Riding the Heat Wave – Will WhiteWave Survive?
WhiteWave Foods, one of the leading providers of almond and soy beverages, may face new challenges
In July 2016, WhiteWave Foods (“WhiteWave”), the organic consumer packaged goods company, announced its $10 billion sale to French dairy company Danone. But larger problems loom for WhiteWave. With increasingly erratic weather conditions, water shortages and sustained heat, the company’s business is vulnerable to raw product shortages, lower product quality and more volatile price fluctuations.
The following outlines climate change’s impact on some of the primary components of WhiteWave’s business:
Soy: WhiteWave notes in filings that the company depends heavily on soybeans. Indeed we know that plant-based food and beverages, which include beverages such as soy milk, almond milk and coconut milk, among other products, comprised approximately 38% of WhiteWave’s 2015 net sales[1]. Recent research suggests that, if climate change continues at its current pace, soybean yields in the U.S., which supplies 38% of the world’s soybeans, will drop by as much as 82% by 2100[2].
To add complication, research suggests that increased demand for soy products has contributed to deforestation; during 2000 to 2003, 17% of total forest loss in Brazil, the world’s second largest provider of soybeans, was attributable to the expansion of soy cropland[3].
Naturally, these dynamics can have detrimental effects on WhiteWave. First, WhiteWave may face supply shortages and commodity price volatility because of poor soy growing conditions, something the company alludes to as a business risk in their filings. Second, WhiteWave may face public and regulatory scrutiny for producing a product that contributes to deforestation.
Almonds: WhiteWave sources most of its almond supply from the Central Valley in California[4]. Climate change has resulted in less water supply in this region. According to The Risky Business Project, “As the Southwest climate heats up, the region is likely to see significantly less snow in the mountains, leading to decreases in spring runoff especially in California and the Southern Rockies… this translates into less available groundwater…”[5]. What’s worse, almonds are particularly thirsty nuts, requiring 1.1 trillion gallons of water per year, or roughly 10% of California’s total water supply[6]. Because WhiteWave has a highly concentrated supply base, the company is arguably more at risk of supply shortages and related price fluctuations with almond-based products than with any other product the company produces.
The company has led a concerted effort to dampen its own environmental footprint, but is still vulnerable to broader, systemic issues related to climate change. To reduce the company’s contributions to climate change, WhiteWave has set the following resource usage targets during 2015 to 2025[7]:
In addition to implementing initiatives that reduce WhiteWave’s environmental footprint, the company has incorporated tackling climate change as part of its corporate mission. The company claims to work with NGOs, and is supportive of U.S. and global efforts to regulate greenhouse gas emissions[7].
Although WhiteWave presents impressive materials on ways the company is addressing climate change as a socially responsible business, there is little mention of how the company is addressing corresponding risks in the short-term, i.e., supply shortages. In the short-term, the company could consider the following:
- Diversify field growing areas: The company faces definitive risks related to almond supply shortages if California experiences another unseasonably dry period. Luckily, recent oversupply due to overplanting has decreased pressure on this for now, but WhiteWave could mitigate some supply risks over the next five years by choosing to plant in other areas so that one extreme weather event does not upend the company’s supply chain.
- Expand WhiteWave’s product portfolio: The company has been highly acquisitive. In 2015 alone, the company acquired three companies for a total of $716 million[8]. The company has acquired brands in similar product categories, including EIEIO, Inc., a provider of shelf-stable creamers, coffee beverages and whip toppings, and Wallaby Yogurt Company, Inc., which provides organic dairy yogurts and beverages. The largest foray outside of WhiteWave’s comfort zone was its acquisition of Earthbound Farm, a provider of organic salads, fruit and vegetables, in 2014. WhiteWave’s acquirer, Danone, produces high-end dairy products – not a vast improvement in diversification. To mitigate the impact of any supply shortages, it would behoove the company to diversify outside of crop-dependent products.
