Published on: Sep 30, 2011
The food industry must act fast if we are to create a sustainable food system, says Two Tomorrows executive chairman Mark Line
Bananas. The best-selling grocery product in the UK. But which sort to buy? Fairtrade? Rainforest Alliance-certified? Organic? Or maybe it’d be better to stick with simple home-grown apples to avoid all those sea miles.
This is just one small, relatively trivial example of the quandaries faced by consumers engaged in sustainability issues. But it’s representative of the much bigger and more complex dilemmas faced by companies in the global food system as they try to contribute to sustainable development. There are no easy answers.
However, that can’t be an excuse for avoiding the questions. If we don’t get to grips with the issue of creating a sustainable food system, we’re in big trouble. Think of the impact of the e.coli outbreak in Germany at the start of the summer. And, on an infinitely larger scale, the famine in Somalia.
That’s why the debate about creating a more sustainable food supply system is so critical.
To help inform that debate, in this article I plan to examine the drivers for sustainable sourcing in the food supply chain. First, I’ll take a look at just a few of the key trends in consumer demand for sustainable goods. Second, I’ll explore the wider drivers for change.
At a very high level, what does the research tells us about consumer engagement with sustainability, and the extent to which social, environmental and ethical issues are influencing consumer preferences?
Every year, The Futures Company carries out its Global Monitor market research study examining a huge range of trends in consumer behaviour and thinking across the world.
There is a great deal of fascinating detail relating to attitudes to sustainability. One of the headlines is that the proportion of people who say they’ve made it a top priority to live a more environmentally conscious lifestyle appears to be on the wane in Western Europe, North America and Asia.
Looking at the food and beverage market more specifically, Global Monitor has a wealth of data here. This shows that social, environmental and ethical issues come way down the list of factors that affect people’s decisions to select one brand over another. Ingredients, quality, price and reputation are given far more importance – even among those who fit the criteria of sustainability ‘pioneers’.
In short, there’s a real disconnect between people’s stated level of concern about the world around them – their views as citizens – and the choices they make as consumers.
This finding is borne out by other studies, including research by Datamonitor from 2010 and a 2011 report by the UK government body Defra on attitudes to food.
Going back to the work of The Futures Company, they’ve found that, for most consumers, the environment is generally not a core priority driving actual decisions. And where it has some effect, it’s often because it’s linked to something that is a core priority. So people might decide to start a vegetable patch, but mainly because it’s a family activity rather than from an environmental motive. Or they might turn down the thermostat, but mainly because it’s a money-saver rather than because it’s a carbon-saver.
And when it comes to product choice, what The Futures Company have found – and certainly my work with clients across industries confirms this for me – is that social and environmental factors at best play a tertiary role in determining buying decisions.
Though there is an interesting sub-plot that Global Monitor picked up. It shows that consumers worldwide are increasingly likely to stop buying from companies they feel are damaging the environment.
So even if environmental consciousness is levelling out and SEE issues aren’t core factors for most people and most decisions, there are likely to be increasing perils for those who are seen to transgress.
That’s why, when it comes to consumer demand, for most companies sustainability is a weak carrot – few people are willing to pay a premium for a product that does good. But it can be, on occasions, a very strong stick if a company falls foul of regulators, pressure groups or the media. From outside the food sector, just think of the problems faced by Esso and BP and by Nike, adidas and GAP.
The final point I want to make about consumer demand is the discrepancy in actual spending between the developed West and the developing economies. Datamonitor research on estimated spending on fair trade food and non-alcoholic drinks in the world’s biggest economies shows that, while sales of some Fairtrade-branded products have been growing fast in some markets – particularly the UK and, to a lesser extent the US – it’s still a very small proportion of overall household food budgets: around $11.50 per person per year in the UK and $2.25 per person per year in the US.
Meanwhile, spending on fair-trade food and beverages in the developing economies is almost non-existent. Okay, so those products aren’t yet properly available in these markets. But it does serve as a reminder that, for all I’m sure most of us put Fairtrade bananas and coffee in our shopping trolleys, we’re barely scratching the surface in global terms. And just as with climate change, unless we can bring about a change in the emerging economies – in this case, by creating and supplying a market for sustainable food – then all our well-intentioned efforts here in the West could be swamped by what’s going on elsewhere.
