{"id":25435,"date":"2017-11-15T19:55:34","date_gmt":"2017-11-16T00:55:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-domino-effect-of-commodity-instability-on-pork-production\/"},"modified":"2017-11-15T19:56:17","modified_gmt":"2017-11-16T00:56:17","slug":"the-domino-effect-of-commodity-instability-on-pork-production","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-domino-effect-of-commodity-instability-on-pork-production\/","title":{"rendered":"The Domino Effect of Commodity Instability on Pork Production"},"content":{"rendered":"

Smithfield Foods is the largest pork producer in the world with over $14 billion in annual sales [1].\u00a0 In 2016 alone, they produced 18.9 million hogs and sold 8.6 billion pounds of packaged meat [1].\u00a0 As climate change continues to impact several of their main supply chain production inputs (notably corn, soybeans, and water), will they be able to remain a profitable subsidiary of WH Group Limited?<\/p>\n

Why do they care?<\/strong><\/p>\n

Smithfield creates value primarily by turning grain, water, and various other inputs into pork products which are sold all over the world.<\/p>\n

Climate change can have a significant impact on commodity prices throughout the world as weather patterns change and growing seasons become less predictable [2].\u00a0 The United States Department of Agriculture (USDA) estimates that corn yields in the United States will drop by 8.1% by 2020, and continue to drop every decade thereafter [2]. \u00a0In addition to corn yields dropping, soybean yields will also decline at roughly the same rate [2]. \u00a0This significant decline in domestic production will have a dramatic effect on corn and soybean prices in the United States, driving up Smithfield\u2019s costs of production.<\/p>\n

For example, in 2016 Smithfield spent $1.7 billion on U.S. grain [3].\u00a0 In addition, livestock producers such as Smithfield may face increased pressure to reduce greenhouse gas emissions as their own contributions to climate change increase and come under public scrutiny [Figure 1].<\/p>\n

\"\"<\/a><\/p>\n

Water also plays a significant role in livestock production (as much as 8 gallons\/animal\/day) [4].\u00a0 As water becomes scarcer, then Smithfield may find themselves actively competing for water resources, which is in an integral part of their supply chain.<\/p>\n

What are they doing to address it?<\/strong><\/p>\n

Smithfield has begun several initiatives aimed at both directly reducing their supply chain costs and reducing their own impact on climate change over both the short and mid-term time periods.<\/p>\n

    \n
  1. Short term: Between 2011 and 2016, Smithfield increased their purchases of grain elevators and feed mills in order to vertically integrate their own supply chain [5]. By purchasing and running their own feed mills and grain elevators, they can purchase grain directly from farmers [5].\u00a0 This consolidation has led to Smithfield now buying 65% of its grain directly from farmers (up from 10% in 2010), which significantly cuts down on their supply chain costs [5].<\/li>\n
  2. Short term: Reduce water intensity despite a higher overall demand for total gallons of water required for production [6].<\/li>\n
  3. Short term: By establishing closer relationships directly with farmers (by owning more of the supply chain), Smithfield has been able to influence several farmers crop rotations and<\/li>\n
  4. Mid-term: The company launched a new initiative in 2016 to reduce their absolute greenhouse gas emissions by 25% by 2025 through more efficient use of energy, water, solid waste management, and grain procurement [6].<\/li>\n<\/ol>\n

    Not only did Smithfield launch the initiative to reduce their greenhouse gas emissions, but they also exceeded several of their sub-goals within the initiative such as reducing energy consumption [7].<\/p>\n

     <\/p>\n

    What else should they be doing to address it?<\/strong><\/p>\n

    While Smithfield has taken several measures to reduce the impact of climate change on their supply chain operations, there are other opportunities for them to improve.<\/p>\n

