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A Glimpse into the Future:

A Survey of Food and Agriculture

Industry Key Trends

October 2007

Business for Social Responsibility | Food and Agriculture Industry Trends Report 2

About this Report Welcome to BSR’s first annual CSR trends report for the Food and Agriculture industry. This member benefit will be compiled annually and distributed in advance of our annual Food and Agriculture Industry Network meeting (FAIN). In this report we will review some of the key CSR trends emerging for the industry in the coming three to five years and point to implications for company practices. Additionally, we will provide results from an annual member survey focused on how BSR members are currently addressing some of their most important CSR impacts. While the report’s focus is on issues faced by the Food and Agriculture industry, it also draws on broader marketplace trends, changing stakeholder expectations, and initiatives that inform the broader business context. This report was written by BSR’s Food and Agriculture Team with support from BSR’s Research & Development team.

About Business for Social Responsibility Since 1992, Business for Social Responsibility (BSR) has been providing socially responsible business solutions to many of the world’s leading corporations. Headquartered in San Francisco and with offices in Europe, China and Hong Kong, BSR is a nonprofit business association that serves its 250 member companies and other Global 1000 enterprises. Through advisory services, seminars and research, BSR works with corporations and concerned stakeholders of all types to create a more just and sustainable global economy. As a non-profit organization, BSR is uniquely positioned to promote cross-sector collaboration in ways that contribute to the advancement of corporate social responsibility and business success. For more information, visit www.bsr.org.

Note BSR publishes occasional papers as a contribution to the understanding of the role of business in society and the trends related to corporate social responsibility and responsible business practices. BSR maintains a policy of not acting as a representative of its membership, nor does it endorse specific policies or standards.


Table of Contents

I. Introduction ..........................................................................................................................4

II. Climate Change: Policies and Implications...........………...….................................................7

III. The Changing Water Context..........………...…....................................................................10

IV. Migrant Labor in Agriculture and Processing...…………………………………………………….........13

V. Standards and Certification …...........................................................................................16

VI. Nutrition …………..…………………………………….......................................................................19

VII. Observations, Recommendations and Conclusions ……………………………….......................22

Annex 1. Food and Agriculture Industry Members Benchmarking/Survey Results …….....24

Annex 2. References………………………………………………………………………………………………………....32


I. Understanding the Industry

Introducing the Supply Cycle and Key Impact Areas

The global Food and Agriculture industry touches the lives of people everyday as they make choices about their nourishment and refreshment. This is a great privilege and responsibility for any global food company, as both businesses and concerned stakeholders have access to information regarding not only the very real benefits offered by our food system, but increasingly about the unintended consequences of the system. It is with this information that CSR impacts are understood and addressed. The purpose of this paper is to give a broad review of some of the issues that are emerging as most important, or material, for the industry in the coming three to five years. This paper does not attempt to consider all the issues facing the industry, but rather seeks to give companies a general sense of what to monitor with respect to a few key issues. We begin our analysis and presentation by understanding the system holistically. To that end, BSR has created the following graphical illustration of the Food and Agriculture Supply Cycle, which generically shows the system of food production and distribution on an industrial level.

Figure 1. Food and Agriculture Supply Cycle

Agricultural &

Material Input

Production

Retail /

Food Service

Consumption

End-of-Use

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Disposal/ Compost

Recycling/

Compost

Soil & Sun

Ecosystem

Manufacturing

Processing

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Agricultural &

Material Input

Production

Retail /

Food Service

Consumption

End-of-Use

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Disposal/ Compost

Recycling/

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Soil & Sun

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By understanding the system, we can begin to identify where in the system impacts occur and how they might realistically be addressed most effectively.

Figure 2. Food and Agriculture Supply Cycle and General Impacts

Once the cycle is understood, it is possible to overlay key social and environmental issues where they are experienced in the system. In figure 2 above we highlight social issues in red, environmental issues in green and health issues in blue. Finally, we highlight general issues/responsibilities in black in the middle. From this generic understanding of the cycle, we can then create company-specific “maps,” to better understand where a company’s potential impacts lie in their supply cycle. This mapping can also be conducted at a crop-specific level with geographic and other socio-political-economic factors incorporated in order to understand commodity impacts.

Our Methodology At BSR, we are in on-going dialogue with thought leaders, stakeholders, subject matter experts and importantly, company representatives, regarding the landscape of industry impacts and potential ways to effectively address these impacts to positively affect the system. From this starting point, BSR focused this report by conducting a qualitative “materiality analysis” of current impacts and related emerging trends. The impacts and trends that are further explored in this report by no means represent the totality of importance in the industry, but we feel they do represent areas that companies will need to devote some attention and resources to in the coming years. Our intent is to


help catalyze unilateral and collective efforts in these areas in order to effectively and strategically anticipate and adapt, rather than “react,” to changing conditions. Additionally, BSR has conducted a survey of our Food and Agriculture membership to understand what impacts and trends are collectively of interest and concern. The results of this survey mostly corroborate our report focus. Among respondents (15 BSR members, making up 40% of BSR’s Food and Agriculture Industry membership) there was unanimous agreement that CSR issues will be more important to strategic success over the next three to five years. The specific issues that rose above the rest for their salience and materiality were: Social

Environmental

General

Supplier Labor Compliance Renewable Energy

Consumer Health and Nutrition Water

Food Safety Sustainable Agriculture

Stakeholder Relations

BSR did not center the report around these issues, but rather kept these overall company concerns in mind while framing the report’s focus. In this report, BSR chose five broad topic areas to examine:

• Climate change – policy and implications for companies • Water – implications for agriculture and processing • Labor – a migrant labor focus • Health and Nutrition – health concerns and new technologies converge • Transparency and Traceability – the role of standards and certifications

In future reports, BSR will trace the development of these five topics as they are relevant and useful. This will provide the Food and Agriculture Industry Network members with an historical and comparable snapshot of these trends from year-to-year in an effort to identify patterns and help anticipate future change. We shall revisit this list of topics each year to ensure that they are appropriate and include other topics as they become salient. We hope that this report stimulates reflection, conversation and, ultimately, action.


