Sustainability & its implications Sustainability & its implications

for the Irish Meat Sectorfor the Irish Meat Sector

January 2009January 2009

Padraig BrennanPadraig Brennan

OutlineOutline

•• BackgroundBackground

•• Emergence of Sustainability as an issueEmergence of Sustainability as an issue

•• The Consumer viewThe Consumer view

•• Retailer & Manufacturer strategiesRetailer & Manufacturer strategies

•• Implications for Irish IndustryImplications for Irish Industry

BackgroundBackground

•• Work undertaken by Price Waterhouse CoopersWork undertaken by Price Waterhouse Coopers

•• Mix of primary & secondary researchMix of primary & secondary research

•• 20 leading retailers and manufacturers examined20 leading retailers and manufacturers examined

Marks & Spencer Unilever

Ahold Danone

Musgrave Danish Crown

Tesco Ben & Jerry

ICA Glanbia

ASDA Diageo

Co-op Irish Distillers

Carrefour Green Isle Foods

Mercadona Nestle

Casino Vion Group

• Research undertaken: July to October 2008

Emergence of Sustainability as an issueEmergence of Sustainability as an issue

““By 2030, the planet will need to produce By 2030, the planet will need to produce

50% more food, with less land, water and 50% more food, with less land, water and

energy while also reducing greenhouse energy while also reducing greenhouse

gas emissionsgas emissions””

United Nations, 2008United Nations, 2008

Evolution of sustainability Evolution of sustainability

as a global issueas a global issue

Evolution of Business/Consumer AgendaEvolution of Business/Consumer Agenda

1980s 1990s 2000 2005+

Smoking

Alcohol use

Baby food

Fast Food

Sweat Shops

GMO’s

Bottled Water

Carbon

Water Scarcity

Sustainability getting greater Sustainability getting greater

coverage in Irelandcoverage in Ireland

What is driving issue?What is driving issue?

Supply

Issues

Demand

Issues

Competitor

Issues

Regulatory

Trends

• Raw material

shortages

• Water scarcity

• Biodiversity loss

• Health & wellness

• Sustainable / ethical

consumerism

• Online connectivity /

transparency

• Carbon &

energy

regulation

• Strategy

• Brand

• Product Range

Business

Performance

Climate

ChangeGlobalisation

Increasing

consumptionExpanding

population

Role of food sector in Role of food sector in

terms of climate changeterms of climate change

•• Food chain accounts for 18% of UK Food chain accounts for 18% of UK

GHG emissionsGHG emissions

•• Agriculture stage, the most Agriculture stage, the most

significant contributorsignificant contributor

•• However, other stages also However, other stages also

significant:significant:

– Packaging

– Food processing

– Home storage

– Cooking

– Disposal

Sustainability embraces Sustainability embraces

full product life cyclefull product life cycle

Disposal & Disposal &

RecyclingRecycling

CookingCooking

Refrigeration/FreezingRefrigeration/Freezing

DistributionDistribution

PackagingPackaging

ManufacturingManufacturing

Cultivation/Cultivation/

Primary ProductionPrimary Production

Complete Product Complete Product

Life CycleLife Cycle

Sustainability continues Sustainability continues

to evolveto evolve

Biodiversity loss

Water scarcity

Carbon & energy

regulation

Raw material

shortages

Impacts today Additional impacts in the future

Becoming core element Becoming core element

of corporate strategyof corporate strategy

“Sustainability is the single biggest

business opportunity of the 21st

century, and will be the next source

of competitive advantage.”

Lee Scott, CEO Walmart

“This agenda of sustainability and

corporate responsibility is not only

central to business strategy but will

increasingly become a critical driver

of business growth.”

Patrick Cescau, CEO Unilever

“When most of the raw materials are

natural, you cannot put nature at risk

without endangering your own

resources.”

Frank Ribound, CEO Danone

“New Zealand aims to be a credible

leader in responding to Climate

Change.”

Helen Clark, Prime Minister

Sustainability seen to Sustainability seen to

offer a offer a ““win winwin win””

scenarioscenario

Financial benefitsFinancial benefits Enhanced brand imageEnhanced brand image

The Consumer ViewThe Consumer View

Consumers receiving Consumers receiving

lots of information!lots of information!

Some changes in Some changes in

behaviour evidentbehaviour evident

•• Survey of 4,000 UK consumers found that:Survey of 4,000 UK consumers found that:

– > 60% concerned about sustainability

– 73% actively recycling

– 32% focused on electricity use

– 28% using energy efficient bulbs

•• Purchase behaviour changing over last 3 yearsPurchase behaviour changing over last 3 years

– Fairtrade penetration up from 20% to 50%

– Organic from 22% to 43%

– Free range from 45% to 65%

•• However, barriers remainHowever, barriers remain

Retailer StrategiesRetailer Strategies

Why are retailers Why are retailers

embracing Sustainability?embracing Sustainability?

