Food security is a critical issue for any food & beverage company. It is self-evident that food is the business for such a company, so any macro-level issue regarding food is inherently important, but there are specific considerations that drive the relevance of food security.
First, food security reflects on the long-run sustainability of the business. It may sound silly to say it, but food companies need food in order to survive. They need to grow it, process it, package it and sell it. So at the supply chain level, threats to food security need to be taken seriously. The world today is just now starting to legitimately look like a zero sum game with respect to many resources, food being one. If the world needs to produce much more food than what has been produced in the past, but as much as a quarter of agriculture land is already compromised (AP, 2011), and much more threatened by water constraints and climate change (Wheeler, 2013). For a food company, global food security issues will affect its ability to get the materials that it needs to produce the food that it wants to produce for profit. It is not hard to imagine a future where big food companies are targeted by governments, as food security needs will ultimately outweigh the perceived right of these companies to control the food supply.
But there is also tremendous opportunity. Where food companies can provide benefit, they can gain in terms of their status. If there is growing demand for food, any company that can meet that demand will be able to increase its profits. While one can reasonably argue that the UN’s 70% figure is overstated — it assumes that people have the inherent right to demand and receive a Western-level of calorie consumption — there is little doubt that there is going to be a greater imbalance between what we produce and what we need to produce. The degree to which a food company can close that gap will go a long way to determining if such a company is going to succeed in a future where food security becomes a much bigger policy issue.
Companies in the food business will need to take a number of different steps to address the issue. But it can be hard to predict what the future holds. The future could be like in science fiction where food companies monopolize production and markets for food; or governments terrified of starving populations dismantle big food companies and nationalize production and distribution of food seeking greater security and efficiency (yes, efficiency, as the capitalistic food system is incredibly wasteful). An executive running a food company will necessarily want to consider strategies, which could range from increased vertical integration to positioning the company as a food security solutions provider, to reducing waste dramatically to avoid being the first target. But before that can happen, the company has to monitor the situation. Threats and opportunities will not be evenly distributed around the world.
Many international food companies operate with a geographic organizational structure, or a matrix structure for companies that have several billion-dollar brands. These structures allow for local divisions to gather information about food security. This information is not always collected, even by local government officials, but food companies are fairly well-connected with the local food production conditions. These are usually combined with information about water, and demographic data, to determine a region’s food security. In many cases where a region lacks food security, the food companies are already involved in making up the gap. Thus, food companies have the means, should they choose to dedicate some internal resources, to determining the level of food security in a region and understanding what the business and political implications of that are going to be.
One of the biggest issues for food companies is balancing short- and long-term interests in food security. In some areas, agriculture is relatively sustainable in the short-run, but reliance on groundwater, or the predicted effects of climate change are going to compromise food security in the long run. Food companies, usually public corporations, are oriented towards quarterly earnings releases, and have a tough time thinking more than a year or two out. This is a genuine concern where long-run sustainability is concerned, because managers are not incentivized to think long-term. A manager could make a decision today that negatively affects long-run sustainability, but will be dead by the time that full effects of that decision are known — there is just no incentive to think long-term, which is why we have such a massive problem dealing with climate change. In the past, managers could exploit new markets if an old market dried up, but the world’s largest companies today have no more new markets, so much start thinking a little bit more about long-run sustainability, and that begins by gathering data, and using available resources and models, to understand what the long-run needs are going to be in different parts of the world.
Policies, Mechanisms and Structures
The food and beverage industry is motivated by short-run returns, as there are no genuine long-run consequences to be paid by executives for their decisions. It is difficult to incentivize the long-run. If we lived longer, this would be more real, but someone who is in their sixties today has no reason other than altruism to care what the world will look like in the latter half of the 21st century — they pay lip service to this but actions speak otherwise.
