Sustainability in Soft Drinks - Part IV: Agricultural Supply Chains
Ben Cooper goes back to the fields in this, the final part of just-drinks' management briefing on environmental sustainability in the soft drinks category.
The Oxfam report mentioned at the beginning of this management briefing focused on what has now become arguably the most critical sustainability challenge facing major food and drinks companies, namely addressing environmental impacts in agricultural supply chains.
In common with multinational food companies and their counterparts in other beverage sectors, major soft drinks producers have been paying increasing attention to supply chains over recent years.
However, both The Coca-Cola Co and PepsiCo were among the ten food and drink companies Oxfam was urging to move faster in reducing greenhouse gas emissions from the production of agricultural ingredients in its report, 'Standing on the Sidelines'.
Erinch Sahan, private sector advisor at Oxfam, concedes that the companies have had success in reducing emissions in their own plants, but adds: "The focus of our paper, and the focus of our campaign more broadly, is about what they're doing in their supply chains, and on climate change particularly that's where the greatest carbon footprint is, and that's where we feel they really need to be using their power."
That said, Oxfam gave the two soft drinks giants some credit for their approach to supply chain sustainability in the report. For example, it commended PepsiCo UK for its "50 in 5" target. When PepsiCo UK found that as much as 50% of its carbon footprint came from its agricultural supply chain, it set a goal to deliver a 50% reduction in carbon and water impacts of its key crops over the following five years (by 2015).
While giving PepsiCo credit for this, Oxfam pointed out that, if this commitment were to be made across the entire operations of all ten companies, emissions from agricultural production could be cut by around 80m tonnes, compared to "business-as-usual", by 2020.
Oxfam said Coca-Cola's target of a 25% emissions reduction for the “drink in your hand" was "commendable" - Coca-Cola Enterprises has a similar commitment, only for a reduction of a third - but added that this commitment does not guarantee the emissions from agricultural production will be reduced, as reductions could be delivered elsewhere in the product's life-cycle.
PepsiCo and Coca-Cola were also among the "honourable but partial exceptions" when it came to disclosing which suppliers of commodities are responsible for the most emissions: Most companies do not disclose this information. However, Oxfam is particularly critical of the fact that none of the ten companies has committed to a target to reduce their total agricultural emissions, or require their suppliers to make reduction targets.
"We'd like to see them be a lot more ambitious, to ask suppliers to measure carbon emissions and greenhouse gas emissions and set targets against them," Sahan continues.
Oxfam believes the companies can use the power and influence they have as customers to put more pressure on big agricultural suppliers to reduce emissions. "I think a lot of it is about figuring out where you have the power to shape the behaviour of suppliers," says Sahan. "It's not easy to say that we're going to require our suppliers to be measuring greenhouse gas emissions and then to be setting targets against it, but we've seen through our engagement with industry and our work on the ground just how much influence and power that these ten companies can have."
Sahan also believes companies such as Coca-Cola and PepsiCo have "symbolic power" to change corporate behaviour in general. "It goes beyond just their volumetric power, volumetric influence," he says. "It goes all the way through to their symbolic power. When they're seen to be doing these things, it becomes the industry norm. It becomes what others start to follow so that's why we think they just need to act a lot quicker and be a lot more ambitious about what they require their suppliers to do."
However, Robert ter Kuile, senior director, public policy at PepsiCo, believes Oxfam overestimates the influence PepsiCo has over large suppliers of agricultural commodities. "We don't have that level of influence that they [Oxfam] seem to think that always exists," ter Kuile tells just-drinks.
The lack of continuous measurement and setting reduction targets for supply chain impacts is a particular bone of contention among campaigners and is arguably a weakness in the current sustainability strategies of major companies.
The lack of firm targets for supply chain emissions contrasts starkly with the way companies, including drinks manufacturers, have driven down emissions and water use in their own plants. That success was achieved by setting targets and in most cases committing to report on them annually.
