IS THE GLOBAL FOOD BUSINESS SUSTAINABLE?

Marigo RaftopoulosDoctoral Candidate, Monash University

May 2009

Is the global food business sustainable?

RESEARCH QUESTION

“The environmental and social problems of today’s agriculture are severe enough to warrant

immediate action. With the steep rise in the price of food on global markets already leading to riots and starvation, the need for fundamental change

is tragically underscored”

UN Environment Program 2008

THE ISSUE AND ITS CONTEXT

THE ISSUE AND ITS CONTEXT IS ALL ABOUT FOOD

How we produce it

How we sell it

How we consume it

WHY IS THIS QUESTION IMPORTANT?

…IN OTHER WORDS

The old paradigm was created by a world view of abundance which drove an

unsustainable use of natural resources & fossil fuels and a business accounting system

that did not factor the real cost of production

HOWEVER…

…WE ARE STILL LIVING THE OLD PARADIGM

OUTLINE OF KEY RESEARCH IN THE FIELD

4 KEYS TO RESHAPE A SUSTAINABLE FOOD INDUSTRY

1. GLOBAL FOOD COMPANIES NEED TO REVISIT THEIR BUSINESS ASSUMPTIONS AND CAPABILITIES

• All businesses require a continuous renewal of their internal capabilities, structure & culture that align with a changing business environment

• Current business assumptions and accounting systems do not factor the full externalities of running a food company

• Static business assumptions & capabilities will destroy shareholder and stakeholder value over the long term

2. FUTURE COMPETITIVE ADVANTAGE WILL NEED TO BE SUSTAINABLE

• A new sustainable paradigm has emerged: integration of triple bottom line responsibilities – economic, social, environmental

• Separation of these three elements is a fallacy – and unsustainable

• Businesses are now facing a community push rather than a competitive pull towards sustainable food production

• This is the source of future competitive advantage for food industry

3. CAPABILITIES FOR SUSTAINABLE FOOD BUSINESSES ARE STILL NOT CLEAR

• The capabilities required to run a sustainable and competitive food business are not clearly defined or evident in academic literature

• These business capabilities are still new and emerging and are very difficult to generalise

• Case studies are ‘situational’ and are dependent on a firm’s values and choice of strategic approach

• There is no formula for success – sustainable businesses practices appear to be unique to each firm

4. STRATEGIC FORESIGHT & ENTREPRENEURIAL LEADERSHIP ARE THE KEYS TO SURVIVAL

• Innovate on approaches to integrate economic, social & environmental elements of the business

• Questioning traditional internal paradigms and assumptions (and that of supply chain partners):

– Experiment and Take risks

– Continuously Learn and Adapt

• See the opportunity (and not just the threat)

• Strategies must combine business adaptation and reform initiatives

CHALLENGES ARE IMBEDDED IN THE STRUCTURE OF THE INDUSTRY

• Industry power is skewed to the retail end of the value chain - food retailing is a concentrated, competitive industry

• The retailers drive the key market signals down the chain to manufacturers & beyond

• Retail business model is predicated on:

– Low cost, high throughput & turnover

– Consumer choice and convenience

– Complex global supply chains designed to minimise accounting costs and max profits

– However they have a large carbon footprint that is not accounted for

CHALLENGES ARE IMBEDDED IN THE STRUCTURE OF THE INDUSTRY, CONT…

• In contrast, global food manufacturing companies are not as concentrated

– The largest 50 global companies account for only 20% of global packaged food sales

• Excellent relationships with retailers are essential for effective distribution

• Food manufacturing is a low margin business that is sensitive to changes in supply chain costs

• Farmers have the least economic power due to a high level of fragmentation, low levels of resources and low profitability

– And farmers are at the pointy end of climate change, bearing the cost but not the returns

HOW THE INDUSTRY STACKS UP AGAINST THE RESEARCH:

1 Food companies maintain that consumers say they want sustainability but are unwilling to pay for it; consumers want cheap food.

2 Food companies won’t make the leap from ‘green initiatives’ to full sustainability reporting due to the perceived cost disadvantage.

3 Lack of an alternative business model will continue to slow adoption of sustainable practices. “Green-washing” is prevalent.

4 Industry structure drives firm behavior; concentrated industries that are cost & turnover focused (retailers) dictate terms based on price. Businesses will comply but are reluctant to lead.

1 Food companies need to revisit their business assumptions and capabilities

2 Future competitive advantage will need to be sustainable

3 Capabilities for sustainable competitive advantage are emerging but still not clear

4 Strategic foresight and entrepreneurial leadership is key to survival

SO WHAT ARE FOOD COMPANIES AFRAID OF?

NOT QUITE, BUT CLOSE!

THIS IS WHAT ARE THEY’RE AFRAID OF:

THIS IS WHAT ARE THEY’RE AFRAID OF:

…THE BOTTOM LINE

HOWEVER IF IT ISN’T A TRIPLE BOTTOM LINE WE WILL EXHAUST OUR NATURAL RESOURCES

AND THIS WILL AFFECT EVERY COMMUNITY

LONG TERM OUTCOMES OF UNSUSTAINABLE FOOD PRODUCTION HAS BEEN ON OUR IMAGINATION FOR A LONG TIME

LET IT NOT BE A SELF-FULFILLING PROPHECY