As climate change becomes a reality, companies in the food and agriculture industry face tremendous risks from climate change. Cargill, one of the largest global food companies, is directly affected by such risks. Cargill’s major businesses are in grain (trading, purchasing and distribution), livestock, and production of feed and food ingredients and agricultural commodities, such as palm oil. Cargill had revenues of $114.695 billion in 2018, over 155,000 employees and is present in 66 countries.
Cargill’s business model has been essentially that of a middleman – buying grains from farmers, storing them and distributing them when prices increase. The business was built on demand-supply information arbitrage. In the pre-internet era, information – about commodity prices, weather, demand forecasts and currency fluctuations – was valuable and much of Cargill’s profits came from the commodity trading business. The access to information has shifted dramatically now and as a result, Cargill has also evolved from being a grain merchant to a food processor. Instead of trading in wheat, soybean and corn, the focus has shifted to processing food and proteins like poultry, aquaculture, and beef.
Cargill’s Value Chain
Cargill faces tremendous risks from climate change. Most of the risk arises from agricultural raw materials’ susceptibility to changes in weather and climate. The greatest threats come from water scarcity, increase of extreme weather events and rising temperatures that might impact crop yield. A recent study[i] of global vegetable and legume production concluded that if greenhouse gas emissions continue on their current trajectory, yields could fall by 35 percent by 2100 due to water scarcity and increased salinity and ozone. Climate change will also impact meat production, fisheries and other fundamental aspects of food supply[ii].
As weather becomes more unpredictable, it will also be harder to forecast supply, and this leads to several operational issues. With increased unpredictability and supply shortages there could be very high price volatility in agricultural commodities as well. To an extent, Cargill is protected because of its diversification – both globally and in product-mix. But being such a large company, with presence in so many geographies, the net exposure to climate change risk is still very high. Cargill experienced some of these risks firsthand in 2012 when droughts in the US resulted in the company’s worst quarterly performance in twenty years.
Apart from the supply-side risks, there are also risks from changing consumption patterns and preferences. As the world becomes richer, consumption is shifting from grains to protein. In addition, demand for organic and sustainably grown and less processed food is on the rise. Both these changes will require Cargill to address their current sourcing strategy. Negative media attention (The Giant Corporations behind your Burger and Beef have a Terrifying Climate Secret) further exacerbates the issue.
Cargill has undertaken several steps to address climate change and shifting consumer preferences. To address climate change, Cargill adopted a two-part plan focused on mitigation and adaption. Cargill’s mitigation solution aims to reduce the magnitude of climate change through concerted efforts including reduced greenhouse gas emissions, improved energy efficiency, and increased use of renewable energy. To reduce Cargill signed the 2014 United Nations’ New York Declaration on Forests, which commits to “cut natural forest loss in half by 2020 and end it by 2030”[iii]. The company is also launched a marketing campaign titled “Food Chain Reaction” to educate consumers on the threat of climate change to food systems[iv]. This marketing campaign serves to meet Cargill’s goal of emission reduction, but also positions Cargill positively with consumers.
Cargill’s adaptation solution involves working with farmers to develop resilience to the changing global climate. This initiative is a high priority for Cargill, since climate has a direct impact on performance. For example, Cargill “posted its worst quarterly earnings in two decades [in 2012], in large part because of the US drought”[v]. Adaptation efforts include diversifying Cargill’s supply chain, developing resilient farming techniques, and more.
As next steps, Cargill needs to do more in terms of mitigation measures. Lobbying for regulatory change in the entire industry, to have stricter measures on the carbon footprint and greenhouse gas emission levels of companies within and the impact of “agropolgies”. Including the end consumers to the solution and bringing about an intrinsic change in consumer behavior through technology and supply chain transparency could be useful too. Working with farmers and educating them about the changes in our climate and the effects on the crops is quite important. Further to just education, Cargill is working with the Food and Agriculture Organization of the United Nations (FAO) to produce cleaner fertilizers, pesticides.
– Nishtha CHOPRA, Lily MURPHY, Roisin PELLEY, Indra SAHA
[i] https://www.pnas.org/content/115/26/6804
[ii] https://19january2017snapshot.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply_.html
[iii] https://www.cargill.com/story/five-ways-cargill-is-addressing-climate-change
[iv] https://www.cargill.com/story/food-chain-reaction-simulation-ends-with-global-carbon-tax
[v] https://www.mckinsey.com/business-functions/sustainability/our-insights/how-companies-can-adapt-to-climate-change
Interesting read, next to being exposed to climate change, Cargill should also focus on more efficient agriculture, especially if soils have less quality because of climate change. Also, food loss in the process before it arrives at a retailer is a major source of food waste. Cargill could be more activist in fighting climate change and develop concrete programs with farmers to address global issues.