While defending his company's record on supply chain sustainability with reference to PepsiCo's Sustainable Farming Initiative, ter Kuile concedes that the company needs to do more in terms of ongoing measurement of emissions in agricultural supply chains.
However, he says it is "a bit of fallacy" to say that, just because a company has not created specific reduction targets it is not doing anything, once again citing the company's Sustainable Farming Initiative as evidence of PepsiCo's commitment to addressing supply chain impacts.
As part of its ongoing work assessing the sustainability performance of major US companies, Boston-based sustainability think tank Ceres looked specifically at how 24 food and beverage companies are approaching the issue of sustainable agriculture. Within that group were four major soft drinks producers; the Coca-Cola Co, Coca-Cola Enterprises, PepsiCo and Dr Pepper Snapple Group.
This study drew the following conclusions:
- Action on sustainable agriculture sourcing remains in "the early stages of implementation", although there are multiple opportunities for further action. For example, 11 out of the 24 companies do not yet show evidence of conducting risk assessments of their agricultural suppliers
- Current goals and commitments are narrowly focused. Ceres says that, where goals and commitments to source more agricultural raw materials sustainably do exist, companies focus primarily on agricultural supply chains where third-party verification schemes are available
- Managerial oversight is weak. While some companies have high-level managerial oversight of key agricultural sourcing initiatives, the "vast majority" do not adequately disclose how these issues are managed internally
- Disclosure of impact assessments, both for supplier risk and grower performance, is lacking.
Across the board, Ceres says, companies are failing to measure and disclose how their efforts are addressing sustainability risks, such as increased exposure to the adverse effects of climate change.
Andrea Moffat, VP of the corporate programme at Ceres, makes three recommendations, which are relevant to both food and drinks producers in relation to agricultural supply chains.
Moffat suggests companies need to create "a robust risk assessment process" and set "measurable, time-bound goals and targets to source key agricultural inputs sustainably ". Secondly, they should improve public disclosure around agriculture sourcing. "When companies publicly disclose information about their performance, whatever the subject matter, they tend to improve that performance," Moffat says.
In addition, she suggests companies should establish programmes and incentives for farmers and agricultural producers to implement sustainable practices at the field level and to measure improvement.
It is clear, even from the Oxfam report, that the soft drinks sector's two largest players are far from being laggards with regard to addressing environmental impacts in their agricultural supply chains. In fact, they can probably claim to be in the vanguard.
However, this is an area where even the pacesetters have far to go.
For full details on this management briefing, click here.
The second part of this year's Sustainability in Soft Drinks management briefing looks at the comparison between recycling rates in the US and Europe, and examines the voluntary actions companies are ...
The company is looking to enhance its core capabilities of consumer marketing, commercial leadership, franchise leadership, and bottling and distribution operations to drive its sales growth and profi...
Coca-Cola face a challenging situation in which economic recovery is fragile in developed markets, while China and Brazil are seeing a slowdown in sales. Consumers’ desire for diverse and healthy beve...
In soft drinks packaging in Sweden, PET bottles continue to gain popularity over glass bottles, since all major players, such as Coca-Cola Enterprises Sverige, Carlsberg Sverige and Spendrups Bryggeri...
- The category today - Scotch Whisky I
- Today's Market Trends - Scotch Whisky II
- Key Brands Performance - Scotch Whisky IV
- Tomorrow's Market Trends - Scotch Whisky III
- Category Innovations - Scotch Whisky VII
- Beam Suntory names CFO, makes structural changes
- Analysts clash over AB InBev SAB Brexit impact
- Diageo to accept US$1m South Korea fine
- Pernod switches Travel Retail Europe op's director
- AB InBev unveils Stella Artois three-packs
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends
- Global RTD insights - market forecasts, product innovation and consumer trends
- Global travel retail insights - market forecasts, product innovation and consumer trends
- Global non-Scotch whiskies insights - market forecasts, product innovation and consumer trends
- Consumer and Market Insights: Wine Market in China