So, that’s a very brief look at what I see as the headlines when it comes to consumer demand. It hardly amounts to a compelling case for investing massively in sustainable sourcing. But that shouldn’t deter us because in reality consumer demand is just one of the drivers for sustainable sourcing – and a lesser one at that.
Limits to growth
The really big driver is this planet’s limits to growth. That’s what makes this all so urgent.
In 1960, there were three billion people on earth. Just 40 years later in 2000, six billion. By 2040, there could be as many as nine billion of us. That’s a tripling of the population in just eighty years.
Meanwhile, almost half the world – over three billion people – lives on less than $2.50 a day. And nearly a billion people are malnourished. What’s more, half of that bottom billion are farmers. More broadly, though, overall the world’s population is getting more affluent. Coupled with population growth and a move to more people living in cities, this is leading to a rapid increase in consumption.
The results are already devastating:
- Greenhouse gas emissions cause rising temperatures, with consequences for us all.
- Increasing water scarcity – 1.1 billion people in developing countries go without clean drinking water.
- A catastrophic loss of biodiversity – 70 per cent of the world’s plants face extinction and 75 per cent of fisheries worldwide are facing extinction.
- Deforestation that’s already accounted for half of the world’s forests continues to accelerate, exacerbating climate change.
These results are all interlinked, and each one amplifies the others with results that no-one properly understands.
The notion of limits to growth was first posited back in the early seventies when the Club of Rome commissioned a book on the consequences of population growth. Critics dismissed it at the time as doom-mongering, but many of the predictions made then are proving pretty accurate. Okay, oil didn’t run out in the 90s as they predicted, but still their picture of the future holds true, even if the exact timing isn’t right.
The concept was updated a couple of years ago here in the UK when the government’s Chief Scientific Advisor John Beddington predicted what he called a ‘perfect storm’ in 2030. This comes about because of the nexus of population growth, urbanisation, increasing affluence and climate change. As a result, food prices rise, more people go hungry, and migrants flee the worst-affected regions, leading to civil unrest, war and a more-or-less continuous humanitarian crisis.
You might argue with the scale or the timing of the catastrophe that John has identified, but the underlying concern stands. While the vast majority of consumers have not yet engaged in any of this, it’s these limits to growth that provide the most important driver for building a more sustainable food system. They’re the real reason some of the leaders in the food industry are taking this issue so seriously. They’ve seen the writing on the wall, and they know that if they don’t act now, then the viability of their business models are in jeopardy within the next two or three decades. Hence the upsurge in investment in farmland in the developing world – particularly by the big food supply companies. It’s fundamental macro-economics these companies are responding to rather than consumer demand.
The other really significant driver right now is the actions of leading players.
As brand owners like Nestle and Kraft – or the big retailers – have engaged with sustainability, they’ve realised they can only achieve meaningful results through their supply chains. They demand that their tier-one and tier-two suppliers – often giant multinationals in their own right – reach certain standards. It becomes a stark commercial matter for many of the food supply companies. From a background of being largely disengaged from the sustainability agenda, they are being compelled to change by their biggest customers.
There’s also a kind of ‘keeping up with the Joneses’ effect. So if the biggest brand owners are taking radical action to secure supply in years ahead, then the slightly smaller players realise that they need to follow suit. If not, they risk incurring a big competitive disadvantage – in terms of profit and influence – that could turn out to be terminal.
The standout example is Unilever. In their much-trumpeted Sustainable Living Plan, Unilever have signed up to achieve three major goals by 2020:
- Help more than one billion people improve their health and wellbeing.
- Halve the environmental impact of Unilever products.
- Source 100 per cent of agricultural raw materials sustainably.
And they plan to do all this while doubling the size of their business.
Those are pretty audacious goals. Just consider Unilever’s recent estimate that they’re only 10 per cent of the way to their sustainable sourcing target.
During 2010, Unilever undertook work to understand their impacts. Some 1,600 products – representing about 70 per cent of sales – were assessed, a new agricultural code was put in place, and 250 factories were reviewed to find the best ways to reduce waste, water and energy use. But these actions are only scratching the tip of the iceberg and I am sure Unilever understands that their work is only just beginning. They are going to have to engage with existing and new consumers and bring about radical changes in their behaviours and lifestyles if these goals are to be achieved.