      \n
    1. Smithfield should expand their involvement with local farmers to help those growers become more efficient and employ more sustainable practices.<\/li>\n
    2. Smithfield should expand their involvement in the renewable energy sector by investing more in wind and solar production.<\/li>\n
    3. Smithfield is in the protein industry, not just the hog industry, and they should look to expand their products into areas that are more sustainable in the future (plant based meats, etc.).<\/li>\n
    4. While they are doing some work to encourage farmers to grow alternatives to corn and soybeans, which is a pig\u2019s primary diet now, they should expand that program more rapidly which would have an even greater impact on farmland sustainability [4].<\/li>\n<\/ol>\n

      The Future<\/strong><\/p>\n

      A significant portion of greenhouse gas emissions are a direct result of either livestock production or feed production to support livestock; does the government have a role in addressing and\/or limiting this trend?<\/p>\n

      Smithfield uses an extensive amount of water for both animal nourishment and waste removal; what role does the government play in making sure water is being used efficiently across the entire United States?<\/p>\n

      (Word Count 716)<\/p>\n

       <\/p>\n

      References<\/p>\n

      [1] Smithfield Foods, “Smithfield at a Glance”, https:\/\/www.smithfieldfoods.com\/integrated-report\/2016\/smithfield-at-a-glance, access November 2017.<\/p>\n

      [2] Elizabeth Marshall and Marcel Aillery, USDA, “Climate Change, Water Scarcity, and Adaptation”, November 25, 2015,\u00a0 https:\/\/www.ers.usda.gov\/amber-waves\/2015\/november\/climate-change-water-scarcity-and-adaptation\/, accessed November 2017.<\/p>\n

      [3] Smithfield Foods, “Agricultural Supply Chain”,\u00a0 https:\/\/www.smithfieldfoods.com\/integrated-report\/2016\/environment\/agricultural-supply-chain, accessed November 2017.<\/p>\n

      [Figure 1] Environmental Protection Agency, “Global Mitigation of Non-CO2 Greenhouse Gases: Livestock”,\u00a0 https:\/\/www.epa.gov\/global-mitigation-non-co2-greenhouse-gases\/global-mitigation-non-co2-greenhouse-gases-livestock, accessed November 2017.<\/p>\n

      [4] University of Minnesota Extension, “Formulating Farm Specific Swine Diets”, https:\/\/www.extension.umn.edu\/agriculture\/swine\/formulating-farm-specific-swine-diets\/index.html, accessed November 2017.<\/p>\n

      [5] Michael Hirtzer, Reuters, “Pork Giant Smithfield Skips Middlemen in Grain Supply Chain”, December 20, 2016, http:\/\/www.reuters.com\/article\/us-smithfield-foods-grains-analysis\/pork-giant-smithfield-skips-middlemen-in-grain-supply-chain-idUSKBN14J0FA, accessed November 2017.<\/p>\n

      [6] Smithfield Foods, “Sustainability Goals and Targets”, https:\/\/www.smithfieldfoods.com\/integrated-report\/2016\/governance-management\/sustainability-goals-targets, accessed November 2017.<\/p>\n

      [7] Smithfield Foods, “Performance Summary”, https:\/\/www.smithfieldfoods.com\/integrated-report\/2016\/environment\/performance-summary, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Smithfield Foods produces almost 19 million hogs per year as part of their business model which sells over 8 billion pounds of processed meat. As climate change impacts the costs of many of their production inputs, are they positioned to survive?<\/p>\n","protected":false},"author":10159,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[1243,28,492,1218,33],"class_list":["post-25435","hck-submission","type-hck-submission","status-publish","hentry","category-agribusiness","category-agriculture","category-big-food","category-climate-change","category-food","hck-taxonomy-organization-smithfield-foods","hck-taxonomy-industry-agriculture-and-agribusiness","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nThe Domino Effect of Commodity Instability on Pork Production - 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-domino-effect-of-commodity-instability-on-pork-production\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Domino Effect of Commodity Instability on Pork Production - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Smithfield Foods produces almost 19 million hogs per year as part of their business model which sells over 8 billion pounds of processed meat. 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