•• Three principal reasons:Three principal reasons:

Risk

Commercial Logic

Consumer Awareness

•• Need to be seen to be acting responsiblyNeed to be seen to be acting responsibly

•• Increased scrutiny from NGOIncreased scrutiny from NGO’’s and consumerss and consumers

•• Commercial benefit through cost savingsCommercial benefit through cost savings

•• Rising energy, transport, waste & packaging costsRising energy, transport, waste & packaging costs

•• Consumers more conscious of environmental issuesConsumers more conscious of environmental issues

•• Expect retailers to play their partExpect retailers to play their part

Evolve over timeCompliance &

Risk Management

Operating Efficiencies &

Brand Enhancement

Common themes evident in Common themes evident in

retailer strategiesretailer strategies

Climate Waste Packaging Health Ethical Trade

Marks & Spencer

- Become carbon neutral

- Send no waste to landfill

- Extend sustainable sourcing

- Help improve the lives of people in our supply chain

- Help customers and employees live a healthier life-style

Common themes evident in Common themes evident in

retailer strategiesretailer strategies

Climate Waste Packaging Health Ethical Trade

Ahold

Common themes evident in Common themes evident in

retailer strategiesretailer strategies

Climate Waste Packaging Health Ethical Trade

Carrefour

Commitments to the

Environment:

§ Reduce impact on GHG

§ Protect natural resources

§Waste reduction

§ Preservation of water

§ Preservation of biodiversity

Examples of Retailer Examples of Retailer

InitiativesInitiatives

Reduce GHG emissions

by 30% by 2020

In 2007 ICA conducted a

carbon footprint study on

100 of its private label

products

Website launched to

encourage consumers to

reduce food waste

ICA Tesco Marks & Spencer

Reduce CO2 emissions

per case in transport by

50% by 2012

Reduce CO2 emissions

In stores and distribution

centres by 50% by 2020

Carbon labelling trial on

20 products in 2008

Reduce packaging on

branded and own-label

products by 25% by 2010

20% of the business

switched to renewable

energy in 2007.

3 “green” stores were

launched in 2007

M&S website tracks real

time the energy use in

stores

Overall target to be

carbon neutral by 2012

Reduce packaging

volumes by 25% by

2012.

Mainly Internal Initiatives to date

Starting to engage more Starting to engage more

strongly with suppliersstrongly with suppliers

• Retailers have limited direct impact on Climate Change

•• Clear targets to work with suppliersClear targets to work with suppliers

– To date approach has been collaborative and largely voluntary

•• Using Life Cycle Analysis to identify Using Life Cycle Analysis to identify ““hotspotshotspots””

•• Most focus to date has been on private label rangesMost focus to date has been on private label ranges

•• Varying views on the merits of carbon labellingVarying views on the merits of carbon labelling

Opportunity for suppliers to take proactive approach

Engaging with consumersEngaging with consumers

-- Building TrustBuilding Trust

• Retailers actively addressing this by:

– Enter broad stakeholder consultation to identify priorities

– NGO’s increasingly used by some retailers to build credibility

• Retailers well positioned to identify consumer needs

• Aim is to educate, raise awareness and inform positive behaviour

Selling products with Selling products with

““SustainabilitySustainability”” credentialscredentials

• Initial focus was organic, free range and fairtrade

• Gradually expanding out to a wider range of products

• Drive by some retailers to promote locally sourced food

• Potential for low carbon ranges?

• Focus is on making choices easier for consumers

Manufacturer PerspectivesManufacturer Perspectives

Raw material security is key Raw material security is key

driver for manufacturersdriver for manufacturers

•• Long term security of food supply is critical factorLong term security of food supply is critical factor

– Water scarcity becoming a major issue

– Biodiversity growing in importance

•• Connecting with consumersConnecting with consumers

– Sustainability helping to build emotional values into brands

Manufacturers developing Manufacturers developing

programmes with suppliers programmes with suppliers

Up to 80% of environmental impacts are associated

with sourcing of raw materials*

* PwC Life Cycle Analysis for consumer goods* PwC Life Cycle Analysis for consumer goods

NestleNestle

Strongly communicating activity

Common strategic focus Common strategic focus

among manufacturersamong manufacturers

DiageoDiageo

Water Energy PackagingSustainable

Agriculture

Common strategic focus Common strategic focus

among manufacturersamong manufacturers

NestleNestle

Water Energy PackagingSustainable

Agriculture

Process of continuous Process of continuous

improvementimprovement

Nestlé's performance in managing the consumption of resources

Long term strategy that can deliver cost savings

Communicating improvements Communicating improvements

to consumersto consumers

•• Sustainability now recognised within the brand promiseSustainability now recognised within the brand promise

•• Emotional values increasingly used to differentiateEmotional values increasingly used to differentiate

•• Led by companies that have been Led by companies that have been ‘‘sustainable from birthsustainable from birth’’

……………… Others now Others now

followingfollowing

Sustainability starting to become a product feature

However, claims need to However, claims need to

be crediblebe credible

•• Increased level of scrutiny likelyIncreased level of scrutiny likely

•• While most manufacturers donWhile most manufacturers don’’t favour carbon labellingt favour carbon labelling…………....

