Unilever – Tea Saving Superhero?
Climate change has the potential to drastically reduce tea yields – are CPG companies doing enough to ensure the industry's survival?
Ann Fudge (HBS ’77) gazed out of her office window while sipping on a cup of tea. She began to consider the work that Unilever had been doing to mitigate the negative impact of climate change on tea and how she could leverage her position on the Board of Directors to hasten the progress. There were many competing sustainability initiatives for Unilever, with tea being one of the top priorities in order to sustain the Lipton, Brooke Bond, and PG tips brands.
Tea Market Projections
At a consumption rate of 4.84 million tons in 2013, tea is the most popular manufactured beverage in the world [1]. There are several different varieties of tea, such as black tea, of which, Unilever purchases 10% of the world’s production [2]. Based on current market projections through 2023 for black tea specifically, the growth of consumption will slightly outstrip production (3% and 2.9%, respectively) and land at a point of equilibrium by 2023 (4.14 and 4.17 million tons, respectively) [3].
Given they are such a large player in the market and there will just barely be enough black tea production to cover the demand, it is important that Unilever be aware of the impact climate change will have on tea crops.
Impact of Climate Change
Since tea has very specific growing conditions that are confined to a limited region, it is highly susceptible to climate change. Preliminary research indicates the regions suitable for tea growth could decline by up to 40-55% in upcoming years due to changing temperatures and weather patterns [4]. Additionally, tea crops face both yield and quality challenges. As with many crops, tea crops are not currently suited for drought conditions which could lead to reduced yield. However, on the opposite end of the spectrum, increased rains lead to increased crop yield – crops grown during the monsoon season produce 50% more leaves [5]. However, this also led to a change in flavor and decrease in beneficial antioxidants by 50%, leading to reduced consumer liking [6]. There is also the potential for crops to become diseased with root rot when conditions are too wet.
In addition to the consideration of crop yield and quality, there is the potential for a decrease in the amount of available labor due to the increasing temperatures creating uncomfortable working conditions.
Unliever – Premptive Strike
Unilever has undertaken several initiatives in order to ensure the long-term future of tea production despite the changing weather conditions. They have tackled this from the standpoint of increasing the viability of the crops and increasing the yield of the land through improved farming techniques.
In order to increase the viability of tea crops, Unilever has begun working to understand the resistance of different crop varieties to drought, disease, and pests [7]. Through a partnership with Nature Source Genetics, they are endeavoring to cultivate more sustainable varieties of tea crops [8]. If Unilever is able to better strengthen tea crops to endure the harsher conditions that will occur as a result of climate change, they may be able to reduce the effect of the reduction in regions available for tea cultivation. Needless to say, these types of initiatives take many years and will produce benefits in the long-term.
In addition to tackling the long-term challenge through Research and Development, Unilever is also working with farmers to ensure they are using the best and latest techniques to obtain higher yields on the land they are cultivating in the short-term. In partnership with local organizations (Kenya Tea Development Agency, and The Sustainable Trade Initiative), Unilever teaches best practices to farmers through schools that are located in the farmer’s home countries (Farmer Field Schools) [9].
Is This Enough?
On the surface, it may appear as if Unilever does not have a strong sense of urgency regarding long-term tea yields. However, the reports regarding negative impact on tea crop yields are relatively new and I believe the steps that have been taken thus far by Unilever show a great deal of long-term consideration.
Two important questions remain:
- Is the added cost of these programs worth the benefit of maintaining current/increased tea production in a changing environment?
- Is Unilever large enough that they would be able to command acceptable prices despite the reduced crop yields?
(707 words)
[1] Kaison Chang, “World Tea Production and Trade: Current and Future Development,” 2015, Food and Agriculture Organization of the United Nations, http://www.fao.org/3/a-i4480e.pdf
[2] “Sustainable Sourcing,” 2017, Unilever, https://www.unilever.com/sustainable-living/reducing-environmental-impact/sustainable-sourcing/
[3] Kaison Chang, “World Tea Production and Trade: Current and Future Development,” 2015, Food and Agriculture Organization of the United Nations, http://www.fao.org/3/a-i4480e.pdf
[4] Brian Kahn, “Global Warming Changes the Future for Tea Leaves,” 2015, Scientific American, https://www.scientificamerican.com/article/global-warming-changes-the-future-for-tea-leaves/
[5] Salena Ahmed, et.al., “Effects of Extreme Climate Events on Tea (Camellia sinensis) Functional Quality Validate Indigenous Farmer Knowledge and Sensory Preferences in Tropical China,” Public Library of Science, 2014, https://doi.org/10.1371/journal.pone.0109126
[6] Ibid.