Basic economic theory tells us that if there is no market-based incentive then the incentives for behavior that is causing negative externalities — market failure — then such incentives need to be imposed by government. Government is the only entity with the formal authority to introduce such incentives and enforce them, and government is the only entity with a lifespan as long as a corporation. Thus, the mechanisms need to be taxes or levies on behavior that creates the negative externalities in the long run. This is not an exact science — basing today’s restrictions and taxes on potential future outcomes- but there are areas where government can guide policy. In the past, government support of infant industries eventually allowed such industries to be viable so there is evidence that in the past a government with a lot of foresight has been responsible for progressive policy decisions who positive effects took many years to materialize. There are instances where we know what the right policies are today — like the amount of water used for agriculture in California is completely unsustainable — but there are other instances where punitive policies to manage corporate behavior are speculative.
But companies can themselves act in a more responsible, sustainable manner. This requires vision, and maybe even some sacrifice, but effective selling of a vision can be done. If a company lacks vision — the big automakers for example — then someone else like Tesla will come along with a vision instead. So for the food makers, there may not be economic incentive today to think about long-run food security and sustainability, but that does not mean that such thought should not exist. A strategy should be developed, looking at the data and the key issues, because the companies that are in the best position, ready when crisis arrives, to capitalize, will be the ones that succeed through the 21st century. A company that does not think long-term will become the food version of Kodak, completely shut out of the market after it evolves.
On the consumer side, one of the factors that is going to become more important is the trade-off between calories and nutrition. Calories are relatively easy to produce, and ultimately nutrition is harder, and more of something that individuals need to think about. In a world with a growing population, focusing on calories at the expense of nutrition has no real costs for food companies, because even if lifespans are shortened, people are replaced with new consumers.
Food security overlaps everything that we have discussed. Climate change is a source of overlap, because climate change affects the amount of agricultural land available for cultivation. This in turn overlaps with the idea of the nation-state, because when the climate changes some areas will have more agricultural potential and some less. Nations cannot control the size of their population, but with migration flows limited by national boundaries and food supply limited by mother nature, there is little doubt that some areas will face food crisis much faster than others. Consider a country like Canada, which is sparsely populated and will probably have more agricultural land as temperatures rise, thereby extending growing seasons. Canada will be fine, but sub-Saharan Africa will suffer greatly. With minimal migrations, and maybe even difficulties in fostering trade, the gains made in Canada will not be able to offset the declines in sub-Saharan Africa. So climate change with other factors will not only affect agricultural production, but will substantially dictate the intensity of outcomes of changes in the global food system.
For a food company, the available data provides a good means of understanding the intersection of climate change and food security. This is where the opportunities lie — which areas to incorporate into the supply chain, and which areas will see increasing demand. The food company is the intermediary through which food from post-climate change production centers will be distributed to those areas where food production has declined.
Water is also related to this issue. The world’s hydrological system is changing as a result of climate change. We have to realize that most water is found in sources that are, geologically speaking, relatively new. There are a handful of ancient lakes and in some places a high reliance on underground water, and these are non-renewable water sources that have existed for millions of years. But surface water systems are going to change with climate change. Some areas will receive more rain, others less, and these changes are going to affect agricultural production. For a food company, understanding not only today’s hydrological systems but tomorrows is essential to survival, in particular for identifying and quantifying the opportunities and threats inherent in the global food system.
I think that many food companies see water as an opportunity as well. Nestle in particular wants to commoditize water, knowing full well that commoditization of water gives companies like his control over this resource, where price elasticity of demand is very low. So there is definitely interest from food companies with regards to water, and a high level of knowledge, but this interest is anything but altruistic (Satran, 2013). Again, it becomes a question of whether we can really support 9 billion people on this planet — there is mounting evidence that we cannot, and if water resources are genuinely a strain on food production, then greater attention is going to be taken with respect to finding the most efficient allocation of water resources.
