Nutreco, a top 3 player in the global animal nutrition industry with revenues of €5.7B in 20151, has set itself the mission to help “feed the future”2, mainly referring to the fact that population is expected to grow to around 9.7 billion in 20503 and we need to find a way to feed every person, and do so in a sustainable way. As nations develop economically, people tend to increase their calorie intake and consumer more meat, dairy, fish and other high-protein resources4. With Nutreco producing feed for livestock animals and a variety of fish, they appear to be in pole position to take advantage of the steady growth in population and shifting diets. But does the future truly look that bright for Nutreco?
The adverse effects of climate change on Nutreco’s prospects
The effects of climate change can be seen both upstream as well as downstream in Nutreco’s value chain, in each case having a direct impact on Nutreco. Starting downstream, both fish as well as livestock farms as significantly impacted by climate change. For example, the ocean acidification resulting from climate change adversely affects shellfish such as shrimp, with reported problems regarding shell forming6, mortality7, and taste8. Shrimp feed is currently a key product and one of the main drivers of growth for Nutreco9, but this business will be significantly at risk if the effects of climate change materialize.
Nutreco’s largest fish feed business, salmonid feed10, also faces long-term risk. The rising temperature of ocean water is expected to reduce salmon habitat, in some areas of the world by up to 40%11. Relocation fishing farms will be required and the reduced availability of fertile habitat will put downward pressure on salmon production. In addition, warmer waters and increased flooding will increase mortality rates for salmonid eggs12, leading to lower yields and less demand for salmon feed.
Climate change is also expected to significantly affect Nutreco’s suppliers. An important manner in which Nutreco sells its feed is in “compound feed” form, i.e. both raw materials such as grains and soy are combined with the key value adding components such as vitamins and minerals13. However, crops such as grains and soy are increasingly likely to suffer from extreme weather events due to climate change14, resulting in large supply shocks for Nutreco. In addition, increased CO2 levels are found to decrease the nutritional value of soy, while rising temperatures increase the threat of having diseases and parasites decrease crop yield15.
Nutreco’s approach to sustainability
In 2012, Nutreco realeased its “Sustainability Vision 2020”16. The plan focuses on four key areas17. The first area is called “Ingredients”, which refers to ensuring sustainable sourcing of materials. I.e. Nutreco has laid out a Supplier Code of Conduct with which suppliers need to comply in order to continue doing business with Nutreco. The second area is “Operations”, in which the company has set out 5 KPI’s that will be tracked and the overall ambition to reduce its global footprint in 2020 by 50%. Thirdly, it introduces a focus on “Nutritional Solutions”, meaning that for new product development sustainability will be integral part of the cost-benefit analysis. The last pillar of the 2020 vision is “Commitment”, which includes employee & stakeholder engagement and community development – sharing knowledge with local farmers to improve their productivity.
While it is clear that Nutreco focuses on a broad set of stakeholders and initiatives to engage in sustainability efforts, the question is whether its role is as prominent as it should be and whether it can do more. For instance, executive compensation is linked to sustainability, but currently only to the enforcement of the supplier code of conduct18. While certainly important, it is therefore questionable if employees are sufficiently incentivized to make the efforts and sacrifices necessary to actually reduce the footprint of Nutreco’s own operations. In addition, feed additives are estimated to be an important potential contributor to reduce CO2 emissions by as much as 25-30%19, however, Nutreco’s revenues from those products are marginal at this point. It seems fear of cannibalization and lack of a strong marketing strategy have so far inhibited Nutreco to focus on one of its own products to make a real difference in climate change. One thing that could help here is educate its customers, farms, on the potential benefits of the product – which extent beyond reduced emissions to also providing additional nutritional value for animals. Currently the company has initiated small-scale farm education projects mainly in Nigeria, which begs the question why this is not extended to many other developing countries where the company is active in – providing opportunites to both increase the agricultural knowledge within those communities and to up-sell those farmers.
In sum, Nutreco has embarked on a meaningful journey with several important initiatives – aligning its sustainability objective even more closely to its own business might just be the extra step it needs to truly make a lasting impact.
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1Nutreco annual review 2015
2Nutreco website, http://www.nutreco.com/en/our-way/, [Accessed 10/31/2016]
3United Nations, 2015, The World Population Prospects: 2015 Revision
4Drewnowski A., Popkin B.M., 1997. The nutrition transition: new trends in the global diet. Nutrition Reviews, 55, p. 31-43
5Holmyard, N., 2014. Climate Change: Implications for Fisheries & Aquaculture. Cambridge University
6Taylor, J.R.A., Gilleard, J.M., Allen, M.C., Deheyn, D.D., 2015. Effects of CO2-induced pH reduction on the exoskeleton structure and biophotonic properties of the shrimp Lysmata californica. Scientific reports, 5, article 10608.
7Dupont, S., Hall, E., Calosi, P, and Lundve, B, 2014. First Evidence of Altered Sensory Quality in a Shellfish Exposed to Decreased pH Relevant to Ocean Acidification. Journal of Shellfish Research, 33(3), p. 857-861
9Nutreco annual report 2014
11Independent Scientific Advisory Board [ISAB], 2007. Climate change impacts on Columbia River Basin fish and wildlife. Northwest Power and Conservation Council, ISAB 2007-2.
12Bisson, P., 2008. Salmon and Trout in the Pacific Northwest and Climate Change. U.S. Department of Agriculture, Forest Service, Climate Change Resource Center.
13Nutreco annual report 2014
14Porter, J.R., L. Xie, A.J. Challinor, K. Cochrane, S.M. Howden, M.M. Iqbal, D.B. Lobell, and M.I. Travasso, 2014. Food security and food production systems. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, p. 485-533.
15U.S. Environmental Protection Agency website, “Climate Impacts on Agriculture and Food Supply”, https://www.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply [Accessed 11/1/2016]
16Euronext website, “Sustainability Vision 2020′ gives Nutreco a clear view of the road ahead”, https://www.euronext.com/nl/node/320808
17Nutreco, 2012. Sustainability Vision 2020
18Nutreco annual report 2014
19Mulhollem, J., 2015. Feed supplement greatly reduces dairy cow methane emissions. Pennsylvania State University. Available from: http://news.psu.edu/story/364787/2015/08/04/research/feed-supplement-greatly-reduces-dairy-cow-methane-emissions [Accessed: 11/2/2016]