•• …………they unanimously agree on benefits of Life Cycle Analysisthey unanimously agree on benefits of Life Cycle Analysis

•• PotentialPotential long term benefits as issue gains more tractionlong term benefits as issue gains more traction

East green beer from Adnams BreweryFirst carbon neutral wine

Implications for Irish IndustryImplications for Irish Industry

Take outs for Irish Take outs for Irish

manufacturersmanufacturers

• Sustainability set to become a standard requirement

• Need to be aware of environmental hotspots

• Identify priority areas for action & develop sustainability strategy

• Prepare & communicate clear messages

– Identify & communicate positive attributes

– Understand and tackle negative issues

• Need to communicate actions already taken

• Take proactive approach & engage with customers

Key steps towards developing Key steps towards developing

sustainable corporate strategy sustainable corporate strategy

1. Input to Strategy Development

• What are the key sustainability

impacts related to my product?

• What do end consumers

expect?

• How are my competition

responding?

• How does sustainability fit with

overall corporate values, brand

and strategy?

• What are the possible long

term scenarios related to

sustainability?

• What is my overall ambition

and positioning on this issue?

• What are the priorities for us?

• What should be our strategy

and targets related to each of

these issues and how does

this impact:

• Marketing and branding

• Range and pricing

• Sourcing and supply chain

• Business Operations

2. Determine Strategy

• How do I engage our

– Key functions within my

business

– Employees

• What metrics, systems,

procedures and controls need

to be established ?

• What external communications

strategy should I adopt to

demonstrate our Sustainability

credentials?

3. Implement Strategy

4. Evaluate outcome

• What value is derived from the

efforts?

• How effectively is the

programme delivering on

objectives?

• What changes do I need to

make on my strategy?

Sustainability will impact on Sustainability will impact on

all aspects of the businessall aspects of the business

Sourcing &

Supply Chain

Business Operations

Understand your role in the broader value chain and how you can work

more closely with suppliers and customers.

Examine operations to understand your environmental impact, reduce the

hotspots and look at ways to create competitive advantage.

I

N

T

E

R

N

A

L

Ranging &

Pricing

Marketing &

Branding

Need to understand how you can differentiate your products using

sustainability and decide on optimal pricing strategy.

Need to leverage unique benefits and assets with appropriate messages

reflecting Sustainable values.

E

X

T

E

R

N

A

L

Lessons from other Lessons from other

initiativesinitiatives

Programme CriteriaProgramme Criteria

•• Soil fertility & nutrient useSoil fertility & nutrient use

•• BiodiversityBiodiversity

•• Farm economicsFarm economics

•• Water & energy UseWater & energy Use

•• Animal welfareAnimal welfare

•• Local economyLocal economy

AimsAims

Happy CowsHappy Cows

Happy FarmersHappy Farmers

Protected EnvironmentProtected Environment

Potential for Ireland to Potential for Ireland to

utilise REPS in this way?utilise REPS in this way?

Developments by other Developments by other

countriescountries

•• New Zealand industry has been proactively addressing issueNew Zealand industry has been proactively addressing issue

– 49% of emissions come from agriculture

•• Focusing on:Focusing on:

– Adapting farming systems

– Reducing GHG emissions & creating carbon sinks

– Positioning itself for longer term growth

•• Using positive messages about how it is responding to challengeUsing positive messages about how it is responding to challenge

•• Seeking to enhance credibility in the marketplaceSeeking to enhance credibility in the marketplace

“I believe New Zealand can be at the forefront of Sustainability, Mike Barry, M&S”

Highlights potential for Ireland to adopt similar approach

SummarySummary

• Sustainability becoming a key issue

• Signs of gaining more traction with consumers

• Impacts on all parts of the supply chain

•• Sustainability to become increasing part of brand promiseSustainability to become increasing part of brand promise

•• Retailers will continue to influence consumer behaviourRetailers will continue to influence consumer behaviour

• While Ireland has issues to address, being proactive can offer opportunities

– Need to base initiatives and claims on sound scientific evidence

Sustainability & its implications Sustainability & its implications

for the Irish Meat Sectorfor the Irish Meat Sector

January 2009January 2009

Padraig BrennanPadraig Brennan