Things to Watch: In anticipating regulations, Food and Agriculture companies should pay attention to three policy negotiations in particular: • The first is whether emissions regulations will be

targeted “upstream” (at or near farms and producers), “downstream” (at or near retailers), or at the level of energy suppliers (electric utilities and petroleum producers) – and how the burden might be shared between them.

• The second is whether voluntary early action, such as registering emissions with the California Climate Action Registry or committing to reduction targets through the Chicago Climate Exchange, will be retroactively rewarded under federal or multi-national schemes.

• The third is what form incentives will take. Carbon cap-and-trade, which is gaining momentum via operational experiments in the UK, European Union, and Australia, is likely to be accompanied by certain quotas, product efficiency standards and technology subsidies.

II. Climate Change: Policy and Implications

The United States produces 20% of global greenhouse gas emissions (GHGs), including more per capita, except for Australia and a few small oil-producing nations, than any other country in the world.1 Now, the political systems in most major emitting countries are clearly moving in one direction: towards new policies and regulations that cap or control greenhouse gas emissions. Climate change policy is moving out of its infancy into adolescence. A lattice work of multi-lateral, bilateral and unilateral government efforts is emerging; regulation-driven carbon markets in Europe and Australia; carbon taxes in Norway; renewable portfolio standards in 22 U.S. states; and climate commitments from hundreds of cities around the world. As this happens, major companies are beginning to operate as though greenhouse gasses were regulated. In the context of this regulatory path, it becomes important for the Food and Agriculture industry to track and anticipate policy trends.

Relevant Negotiations Regarding Greenhouse Gas Regulations

The Food and Agriculture industry is responsible for about 15 percent of global greenhouse gas emissions,2 with particularly high contributions from the potent gasses, nitrous oxide and methane. Emissions come from three main sources:3

• Direct emissions, including use of fossil fuels in farm operations and enteric fermentation from livestock;

• Indirect use of embodied energy in inputs, particularly those that are energy-intensive to produce, such as fertilizers;

• Cultivation of soils resulting in the loss of soil organic matter.

Given the industry’s large footprint, regulators are unlikely to exclude it from national climate policy regimes. Regulation of this industry will likely include mandatory accounting for greenhouse gasses, measurable reductions below an historical baseline, “spillover” regulation from the transportation sector, and incentives for innovation in the most emissions-intensive practices: enteric fermentation from livestock, manure management, rice cultivation, soil management, and field burning of residues.4


Cap-and-Trade Emissions Schemes

Cap-and-trade emissions schemes involve the buying and selling of commoditized greenhouse gas emissions reductions (often referred to as “carbon credits”). The reductions become commodities when policy sets an artificial “cap” on future emissions. In trading carbon credits, companies that need to reduce emissions but find it expensive to do so can purchase credits from those that can do so more cost-effectively. The scheme thereby identifies and prioritizes elimination of the “cheapest carbon” in the economy. These schemes were first piloted in the 1990s in the Los Angeles region of California for air pollutants linked to acid rain5. They are generally attractive to legislators because their market mechanisms encourage “beyond compliance” behavior while the overall cost to the economy is minimized. Carbon trading can create not only costs but an opportunity for good performers to sell emissions reductions at a profit – at $40 per ton or even more. This is particularly relevant for Food and Agricultural companies, which could sell credits to companies in virtually any other sector because of their own unique resources for making reductions, such as: 6

• Sequestering carbon in soils, such as through the adoption of no-till farming;

• Sequestering carbon in biomass through cultivation of new forests and grasslands or delays in harvesting forests;

• Reducing methane emissions through changes in the practices used to process and dispose of manure;

• Reducing emissions of methane and nitrous oxide through farming practices.

It is important to note that carbon reductions are not only traded within regulated capped systems. Companies are increasingly trading carbon reductions via voluntary markets, though many see these markets as “training wheels” versions of future regulated schemes. However, since trading in carbon credits is essentially a transaction in a non-entity (i.e., avoided carbon emissions), this market uniquely relies on enforceable standards to create scarcity and fungibility. As such, legislation creating more certainty would likely lead to higher and more stable credit prices. If this happens, it is not known whether the voluntary activities via the California Climate Action Registry and the Chicago Climate Exchange might become integrated within, or continue in parallel to, future U.S. compliance markets.

Bioenergy Product Incentives

With roughly 75 percent of global greenhouse gasses attributed to fossil fuel combustion, there is an intense focus on designing the incentives for “de-carbonizing” electricity and transport fuels. Bioenergy, the renewable energy derived from biomass like plant material and manure, is seen as a prime candidate for doing so at scale, and clearly has key implications for the Food and Agriculture sector. Today, there are three main categories of bioenergy that are seen as promising:7

• Ethanol, which is created by breaking down starch and cellulose with hydrolysis and fermentation into organic compounds;

• Biodiesel, which is made from new and recycled vegetable oils which are further refined; • Biogas, which is created by using bacteria to break down biomass and that create the

byproduct of nitrogen-rich residue, which can be used for fertilizer.


Things to Watch:

• The Renewable Fuel Standard (RFS), authorized by the Energy Policy Act of 2005, which requires at least 7.5 billion gallons of renewable fuel be blended into vehicle fuel by 2012.

• The Bush Administration has called for a 20 percent reduction in gasoline use within 10 years, proposing an Alternative Fuel Standard (AFS) to establish a minimum use of 35 billion gallons of renewable and alternative fuels by 2017, almost five times the RFS target (above).

