Sustainable sourcing

Chris Brown of ASDA describes the changing conditions affecting the sourcing of raw materials and their impact on supply chain resilience. The need to consider natural capital in sustainability planning is increasingly important.

In recent years, food sustainability has been constantly in the news. Certain forms of farming or food sourcing are being challenged and are generating considerable media attention at a time when the connected world is making brand reputation an increasingly vulnerable and valued commodity. However, expectations that market forces will be adequate to resolve sourcing issues may be misplaced. YouGov research in 2016 showed that only 4% of adults surveyed in Europe correctly estimated that world food production must increase by 60% by 2050 to meet the demand of the growing population ^[1].

...expectations that market forces will be adequate to resolve sourcing issues may be misplaced.

Supply chain resilience

In the absence of obvious consumer drivers, how should food businesses address this issue? As a large retailer with sourcing from multiple countries, ASDA’s focus has been two-fold: to examine hot spots within its existing chains and 
to review the fundamental factors underpinning supply. Climate change, along with other factors, is having an impact on natural resources at local and global levels. While the discussions can have a longer term time frame, we are currently seeing challenges to supply chain resilience. Even the term resilience is being interpreted against novel situations. Historically, resilience was used to define responses to events. This is changing to resilience programmes being considered in terms of scenario planning and forecasting.

Risk assessments are becoming more robust and the nature of supply chain relationships are also evolving. This is due in part to businesses needing to build greater integration to allow for supply chain insult and facing greater competition for raw materials and their supporting inputs. Water is often cited as a challenge to existing business procurement. Droughts, and importantly, floods have had impacts on raw material supplies. This has been the case throughout human history. However, the current situation is different.

Most, if not all, procurement personnel have not faced the professional dilemma of combined restriction or elimination of previously secure raw material supply and limited or absent alternate supply options. The last severe UK food restriction was the sugar shortage in the early 1970s. Since then successive government policies, both at UK and European levels, have maintained the flow of products. Changes in agricultural support mechanisms have reduced the ‘buffer’ stocks of subsidydriven production. Supply chains are facing a reduced supply of raw materials combined with increased competition for these materials at a time when production is more volatile due to climatic and other changes.

Support for this assessment can be seen in a variety of agricultural production systems. Water restriction in California has been widely covered in the media and even has its own website ^[2]; the point being that resources once considered inexhaustible have proven to be limited. Food production decisions have had to be made in the face of water restrictions and some production systems, such as almonds, were singled out for perceived overly high consumption ^[3]. This episode, as well as informing the need to understand wider supply chain risks, also provides insight into the role supply chain actors play in the downstream food business’s reputation or brand equity. The decision process in California used the length of the production cycles of almond trees and dairy cows. Almond groves take years to be established while dairy cattle can be relatively easily replaced.  As a consequence, Californian milk production fell by 3% (cf 2014) while US milk production excluding California increased by 2% ^[4].

Natural capital

While raw material sustainability has become more embedded in business planning with many companies publishing their strategies and results, the fundamental supporting resources (natural capital) have not received the same level of attention. The concept and principles associated with natural capital are starting to be used by companies in their sustainability planning. Several options are being considered to bring natural capital into financial reporting ^[5]. The financial markets are already operating Environmental, Social Governance (ESG) indices to assess these business attributes. The direction of travel indicates that the supply chain vulnerabilities and, often overlooked or discounted, strengths are accounted for. Terms such as ‘stranded assets’, where investments are vulnerable to limits in raw material accessibility, are being considered in investment decisions.

The concepts associated with natural capital will increasingly become more important in supply chain discussions. Already, the Natural Capital Protocol ^[5] has been established to develop the framework for assessing natural capital for business. ASDA is working with the Cambridge Institute for Sustainability Leadership ^[6] on the relationships between natural capital and agricultural production. Accounting for a business’s natural capital impacts is likely to be a requirement for both consumers and for investment decisions. ASDA is developing programmes on soils, biodiversity and water. Its parent company Walmart has expressed a commitment to longer term targets for improving the stewardship of natural resources. In 2005 the then CEO, Lee Scott, set three sustainability targets, one of which was to sell products that sustain people and the planet (the other two being 100% renewable energy and zero waste).