Unilever have been active in implementing the plan at brand level. Recognising that their Lipton tea brand was in need of revitalising, they decided to reposition it as a sustainable choice. They began sourcing Lipton tea from Rainforest Alliance-certified plantations, and by 2010 all Lipton Yellow Label tea bags sold in Europe were certified. The result has been significant growth in market share.
There’s a subset of the leading brand owners and retailers who I’d call exposed players. Some of them have suffered real damage when they’ve found themselves on the wrong end of a damaging news story or NGO campaign. Think of the well-documented controversies Nestle has been dealing with, including for its use of palm oil, which Greenpeace alleges is leading to the destruction of rain forests, much to the detriment of lovable orangutans. Even Unilever has received criticism. In the US, the world’s largest pork producer Smithfield suffered big dents to its reputation following government fines for polluting waterways and public concerns about animal welfare.
Closer to home, Cadbury is a good case in point. Back in 2006, their Dairy Milk brand – the country’s best-selling chocolate bar – was in all sorts of trouble after a production line was contaminated by salmonella. Since then, Cadbury have put in a lot of hard work to recover their reputation based on a new commitment to sustainability. Dairy Milk is now Fairtrade certified, guaranteeing producers a Fairtrade-approved minimum price (although there has been criticism that this has sometimes been lower than the current market price). In parallel, they’ve set up the Cadbury Cocoa Partnership with the UN Development Programme. This provides £45 million of direct financial support to cocoa farmers in Ghana, India and the Caribbean. They’re getting help to form themselves into co-operatives that can help raise productivity and profitability while gaining the economic strength they need to secure fair prices from whoever they are supplying.
It’s by working directly with those at the start of the value chain that big companies can really make an impact on sustainability. Just focusing on direct relationships with tier one suppliers won’t do the job. While that’s easier in a relatively distinct market like cocoa, it’s still a good example of what’s possible.
Other companies in the industry are learning from what the exposed players are going through. They take note of how awkward things can get, and they see the wisdom of preventative action to avoid having to go through similar pain.
So what we get with the activity of all these leaders – exposed players or otherwise – is a business-to-business pull, rather than a consumer-to-business pull. In this way, big brands and retailers are increasingly making sustainable choices on behalf of consumers. And maybe that is the right way round; it must be easier to change a few hundreds big brands from the inside than it is to change a few hundreds million consumers.
Another increasingly important driver is certification schemes. At their best, they have real potential to be vehicles for changing companies’ sourcing patterns.
The Roundtable on Sustainable Palm Oil is probably the most significant scheme in the food industry given the size of the market and the issues at stake.
There’s been plenty of activity in this sphere recently, with Cargill, General Mills, Nestle, Mars and Carrefour all big names who’ve pledged to source 100 per cent of their palm oil from RSPO-certified sources in the not-too-distant future. They’ve joined the likes of Sainsbury’s, M&S, Asda, Unilever, Young’s/Findus and Cadbury who’ve shown real leadership in terms of their buying of certified palm oil. Overall, though, the sector as a whole still has a long journey ahead before sustainable palm oil sourcing becomes the norm.
Many other schemes are gaining traction. The Fairtrade and Rainforest Alliance schemes have made big inroads in fruit, chocolate, coffee and tea categories.
One of the newer schemes to come into view is Bonsucro, formerly the Better Sugarcane Initiative. One of the leading lights in getting this group off the ground has been Bacardi, a client of ours. Bonsucro has developed a certification standard for sugar growers and, as recently as June, the first Bonsucro-certified sugar was bought by Coca-Cola.
Of course, the big problem in this proliferation of certification schemes in the food industry is that it’s made for a cluttered and confusing picture for consumers – and for producers, brands and retailers too. General awareness and understanding of these schemes remains very low, even in a relatively switched-on market like the UK. The Marine Stewardship Council scheme has been around for well over a decade, and yet our oceans are chronically over-fished and the picture is getting worse.
The idea of a single certification scheme for all food products will never see the light of day. Sure, there’s room for some consolidation of schemes to make things clearer for consumers, but no single scheme can be universally applicable to all product categories and also be accurate and simple. You might tick two of those boxes, but never all three.