Things to Watch:

• UN Climate Change Conference in Bali this December

• The 2007 U.S. Farm Bill • The U.S. and Australian 2008 elections

Bioenergy currently accounts for 5 percent of U.S. energy consumption, as well as 50 percent of all energy from U.S. renewables.8 Food and Agriculture players already involved include farmers, processors, manufacturers, distributors, and retailers, which are selling raw and secondary (recycled) biomass energy products. There is evidence that given the right policies, Food and Agriculture companies could scale the production, distribution and sales of bioenergy products significantly and profitably. However, there is growing concern that bioenergy may not always lead to net greenhouse gas reductions. This is primarily because new or displaced agriculture may lead to deforestation or land degradation, a problem which already accounts for 20 percent of global emissions. Produced using conventional large-scale agricultural practices, bioenergy – particularly first generation biofuels – are known to have numerous environmental and socio-economic drawbacks. Biofuels can be done “right,” but questions remain about appropriate scales and performance standards. A key decision point will revolve around whether incentive systems are designed to promote bio-energy products specifically or low-carbon energy generally. The latter would give innovators and entrepreneurs far more leeway in finding truly sustainable energy breakthroughs.

Key Takeaways The development of greenhouse gas regulations, cap-and-trade schemes and bioenergy incentives are all likely developments in the next three to five years. Importantly, these developments will also be shaped by interactions between them. For example, while carbon trading schemes might create incentives to reduce land use emissions, some bioenergy policies – for example, subsidies on biofuels – might create counter-incentives. One study finds that, all else being equal, when the price of carbon is lower, soil sequestration is attractive; as it increases, afforestation and biofuel production become more attractive.9 One growing concern among environmental stakeholders is whether new climate policies will be linked with other regulatory mechanisms that conserve ecosystem services, which are important for supporting the environmental resources (such as genetic diversity, water purification, transpiration) needed for adaptation to the impacts of climate change. Examples of such policies include conservation tillage subsidies, conservation reserve program, soil carbon trading and nutrient trading.10 In summary, the Food and Agriculture industry has not thus far been significantly affected by climate change legislation, but it is likely to feel the effects, directly or indirectly, within the next three to five years. Companies in this sector would be wise to consider the ways in which their company can make both incremental improvements to operational efficiencies as well as lay the groundwork for breakthough innovations that position the sector as a leader.


III. The Changing Water Context: Implications for

Agriculture and Processing

The Food and Agriculture industry is one of the largest users of freshwater in the world. In the U.S., agricultural water represents 81 percent of all water consumed in the nation, much of which comes from groundwater sources.11 The cumulative depletion of groundwater in the U.S. spread out over the surface of the oceans would be equivalent to about a 1.3mm rise in sea level.12 Within this context of ever-decreasing supplies of clean, freshwater, the challenge for the Food and Agriculture industry in the next three to five years will be ensuring access to needed water while optimizing water management objectives to avoid conflict with other water users.

Key Issues for Food and Agriculture Companies Water trends that are re-shaping the context for the Food and Agriculture industry include increasing and unequal, climate change effects on water, and declining water quality.

• Increasing Demand: Overall, current water use in many regions exceeds sustainable supplies. In addition, demand continues to rise, and the gap between supply and demand will grow ever wider in the next three to five years. Groundwater overdraft is also occurring in many parts of the world.

• Unequal Demand: As demand for water increases in certain regions, particularly in the developing world, unequal access to water and changes in pricing are rife, resulting in an increasingly complex political terrain.

• Climate Change: Rising temperatures may increase evapo-transpiration rates, thus irrigating an acre of crops such as alfalfa or lettuce could take more water in the future than is currently required.

• Declining Water Quality: For many companies, water-quality concerns may mean more government restrictions on the type, size, or location of specific industrial investments, or new and costly constraints on a company’s wastewater outflow. Industrial and agricultural expansion may also be affected in regions where the water supply is already contaminated, particularly when clean water is required in production.

As a result, business strategies around water will need to address ways to increase crop production yields without increasing water consumption. We also expect to see more companies innovating for increased water efficiency and conservation “inside the fence line” and shifting their focus toward water management “beyond the fence line,” such as investing in ecosystem services related to wateri.

Opportunities for Food and Agriculture Companies

Direct-Use Water Efficiency Many companies have significant strategic opportunities to improve water efficiency.

i “Inside the fence line” refers to water conversation within a company’s facilities; “beyond the fence line” refers to everything outside their facilities (such as local water conditions, water usage in the local area).


• Develop management strategies based on facility-wide assessments of water-related risk. Conducting such an assessment will give companies room to plan for a wide range of scenarios. In addition, using information related to local water conditions and business impacts on water resources, quantifiable goals and targets for water-use efficiency can be set to minimize water impacts and other water-related risks.

• Make strategic investments in water efficiency. Production and manufacturing processes can provide opportunities for water efficiency in areas that use the most “expensive” water (water that requires pre-use treatment, heating or cooling, and predisposal treatment). Such investments can include replacing outdated equipment, making modifications to existing equipment, establishing more efficient operational procedures, and exploring new processes and procedures that use significantly less water without negatively affecting production and/or service quality.

Supply Chain For many Food and Agriculture companies, their direct water use typically pales in comparison with the water impacts embedded within their supply chains. Proactive companies will focus on increasing water efficiency in the processing and sourcing of raw materials and other inputs. Whether organizations are seeking energy, water, or process efficiencies, training and support along the supply chain, to the farm level, will be a competitive advantage for companies operating within the industry.

