All Articles About Food, Beverage & Agriculture

BSR Insight Article: Rethinking the ‘Land Grab’

Laura Ediger, Associate Director, Advisory Services

The hunt for resources--fuel, water, labor, and minerals--is occurring on a global scale, as companies search for ways to minimize costs and risks while optimizing efficiencies. And today, arable land is becoming a global commodity, in demand to provide food, biofuels, and raw materials such as timber or cotton. The rapid growth in international land deals has heightened concerns about "land grabbing," and the social and environmental impacts of major land investments. A database recently published by the nonprofit organization GRAIN details land deals reported since 2006 (for food crops only) and demonstrates the international nature of these transactions. The list counts more than 400 deals in 66 countries, with funds arriving from nearly 60 different locations. And while agribusiness is the predominant industry sector involved, financial companies and sovereign wealth funds also made up about one third of all deals. Media reports often paint the transfer of land rights as driven by food-security concerns, a kind of calorie-hoarding by countries with low amounts of arable land per capita. Demand for biofuels is another important motivator, as policy and regulations provide additional stimulus for the sector's growth. Meanwhile, investors are finding physical land assets increasingly attractive as an opportunity for diversified portfolios and reduced exposure to inflation. These factors simply add to the ongoing trend of agribusiness companies seeking opportunities to develop commodity supplies in or near key markets. While the World Bank and others hope that land transfers can bring economic growth and increased productivity to small-scale farmland, there are also concerns about the negative environmental and social impacts that can accompany shifts in resource management. Recent cases include Sierra Leone, where protesters have called for a review of large land investment deals, and Ethiopia, where low prices prevailed but the national government has vowed to charge more for investor access to farmland. Whether international or domestic, large-scale agricultural investment carries a wide range of potential risks. Clearing of grassland or forests for agriculture or monoculture plantations can cause serious environmental degradation. The water withdrawals needed to make farmland productive may tax the natural ability of the local watershed to recharge groundwater reserves. And local farmers or herders may be displaced and lose their traditional land rights, along with their livelihoods. What should companies do to ensure that investments are well-managed and provide benefits to the host communities and countries? A group of investors have created the Farmland Principles to guide responsible investment, covering environmental sustainability, respect for labor and human rights, respect for existing land and resource rights, and expected business and ethical standards. The UN is also piloting a set of voluntary Responsible Agricultural Investment Principles that include requirements related to existing land rights, food security, transparency, consultation, and social and environmental impacts. Both sets of principles provide important perspectives on the risks associated with agricultural investments, as well as insights on the potential social and economic benefits. In a recent report, the World Bank argues that these investments can help increase agricultural productivity and local economic growth, if managed appropriately. Food and agriculture companies have also begun to see the opportunity for more direct socioeconomic benefits going to farmers and communities as a corollary to the development of their farm-based supply chains. Here are some specific ways large-scale agriculture can be managed to mitigate harm and provide local benefits: Look at the big picture first: Crucial environmental and social impacts must be considered from the beginning, in the process of site selection and project design. Companies should consider the overall ecosystem of a land asset (including the human element). In addition to physical feasibility criteria such as soil characteristics and water availability, the broader set of ecosystem services should be assessed: What crucial services--nutrient cycling, water purification, or provision of food (wild or not)--does the piece of land provide in its current state? Tools are increasingly available to help capture a wide range of ecosystem services to help inform selection and impact mitigation plans. Take rights seriously: In many places where land-use rights are being transferred, land-tenure regimes and legal frameworks may not protect smallholders or people with more traditional or informal land-use arrangements. Companies can learn from the experience of the extractives industry, where land transfers that did not sufficiently address existing claims have led to mistrust, protests, and the loss of license to operate. Thorough community engagement and application of principles such as free, prior, and informed consent (FPIC) are valuable investments for acquisitions that may be displacing large numbers of local people or disrupting current land-use patterns. Land-use transfers should be voluntary, transparent, and respectful of traditional and informal land-use rights. Mitigate impacts: Specific environmental and social impacts may vary based on the type of production--timber or cotton, perennial or annual--meaning that companies should make sure they thoroughly understand and address their own site-specific impacts. Whether through crop rotation, inclusion of buffer zones, or use of soil- and water-conserving techniques, large-scale land cultivation can take advantage of traditional and innovative methods for improving environmental impacts, including using local indigenous knowledge. On the social side, companies will need to consider not only impacts on nearby communities, but also relations with the resident and/or migrant workforce that will be providing labor for planting, harvesting, and processing. Invest in communities: As mentioned above, local communities and regions do have the potential for economic benefit from these large-scale projects, but economic interactions should be managed carefully to reduce the risk of negative impacts and to maximize social benefits. Development of infrastructure and new employment opportunities can provide economic value to local communities, but this must be done appropriately to ensure that value also accrues locally (e.g. by working with local residents and local businesses) while not negatively disrupting local economies. The global search for land has prompted companies to rethink how they work with local farmers, even on land the business owns. Models in which companies lease land back to smallholders and provide technical guidance as well as seeds and agricultural inputs may improve agricultural productivity while maintaining continuity of local livelihoods. As land becomes increasingly scarce, even as demand for food and fuels continues to grow, companies that are responsive to local needs and potential environmental impacts should see their investments bear fruit for their workers, communities, and shareholders. Read more →

