Sustainability in Beer - Part III: Company by Company - Anheuser-Busch InBev, Carlsberg and Diageo
Here's the third part of this month's management briefing, which looks at three of the world's largest brewers and their efforts in the environmental sustainability arena.
Agriculture accounts for 95% of the total water used in the production of Anheuser-Busch InBev's beers, so mitigating impacts in its agricultural supply chain is a key priority within its overall sustainability mission.
"We know that roughly 95% of our total water consumption is in agriculture so we’re already focusing efforts there to reduce natural resource use," says Alessandro Sperotto, director global procurement, raw materials at A-B InBev.
Sperotto stresses that the company takes a risk-based approach in this regard. "We’re also performing a global water risk assessment of our barley supply chain," he continues. "Our aim is to identify priority areas and begin implementing practical solutions to lower the risk. We realise this is a complex task, but we’re hopeful that with the help of our network of agronomists and local stakeholders, we can identify both risks and opportunities in high-priority areas across the globe."
As so many food and beverage companies are finding, addressing environmental impacts in supply chains is becoming an increasingly important area within a company's total sustainability strategy.
"We’ve done some good work, and there’s still more to do," says Sperotto. "We start 'inside our walls' where we have the most control and work our way out to the supply chain where we see risks to our operations, supply chain and surrounding communities. Again, taking a risk-based approach is important – for our breweries and barley growing regions, we’re going to focus our resources on the highest risk areas."
The primary focus, Sperotto says, is on regions where the company sources most of its barley through its own grower programmes, namely North America, South America, Russia and China. "In those regions we have programmes in place to increase the malting barley crop efficiency in order to use fewer natural resources to produce more volume and quality," says Sperotto.
Working closely with farmers is key, says Sperotto, and the company expects this to become even more important going forward. The company has "longstanding" barley farmer programmes in the US, Brazil, Uruguay, Argentina, China and Russia.
Around 10,000 farmers in total take part in these programmes which include assistance from A-B InBev's team of barley experts. "They help farmers achieve the highest quality barley with the highest yields and lowest costs," Sperotto continues. "The optimum use of natural resources is key to producing high quality barley in an efficient manner. Water use, pesticide and herbicide use, fertilizers and cultivation methods are considered as part of our technical assistance, thereby providing not only environmental benefits, but also economic and social advancements. Our aim is to develop local suppliers wherever possible and help make them profitable for the long term."
Sperotto highlights a number of notable initiatives. In Southern Idaho, the company's suppliers now use adapted winter barley varieties which require 20% less water than regular varieties, saving more than 1.5bn litres of water during one growing season.
A-B InBev has also been working directly with its barley suppliers in Brazil since 2010 to implement sustainable agricultural practices. This programme has included exploring the synergies of maize and barley, such as crop rotation; donating trees saplings to barley growers to create green belts around fields to help protect crops from wind damage, increase biodiversity and reduce CO2 emissions; and stakeholder engagement with growers, agricultural research organisations, government agencies and agro-chemical companies to explore opportunities to reduce impacts. Last year, the programme was expanded to barley growers in Argentina and Uruguay.
Collaboration with other stakeholders is critical, Sperotto concludes, owing to the complex nature of the challenges, adding that the company's barley programme "depends" on such collaboration.
In common with its peers, Carlsberg identifies the agricultural supply chain as the largest contributor to its water footprint. "Our water footprint [research] certainly identifies the agricultural supply chain as the single biggest contributor," says Carlsberg corporate social responsibility director Morten Nielsen.
Water stewardship in the agricultural supply chain is an important issue everywhere, he adds. "However, our initial efforts are focused in Russia, Poland and China; all of which are important for our sourcing of barley, a key ingredient in beer."
Indeed, securing a consistent supply of barley going forward is a core priority for the company. As the brewer points out: "Today, malting barley is a niche cereal accounting for less than 2% of the world’s production of grains. Water scarcity and flooding may affect future availability and quality. The Carlsberg Group’s business is completely dependent on the availability of quality barley, and significant resources are invested in securing supply."
With the water footprint particularly in mind, the company says "special attention" has been paid at the Carlsberg Research Centre to selecting and breeding competitive heat- and drought-tolerant barley varieties. Other research has produced special barley varieties which result in enhanced stability, especially at high temperatures, requiring less refrigeration during storage and transportation of beer.
Nielsen says that work focused on reducing this part of its environmental footprint is becoming an increasingly important part of its environmental strategy, stressing the importance of collaboration with government organisations and multiple stakeholders. "This area is becoming increasingly important and we are currently defining strategies and deciding our future participation in public-private-partnerships."