Getting ahead of the Curve: Investments in and Markets for Water-

Related Ecosystem Services

The growing recognition of the importance of healthy, functioning ecosystems will place greater demand for agricultural practices to work in concert with eco-hydrological processes of rivers, lakes, floodplains and groundwater-fed wetlands. Investments in ecological restoration, rather than technological solutions, to address water shortages or quality problems will become a hallmark of innovative water management strategies. Emerging environmental markets are bringing these elements together in ways that hold promise for companies to become restorers of ecological systems—and to provide the operational infrastructure that functioning ecosystems represent for businesses and communities alike. This convergence means that ecological protection and restoration of aquatic systems will become central to corporate strategy, particularly for companies with large land holdings and/or reliance on direct access to clean, substantial water resources such as Food and Agriculture companies. Investing in Water-Related Ecosystem Services. In the case of “payments for watershed services,” companies in need of reliable flows of clean water have entered into private deals to pay upstream landowners to change their land management and/or agricultural practices around rivers to ensure more reliable flows. Opportunities exist for companies to become ‘sellers’ of environmental services and in the process turn liabilities into assets while deriving new revenues. They can also become ‘buyers’ of environmental services, using cost-effective approaches to water-related challenges. Formal Markets and Policies. There are currently very few formal trading approaches to water quality or availability, however, investors, speculators and businesses are drawing lessons from the formal structures around carbon trading and offsetting. But because water has localized impacts, it


presents unique challenges that require unique valuation systems. Policymakers are increasingly considering reallocations, environmental water policies, and the development of water markets that cap usage or inputs. While current policy actions in this domain are modest, ecosystems will become a more important component of intentional water management and planning in the future, and companies should monitor the development of policies and markets around ecosystem services in the next three to five years.

Key Takeaways

In the next three to five years, Food and Agriculture companies will see ever-increasing water scarcity and quality concerns. Looking out beyond the next five years, the effects of climate change will make strategic water management even more critical at both the facilities and agricultural field level. Yet opportunities still exist for companies to address key water issues, and we recommend that companies that have not yet done so conduct water-related risk assessments of both their facilities and in their supply chain, in order to come up with strategic water management plans that can be adapted to the changing water context in the next 50+ years. In addition, companies should examine ways to get ahead of the curve by examining investments in, and joining emerging markets for, environmental services. Investments in environmental services can be strategic both for Food and Agriculture companies on the field (watersheds and services surrounding crop fields) as well as in facilities (e.g., payments for watershed preservation in order to ensure clean and safe water supplies for processing).


IV. Labor Migration in Agriculture and Processing Migration has had enormous impacts on the fabric of almost every society’s socioeconomic, cultural, and political institutions. Migration can occur from within countries (domestic), as well as across countries (international), although the domestic variety is much larger in terms of aggregate numbers. This is most evident in China, which has experienced huge rural to urban migration flows in recent decades and the number of rural to urban laborers moving to urban areas is expected to exceed 10 million per year for the next 20 years.13 International migration has also been significant, with the most recent estimate being that there are around 200 million international migrants worldwide, or around 3 percent of the world’s population.14 Although economic opportunity, political circumstances, and policy frameworks continue to be critical driving forces for migration, advanced communication and transport systems have begun to play major roles in fomenting and supporting migration flows, particularly with respect to international migration.

For Food and Agriculture companies in particular, migration will continue to have a strong impact in the next three to five years. Accurate statistics are hard to find given the number of illegal migrants that are involved in the agricultural sector, but in many developed countries migrant workers account for a significant share of the workforces in agricultural production and processing. The following gives a sense of how migration impacts agriculture generally as well as Food and Agriculture companies in particular, in addition to giving recommendations on what companies can do to address some of these key issues.

General Impacts on Agriculture Migration has a varied and complex impact depending on the industry examined and whether considering it from the viewpoint of sending or receiving country.ii Agricultural production has always been, and in the near future seems likely to continue to be, both a source of and destination for many migrants, and thus the socioeconomic impact of migration has always been strong on the agricultural sector and in rural communities. Domestic or within country migration consists almost entirely of rural to urban population shifts, and thus it involves the transition of labor out of the agricultural sector. The shift can present difficulties for agricultural production in terms of access to labor and challenges for rural communities in terms of maintaining a viable economic base and supporting social and cultural institutions. International migration within the agricultural sector has some of the same impacts as rural to urban migration on the “sending communities”, but a critical difference is remittances. Although more research is needed, some evidence suggests that these bolster health and education among children in sending communities and lead to increased purchases and development of agricultural land by

ii Among the main focuses of recent research has been the extent to which migration has a negative impact on origin countries due to “brain drain,” or a positive impact due to remittances. The flow of remittances has exploded over the past decade – in 2006, global flows of remittances were estimated at $276 billion, with the majority of this going to developing countries. Remittances have grown so important that for some countries it is larger than any export segment and thereby accounts for the majority of foreign capital inflows.


migrant families.15 The impact of international migration on receiving farming communities is extensive and cuts across the full range of economic, social, cultural, and political issues. Most obvious is the positive benefit of having a qualified workforce to produce agricultural goods and services either for domestic consumption or export. In some countries, including the United States, international migrants make up a large proportion of the agricultural workforce and the production of farm goods would be extremely difficult, if not impossible, without them. Migrant farm workers also purchase goods and services in the local community and thereby provide support to local economies. On the challenging side, migrant populations often have difficulty assimilating into local communities, and their presence can cause social and political disruptions and thus difficulties for agricultural producers.

Key Issues for Food and Agriculture Companies

Migration has diverse levels of significance and impacts depending on the country where the labor is located, and therefore one should not try to draw broad conclusions about the impacts of migration on the industry as a whole. Generally, however, the importance to the industry is enormous. Moreover, because migrant labor makes up such a huge percentage of the agricultural labor force scrutiny and criticism over the “sustainability” of crop production using migrant labor revolves around issues with labor and working conditions more generally, as well as those that are particular to migrant labor. Three key issues that companies should pay attention to are: (1) difficulties in providing adequate health care, (2) poor working conditions, and (3) lack of clarity and cohesion in public policies regarding migrants.

