Sustainability & the Economics of Drought
We’ve all read the headlines and know that the American Midwest is suffering from a major drought. Crops are starting to wither, farmers are already suffering, and fairly soon consumers will start to feel the pinch too. Droughts come and go as do floods, hurricanes, and other natural disasters – and as do years of abundance. The difference now is that there is a new business activity that might be sidelined in the immediacy of the drought that ironically could, if used correctly, help businesses be better prepared for the types of feast and famine that the climate often causes.
This activity is sustainability. Sustainability means a lot of things to different people. I find that in many cases it is interpreted as a fuzzy warm feeling that is largely undefined and misunderstood. However, what it really means is corporate social responsibility (CSR), which manifests in good public works such as donating goods and services to communities in need. It means an integrated environmental policy that takes into account even small things like environmentally responsible behavior such as turning off lights, a comprehensive recycling program, and low-energy light bulbs. And it means engaging with suppliers in finding cooperative ways to build a win-win relationship.
Most Effective In Every Activity
Many companies are just starting to explore sustainability and are starting to understand the benefits of these different types of activities. But sustainability is still currently viewed by many as a nice-to-have rather than a need-to-have. It is dubbed a luxury activity usually with little budget, little influence, and much less important than most traditional activities of the business. But sustainability is most effective when itâ€™s integrated into every activity of the business â€“ purchasing, R&D, operations, and even HR. When long term thinking and the cooperative mindset is applied to every decision, businesses grow and thrive, no matter what the external pressures are.
For example, if a company includes the examination of environmental metrics of a product thatâ€™s going through the R&D process, packaging design, supplier decisions, and even recipe choices can be driven to ensure that the production process has a low environmental impact while traditional needs like taste, nutrition, and costs are not compromised. This becomes critically important when faced with environmental situations like drought. If the product is designed to be low cost, low waste, and low impact, commodities are used to their maximum efficiency. If environmental metrics are ignored, then the longer term effect of the new product is not minimized which translates to higher impacts, higher costs, and the greater need for more ingredients.
Sustainability ultimately provides a boost to the financial bottom line of a company no matter whatâ€™s going on with the climate. Anecdote after anecdote, case study after case study, proves that sustainability, in almost every form, has a positive effect on the profitability of a business. This is accomplished in a myriad of ways. With pure CSR activities, increased profitability takes the form of increased loyalty and brand value among consumers, employees, and even suppliers. With environmental reduction activities come reduced energy usage, reduced waste, reduced cost, and a streamlined operation. And direct supplier engagement reaps the benefits of better communication building stronger, longer lasting, more loyal and productive supplier relationships, and cooperation throughout the entire supply chain.
Sustainability as a Business Stabilizer
All this doesnâ€™t diminish the realities that the 2012 drought is going to bring to the food industry. Reduced commodity supply, increased commodity prices, shortages and financial hardships at the farm level, are the realities that weâ€™re about to face. This creates greater stresses on an industry that often just manages to keep its head above water. However, itâ€™s important to understand that this is the new reality. Climate change, no matter what the cause, is upon us and a volatile climate in regions where weâ€™ve become used to climate predictability is the new norm. Thereâ€™s no way to change that reality and thereâ€™s no way to know if next year is going to be a productive year or not. Sustainability, in all its many forms, is a critical activity to help stabilize the food industry over the long term.
Sara Pax is the president of Bluehorse Associates, a developer of environmental sustainability metrics solutions specialized in the food and beverages industry featuring the Carbonostics suite of web-based applications for carbon & energy accounting, lifecycle assessment and product carbon footprinting. Visit: www.carbonostics.com
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