Word Count: 677 (Not Including This Disclosure)
[1] The WhiteWave Foods Company, 2015 Annual Report, p. F-41, www.whitewave.com, accessed November 2016.
[2] Wolfram Schlenker and Michael J.Roberts, “Nonlinear temperature effects indicate severe damages to U.S. crop yields under climate change,” Arizona State University, July 1, 2009, http://www.pnas.org/content/106/37/15594.full, accessed November 2016.
[3] Elizabeth Barona, Navin Ramankutty, Glenn Hyman, and Oliver T Coomes, “The role of pasture and soybean in deforestation of the Brazilian Amazon,” Environmental Research Letters, Volume 5, Number 2, April 16, 2010, http://iopscience.iop.org/article/10.1088/1748-9326/5/2/024002/meta, accessed November 2016.
[4] WhiteWave Foods Company, “Corporate Social Responsibility Report,” http://www.whitewave.com/wp-content/uploads/2016/07/WhiteWave-CSR-2014_2015-Full-Report.pdf, accessed November 2016.
[5] “RISKY BUSINESS: The Economic Risks of Climate Change in the United States,” June 2014, http://riskybusiness.org/site/assets/uploads/2015/09/RiskyBusiness_Report_WEB_09_08_14.pdf, accessed November 2016.
[6] Holthaus, Eric, “The Thirsty West: 10 Percent of California’s Water Goes to Almond Farming,” May 14, 2014, http://www.slate.com/articles/technology/future_tense/2014/05/_10_percent_of_california_s_water_goes_to_almond_farming.html, accessed November 2016.
[7] WhiteWave Foods Company, “Corporate Social Responsibility Report,” http://www.whitewave.com/wp-content/uploads/2016/07/WhiteWave-CSR-2014_2015-Full-Report.pdf, accessed November 2016.
[8] The WhiteWave Foods Company, 2015 Annual Report, p. 2, www.whitewave.com, accessed November 2016.
Thank you for the informative post! You bring up a very interesting point surrounding geographical diversification of suppliers. The risk of relying on a set of agricultural suppliers in a region that is experiencing the effects of climate change can be large. This is highlighted in your post when you discuss WhiteWave’s almond sourcing strategy (mostly from the drought-impacted central valley region of California). It can be difficult to diversify suppliers when the majority have chosen a specific region (for growing-condition or other reasons) in which to operate. Since this situation is not something that WhiteWave can control, I agree with your suggestions surrounding diversification through different product categories.
An interesting related topic surrounds which crops do (or “should”) have access to water. As someone who was living in California during the worst years of the drought, I was exposed to the heated conversations surrounding water allocation. Some almond growers maintain that almonds are getting a bad reputation in terms of water requirements, when in reality “almonds really aren’t more thirsty than any of our other crops.” [1] The debate continues as to which crops are “worthy” of water use and it becomes even more complicated when we think about who owns water supply throughout California.
[1] Gonzales, Richard, “How Almonds Became A Scapegoat For California’s Drought,” http://www.npr.org/sections/thesalt/2015/04/16/399958203/how-almonds-became-a-scapegoat-for-californias-drought, accessed November 2016.
Thank you writing. One of the biggest sustainability issues a company like WhiteWave that dabbles in packaged goods faces is the emissions levels of its packaging. There’s a good deal of progress made by WhiteWave here that is worthy of note.
One of WhiteWave’s subsidiaries, Vega, had identified the usage of virgin high-density polyethylene plastic containers as the largest source of the brand’s carbon dioxide emissions. Under WhiteWave’s guidance, since 2012, Vega bottles are 96% post-consumer recycled plastic. In addition, another of WhiteWave’s brands, Earthbound Farm, a packaged salad brand, has been using 100% post-consumer recycled plastic for packaging since 2009.
Given its product mix, I’d say WhiteWave is doing a pretty decent job of changing with the climate times.
http://www.whitewave.com/wp-content/uploads/2016/07/WhiteWave-CSR-2014_2015-Full-Report.pdf (pg 28)