Provision of Adequate Health Care Given their status, migrant farm workers often have difficulty accessing appropriate health care, and this is a critical issue given the dangerous nature of farm labor and the fact that many migrants come from countries where the prevalence of disease is greater than where they have emigrated to. In addition, the nature of migrant farm work often involves moving from farm to farm over the course of many months, meaning that the spread of diseases like HIV/AIDS can be a critical problem. This is particularly true today in Africa, and has the potential to arise in other areas where migrant labor is prevalent. Improved Working Conditions Farm labor is considered one of the most dangerous occupations, and each year an estimated 200,000 farm laborers are killed as a result of workplace accidents. In addition, agricultural workers are generally at the bottom end of the income strata, and the irregular nature of their employment means that few receive the social protections accorded to other categories of workers. Finally, agricultural production accounts for a large proportion of child labor in general and for incidences of the worst forms. Formulation of Coherent Public Policies Migration has become an important public policy issue in both sending and receiving countries, and it has also been the focus of increasing attention at the international level. But formulating policies that positively address the issues of migrants and the sending and receiving countries has proven difficult owing in part to a lack of consistent and credible data and information, the absence of transparent discussions about the benefits and costs of migration, and the failure of key actors to engage fully on the issue.


Key Opportunities for Food and Agriculture Companies

Following are a few steps that companies should consider taking over the next one to three years with respect to migration.

• Supply Chain Risk Assessment. Develop a general understanding of the extent to which migrant labor is involved in direct and indirect supply chains. The nature of migrant work, whether on farms or in processing facilities, makes obtaining good data difficult. However, a company should aim to conduct a broad risk assessment and then use this information to focus on where problems might exist and/or arise. For instance, any agricultural products sourced from Africa and parts of Latin America and Asia are most likely touched by migrant labor in the planting, harvesting, or transport phase.

• Migrant Labor Policy. Consider the development of a corporate policy focused on migrant labor that would set forth clear guidelines for the use and treatment of migrant labor both for owned-operations and for suppliers. Such policies could include requirements for identification papers, reinforcement of rules covering discrimination and wages, and instructions related to situations in which workers are discovered to not have proper legal documentation. Although the issue has not received the attention of other labor issues such as child labor, it is likely that stakeholder scrutiny on this issue will continue to rise, especially for the large number of Food and Agriculture companies whose supply chains involve migrant workers.

• Engagement with organizations and initiatives. Engage with organizations and companies that are working on critical migrant-related issues, including health and safety and HIV/AIDS. There are a number of initiatives that would benefit from the participation of companies in the Food and Agriculture industry, and through their involvement, companies would gain a better understanding of the issues and ways to address them.

• Government Policy. Actively monitor and seek to provide input on government policy discussions. Food and Agriculture companies need to engage in the debate as the outcomes will have an impact on the sustainability of agricultural production in all countries. Companies need to be transparent about the extent to which they rely on migrant labor. In addition, there is a need for clear and enforceable standards relating to migrant laborers’ rights under law and the responsibilities of companies to enforce immigration policies.


V. Standards and Certification – Building Trust in the

Industry

Background and Drivers

Trust is the foundation and the goal in the global Food and Agriculture business today. Each time a consumer anywhere in the world reaches to nourish and refresh themselves with the products of the industry, they do so with the need and belief that they will be safe, if not healthy. Today and increasingly in the future, safety is part of a growing portfolio of attributes consumers and stakeholders throughout the value chain expect from Food and Agriculture companies. As food becomes a ready means for consumers to practice their own form of responsibility and sustainability, these attributes grow in complexity and can include dimensions of social and environmental performance. For companies, this makes delivering on trust increasingly complex and demanding. Ultimately, standards and certifications have evolved to be a tool to enable trust. One way to illustrate this linkage is in the following manner:

Current Proliferation and Confusion Growing complexity is an apt description not only of stakeholder expectations, but also of the landscape of standards and certifications currently in use and in development. This complexity is breeding confusion for all, from companies to consumers. Some of the considerations that a company must sort through include:

• Focus of criteria – e.g., social, environmental, quality • Scope of applicability – e.g., commodity, region • Degree of compliance – e.g., guideline, standard, certification • Verification of compliance – e.g., first, second or third party monitoring • Consumer communication – e.g., labels

Two additional overriding considerations are company strategy and the target market. Some companies embark on the path of standards and certifications because of external pressure, others because of perceived market advantage. For example, organic foods and products, once a niche market, are now mainstream and can be achieved on an industrial scale. This and other consumer niche markets are attracting large food companies to consider standards and certifications that previously seemed irrelevant to their core business.

Where We Are Headed While few things are certain once we begin to look three to five years into the future, some likely scenarios emerge that can inform planning today: “more” and “more specific”.

Transparency Trust Standards and

Certifications Traceability


“More” - The number of standards and certifications is most likely to continue growing as increasing numbers of multi-stakeholder groups form to tackle another dimension of the global food system and apply a regime of guidelines or BMPs (best management practices). In part this is due to increasing urgency from many stakeholders to understand and somehow “control” the complexity of the global food system, as there is less trust in global food companies and their regulatory agencies. However, this trend runs the risk of not achieving trust, but confusion and subsequent “tuning out” by key stakeholders including consumers. “More specific” - The complexity of the food system generates perceived needs at both the micro and macro level to provide guidance and oversight. The resulting trend is the development of standards or certifications for specific crops (e.g. RSPOiii for palm, CCCCiv for coffee, etc.) or locality (e.g. palm in Colombia versus palm in Malaysia). There is proving to be little appetite for broad or general certification in part because the operating environment (economic, cultural and climatic) for agricultural production is very different around the world and in part because a general standard is unlikely to pick up the important nuances that may be most important for a given crop or locality. Regardless of the level of specificity of standards and certifications, they will address a range of social, environmental and quality issues together, thereby achieving some form of convergence. Additionally, there will likely evolve a hierarchy of compliance protocols to allow for scalable compliance. “One size fits all” for implementation is recognized as impractical given the extreme divergence in operating environments and complexity of implementation.

