{"id":25309,"date":"2017-11-15T19:50:06","date_gmt":"2017-11-16T00:50:06","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/climate-change-an-existential-threat-for-ab-inbev\/"},"modified":"2017-11-15T20:02:47","modified_gmt":"2017-11-16T01:02:47","slug":"climate-change-an-existential-threat-for-ab-inbev","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/climate-change-an-existential-threat-for-ab-inbev\/","title":{"rendered":"Climate Change: An Existential Threat for AB InBev?"},"content":{"rendered":"

Led by brands like Budweiser and Corona, AB InBev is the world\u2019s largest producer of beer, with $46B in revenue, ~28% market share, and operations in over 50 countries.[1]<\/a> This scale in a single product category is incredible \u2013 but it also creates dependence on a small number of ingredients, all of which are threatened by the changing climate.<\/p>\n

Beer is produced with four main ingredients: Water, barley, yeast, and hops.[2]<\/a> (Other ingredients are often introduced to create flavor differentiation.) Changing patterns of precipitation as a result of climate change, particularly increased drought rates, present a significant risk to all four key ingredients. The brewing process requires 3.1 hectoliters of water per hectoliter of beer produced; in turn, if water supply is limited by drought, breweries are forced to reduce production rates. Drought also affects the ability of farmers to grow the hops, barley, and other ingredients that beermakers rely on.[3]<\/a><\/p>\n

Beer’s key ingredients are universally under threat…<\/strong><\/em><\/p>\n

\"5<\/p>\n

Source<\/strong>: AB InBev, “Beer and Brewing,” http:\/\/www.ab-inbev.com\/about-us\/beer-and-brewing.html<\/em><\/p>\n

There are more subtle risks, too. For example, Canadian farmers who historically grew barley have recently begun growing more profitable crops like corn instead \u2013 a choice made feasible only because of Canada’s warming temperatures.[4]<\/a><\/p>\n

Such trends collectively reduce the supply of products necessary to create beer, at once potentially limiting InBev\u2019s ability to meet demand and increasing costs for production due to ingredient price increases.<\/p>\n

CURRENT APPROACH TO THE PROBLEM<\/strong><\/p>\n

InBev is attacking the supply chain threat presented by climate change in a variety of ways. In the short-term, it is reducing water used in the brewing process; it has already reduced usage to 3.1 gallons used per hectoliter of beer from 3.5 hectoliters in 2012, and is aiming to achieve further reductions.[5]<\/a> InBev is also scaling a program called \u201cSmartBarley\u201d \u2013 a digital platform and set of training programs that help growers implement best practices to improve yield and reduce water waste \u2013 throughout its supply chain.[6]<\/a><\/p>\n

Reduction in water use by AbInBev in brewing process<\/strong><\/p>\n

<\/p>\n

Source:\u00a0<\/strong>AB InBev, “Our Water Use,”\u00a0http:\/\/www.ab-inbev.com\/better-world\/a-cleaner-world\/water\/our-water-use.html<\/p>\n

Meanwhile, InBev acquired SABMiller, another beer conglomerate, in 2016. This merger has enabled vertical integration of the supply chain: for example, InBev acquired a significant proportion of hops produced in South Africa in the merger.[7]<\/a> While this is not explicitly intended to mitigate the effects of climate change, such vertical integration, combined with InBev’s global reach, should allow InBev to hedge proactively against poor crop yields in other parts of the globe resulting from climate change.<\/p>\n

Over the medium-term, InBev has announced a new program to transition to 100 percent renewable energy in its supply chain by 2025 \u2013 an effort that does not directly solve the problems presented by climate change, but will reduce InBev\u2019s contribution to the problem and allow it to advocate credibly for policies that will be beneficial to sustainability in the long-term. [8]<\/a><\/p>\n

ADDITIONAL STEPS TO CONSIDER<\/strong><\/p>\n

Even as InBev has committed to increasing energy efficiency, it has not announced other long-term plans for managing the effects climate change will have on its business. InBev should think bigger, creating a four-part strategy around climate-change management:<\/p>\n