[7] “Sustainable tea – leading the industry,” 2017, Unilever, https://www.unilever.com/sustainable-living/reducing-environmental-impact/sustainable-sourcing/sustainable-tea-leading-the-industry/
[8] Ibid.
[9] “Sustainable Sourcing,” 2017, Unilever, https://www.unilever.com/sustainable-living/reducing-environmental-impact/sustainable-sourcing/
The added cost of R&D efforts may only be worthwhile if (1) Unilever can exclusively capture their value, or (2) the R&D is outsourced. If Unilever’s R&D efforts to create crop resistance are successful, I imagine there will likely be substantial positive externalities for the industry: once the new genetic technologies have been developed, any company will reap the R&D rewards. While technology diffusion is both inevitable and socially desirable, I’m curious as to whether Unilever is structuring the research in such a way as to capture its value and give itself a competitive edge. Otherwise, because the positive externalities in this case may yield such substantial social benefits, why not outsource it to a public body? Could Unilever be doing more to parter with government research agencies and social sector players like The Gates Foundation who have a vested interest in building climate change resistance? And doing so particularly where vulnerable populations livelihoods are at risk, as in Western Kenya?
The Rainforest Alliance is an NGO that promotes sustainable farming techniques for smallholder farmers, runs an annual audit, trains rural farmers in these techniques, and certifies farms with their “Rainforest Alliance” seal. Unilever advertises that they source 100% of their tea from Rainforest Alliance (RA) certified farms. As far as I can tell, RA is entirely independent from Unilever/
This reminds me of the discussion we had around Ikea’s lumber certification partner. Unilever faces some of the same long-term risks that Ikea faced (input availability, reputational hazard, impact on relationships with communities), and after reading this essay I’m left asking the same question as we asked Ikea: Does Unilever have the market power to set standards for all? Who will eat the additional costs of using more advanced farming techniques, and pursuing additional R&D?
I’d love to understand how important sustainability is to tea-drinkers around the world. Is there something more that Unilever can do to market their pursuit of sustainable tea farming to give them a competitive advantage or to draw higher WTP from consumers? My primary concern is that the Rainforest Alliance seal is not something that consumers are currently familiar with, and is a complicated set of restrictions applied to everything from number of seasonal workers hired to the type and amount of specific pesticides permitted. This black box seal does not hold meaningful value today for consumers and I worry that it doesn’t signal clearly that Unilever tea, and any other products carrying this seal, is worth paying more for if you are a climate-conscious consumer.
Sustainability at large has a marketing problem in that even climate-conscious consumers cannot easily determine the sustainability of a certain product, even when it contains the universal recycling symbol or another “eco-X” logo. Cynical consumers are wary of potentially fraudulent uses of the sustainability related buzzwords, and black box certifications are complex to understand. How can Unilever effectively communicate this added value to their customers, while pushing the entire industry to adopt new practices?
While I agree that there is an urgency for Unilever to address production concerns as it pertains to sustainability, I call into question the steps that Unilever has taken thus far. SOMO, the center for research on multinational organizations, issued a report aimed at assessing how successful Unilever has been in achieving its goals of working with farmers in India and Kenya to more efficiently and sustainably produce tea. The report revealed two major findings that should be of concern to Unilever.
Firstly, the report called into question the validity of the Rainforest Alliance Certificate, which is the standards that Unilever uses to deduce whether plantations are environmentally sustainable. If I were management at Unilever I would conduct research into various standards to implement the most thorough review process regarding sustainable practices. The second SOMO conclusion was that laborers in plant in Kenya and India have been subjected to grave mistreatment, ranging from unsanitary housing to unfair wages [1]. Unilever should be greatly concerned about its treatment of workers, both because of the potential for damaging media attention and because the company is heavily reliant on farmers in third world countries.