A New World Shaped by Water Issues and a Biofuels Boom The next wave of focus on standards and certifications may be driven not by consumers, but by climate change – as a result of both impact and response. Water, because of climate and other pressures, is increasingly a limited resource in localities around the world, creating tension and stress for communities and agricultural production. As discussed in the earlier section on water, as water quality declines and demand increases for household and agricultural use, the pressure for companies to adopt more responsible water practices will be unavoidable. Biofuels are viewed as a desirable alternative for energy in a carbon-constrained world, but growing demand is creating new issues ranging from increasing food prices to biodiversity loss. Together these create a perfect environment for stakeholder concern to be addressed through standards and certifications. As this environment develops in the coming years, the following stakeholders will emerge as key drivers of robust regimes of standards.

• Governments, whose interest and role to date has been largely relegated to food safety and public health, may step in as escalating food prices and possible water shortages lead to calls for action locally and nationally, and worst case lead to civil unrest.

• Civil society groups can build on more thorough and available science, and may take more organized action to defend social rights and environmental conditions both locally and globally.

iii RSPO, the “Roundtable on Sustainable Palm Oil,” is a multi-stakeholder forum founded in 2003 to work to come to shared solutions for more responsible palm sourcing; RSPO has come up with a robust set of palm sourcing criteria for its members. iv The Common Code for the Coffee Community Association is a multi-stakeholder association that has developed shared criteria for coffee sourcing.


• Niche food companies, who have historically stepped in to take advantage of emerging consumer demands, will likely continue to create and expand into markets that leverage certification labels.

The trend to develop standards and certifications has flourished in tropical crops such as bananas, coffee and cocoa, many of which are grown largely in the developing world where there are fragile eco-systems and socio-economic conditions. Early attention and scrutiny from a range of stakeholders has led to the development of frameworks to mitigate potential negative impacts. The partnership between Rainforest Alliance and Chiquita in bananas is a great example of proactive collaboration to develop strong standards in this situation. As water and biofuels converge to create a whole new operating environment, the focus will turn to the temperate crops – corn, wheat, soy, and others, which to date have come under limited scrutiny. In the next three to five years, this will shift. These crops are water-intensive and are the building blocks for food security for the majority of the world. We can expect standards to begin to evolve for these and other biofuel crops specifically palm and sugar. As stated above, these standards will likely be crop-specific and will also address the impacts and dynamics tied to bio-diversity, water scarcity, soil degradation, food security, and other key issues.

Key Takeaways The next three to five years offer important opportunities for Food and Agriculture companies to play a proactive role in (re)gaining trust from consumers and other key stakeholders based on substantive and discriminating support of evolving standards and certifications. Consumers and other key stakeholders will need ready access to reliable and easy-to-understand information to facilitate decision-making. Food and Agriculture companies can be sure that relying solely on proprietary means of assurance will fall short of this goal in an increasingly complex and demanding environment. To proceed, each company must first understand their own supply chain in good detail and have a grasp of the potential impacts that lay there. Next, a company can best determine where involvement is most useful. A few key considerations to move forward from there:

• Stay open to adopting standards and certification (even mandatory in some cases) where sensible “floors” can be set and achieved.

• Get involved early to gain a seat at the table and work in good faith toward measured solutions in order to achieve a structure that allows for mutual benefit.

• Contribute context and technical expertise in the search for solutions. Companies have a unique perspective and understanding of what is both feasible and not feasible to achieve. This knowledge is important in order to further the debate and to allow stakeholders to have a better understanding of the key issues.


VI. Nutrition and Health Global Food and Agriculture companies today face a public that is highly engaged on topics related to personal health and nutrition and how food choices can impact both. Chronic diseases such as obesity and diabetes are increasingly linked to changing patterns of food consumption (together with other contributing factors) and are increasing rapidly in both adults and children. Companies have an opportunity and the ability to develop, market and sell more balanced and nutritious food products and to make these available to a wider audience in both developed and developing nations. At the same time, there is unprecedented innovation in technologies that can enable both formulation of food products as well as communication with consumers. Understanding how and when to leverage these technologies is an important opportunity in the coming years. The convergence of these trends creates a dynamic environment for global food companies to navigate.

Marketing and Communication – A Changing Landscape

The landscape of consumer product marketing and communications is undergoing unprecedented change, and food products are included in this. The convergence of technology, access to information and health concerns contributes to the unique environment for food product marketing and communications. Two key trends begin to emerge for global food companies to pay particular attention to in the coming three to five years: responsible advertising and “direct-to-consumer” communication (including peer-to-peer).

Responsible Advertising – Increased Pressure for Performance The food industry spends about $10 billion dollars on advertising each year. Concern over childhood obesity is putting pressure on some of the biggest food companies to change their marketing practices.16 Television advertising influences the food preferences, purchase requests, and diets, at least of children under age 12 years, and is associated with the increased rates of obesity among children and youth.”17 One of the challenges for companies and governments is to manage the complex mix of marketing channels through which young consumers can be reached. Regulation, such as the UK TV advertising ban for younger children, can have an impact,18 but would be more effective in collaboration with the private sector and across more channels to consumers such as point-of-sale. This issue has now spread to the developing world where advertising spend is increasing on average by over 10%.19 As a result, global food companies will likely face the following stakeholder demands:

• Devote a larger proportion of advertising spend to “responsible” marketing and advertising and increasingly curb advertising targeted at vulnerable populations (e.g., children and disadvantaged groups)

• Pressure to offer and widely promote a greater variety of healthier (i.e., less saturated fats and sugars) alternatives at competitive costs

• Play a larger role in educating and promoting healthier lifestyles for consumers New Media for Communication Two trends will have an impact on how companies provide information on the health and nutrition profiles of their food products.