    \n
  1. Expand Current Approach: <\/strong>InBev should build a \u201cSmartHops\u201d program to supplement the \u201cSmartBarley\u201d program and continue to reduce water-volume used in the brewing process.<\/li>\n
  2. Commit to Climate-Informed Supply Chain Management. <\/strong>Do so in three concrete ways:\n
      \n
    1. InBev should leverage its increasingly large scale to negotiate longer-term pricing with farmers that protects margins in the event of dropping ingredient supply.<\/li>\n
    2. InBev should conduct a region-by-region analysis of current suppliers and their relative climate-change risk. Based on that analysis, InBev should identify opportunities to replace suppliers with others better-positioned to deal with climate change, while developing contingency plans to leverage global suppliers if some regions experience extreme weather changes at an increasing frequency.<\/li>\n
    3. Management should collaborate with climate scientists to identify regions that will be better able to accommodate InBev\u2019s key crops and begin to strategically acquire the best-positioned farms as a pathway to insulting the firm from both draught and supplier drift.<\/li>\n<\/ol>\n<\/li>\n
    4. Invest in truly future-oriented efforts.<\/strong> Do so in two concrete ways:\n
        \n
      1. InBev should partner with companies like Indigo to create drought-resistant hops and barley.<\/li>\n
      2. InBev should leverage its internal venture program, ZX Ventures, to pursue a \u201cclimate innovation\u201d strategy, funding early stage ventures introducing innovations in irrigation and other agricultural areas that will help its growers operate effectively in the shifting climate.<\/li>\n<\/ol>\n<\/li>\n
      3. Pursue Policy Advocacy: <\/strong>InBev should also leverage its new position as a market leader to begin formally lobbying for government policies that are beneficial to farmers who are threatened by climate change.<\/li>\n<\/ol>\n

        One question I am still wrestling with: How realistic is such an approach, given the diverse regional range of agricultural and political problems presented by climate change?<\/p>\n

         <\/p>\n

        (Words: 766)<\/p>\n

        [1]<\/a> \u00a0Ab Inbev, \u201cAbout Us,\u201d http:\/\/www.ab-inbev.com\/about-us.html<\/a>, accessed November 2017; Lisa Brown, \u201cA-B InBev finalizes $100B billion acquisition of SABMiller, creating world’s largest beer company,\u201d Chicago Tribune, http:\/\/www.chicagotribune.com\/business\/ct-megabrew-ab-inbev-sabmiller-merger-20161010-story.html<\/a>, accessed November 2017.<\/p>\n

        [2]<\/a> Ab Inbev, \u201cBeer and Brewing,\u201d http:\/\/www.ab-inbev.com\/about-us\/beer-and-brewing.html<\/a>, accessed November 2017. Budweiser, InBev\u2019s signature beer in the United States, also contains rice.<\/p>\n

        [3]<\/a> Caitlyn Kennedy, \u201cClimate & Beer,\u201d Climate.gov, https:\/\/www.climate.gov\/news-features\/climate-and\/climate-beer<\/a>, accessed November 2017. Hops yields in both the northwest United States and Europe, both of which are significant producers, have been especially affected by drought in recent years.<\/p>\n

        [4]<\/a> Pat Mulloy, \u201cClimate change\u2019s impact on beer: What you need to know,\u201d The Growler, https:\/\/growlermag.com\/climate-changes-impact-on-beer-what-you-need-to-know\/<\/a>, accessed November 2017.<\/p>\n

        [5]<\/a> AB InBev, \u201cOur water use,\u201d http:\/\/www.ab-inbev.com\/better-world\/a-cleaner-world\/water\/our-water-use.html<\/a>, accessed November 2017. This reduction is in part being achieved by implementing a program that enables breweries to use reclaimed waste water to clean its equipment.<\/p>\n

        [6]<\/a> SmartBarley, \u201cWorking together to produce better barley,\u201d http:\/\/www.smartbarley.com\/en\/home.html#about<\/a>, accessed November 2017.<\/p>\n

        [7]<\/a> Jason Notte, \u201cOpinion: Anheuser-Busch InBev shuts out craft beer brewers by hoarding hops,\u201d MarketWatch, https:\/\/www.marketwatch.com\/story\/anheuser-busch-inbev-shuts-out-craft-beer-brewers-by-hoarding-hops-2017-05-11<\/a>, accessed November 2017.<\/p>\n

        [8]<\/a> Christopher Helman, \u201cA green energy push for Anheuser-Busch,\u201d Forbes, https:\/\/www.forbes.com\/sites\/christopherhelman\/2017\/04\/06\/bud-boss-promises-green-beer-in-big-shift-to-renewable-energy\/#f7330ae7ea9b<\/a>, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

        How can AB InBev, the world's largest producer of beer, prepare for a future where its supply chain is constantly under pressure as a result of climate change?<\/p>\n","protected":false},"author":10411,"featured_media":25399,"comment_status":"open","ping_status":"closed","template":"","categories":[3629],"class_list":["post-25309","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change-and-supply-chains","hck-taxonomy-organization-ab-inbev","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nClimate Change: An Existential Threat for AB InBev? - 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\/climate-change-an-existential-threat-for-ab-inbev\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Climate Change: An Existential Threat for AB InBev? 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