Supply chain risk management: Cargill’s war against climate change
The United States' largest private company and the global food giant, Cargill, is currently in the process of implementing a climate change mitigation and adaptation plan as part of its long-term risk management strategy.
Cargill is the country’s largest private company, with over 150,000 employees and operations in 70 countries.[i] The company works along the entire food supply chain, from buying crops from farmers to distributing produce to retail clients [Figure 1]. Today, Cargill has over $109.7B in annual revenues and $2.84B in net earnings.[ii]
Figure 1: Cargill’s Value Chain (source: company website)
Why does the food giant need to worry about climate change?
For companies like Cargill, climate change denial is poor strategy. The company does not have an option but to adopt climate change mitigation and adaptation as part of its long-term risk management plan.[iii] Because the company operates across the entire food supply chain, Cargill’s bottom-line is highly exposed to the effects of climate change.[iv] In the United States alone, climate change is expected to significantly reduce crop yields.[v] For example, by 2050, cotton production in the Southwest and southern Arizona, is expected to drop to less than 10 percent of yield under ideal irrigation conditions.[vi] Without a mitigation plan, water shortage in drought-prone regions is expected to worsen, leading to an associated reduction in crop production.[vii] This reduction in crop supply will directly impact Cargill’s value chain and ultimately, its profits.
So what exactly is Cargill doing about climate change?
Cargill’s current efforts are focused on both climate change mitigation and on supply chain adaptation. The company is tackling climate change in three main ways.[viii] First, Cargill has committed to several targets to reduce its climate impact by 2020. The commitments relate to Cargill’s greenhouse gas intensity, energy efficiency, and renewable energy use [Figure 2]. Other initiatives related to mitigation include the development of a ‘Food Chain Reaction’ simulation to raise awareness about the impact of climate change on food systems. Second, the company is working directly with farmers to help them adapt to the effects of climate change. For example, Cargill works with Cocoa farmers to improve their farms’ resilience to extreme weather events and rainfall uncertainty.[ix] The company trains farmers in best practices such as the use of shade trees to reap benefits from carbon sequestration.[x] Third, the company has adopted an advocacy role in climate change mitigation. In 2015, Cargill joined the American Business Act on Climate Pledge in support of the Paris Agreement.[xi] In 2017, Dave MacLennan, Cargill’s CEO, wrote an open letter to President Donald Trump, urging him to keep the US in the Paris Agreement.[xii]
Figure 2: Cargill’s commitments to reduce its climate impact (source: company website)
While Cargill’s recent commitment to climate change mitigation and adaptation is commendable, the company could be doing a lot more. Two specific recommendations on next steps are outlined below.
- Develop more aggressive targets: Ikea, the world’s biggest furniture retailer, already produces 53 percent of its energy from renewable sources and has committed to be an exporter of renewable energy by 2020.[xiii] When compared to companies such as Ikea, Cargill’s commitment to increase its renewable energy sources from 14 percent to 18 percent over five years is relatively insignificant. The company should reevaluate the emission targets outlined in Figure 2 and do more to reduce its own carbon footprint.
- Work with farmers on mitigation: Farmers who want to protect agricultural interests are more likely to not believe in climate change and are also less likely to view a connection between human practices and climate change.[xiv] Thus far, Cargill’s work has focused on helping farmers adapt to the effects of climate change. This makes sense because adaptation methods are likely to resonate with farmers more than the perceived benefits of mitigation.[xv] However, given its control over the food supply chain, Cargill is uniquely positioned to influence farmers and bring them along in the climate change mitigation process. In partnership with organizations such as the Food and Agriculture Organization of the United Nations, Cargill should work to develop sustainable yet low-cost agricultural inputs such as fertilizers and pesticides. Cargill is well positioned to work directly with farmers to test, launch, and iterate on the development of sustainable inputs to ultimately help reduce greenhouse gas emissions.
Despite Cargill’s ongoing commitment to prevent and prepare for climate change, the company continues to be a significant part of the problem.[xvi] Estimates on agriculture’s contribution to global greenhouse gas emissions are as high as 14 percent [Figure 3]. The question remains – how can a company that exists in an industry that is known for its high contribution to greenhouse gas emissions fully commit to climate change action? How can Cargill manage this conflict of interest and continue to maintain a long-term risk management strategy related to climate change? How can the company effectively bring its various stakeholders along in the process?