The first is consumer demand for information, stemming from an ever-increasing awareness of product impacts. A new class of product labels is emerging that focuses more attention on the environmental sustainability of food products. The UK-based Carbon Trust is working with Tesco plc and Coca-Cola among others to develop a standard for product labeling of carbon footprints. In 2006, Marks & Spencer launched their ‘Behind the Label’ Campaign using hard-hitting messages and striking imagery about products and their health such as: "We're committed to reducing salt faster than you can say 'sodium chloride’”20 The second, related trend is the proliferation of information channels driven by new technology. The advent of new media outlets puts people in much greater control of the communication world and technology advance enables retailers to use non-traditional means to connect with consumers at the point of sale (POS) and through handheld devices and other online channels. In the coming years, social networking will provide an important platform for food companies. Online peer-to-peer networks such as MySpace that allow for real-time information sharing will make it more important for companies to be transparent and convey the right message, as brand loyalty will depend on how companies communicate and share information with their consumers through online channels.

Nutrition and Technology – Unlikely Bedfellows Technology will not only redefine consumer connection in food products, but will play an increasing role in addressing nutrition needs as well. Whether it is innovating “functional foods”, addressing malnutrition concerns in disadvantaged populations or continuing to develop niche categories such as organics driven by consumer health concerns, technology will be an enabler. Drivers A key driver for continued research into technology innovations for the Food and Agriculture industry is increasing individualized responsibility for personal health and wellness, through practices of self-medication and treatment. The result is the fast growing market for nutraceuticals (a combination of “nutrition” and “pharmaceutical”), also known as functional foods. Food that provides additional medicinal benefit appeals to the notion of self-healing and the belief that ‘you are what you eat.’ Functional food is believed to be a $600 billion market in the near future.21 Jamba Juice launched its new line of Functional Smoothies, boosts and shots in August this year,22 which includes a weight management nutraceutical ingredient (Clarinol™ CLA) that is easy to incorporate in functional food and dietary supplement applications. Another key driver is the global health problems linked to deficiencies of micronutrients. More than 2 billion people in the world today are estimated to be deficient in key vitamins and minerals, particularly vitamin A, iodine, iron and zinc.23 Most of these people live in low income countries and are typically deficient in more than one micronutrient. Deficiencies occur when people do not have access to micronutrient-rich foods such as fruit, vegetables, animal products and fortified foods, usually because they are too expensive to buy or are locally unavailable. What to Look For The near future will show an increase in investment in R&D including investments in nanotechnology and GMOs among other innovations to deliver on the perceived needs. As


opportunities for technological innovation increase, companies will need to pay close attention to a number of factors.

• Consumer acceptance – The 1990s brought some good lessons regarding how consumer emotion can trump “sound science” when it comes to adoption of new technologies in our food system. Food and Agriculture companies considering new technologies should do so with clear plans in place to monitor and understand consumer acceptance from early in the process.

• Stakeholder engagement – Along the same lines, early, proactive and open dialogue with key stakeholders may be the only means to achieve acceptance of new technologies. Companies will need to understand who the key stakeholders are on a given topic and execute clear plans for ongoing dialogue.

• Policy action – The US is slow to regulation on such topics, but the recent legislative activities in the EU, especially REACH, may be early indicators of the willingness of the governments to challenge new technologies in the food system.

• Trust – As discussed in other areas in this paper, this is the foundation of the industry. Companies must balance the ability to adopt and integrate new technologies without losing the trust of key stakeholders. The long-term cost may outweigh any perceived short term gains.

Key Takeaways Markets and stakeholders are looking for solutions to global health challenges. The Food and Agriculture industry is well-poised to become a partner and leader in this effort. The industry has the technical capacity and the consumer trust and relationships to help solve problems. However, the industry will need to adapt to a new environment of increasingly “radical” transparency driven in part by their consumers. BSR looks forward to exploring the themes in this section in greater detail in the coming year. There is much in play with respect to the themes raised here and it is important to have a well-rounded understanding of the potential impacts and pitfalls that may arise.


VII. Observations, Recommendations, and Conclusions As this Trends report has highlighted, there are a multitude of concerns facing the industry currently and continuing into the next three to five years and beyond. These issues span a wide range: the impacts of environmental change (particularly climate and water stress), government policies, consumer health and safety, and migrant labor. These are a concern for companies along the entire range of the Food and Agriculture value chain, at the field, processing, manufacturing, and retail levels. In addition, companies are feeling the pressure to act not just from their consumers, but also from their customers along the value chain. Yet there is room for optimism, as companies have already begun to address many of these issues. There is opportunity for companies to continue in the search for solutions, as well as to get ahead of the curve where possible. Getting a handle on these issues is critical from both a core business as well as a corporate responsibility perspective.

Moving Forward This report has given a range of recommendations on actions companies can take to address specific trends and issues. In addition to these issue specific recommendations, there are some overall learnings and recommendations for companies:

• Monitor the Situation. Companies should use resources at the corporate level, as well as throughout their organization (staff in regional offices, conversations with suppliers, customers, and others), to keep a close watch on these trends in the next three to five years and beyond. In particular, we recommend that companies watch for the severity of the issue (from both a stakeholder and business risk perspective, where those two differ), as well as the speed of change (e.g. how quickly is the trend increasing in severity and is there a tipping point to be aware of, such as with climate change impacts?).

• Understand the business case. All Food and Agriculture companies need to ensure that they are maintaining long-term supply security, gaining consumer and customer trust, and enabling market access. Not addressing the issues in this report could threaten all three of these factors. It is therefore critical that companies begin to address these issues strategically, avoiding reactionary responses in the future, even if some consequences of inaction are many years down the road.