While progress is being made on wider sustainability impacts, moving towards an improved understanding of external factors for supply chain management, it could be argued that a paucity of knowledge is hindering the development of metrics which the industry can apply. In the author’s opinion one of the challenges for industry has been to disaggregate the campaigning of single focus pressure groups to give more balanced, multifactorial business assessment. Further, much of the debate has been directed at input measures. For supply chains this has been, in some circumstances, easily adopted but risks unintended consequences.

...one of the challenges for industry has been to disaggregate the  campaigning of single focus pressure groups to give more balanced, multifactorial business assessment.

It is salient to consider recent thinking on the environmental performance of food chains. Food miles were proposed as the best proxy. However, ignoring the social and economic sustainability components, this was reassessed in terms of greenhouse gas emissions. Put simply, it was more efficient to use diesel to transport produce than to heat local greenhouses. The simplicity of a GHG footprint was itself challenged by considerations of social or economic dimension. Again, simplistically, free range eggs have a higher GHG footprint than those from housed eggs (higher energy costs associated with outdoor production and lower numbers of hens reducing scale efficiencies). However, this ignores social considerations, such as consumer perceptions of animal welfare.

Understandably businesses looking for an easily applied and robust assessment of supply chain sustainability have yet to be satisfied. While a ‘silver bullet’ solution still has to be identified, it is incumbent on all participants in supply chains to consider their impacts. 

Customers

The need for suppliers to improve their sustainability is being reinforced by customers. ASDA surveys its customers in the Green Britain Index ^[7]. While 52% say that the reason they shop with ASDA is because of value for money, 93% care about being green, 92% declare that they have bought a green product within the previous year and 72% say that they have paid more for a green product. It is worth noting that this is a selfanalysis of green rather than the use of a certification scheme.

Pressure on natural capital

Some of the arguments presented here are still at the conceptual stage. However, the pressure on natural capital systems is real with impacts on supply. The mainstream media are starting to document the issues. For example, the effects of poor pollination can be seen between 2003 and 2013, when the season’s rent for a single bee hive needed to pollinate almond groves in California rose from $50 to $150200. For context, 1.5 million hives are used in California’s almond groves ^[8]. 

International initiatives

Within the European market, several schemes are operating to reduce the impact from supply chain sourcing. Often these are based on certification e.g. Roundtable on Sustainable Palm Oil (RSPO). The impact of the soy moratorium, which operated to prevent the export of soy from recently deforested areas of the Amazonian biome, has been published in the scientific literature ^[9].

Global initiatives are also being implemented. The United Nations Sustainable Development Goals (SDGs) are increasingly being used by businesses to assess and report their sustainability activities and strategies. Of the 17 goals, the majority have a supply chain component. Some are explicit: Sustainable Production and Consumption, Life on Land or Life below Water. Others are perhaps more implied: Gender Equality. It is apparent that businesses are increasingly being evaluated on the way they do business rather than the business that they do.

Chris Brown is Senior Director for Sustainable Business at ASDA Email: sustainability@asda.com   Twitter: @asdasustainable

References

1. http://www.ecpa.eu/sites/default/files/page_documents/ECPA%20Key%20Findi...
2. www.drought.ca.gov
3. http://www.latimes.com/local/abcarian/la-me-0417-abcarian-almonds-demons...
4. http://www.ers.usda.gov/topics/in-the-news/california-drought-farm-and-f...
5. http://naturalcapitalcoalation.org
6. www.cisl.cam.ac.uk
7. www.sustainability.asda.com
8. ‘Why disappearing bees mean you’ll pay more for almonds’ New York Times 19th November 2013
9. http://science.sciencemag.org/content/347/6220/377