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A Hard Look at the Sustainability of Soft Commodities
October 24th, 2012
A new report by World Wildlife Fund (WWF) outlines both alarming challenges and promising opportunities for investors in the so-called soft commodities: agricultural, forest and seafood commodities. According to WWF’s analysis, consumption of natural resources has risen to the point where it would take 1.5 years for the Earth to fully regenerate the renewable resources that humans use in one year. “Humanity must now produce more food in the next four decades than we have in the last 8,000 years of agriculture combined,” the report tells us. On the positive side, the report finds plenty of room to adopt improved practices that are not only more sustainable but also yield economic benefits to producers and investors including improving efficiency and productivity and generating new income streams and energy from waste products.
The report covers 10 major global commodity sectors with significant impacts on global biodiversity, greenhouse gas emissions, and water use: aquaculture; beef; cotton; dairy; palm oil; soy; sugar; timber, pulp, and paper; wild-caught seafood; and bioenergy. For each commodity, the report provides figures on the geographic distribution of production and consumption; the environmental and social risks associated with production of the commodity; the key performance criteria that determine the responsibility and sustainability of production; relevant third-party sustainability certifications; and trends and opportunities. For instance, in the case of beef, environmental risks include land conversion of forests or other native habitat that may contribute to climate change, loss of ecosystem services and biodiversity. Relevant key performance criteria include protection of land areas containing primary forests or with high conservation value. An overarching opportunity for all of these soft commodities is how little is certified sustainably produced today: typically no more than three percent of the market, and never more than 15 percent. This suggests a strategic opportunity for producers to differentiate themselves by the sustainability of their production methods.
The report highlights business and financial trends relating to sustainable production of soft commodities. Among the trends: “major brands engaging their supply chains to establish long-term agreements and improve yields; large traders buying smaller players to secure access to raw materials; retailers purchasing processing plants to secure direct access to materials and control quality; upstream capacity building and training; and more sophisticated, multidimensional vendor scorecards.” Another important business trend is industry-wide “pre-competitive” collaborations to forge standards and identify best practices. Examples include industry roundtables on palm oil, soy, sugarcane, cotton, and forest products and a variety of consortia, cooperation frameworks and collaborative research and development organizations including the Sustainable Agriculture Initiative and The Sustainability Consortium. Some of these trends have been explored in recent research reports by Green Research and by Verdantix.
Green Research Insight
It is essential for food companies to establish robust sustainability strategies. Over the next 2 to 5 years, capital will flow to those that do and shun those that don’t.
Other Studies Featured This Month
Green products are often positioned as luxury items, the choice of affluent consumers who view environmentalism as an expression of personal style. The environmental attitudes of lower-income consumers are not commonly discussed in green-marketing circles. That’s why a new study by the Smart Grid Consumer Collaborative, an industry group whose members include electric-utility companies and vendors of technology used to create “smart” power grids, is interesting. It focuses on low-income consumers, a group in which households of three to four people have total household income of no more than $20,000-$30,000. The study found that energy efficiency is as important to low-income consumers as to the general population. It also found that their environmental attitudes align fairly closely with those of the general population: Most low-income consumers (72%) believe that global warming is real, and that saving energy helps the environment (82%), and eighty percent report that they try to minimize their impact on the environment through daily actions. A quarter of the low-income consumers surveyed for the study felt that the potential benefits of smart power grids — including preventing power outages, obtaining near real-time information on their energy use, and making it easier to connect renewable energy sources to the grid — were important enough that they would be willing to pay more for them.
Green Research Insight
Marketers of products aimed at lower-income consumers would be foolish to overlook the role that environmental benefits play in their purchase decisions.
Americans increasingly believe that global warming is affecting the weather and that the weather is getting worse. A study conducted at the end of this summer by the Yale Project on Climate Change Communication and the George Mason University Center for Climate Change Communication found that a large and growing majority of Americans say “global warming is affecting weather in the United States.” Seventy-four percent of respondents to survey agreed with that statement, up 5 points since the project’s last national survey in March 2012. Asked about six recent extreme weather events in the United States, majorities say global warming made each event “worse.” Overall, Americans increasingly say weather in the U.S. has been getting worse over the past several years (61%, up 9 percentage points since March). One thing that is striking is the number of Americans who say that that extreme weather is taking a personal toll on them. One in five Americans say they suffered harm to their health, property, and/or finances from an extreme heat wave in the past year, a 6-point increase since March. In addition, 15 percent say they suffered harm from a drought in the past year, up 4 points.
Green Research Insight
Even if Americans believe climate change is real and harmful, a consensus on what to do about it will remain elusive.