• Take a head-on approach. Companies should devote resources – both human and financial, as appropriate - and engage directly on the issues, with relevant stakeholders including customers and consumers, as well as collaborative programs and initiatives that currently exist across stakeholder groups.

• Contribute to solutions. Much current, publicly available data and research about these issues and how to address them is contributed by NGOs and other stakeholder groups, not by companies themselves. There is a role for companies to contribute to the research and engage in the debate, without sharing proprietary business information. Companies have a wealth of technical knowledge and expertise of how these issues affect them directly, and should strive to seek more collaborative approaches – working with key stakeholders,


customers, and other businesses - to contribute and finding solutions that work within their business.

With active monitoring of the issues and a strategic, proactive approach, Food and Agriculture companies can continue to ensure long-term supply security and market access in a responsible manner.


Annex 1: Results from Corporate Social Responsibility

Survey of Food and Agriculture Industry Members

Our intent in conducting the survey was to provide a snapshot of how companies are handling key CSR issues both from a policy and implementation perspective. We plan on conducting a survey each year, in order to develop a baseline of information that will provide a measure of how management of CSR is evolving among Food and Agriculture companies and identify potential emerging trends. The detailed results are shown graphically below, but some overall findings include:

• 100% of respondents said that CSR/sustainability issues will become more important to strategic success in coming years.

• Key social and environmental issues going forward include supplier compliance, stakeholder engagement, nutrition and wellness, food safety, renewable energy, sustainable agriculture, and water use.

• Collaboration and engagement with external organizations (NGOs) and supply chain partners was cited as very important both to successfully implementing CSR programs and to communicating with valued stakeholders.

• Most respondents do not have a policy on climate change or human rights. Survey Results by Question 1.


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References

1 Baumert, Kevin, et. al. (2005). “Navigating the Numbers,” WRI. Available at pdf.wri.org/navigating_numbers.pdf. 2 Baumert, Kevin, et al. (2005). “Navigating the Numbers”, World Resources Institute, http://pdf.wri.org/navigating_numbers.pdf 3 Pretty, Jules and Ball, Andrew (2001). Agricultural Influences on Carbon Emissions and Sequestration”, University of Essex, http://www.essex.ac.uk/ces/esu/occasionalpapers/CSEQPaperFINAL.pdf 4 U.S. EPA (2007) “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2005”, http://www.epa.gov/climatechange/emissions/downloads06/07CR.pdf 5 South Coast AQMD (2007). “REegional Clean Air Incentives Market (RECLAIM)”, http://www.aqmd.gov/reclaim/reclaim.html 6 Wiley, Zach (2007). “Harnessing Farms and Forests in the Low-Carbon Economy”, Duke University Press, http://www.nicholas.duke.edu/institute/ghgoffsetsguide/ghgexerpts.pdf 7 Government of Canada (2007) “BioBasics”, http://www.biobasics.gc.ca/english/View.asp?x=796 8 Energy Information Administration (2007). “Renewable Energy Consumption and Electricity Preliminary 2006 Statistics”, http://www.eia.doe.gov/cneaf/solar.renewables/page/prelim_trends/rea_prereport.html 9 Schneider, Bruce, et al. (2001). “Economic Potential of Greenhouse Gas Reductions: Comparative Role for Soil Sequestration in Agriculture and Forestry” Iowa State University, http://www.econ.iastate.edu/research/webpapers/paper_2012.pdf 10 Faeth, Paul and Greenhalgh, Suzie (2000). “A Climate and Environmental Strategy for U.S. Agriculture.” World Resources Institute, http://pdf.wri.org/break_green.pdf 11 U.S.DA. (2007). “Irrigation and Water Use: Questions and Answers”, http://www.ers.usda.gov/Briefing/WaterUse/Questions/qa6.htm 12 Konikow, L. and Kendy, E. (2005). “Groundwater Depletion: A global problem” Hydrogeology Journal 13(1): 317-320 13 Deshingkar, Priya (2006). “Internal Migration, Poverty and Development in Asia” Asia 2015 Conference Paper, Session 3, http://www.asia2015conference.org/pdfs/Deshingkar.pdf 14 International Organization for Migration (2006). World Migration 2005: Costs and Benefits of International Migration, United Nations Publications 15 Ozden, Caglar and Schiff , Maurice, eds. (2006). International Migration, Economic Development, and Policy, The World Bank Group 16 NPR, Child Obesity Concerns Prompt Shift in Food Ads, June 25, 2007. Available at http://www.npr.org/templates/story/story.php?storyId=11350914 17 The Henry J. Kaiser Family Foundation (2007), “Food for Thought; Television Food Advertising to Children in the United States, March. Available at http://www.kff.org/entmedia/upload/7618ES.pdf 18 Ofcom. Available at http://www.ofcom.org.uk/media/mofaq/bdc/foodadsfaq/ 19 Especially in Russia, India , China, as well as Saudi/Pan Arab nations. ZenithOptimedia (2005) “Ad Growth Sustained by emerging Markets,” Press Release, 24 October 20 Marks & Spencer website, http://www.marksandspencer.com/gp/node/n/43452031?ie=UTF8&mnSBrand=core 21 Referenced from http://www.cnn.com/HEALTH/blogs/paging.dr.gupta/archive/2007_08_05_archive.html 22 NPI Center, Press Release Lipid Nutrition (2007)“ Jamba Juice Incorporates ClarinolTM CLA in New Line of Functional Boosts and Smoothies. Available at http://www.npicenter.com/anm/templates/newsATemp.aspx?articleid=19554&zoneid=168 23 The World Health Organization, World Food Programme and UNICEF “Preventing and controlling micronutrient deficiencies in populations affected by an emergency.” Available at http://www.who.int/nutrition/publications/WHO_WFP_UNICEFstatement.pdf

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