Can Good Food, Good Life and Bad Environment Co-Exist? Nestle鈥檚 Response to Climate Change
Nestle is the biggest purchaser of cocoa in the world. How will they respond if cocoa ceases to exist by 2050, as some scientists predict to be the case?
Nestl茅, #66 on the Fortune Global 500, is the world鈥檚 biggest food company with over US$90 billion in sales per year. [1] The company is celebrating 150 years of 鈥済ood food, good life鈥� this year, but rather than looking back its leadership is focusing on the future. To survive the looming threat of climate change, Nestl茅 will need to build sustainability into its operations.
Climate change poses a significant threat to Nestle鈥檚 value chain. The company is the biggest buyer of cocoa in the world. [2] Cacao trees grow require a specific set of conditions to prosper 鈥� uniform and high temperatures between approximately 20掳-30掳C, high humidity, abundant rain, nitrogen-rich soil and protection from the wind. [3] These conditions are unique to the 鈥渃ocoa belt鈥� 鈥� a belt of countries within 10掳 north and south of the equator where cocoa trees prosper. Currently, the largest producing countries within this belt are C么te d’Ivoire, Ghana and Indonesia. [4]
Higher temperatures and lower rainfall associated with climate change have already decreased cocoa yields and threaten to eliminate cocoa production altogether in the future. According to a recent study by the International Center for Tropical Agriculture (CIAT), farmers will begin to see declines in cocoa production by 2030, and nearly 90% of current cocoa producing regions will be unsuitable for production by 2050. [5]
Declines in cocoa supply are expected to drive higher cocoa prices, ultimately increasing Nestle鈥檚 raw materials costs significantly. However, Nestl茅 must approach the increase in prices with a view towards long-term sustainability of the supply chain. 90% of the world鈥檚 cocoa is grown by small-scale family farmers. [6] Since the late 1980s, the share of the final value of a chocolate bar that growers in West Africa receive has dropped from 6.4% to 3.5%, while the manufacturer鈥檚, such as Nestl茅鈥檚, share has increased from 56% to 70%. [6] The shrinking of farmers鈥� margins has resulted in low productivity, poverty in farming communities and the abandonment of cocoa production for more profitable alternatives, such as rubber production. As climate change continues to threaten the livelihood of cocoa farmers, Nestl茅 needs to protect the profit margins for the farmers in its supply chain.
Nestl茅 is already taking steps to respond to the threat that climate change poses to its cocoa supply chain. For the last several years, the company has committed to protecting the profit share of farmers, instead passing additional costs through to the consumer. Jose Lopez, Nestle’s former Vice President and Global Head of Operations, commented in 2014 that 鈥渇arming has to become a different player in the eyes of the consumer鈥� and Nestle needs to 鈥渆ducate everyone about the real value of their purchasing activities.鈥� [2] In other words, consumers need to be prepared to pay up for their chocolate or risk one day having no chocolate at all.
Additionally, in May 2016, Nestle announced a collaboration with the World Cocoa Foundation (WCF) and other chocolate companies to help cocoa farmers adapt to weather and climate impacts. With support and expertise from USAID and ACDI/VOCA, Nestle and its partners will 鈥渄evelop a common strategy to address climate鈥檚 impacts on cocoa and develop innovations to assist farmers in adapting to changing weather patterns, such as research and development of climate resilient planting material, improved farming practices, and new agroforestry models.鈥� [7]
Ultimately, however, despite Nestle鈥檚 efforts, imminent changes in the climate will inevitably limit cocoa sources. Thus, Nestle should also invest in identifying more sustainable substitutes. Carob is one such potential substitute. Made from the pulverized fruit of a Mediterranean evergreen, carob approximates the color and consistency of cocoa when mixed with vegetable fat and sugar. [3] Nestle should explore carob and other substitutes to diversify its supply chain away from cocoa.
Nestle is truly a leader in thinking about the impact of climate change and creating sustainable business practices to address the threats. Just this year, the company earned a place on CDP鈥檚 Climate A list and received a score of 100 in the environment and climate change dimension of the 2016 Dow Jones Sustainability Index. [8] As the largest food company in the world, Nestle is paving the way for us to be able to have 鈥済ood food, good life鈥� far into the future, despite the effects of a changing climates.
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Nestle is synonymous with chocolate. Is looking for chocolate substitutes really the right direction, or could this have more downstream impact to their brand equity. Instead, Nestle may want to look at Mars Candy, who has had similar problems with cocoa production. Mars has made a commitment to to change their operation to be more “green”–which will not have an impact on product quality. Not only is this maintain the product integrity, but it also matches their ambition to help climate change at a larger scale.