When talking about the impacts of climate change, few risks are more visceral or tangible than those it poses to future food supply. From spikes in food prices to threats to the coffee industry, consumers are increasingly aware of the effects of rising global average temperatures.
For companies in the food, beverage and tobacco sectors, climate change presents a two-fold challenge: the industry is highly exposed to climate-related impacts, but is at the same time a major contributor to increasing global greenhouse gas (GHG) emissions levels – particularly from agricultural production, which according to the IPCC causes 10-14% of global GHG emissions.
These challenges are significant. KPMG has warned that inaction on climate change could threaten the financial viability of the food industry. The increase in unpredictable extreme weather events is already effecting agricultural productivity and food companies’ supply chains are being hit: the ongoing drought in California is estimated to have cost the agricultural sector more than $2bn to date.
A growing number of companies are realising the risks. This year 92% of brands reporting to CDP – the global non-profit organisation that gathers data on environmental risk – noted risks from the physical impacts of climate change, up from 84% in 2012. Some companies are relating this to future financial outputs: Diageo projects that changes in temperature could have negative financial implications on its agricultural supply chain. This could force the company to spend up to $77m more in increased commodity costs and production disruption.
But, despite these clear business risks, many companies are not yet investigating where their largest climate impacts may lie. The biggest source of food-related GHG emissions occurs before produce leaves the farm gate, in the agricultural production portion of producer’s supply chains. Yet only 22 of the 97 major food, beverage and tobacco brands that disclosed to CDP this year reported their indirect GHG emissions from agricultural production.
In addition, the majority of emissions-reduction activities companies report carrying out are focused on their direct operations, rather than their supply chain, where the bigger opportunities and risks lie, confirming that companies should be moving their attention from their own operations to their agricultural supply chain.
These risks are increasingly being realised by investors. Following a shareholder proposal set out by Green Century Capital Management and Oxfam America, one of the world’s largest food and beverage companies, General Mills, recently became the first in its sector to adopt long-term, ambitious targets to cut GHG emissions.
General Mills’ strategy includes carbon emissions from its own operations but also from its supply chain, including those from agricultural production. The company is ahead of its peers in recognising agricultural production as producing the largest amount of GHG’s of all its operations, bringing competitive advantage.
Data disclosed to CDP shows that major food producers that do take steps to address climate change through activities such as nutrient or manure management see multiple benefits, including financial savings. Over a third of food, beverage and tobacco companies report lower costs as a result of carrying out agricultural management practices with climate change benefit, either in their own farms or with suppliers.
Companies are also realising that they cannot do it alone. General Mills states that there is much to be achieved in pre-competitive collaboration across the industry when tackling emissions in agriculture. Supply chain collaboration is also providing positive feedback, with firms like SABMiller and Dairy Crest group undertaking knowledge sharing to improve fertiliser use.
To truly ensure future resilience, food, beverage and tobacco companies must shift their focus from in-house emissions to those from agricultural production. While there are clear barriers to action, including the complexity of working with huge, global agricultural supply chains, signs of change are becoming more frequent.