Figure 3: World GHG emissions (source: Planet Experts)
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[i] Cargill. Company Overview. Company Website.
[ii] Cargill. Company Overview. Company Website.
[iii] Helm, Burt. Climate Change’s Bottom Line. The New York Times. January 2015.
[iv] Helm, Burt. Climate Change’s Bottom Line. The New York Times. January 2015.
[v] Chu, Jennifer. Climate change to deplete some US water basins, reduce irrigated crop yields. MIT News. July 2017.
[vi] Chu, Jennifer. Climate change to deplete some US water basins, reduce irrigated crop yields. MIT News. July 2017.
[vii] Chu, Jennifer. Climate change to deplete some US water basins, reduce irrigated crop yields. MIT News. July 2017.
[viii] Cargill. Climate Change: Reducing our impact while helping farmers adapt to a changing climate. Company Website.
[ix] Care. What are the implications of climate change on farmer livelihoods? Company website. April 2016.
[x] Care. What are the implications of climate change on farmer livelihoods? Company website. April 2016.
[xi] Cargill. Cargill signs CEO letter to President Trump: Stay in Paris climate agreement. Company Website.
[xii] Cargill. Cargill signs CEO letter to President Trump: Stay in Paris climate agreement. Company Website.
[xiii] Howard, Emma. Ikea vows to be net exporter of renewable energy by 2020. Guardian. May 2016.
[xiv] Arbuckle, Morton, and Hobbs. Understanding farmer perspectives on climate change adaptation and mitigation. SAGE. February 2015.
[xv] Arbuckle, Morton, and Hobbs. Understanding farmer perspectives on climate change adaptation and mitigation. SAGE. February 2015.
[xvi] Nahigyan, Pierce. How much does agriculture contribute to global warming? Planet Experts. Online. February 2016.
Student comments on Supply chain risk management: Cargill’s war against climate change
Great article with excellent recommendations for Cargill. A fascinating read.
One further recommendation I have for Cargill centers on changing product and regional mix. As IPCC North America reports have argued, “climate-related yield increases of 5 to 20% over the first decades of the century, with the overall positive effects of climate persisting through much or all of the 21st century” (IPCC 2007: p361 https://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-Chap26_FINAL.pdf), with the 2014 report being more measured (IPCC 2014 http://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-Chap26_FINAL.pdf) by arguing that only some areas will benefit, there may be benefits to some areas and products in the US. This is because parts of the country are below optimal growing temperature for agricultural products, and the benefits of the increases in temperature could outweigh the increases in variability and extreme events.
Thus, might Cargill be able to offset some of the negative effects of climate change by the benefits of moving their operations to new areas and benefitting from the potentially increased yields?
Very insightful! It can be challenging to operate in an industry that shares such a large burden of global warming. I wonder if Cargill can take up the mantle of LED-based indoor farms, and provide the requisite investment to scale these up – http://www.usa.lighting.philips.com/products/horticulture/city-farming. Growers can further purify the gases emitted in these farms to reduce their carbon footprint.
Thank you, Maha for doing some work around a company that truly has a global impact on food supply. I strongly agree that Cargill could be a lot more aggressive on developing targets, particularly on renewable energy. It seems like they are actively trying to move forward on that front by involving governments in developing economies, where energy demand far exceeds supply. A Cargill plant has recently partnered with the Ghanaian government to develop a 764 MWh solar solution (http://www.prnewswire.co.uk/news-releases/cargill-takes-steps-to-modernize-renewable-energy-infrastructure-in-ghana-661044483.html). While this is impressive, Cargill operates in 70 countries (https://www.cargill.com/page/worldwide), and I suspect that taking the government collaboration approach will allow the Company to far exceed its current targets.
Great article and analysis Maha! I wholeheartedly agree that Cargill needs to do more, given its position as an industry leader in the global food market. I believe that all the conflicts of interest you stated are also Cargill’s greatest opportunities. Going beyond efforts of raising awareness and advocacy, I agree that Cargill must lead by example by setting much more aggressive targets. For example, rather than internally identifying a 5% reduction in greenhouse gas intensity as their 2020 goal, they can identify more effective targets use a more scientific approach recently outlined by Krabbe, et al in “Nature Climate Change” (https://www.nature.com/articles/nclimate2770).
All in all, if Cargill takes such a leadership role in holding itself to a higher standard, I believe the industry will follow, which has the potential for great impact given the industry’s current track record of being a big contributor to climate change.