[1] Precarious work in certified tea production for Unilever. SOMO. 31 Oct. 2011, https://www.somo.nl/precarious-work-in-certified-tea-production-for-unilever/
I would love to understand how vertical farming and sustainable indoor growing fit into Unilever’s equation/solution. As more and more sustainable urban farming companies emerge, they could prove to be a key piece in solving the tea growing problem for Unilever. All plants/produce are going to be impacted by climate change, and barring any major solution to the problem, alternative growing innovations could be the best work around.
Great write-up! To your first question, you mention that Unilever purchases 10% of the world’s tea production. However, what percentage of the tea crops from farms that Unilever consults with does Unilever purchase? I imagine if Unilever is going through the process of teaching best practices to tea farmers then they are purchasing much more than 10% of the crops grown by those farmers. I think there is something to be said for increasing yields from suppliers that you can rely on. Even if Unilever was able to buy somewhat cheaper leaves from another supplier in a different area, it might be strategically valuable for Unilever to keep Kenyan tea farms viably productive because they have an established supply chain in place and the Kenyan tea product is proven to satisfy customers’ tastes. Looking at it in from a solely business perspective, if climate change does drastically affect tea leaf production, it would only be in Unilever’s best interest to have one of their traditional suppliers be best equipped with the latest farming techniques.
The Rainforest Alliance is an NGO that promotes sustainable farming techniques for smallholder farmers, runs an annual audit, trains rural farmers in these techniques, and certifies farms with their “Rainforest Alliance” seal. Unilever advertises that they source 100% of their tea from Rainforest Alliance (RA) certified farms. As far as I can tell, RA is entirely independent from Unilever/
This reminds me of the discussion we had around Ikea’s lumber certification partner. Unilever faces some of the same long-term risks that Ikea faced (input availability, reputational hazard, impact on relationships with communities), and after reading this essay I’m left asking the same question as we asked Ikea: Does Unilever have the market power to set standards for all? Who will eat the additional costs of using more advanced farming techniques, and pursuing additional R&D?
I’d love to understand how important sustainability is to tea-drinkers around the world. Is there something more that Unilever can do to market their pursuit of sustainable tea farming to give them a competitive advantage or to draw higher WTP from consumers? My primary concern is that the Rainforest Alliance seal is not something that consumers are currently familiar with, and is a complicated set of restrictions applied to everything from number of seasonal workers hired to the type and amount of specific pesticides permitted. This black box seal does not hold meaningful value today for consumers and I worry that it doesn’t signal clearly that Unilever tea, and any other products carrying this seal, is worth paying more for if you are a climate-conscious consumer.
Sustainability at large has a marketing problem in that even climate-conscious consumers cannot easily determine the sustainability of a certain product, even when it contains the universal recycling symbol or another “eco-X” logo. Cynical consumers are wary of potentially fraudulent uses of the sustainability related buzzwords, and black box certifications are complex to understand. How can Unilever effectively communicate this added value to their customers, while pushing the entire industry to adopt new practices?
One important gap that plagues Unilever’s attempt to address climate change is the lack of partnership with organizations that tackle climate change outside of the agriculture industry. According to the US National Climate Assessment, the larger impact of climate change will ultimately depend on altering large global market conditions and typical responses to local climate stressors. This will have to include farmers adjusting planting patterns in response to altered crop yields and seed producers investing in drought prevention initiatives. Given that climate change affects the larger ecosystem – oceans, coral reef, swamps etc., Unilever would be even better served creating a long-term strategy that addresses climate change beyond crop viability and increasing land yield via innovating farming techniques.
Alicia, you pose the question of whether the long-term benefits of initiatives protecting tea yields from global warming are worth their short-term costs. This reminds me of our class discussions on carbon trading, which places a monetary value on environmental impact. Unilever CEO Paul Polman quantifies the effect of global warming on Unilever at $300 million/year [1], indicating that the positive effects of creating climate-change-proof tea crops can similarly be quantified. In fact, Unilever’s sustainability initiatives can simply be construed as mitigating these existing losses from climate change.
[1] http://www.businessinsider.com/unilever-ceo-speaks-on-climate-change-2014-12
One of the best written cases I’ve read all year! It is commendable that Unilever is already taking steps to combat the negative impact climate change will have on its business, but it does feel to me like they should be doing even more given the gravity of the threat and the market influence of Unilever. Due to this influence, I believe Unilever has a real opportunity to partner with government regulators to incentivize companies across the tea industry, including Unilever’s suppliers, to devote assets to R&D to come up with solutions for tea production in a changing climate.