To speed up progress in this area, I’d like to see greater co-operation between the brand owners and retailers who are the larger stakeholders of the main schemes. There is currently no voice for these users to influence developments. The ISEAL Alliance plays an important role in coordinating social and environmental certification schemes across all industries, and a parallel group for users of these schemes – either cross-industry or specifically in food – would be a logical next step. It’d make it more likely that that more companies – not just the pioneers – would commit.
The other key factor I should be able to point to here is government – by which I mean national governments and intergovernmental bodies. Unfortunately, that’s just not happening right now.
Despite investment research in innovation through bodies such as the Technology Strategy Board, and the work on sustainable consumption led by the now defunct Sustainable Development Commission, it’s hard to see this filtering through to serious action towards sustainable agriculture at a public policy level.
And on a regional level, think of how long it is taking to negotiate reform of the Common Agricultural Policy. It has so many flaws that need addressing. Its many detractors argue that we have effectively created a Fortress Europe that leaves farmers in the developing world, especially Africa, without a market for their goods. While subsidies skew the market against the developing world to such an extent, a truly sustainable food system is a pipedream.
There does seem to be a bit more movement with the Common Fisheries Policy. As recently as July, the EU fisheries chief announced radical proposals to ensure all European fish stocks are "at sustainable levels" by 2015. The idea is to achieve this by phasing out the wasteful practice of discarding healthy fish at sea – a perverse consequence of the current quota system – and agreeing with member states long-term management plans for their stocks. This will bring short-term pain for fishermen, but should preserve the long-term future for the industry, even if it does end up being on a smaller scale than it is today.
On the global stage, the UN has been active in trying to accelerate change. The UN Special Rapporteur for food recently advocated the adoption of eco-agriculture – something that can be seen for the most part as a return to centuries-old practices that support agricultural production while also conserving ecosystems – to undo some of the damage done by industrialised farming and ensure security of supply. While it’s hard to see such a radical shake-up happening, at least it’s helping to set the agenda.
But, in truth, there is little evidence yet of the policies –or indeed the institutions - that will be needed to respond effectively to the Perfect Storm. Price volatility in basic commodities has increased to unprecedented levels in the past year with a massive impact on world markets. Despite a lot of conversation, this hasn’t yet resulted in meaningful action from intergovernmental bodies.
So we need new and better public policy to provide industry with more appealing incentives to change and invest in new, more sustainable models and methods.
To sum up then, there are five main drivers for sustainable sourcing:
- Consumer demand does play a part, for sure, but it’s by no means the overriding consideration.
- Far more important is the realisation, now in the mainstream, about how close we are to running up against the limits of our environment.
- Also playing an important role is the activity of leading companies in the industry. I believe there remains a huge opportunity for business to use sustainability as a strategic differentiator.
- Certification schemes are an increasingly important factor, even if they are yet to realise their potential.
Finally, public policy should be a significant driver, even if that’s not the case at the moment.
So how do we respond to those drivers? What’s it going to take to move to more sustainable ways of sourcing our food?
The answers are far from clear. A recent in-depth report from the think-tank SustainAbility warned of a “startling lack of consensus on the path forward”.
And of course the financial crisis makes progress even harder. The capital needed to finance investment in sustainable technologies and practices has largely dried up.
But there are signs of hope. Even if it is unrealistic to expect a complete dismantling of the current food system as the UN seems to be suggesting, or for that matter an end to our appetite for resource-intensive meat, we are seeing a blossoming of progressive activity in the industry that hints at possible ways forward – whether companies are acting independently, in collaboration with NGOs or as part of wider industry moves towards product certification.
Against what the ‘dismal science’ of demographics tells us about the way we’re plunging headlong to our doom, these initiatives give us some room for optimism.
One thing is certain: we can’t afford to do nothing. Things are so urgent that there is a case for the ‘ready, fire, aim’ approach of setting goals, making a start, and figuring out how to get to the destination through constant mid-course corrections. In very simple terms, that’s what Unilever have done with their Sustainable Living Plan – set ambitious objectives and got going on them even though they freely admit they don’t yet know how they’ll achieve them all.
The time has come for the food industry to dare greatly.
This article is based on a keynote presentation given by Two Tomorrows executive chairman Mark Line at the Foodnews Sustainability in the Food Supply Chain conference held in London on 21-22 September, 2011. To find out more about the ideas and data in this article, contact firstname.lastname@example.org.