Posted: June 5, 2012 | Topics: Community Engagement & Development, Food, Beverage & Agriculture, Land Use & Biodiversity

BSR Insight Article: Doing Responsible Business in Latin America: Opportunities in the Agriculture Sector

Linda Hwang, Former Manager, Research Ryan Flaherty, Manager, Advisory Services

With less than a month before Rio+20, the UN Conference on Sustainable Development, the world is focused on Brazil and other countries in Latin America, a region that is frequently called out for its significant contribution to the post-crisis expansion of the world economy. As we learn from a discussion with BSR Advisory Services Manager Ryan Flaherty, one of our Latin America and food and agriculture experts, the region is poised to demonstrate the role of agriculture in long-term sustainable development--with significant opportunities for business to engage. There has been a lot of discussion about emerging economies in Latin America and the disposable income of the growing middle class. What's driving the growth? There is a lot of diversity within Latin America, so any discussion about regional trends should be understood in this context--we are making generalizations. With that caveat, we see several broad trends converging to create the "perfect storm" for growth. First, over the past 30 years, there has been a fair amount of openness to foreign direct investment (FDI), which has connected the region to global trade and to new ideas and technologies. Second, this region has an extraordinary wealth of natural resources and an abundance of unskilled labor. Third, the region is slowly warming up to the idea of transparency, which creates an enabling environment for participation in the global economy. The combination of these factors has contributed to a very consistent GDP growth that has attracted the attention of investors. From 2010 to 2011, the region saw a 30 percent increase in FDI, with Asia now representing about 20 percent of the region's trade. However, it is important to note that the benefits of this growth have not been evenly distributed: The environment has carried a lot of the burden, and the emerging middle class still lacks basic services and infrastructure for education, health care, water, and energy. Ongoing struggles with corruption only exacerbate this inequality. Why is agriculture becoming an increasingly significant player? Latin America, which is one of the world's richest regions in natural resources, has a large agricultural base of some 15 million farms. Many countries in the region see the global challenge of supporting 9 billion people by 2050 as an opportunity for growth via the agricultural sector. And the sector is evolving to meet that demand. Some areas have maintained an extensive network of smallholder farms, many of whom have organized into cooperatives or other structures that enable production at scale. In contrast, other areas have moved toward large-scale production. In both cases, grower-producers are improving their performance through better practices and/or improved technology that make them more competitive globally. Since agriculture still represents only about 10 percent of the region's GDP, the challenge will be how to capture more value as production grows. When I think of agriculture, I see the web that connects food, water, fiber, and energy. And when I think of Latin America, I see high rates of biodiversity and declining ecosystem services. What are companies operating in the region doing, or what can they do, to manage land responsibly given how connected it is to other sectors? The region's biodiversity and mineral resources present a great opportunity for many industries--including oil and gas, extractives, agriculture, health care, and tourism. There is often a natural tension that arises from balancing competing needs for natural resources among different industries, sectors, and local communities. The idealist in me would like to say that the trend is toward understanding mutual dependencies on natural resources and collaborating to find the best use of those resources in a way that benefits citizens in the short and long term. Unfortunately, the reality--as in most parts of the world--is more of a "take it while you can get it" mentality, which has had devastating impacts on ecosystems and the services they provide. So business, which has a vested interest in the long-term viability of these resources, has an opportunity to collaborate on sustainable resource management. One interesting example is a project initiated by AmBev (a subsidiary of Anheuser-Busch InBev) in Brazil. The company has brought together several water utilities and retailers to create the Cyan Bank, which provides consumers with incentives to reduce their water consumption. When consumers reduce their water use over time, they collect points that are redeemable for discounts at participating retailers. Speaking of consumers, in the last few years, mainstream media has covered community activism in the region. Much of this has been aimed at the mining sector, but do you foresee any implications for agriculture companies, given the environmental footprint of the sector? Latin America has a long history of communities speaking up against social injustice, even in the face of sometimes violent oppression. As the lines blur between social and environmental issues--between biodiversity and livelihoods, issues like land conversion and indigenous rights--communities are organizing around a broader range of issues that affect their well-being. Agriculture companies have a lot to learn from the experience of the mining sector. Both industries interact with local communities as they convert land and extract material from the natural environment. Often, these communities are concerned about land rights and the potential for negative impacts on biodiversity, soil health, and water quality. Leading mining companies conduct thorough assessments to understand the potential environmental, social, and human rights impacts of their operations and build community-development programs based on the results. When done correctly, companies can secure a social license to operate by showing they are dedicated to doing business in a way that respects land ownership, sustains local ecosystems, provides decent working conditions, and delivers economic benefit to the community. The challenge for multinational agriculture companies in Latin America is that, even if they are recognized globally as sustainability leaders, they won't necessarily be welcomed with open arms. Some in the region are frustrated when multinational companies make ambitious sustainability commitments and are very vocal in the global debate, but they are less active at the local level where change needs to happen. Companies should ensure that their local teams are translating global priorities into local context. You mentioned corruption earlier. Corruption regularly appears among the top two or three problems cited in opinion polls in most Latin American countries. How significant is this, and what's the impact on companies operating in the region? Widespread corruption and weak institutions have plagued the region for years, with some countries making more improvements than others. However, the challenge for companies goes far beyond just trying to conduct business ethically in a corrupt system--which itself is a significant challenge. Corruption and weak institutions have also exacerbated the unsustainable exploitation of natural resources and diverted the benefits to those with power, many times at the expense of the general population. As a result, you see a growing middle class that still lacks access to health, education, waste and sanitation services, clean water, and reliable energy. This represents a challenge for companies that are investing in emerging economies and dependent upon local infrastructure, strong institutions, healthy workers, and vibrant communities to be competitive. Companies must address these institutional shortcomings by making communities a central point of their sustainability strategies, but they should also be playing an active role in pushing for more responsible policy, transparent governance, and effective judicial systems. One of the challenges for the region will be how to maintain recent growth while addressing the issue of social inclusion. Have you seen any businesses do this well? This situation represents both a challenge and an opportunity. The challenge is a vocal and active population that is hearing about economic growth but is not seeing much improvement in their day-to-day lives. The opportunity is a growing customer base that values companies that strategically invest in the well-being of the communities in which they operate. In the agricultural space, leading companies are partnering with growers to implement more sustainable practices that ensure long-term productivity of the land, while improving product quality and reliability. They are also connecting farmers with financial institutions to provide financing for technology and equipment that improves farmers' ability to bring products to market. Another interesting opportunity that I haven't seen global companies explore is making fresh produce available in local markets. The requirements for produce exports are very high and in many cases heavily focused on non-quality aspects such as size, shape, and appearance. Instead of throwing that produce away, companies could sell it in the local market. Bottom line: What's your advice for companies expanding in Latin America? By focusing on creating sustainable local benefits, companies expanding in Latin America can help solidify their social license to operate by ensuring that local communities benefit from ongoing business operations. There are a lot of exciting things happening in the region right now, and I see significant business opportunity, but companies should take the time to understand the social, environmental, and economic tensions and build their growth strategies around long-term community well-being versus short-term profit maximization. Read more →