In Russia, Nielsen highlights the company's collaboration with the United Nations Industrial Development Organization (UNIDO) as a particularly significant partnership.
Last year, Carlsberg Group and its Baltika Breweries subsidiary set up a partnership with UNIDO, involving an investment of RUB 1bn (EUR 25m) in environmental projects in Russia related to water, climate change and agriculture.
"The partnership is the first of its kind in Russia and is expected to deliver environmental benefits by reducing natural resource consumption, pollution and greenhouse gas emissions, while also improving the agro-ecosystem and water systems," the company states. "This could potentially provide significant reductions in the Carlsberg Group’s total environmental footprint, as well as improving the natural environment in Russia."
The creation last year of the new post of sustainable agriculture director and the recruitment of Jos Van Oostrum from Unilever, a company which knows a thing or two about corporate sustainability and greening supply chains, into the role in itself provides a clear commentary on the direction of Diageo's environmental strategy.
Diageo's beer production footprint is an interesting one. Its brewing operations are concentrated in Africa where there is an abundance of water-stressed areas and Ireland where there is just an abundance of water. While he has a company-wide remit, Van Oostrum says he is spending most of his time on African projects and Diageo's local sourcing agenda.
Diageo has set itself a target to source 70% of the raw materials used in its African operations from within Africa by 2015. According to the company's Sustainability & Responsibility Report 2012, the local sourcing percentage is now up to 56% and Diageo says it is on track to achieve its 2015 target.
Van Oostrum stresses that the local sourcing objective is about sourcing "within Africa, for Africa" and also within a country for that specific country. "There is a huge drive within the business to really try and increase the local sourcing percentage overall, not just because it looks nice as a percentage; it's driven through a strong business rationale," Van Oostrum states.
As discussed in the second part of this briefing, the use of local crops which are more adapted to local conditions is a key element in local sourcing strategies and this is certainly the case for Diageo.
"Traditionally you have things like barley and maize that have been the preferred crops for brewers over the years," says Van Oostrum. "However with our business establishing in Africa it has become extremely clear if you go down the local sourcing route that it makes much more sense to go for crops that are much more adapted to their environment."
Crops such as sorghum, which are "much less thirsty", are becoming increasingly important for Diageo. The company is now sourcing sorghum for beer in Nigeria, Ghana, Kenya, Tanzania and Uganda.
Van Oostrum also highlights the launch last December of Ruut Extra, the first cassava-based beer to be produced in Ghana, as a particularly proud achievement for the company. Cassava is not only a crop that is adapted to the local climate but it is also abundant, although it is primarily cultivated by smallholders which presents challenges for a company seeking to procure in large volumes. Diageo is hoping the launch of Ruut Extra will encourage some larger farmers in Ghana to move into cassava cultivation. Van Oostrum says the development of Ruut Extra has been a "great success" and believes it can be a model for other markets.
While crops such as cassava and sorghum have much to offer, Van Oostrum stresses that barley is by no means "out of the picture" in Africa. In fact, he singles out the programme Diageo is running with Ethiopian smallholder barley farmers as another "inspiring example" of what Diageo is doing to boost local agricultural communities and increase local sourcing.
Ethiopia and Eritrea are widely thought to be the birthplace of barley which may have been cultivated there as early as 3000 BC, so Ethiopia offers the right conditions for the crop. However, the challenge lies in securing a stable supply from an agricultural sector largely comprising smallholder farmers.
"The challenge we have there is to find a local source of barley, and with a sense of pride I can tell you that we've started a barley supply chain development project with 760 smallholders farmers in the vicinity of the Meta brewer," Van Oostrum says. The programme is expected to supply between 500 and 700 tonnes of barley a year.
To return to the content page of this management briefing, click here.
- Focus - Edrington's FY Performance by Brand
- Where Beer is Brewed Can Leave a Bad Taste
- Pernod relies on Indian whiskey to crack Africa
- Analysis - Storm clouds lift over Diageo Towers
- NPD: The Clear Soft Drink Trend is Back
- Comment - Diageo CFO to North America? Do the Math
- Diageo CFO Mahlan to head up N America
- Former Bacardi exec takes De Kuyper CEO role
- Diageo lining up Gleneagles sale - report
- Diageo sells "non-core" Gleneagles
- Global liqueurs insights - market forecasts, product innovation and consumer trends research
- The IWSR Company Profile 2014 – Remy Cointreau
- Diageo plc (DGE) - Financial and Strategic SWOT Analysis Review
- Edrington Group in Spirits (World)
- Global Tequila insights - market forecasts, product innovation and consumer trends research