The role of the corporation is an interesting one. A corporation like Nestle has a lot of institutional knowledge about agricultural and hydrological systems, because these are integral to the business. So there is an opportunity for any large food company to be an important stakeholder in food security and water security. The intersection of business interests and sustainability science, however, is problematic. Science can certainly inform the decisions that such corporations make with regards to how they will deploy their resources, corporations are also oriented to profit, which is a form of inefficiency in resource deployment. Even in first year economics, you learn that a perfectly efficient market has no profit. So one has to ask where the profit that food companies comes from. Does it come from making people obese? Does it come from exploiting low price elasticities of demand for that which sustains life?
There are basically two narrative threads here. The first is that corporations, when properly oriented towards long-term results, are able to control and utilize a lot of resources, and can put these resources towards technological innovation that resolves some of these supply and demand issues. That is what has happened in the past, but we never really bumped up into the same kinds of constraints that we face now. But it does make an argument a properly-motivated corporation can be an ally in food security.
But sustainability science, in looking for the optimal outcomes, has to recognize that only inefficient markets produce profit. The optimal solution, given the sorts of constraints we are up against, is a perfectly efficient market, where the global food system can sustainability produce and distribution just enough nutrition for all people on earth to survive. I would say that my work on the water issue ties right into the issue of sustainability science and the intersection with food security, because water is so important to food security, and that we need both to survive.
Sustainability is a multi-disciplinary approach, which means that it provides the capability to address food security. Addressing food security requires solutions that are corporate, government, economic, agricultural and scientific. This means that there are many different stakeholders as well. There are no theoretical limitations to a multi-disciplinary approach to a multi-disciplinary problem. But in the real world, there might be some practical constraints. We as a species are constrained in certain ways, such our ability to work with each other, the fact we aren’t infinitely adaptable and those sorts of things.
The biggest challenge with a multi-disciplinary approach like sustainability science is the coordination between the different interests and the different stakeholders. No one person can be expert in every discipline, so the body of knowledge, and the complex and nuanced relationships between that knowledge, are difficult for anybody to master. So while in theory sustainability science can have all the knowledge, and all the answers, these will be divided among hundreds or thousands of subject matter experts and theorists. Putting it all together is incredibly challenging, but at least I feel that sustainability science offers us the basic pathway to understand the complex relationships that govern our world.
Phase 6, Discussion Board 2
My dissertation research interest in water is something that requires transformational leadership. Too often, we have taken water for granted. We see this in our relationship with surface water, which we exploit. Groundwater is worse, because in many cases we are draining water sources that took millions of years to create — that is not a sustainable resources. Then, we use clean potable water to flush our toilets. There is an embedded disrespect for the importance of water, because it has always been a cheap and easy resource to acquire.
In a future characterized by water scarcity, we have to completely, entirely rethink our relationship with fresh water resources. The closest thing we can think of right now is to commoditize water, or present some patronizing “water is a human right” stuff that doesn’t actually solve problems. What we actually need is to transform the way that we think about water. It’s not a right — you aren’t entitled by virtue of birth to guzzle your gallons. It’s certainly not a commodity, to be controlled by the few. Yet our current approach to water has resulted in some unfathomably stupid practices — pee out a glass of beer and waste 40 gallons? So transformational leadership is critical to rethinking our relationship with water, because we need an entirely new vision and we need to buy into that vision, the sooner the better.
AP (2011). UN: Farmers must produce 70% more food by 2050 to feed population. The Guardian. Retrieved December 11, 2014 from http://www.theguardian.com/environment/2011/nov/28/un-farmers-produce-food-population
Satran, J. (2013). Water scarcity must be addressed urgently to avoid food shortages, Nestle CEO Paul Bulcke says. Huffington Post Retrieved December 11, 2014 from http://www.huffingtonpost.com/2013/02/26/water-scarcity-nestle-ceo-paul-bulcke_n_2768390.html
Wheeler, T. & von Braun, J. (2013). Climate change impacts on global food security. Science. Vol. 341 (6145) 508-513.
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