Posted: May 22, 2012 | Topics: Community Engagement & Development, Food, Beverage & Agriculture

BSR Insight Article: KPMG Report Picks 10 Sustainability ‘Megaforces’

Population growth, material resource scarcity, climate change, and energy and fuel are among the issues in sustainability that could have significant impact on the business landscape over the next 20 years, according to a recent report by KPMG International. The “Expect the Unexpected: Building Business Value in a Changing World” report outlines 10 global sustainability “megaforces” that are putting the world on a development trajectory that is “not sustainable.” Others on the list include water scarcity, wealth, urbanization, food security, ecosystem decline, and deforestation. (The report is 180 pages; the executive summary is here.) The report notes that all of these forces are interconnected, and insists that in order to manage the risks, businesses must use a systems thinking approach that addresses the ways megaforces relate to each other. Specific recommendations include: * Companies should turn strategic plans into ambitious targets and actions for sustainability supply chain management. * Companies should seek collaboration with business partners on sustainability issues. * Governments should increase collaboration with the private sector. Read more →

Posted: April 3, 2012 | Topics: Climate Change, Ecosystem Services, Energy, Environment, Financial Services, Food, Beverage & Agriculture, Land Use & Biodiversity, Strategy & Integration, Sustainable Consumption, Water

Blog: Linking Farm to Supermarket in China

Daniel Hsu, Former Manager, Advisory Services

When you walk into a Walmart in China, you might encounter a variety of interesting grocery items, from bulk rice to green-tea Oreos to live turtles. One thing I find personally interesting is a label called “Direct Farm.” Not to be confused with labels indicating organically grown food, the Direct Farm label can be found on tomatoes, apples, spinach, and a whole host of other produce items. At the Walmart I visited this past weekend, Direct Farm products had a whole island to themselves, complete with display. Read more →

Posted: March 15, 2012 | Topics: Food, Beverage & Agriculture

BSR Insight Article: Business: Blue and Green

By Michael Sutton, Vice President, Center for the Future of the Oceans, Monterey Bay Aquarium

Tomorrow, the Economist’s World Ocean Summit in Singapore will highlight for an audience of global business leaders the latest concerns about threats to our oceans, and how business activities are impacting this ecosystem. While all of us can play a role in caring for our ocean resources, perhaps the only force powerful enough to reverse the decline of our global environment is commerce itself. Read more →

Posted: February 21, 2012 | Topics: Climate Change, Ecosystem Services, Environment, Food, Beverage & Agriculture, Travel & Tourism, Water