically functional. To your question regarding how Nestle can partner with other small businesses or governments, I believe that one aspect of their responsibility will come through investing in SMBs that focus on sustainable food supply chains and “greener” farming techniques. If they give funding to first movers in the space, it will not only help develop these companies and ultimately benefit the planet, but it could also give Nestle a leg up in continuing to source ingredients efficiently.
Your essay raises important points not only on the environmental impact of climate change, but also on the social implications. Smallholder farmers, despite comprising 90% farms worldwide, are poor and hungry themselves [1]. Nestle’s choice of a partner will be critical in its efforts to drive change. I think non-profit organizations will play a key role. For example, Grameen Foundation has already launched a number of initiatives to help smallholder farmers combat climate change. Grameen initiated a mobile technology called FarmerLink with coconut farmers in the Philippines [1]. FarmerLink combines satellite data and farm data collected by mobile-equipped field agents to predict and detect threats from climate-sensitive pests and disease. Farmers receive warnings over their mobile phones. Early warning also enables government agents to help contain outbreaks before they cause devastating losses. Finally, FarmerLink aims to build farmer resilience by providing farming and financial advice with the data collected by field agents [1]. Given the degree of progress an organization like Grameen has already made in helping smallholder farmers, Nestle would be smart to consider them a suitable partner. Together, these organizations have the potential to make environmental and social leaps.
[1] Gigi Gatti and Tina Hipolito, “Bringing Coconut Farmers into the 21st Century Through Mobile Agriculture,” Food Tank, February 7, 2017, https://foodtank.com/news/2017/02/farmerlink-mobile-agriculture-philippines, accessed November 2017.
I really appreciated how this piece provided a really holistic overview of how climate change is impacting Nestle, highlighting the company plays a role in cause, but also deals with effect. I think some of the most interesting and impactful interventions could actually address both sides of the coin. I think about the rise of automation in food production [1] and how it helps to address the reliance on workers who are at risk of food / economic security, but also makes the farming / plant operation inherently more efficient, and therefore less damaging from an emissions standpoint. Of course, then the conflict highlighted in the referenced article will be top of mind – how do we manage these constraints with the unemployment created by these moves?
[1] https://www.theguardian.com/sustainable-business/2016/feb/18/automated-farming-food-security-rural-jobs-unemployment-technology
Nice article, Mike! You’ve provided a helpful summary of some of the key environmental issues looming for Nestle’s supply chain going forward. I had not realized how massive and extensive the worldwide Nestle supply chain was until reading your piece. It’s encouraging that in this case Nestle’s incentives are aligned with the incentives of some of the farmers and suppliers who will be most adversely effected and who are in the most vulnerable regions of the world to climate change. I wonder, though, if many of these actors can actually rely on the goodwill of corporations like Nestle in the long-term. In any case, given that this global supply chain is already in place, Nestle has a massive platform to deliver the best agricultural solutions to farmers worldwide, and it seems like so far they are putting that supply chain to good use.
Thanks for sharing an insightful article. The food industry is indeed one of the most prominent drivers and victims of climatic change. It is thus paramount for conglomerates within this industry such as Nestle to take action both in mitigating their contribution and in improving their resilience towards climatic change. I think they are moving in the right direction with respect to improving the resilience of small holder farmers – the steps that Nestle is taking to do this as mentioned in the article make a lot of sense. However there may be an opportunity to do more especially in terms of promoting and practicing sustainable sourcing of crops. This includes encouraging farmers to undertake sustainable farming and researching and developing more resilient raw materials. For example, Unilever is targeting to source 100% of its agricultural raw materials sustainably by 2020 [1] and seems to have already made good progress towards achieving this goal. By the end of 2014, 96% of Knorr’s top 13 vegetables and herbs were sustainably grown, with carrots, peas, potatoes and tomatoes reaching 100% in the EU. The company has a number of tools in place to help its suppliers and farmer’s source sustainably and it relies on its suppliers “self-assessment”. With every crop cycle, farmers and suppliers perform a self-assessment of their operations against the requirements of the Unilever Sustainable Agriculture Code. After that, through an independent verifier, the company checks whether these self-assessments are robust and credible.
[1] 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.
At the end of your essay, you mentioned that Nestle and other similar companies may be able to help smallholder farmers reduce their reliance on these large CPG companies in terms of technical assistance around increasing land productivity and reducing carbon emissions. While I believe it is in the best interest of these companies to help farmers reduce their contributions to climate change, thereby mitigating supply chain risks, I wonder whether large companies want their suppliers to become more independent. What is Nestle’s incentive to help farmers develop the ability to use land more productively without Nestle’s guidance? If Nestle provides value to its suppliers over and above the value provided when the two entities transact, it has significant leverage to negotiate better terms. However, if suppliers derive less value from Nestle, they are more likely to sell their goods elsewhere. While it would be nice for Nestle to continue to aid in its suppliers’ ongoing development, I question whether this outcome helps Nestle.
Similarly to Ikea’s role in wood supply, Nestlé’s responsibility extends through the 680,000 farmers in its outsourced supply chain. I think it is important that Nestlé formalize a closer partnership (or multiple) to expand their programs to ensure all operations are meeting clearly established sustainability goals. As customers continue to demand more information about their products, this type of information needs to be both closely tracked and communicated and I agree that Nestlé should seize the opportunity to establish a clear comparative advantage in this regard!
The essay does an excellent job of recognizing the impact of climate change on Nestle’s supply chain as well as actions Nestle has taken and needs to take to help its suppliers be sustainable. Nestle working with coffees farmers is a great example of where sustainability and good longer term business objectives go hand in hand, and it’s even a bigger win because in the process some of the most vulnerable members of Nestle’s the supply chain, smallholder farmers, are getting the resources to adapt to the consequences of climate change. However, I question whether Nestle is doing adequately given its vast and far reaching supply chain and whether Nestle doing these coffee related projects more as a PR stunt for their coffee drinkers, who tend to be inquisitive about ultimate sourcing of their coffee. For instance, there are reports of how Nestle’s suppliers are engaged in vast deforestation to plant new palm trees so they can keep up with Nestle’s demand for palm oil (1). Since palm oil is used as one of many ingredients in many CPG products without direct attribution to a specific final products, Nestle doesn’t seem to take any responsibility for the sustainability of its palm oil supply chain. I would love to see Nestle take an even handed across all of its supply chains as opposed just those that are most visible.
(1) http://www.greenpeace.org/international/en/campaigns/climate-change/kitkat/
It’s great to see that Nestle is taking climate change seriously and really some actions to their entire supplier network. While I applaud for many of their initiatives, I also wonder the effective impact of certain actions. For example, by introducing a high yield coffee plant does not necessarily mean to provide the coffee in less land. The farmers would be incentivized to produce even more coffee on the same land instead. I thin introducing technology to lower the climate impact would be key.