Climate change has added an additional layer of difficulty in businesses. Businesses which have direct interactions with natural resources and rely on nature for production are being heavily impacted by climate change. One such industry is the agricultural retail industry. With erratic weather patterns, the industry, especially in emerging economies is unable to grapple with the intensifying need of modernisation and adaptability.
In 2010, a severe heatwave in Russia destroyed wheat crops resulting in losses US$ 15bn[1] causing a knock-on effect of increased global prices of wheat. Similarly, in India, with drought conditions prevailing in 2014 and 2015 in large parts of the country, sowing of wheat reduced by 2mn hectares causing an increase in price of vegetables and other fresh produce. Food grain production in India is reducing[2] owing to the inclement weather conditions which in turn has increased domestic prices of commodity food items, especially pulses by 165%.
For stakeholders in the agricultural retail industry value chain, the impact of climate change is not just affecting the production but also the processing of the produce before it is made available to the end consumer. The impact is high because rising temperatures and reduced rainfall directly affect production yield and quality. On a macro level, a linear supply chain can be easily disrupted by extreme climate change events as has been the case with the heatwave in Russia. There is a lot of research which shows that this industry is susceptible to the impact in multiple ways, including being prone to food borne parasites and microbial contaminants. However, it is noticeable that research is still not being done from a firm’s or the value chain perspective. This makes it increasingly difficult for stakeholders to adapt to this disruption in an effective manner.
One of the key factors determining interest of stakeholders is the limited availability of tools to help them mitigate climate change. Tools such as life cycle assessment, carbon footprinting have limitations and complexities which make the process of implementation in an already complex industry very cumbersome. Stakeholders are now looking into alternatives to ensure security of supply and reduce supply chain risk caused by climate change.
Most agricultural produce is highly commoditised and can be sourced from a wider range of suppliers, where any disruption might not cause any massive effect down the chain. However, trends suggest that given the magnitude of impacts in a certain region, these diverse suppliers behave as one large entity and disruptions can cause greater than anticipated effects. With the impact of climate change being increasingly felt by the emerging economies of South and South-east Asia, the global supply chain of a commodity item, such as rice, can be severely impacted.
The UNFCC has set a target to limit the average global temperature rise to 2 degree Celsius. However, in certain parts of the world, this might be much higher and businesses need to take this into consideration.
In order to be ready for any potential threat, businesses have started looking at risk mitigating and management strategies across the world. And one great example is Walmart.
Several environmentalists have been criticizing Walmart’s aggressive growth since the early 1990s. Despite Walmart increasingly moving to renewable sources of energy, it’s physical growth, led environmentalists to argue that in net its carbon footprint is increasing. However, since then Walmart has become more environmentally conscious and has come a long way. Walmart recently launched its 2025 goals to try and be one step ahead of the increasing impact of climate change[3].
- Walmart has set ambitious goals to achieve zero waste to landfill in Canada, Japan, U.K and the U.S.
- Since their business model allows them flexibility in leasing or owning property, they have committed to being powered by 50 percent renewable energy sources
- Through local sourcing they are splitting the risk of a global supply chain, and aiming to double sales of locally grown produce
- Walmart has been the leader in aligning incentives with its suppliers. It builds long term relations and passes on the benefits of better economic, social and environmental performance to its suppliers, with the aim of sustainable sourcing to cover 20 key commodities by 2025
- Walmart has partnered with WWF and launched Project Gigaton to develop tools for the suppliers of Walmart to help them make changes in energy and product use, agricultural and logging practices, packaging decisions, and waste management that will limit emissions[4]
- While Walmart cannot influence external brands, they can definitely change the strategies for their private brands. Currently Walmart aims to use 100 percent recyclable packaging for all private-label brands.
Companies in this business can look to benchmark themselves against Walmart and introduce processes to mitigate climate change impacts according to their scale of operations. (798 words)
-Ankur Ghosh & Nidhi Kapoor Khetarpal
[1] http://www.pwc.com/gx/en/services/advisory/consulting/risk/resilience/publications/business-not-as-usual.html
[2] http://employmentnews.gov.in/VOL.%2042%20Climate%20Change%20Impacts%20Farm%20Sector%20Growth15jan16.pdf
[3] https://www.greenbiz.com/article/inside-walmarts-2025-sustainability-goals
[4] https://www.worldwildlife.org/stories/wwf-works-with-walmart-to-cut-carbon-emissions-and-fight-climate-change
Interesting read! First, it was insightful to realize that climate change will have an impact not only on production but also the processing of produce in agricultural retail industry. More importantly though, the role of powerful retailers in making environmentally friendly choices and influencing players upstream to do the same is an interesting idea that could be applied in other industries and make a difference in the long term.
Very interesting article! It clearly highlights the importance of the role of supply chain in the agricultural retail industry. I would be interested to know more about how Walmart aligns interest with its suppliers. Is there a carrot and stick approach or does Walmart simply pass the environmental responsibility to its suppliers? While the article mentions “Walmart cannot influence external brands”, I think Walmart can definitely take a more proactive approach in managing its suppliers’ quality in terms of environmental impact.