{"id":20995,"date":"2017-11-04T22:43:20","date_gmt":"2017-11-05T02:43:20","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-effects-of-climate-change-on-cargills-supply-chain\/"},"modified":"2017-11-04T22:43:20","modified_gmt":"2017-11-05T02:43:20","slug":"the-effects-of-climate-change-on-cargills-supply-chain","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-effects-of-climate-change-on-cargills-supply-chain\/","title":{"rendered":"The Effects of Climate Change on Cargill’s Supply Chain"},"content":{"rendered":"

As some of the physical effects of climate change worsen, particularly changes to weather and water patterns, the food and beverage industry is uniquely exposed to these risks.[1]<\/a> Cargill Inc., one of the largest food and agricultural companies worldwide, has experienced these risks first hand in 2012 when droughts in the US caused its worst quarterly performance in twenty years. [2]<\/a> As these physical effects continue to intensify, it is imperative that the management of Cargill Inc. be concerned with and work toward resolving the impact that climate change will have on its supply chain.<\/p>\n

Climate change has led to several key issues that concern Cargill. First, Cargill\u2019s agriculture commodity trading and processing business is largely dependent on agricultural raw materials, thus during droughts or other significant natural events, Cargill may face supply shortages.[3]<\/a> Similarly, its\u2019 meat business has suffered significantly because droughts and increased demand for corn in cattle production regions have led farmers to decrease their herd sizes; that, coupled with the increase demand for beef, has caused prices to rise.[4]<\/a> These supply shortages lead to extreme price volatility, which forces the company to frequently mitigate risks across 7-plus commodities, which can be challenging and expensive.<\/p>\n

While climate change puts Cargill\u2019s supply chain at risk, the company is taking several steps in the short and medium term to position itself for sustained success. One of the most effective steps Cargill has taken is acquiring businesses like Joe White Maltings in Australia and Turyag, a Turkish fats and oils producer, to help increase the global footprint of its supply chain. Cargill is also diversifying its business by shifting toward industries that have the most promising growth and less risk tied to climate change. For instance, the company looked at projected growth for cocoa ingredients world-wide and noticed that the Asian Pacific region was the major force behind absolute volume growth. As a result, it has spent US$100 million on a new Indonesian plant, along with several other acquisitions, to improve the company\u2019s position in serving growing demand.3 \u00a0<\/sup>Cargill is also funding inventions and buying patents to explore ways to improve cell function in plants during exposure to \u00a0environmental stress.[5]<\/a> Lastly, Cargill partnered with the World Wildlife Fund, the Center for American Progress, Mars and others to use technology and \u201cstress test the global food system in a simulation called Food Chain Reaction.\u201d The simulation helped prove that, if corporations work together to make the world\u2019s agriculture systems more resilient, it is possible to feed the growing population. Cargill has committed to continue to do its part in the medium to longer term by advocating for open trade, integrating sustainability measures into its operations and supply chains and applying innovation to strengthen the tools farmers need to make the most of their land. [6]<\/a><\/p>\n

There are still several additional steps Cargill can take to combat the issues it is facing because of climate change. For instance, the company should focus more of its resources on lobbying for more mandatory sustainable growth practices world-wide; this will benefit not only the food and agricultural industry but also the citizens of the world. Similarly, the company should lobby both to GAAP and IFRS for international tax-credits for the development of additional innovative breakthroughs; this will encourage companies to fund research and create patents just like Cargill did to improve the cells of plants\u2019 ability to survive under significant \u00a0environmental stress. Additionally, the company should invest more aggressively to expand its operations into emerging markets; this will help mitigate the risk of limited supply in a given region while also contributing to more top-line growth.<\/p>\n

After conducting this research, one of the biggest open questions I have is as consolidation in the food and agriculture industry continues to happen, what are the unintended consequences that may worsen the issues climate change has had on supply chains? If an oligopoly were to form, what laws could governments put in place to ensure that food is still affordable? Separately, are there more aggressive laws or generous incentives governments can implement to ensure more sustainable farming and distribution practices?<\/p>\n

Word count: 788<\/p>\n

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[1]<\/a> United Nations Environment Programme, \u201cGEO-5 for Business: Impacts of a Channing Environment on the Corporate Sector\u201d (PDF File), downloaded from https:\/\/reliefweb.int\/report\/world\/geo-5-business-impacts-changing-environment-corporate-sector<\/a>, accessed November 4, 2017.<\/p>\n

[2]<\/a> Engel, Hauke et al., \u201cHow companies can adapt to climate change,\u201d McKinsey & Company Sustainability & Resource Productivity, July 2015, https:\/\/www.mckinsey.com\/business-functions\/sustainability-and-resource-productivity\/our-insights\/how-companies-can-adapt-to-climate-change<\/a>, accessed November 4, 2017.<\/p>\n

[3]<\/a> Source: Cargill Inc. In Ingredients (World), Euromonitor International, accessed November 2017.<\/p>\n

[4]<\/a> Source: Issues and Insights: Red Meat, Mintel, accessed November 2017.<\/p>\n

[5]<\/a> Berger. Alvin et al., \u201cMethods of Maintaining and Improving Biological Cell Function and Activity\u201d, \u00a0https:\/\/www.google.com\/patents\/US20150104868#classifications<\/a>.<\/p>\n

[6]<\/a> David MacLennan, \u201cHunger Game: Lessons for Feeding 9 Billion People,\u201d speech given at 性视界 Club of New York City, February 17, 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

As some of the physical effects of climate change worsen, particularly changes to weather and water patterns, the food and beverage industry is uniquely exposed to these risks.[1] Cargill Inc., one of the largest food and agricultural companies worldwide, has […]<\/p>\n","protected":false},"author":9567,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[3215,1218,17],"class_list":["post-20995","hck-submission","type-hck-submission","status-publish","hentry","category-cargill-inc","category-climate-change","category-supply-chain","hck-taxonomy-organization-cargill-inc","hck-taxonomy-industry-agriculture-and-agribusiness"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nThe Effects of Climate Change on Cargill's Supply Chain - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-effects-of-climate-change-on-cargills-supply-chain\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Effects of Climate Change on Cargill's Supply Chain - 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