Future-Proofing Supply Chains Against Climate Change

The warmest years on record have occurred over the past decade—and the natural world has experienced unexpected temperature swings, extreme weather events, and shrinking freshwater supplies as a result. While communities and industries all over the globe have been affected by the threat of climate change, the food and beverage industry must find a way to mitigate the changes that are affecting the quality, availability, amount, and price of raw ingredients.

“Because food is so sensitive to climate, we are already seeing tremendous amounts of change—and it affects where and how we grow things,” says Katherine Devine, director of business case development at the World Wildlife Fund’s (WWF) Markets Institute. “We can’t continue to exploit the land and expect that food and agricultural businesses can continue to operate as they have in the past. We have to look at the long-term implications of how we do business.”

Certainly, climate change has already affected not only the ongoing availability of some food ingredients—but also their flavor and nutrient density. According to the United Nations Conference on Trade and Development, the price of cocoa has surged 136% within the past two years, thanks to the heat waves and intense rains affecting West African cocoa plantations. Coffee, too, has been significantly impacted by erratic weather in Vietnam, where most coffee beans are harvested. This has resulted not just in increased prices, but a pronounced flavor change to the world’s most popular morning pick-me-up, as growers switch from the traditional arabica bean to the more bitter-tasting, yet more weather-resistant robusta variety.

The taste of your coffee could change as erratic weather forces growers to switch from the traditional arabica bean to the more bitter-tasting, yet more weather-resistant robusta variety. © Delmaine Donson/ E+/Getty Images+

And with the United Nations sounding the alarm that, with continued rising temperatures, we should expect to see a significant decline in staple crops like maize and wheat, as well as widespread disruptions to global fishing and livestock industries, it is clear that there’s no time to waste.

“We need to look at the long-term implications of climate change on food security, growing food, and nutrient density,” stresses Devine. “There is a level of urgency to this—and it needs to be met.”

With the need to feed nearly 8 billion people—and to continue to produce the foods and beverages consumers want at a price point they can afford—food manufacturers and ingredient suppliers stand at a precipice. They must find ways to mitigate the risks involved with an ever-changing supply chain thanks to climate change. It’s the first step to building a diverse ingredient pipeline that will allow them to not only survive but thrive in the future.

Starting Where You Are

The first step to future-proofing ingredient supply chains against climate change is to make a thorough assessment of your organization’s current climate risks, advises Kamesh Ellajosyula, president and chief innovation and quality officer at ofi (olam food ingredients).

“If you want to know how you will do in the future, you may want to know how you are doing in the present,” he says. “Supply chains are interconnected, and sustainability can touch on many different aspects of where and how you source ingredients. Your first goal is to figure out how good your supply chain is today. How diverse is your sourcing? Are the ingredients you are sourcing good for the environment? Good for smallholder farmers? For nutrition, sustainability, and overall impact?”

Kenzie Bear, senior sustainability specialist at Conagra, agrees. “You need to understand where you are, so you know where to go,” she says. “It’s extremely important to understand your gaps, your strengths, and your areas of opportunity. That can help you better set your priorities.”

And doing that upfront work, says Christy Slay, chief executive officer of The Sustainability Consortium, can help organizations take the first critical step toward minimizing the effects of climate change: decarbonization. While thousands of companies have already designated science-based targets for their own organizations, Slay explains that they need to also have insights into their suppliers’ emissions and goals. After all, the bulk of climate risks appear at the highest tier of their supply chains, where farmers grow or produce ingredients with which food products are made.

“Setting greenhouse gas emissions targets and measuring emissions within your own operation should be Scope 1 and 2,” she says. “Scope 3 involves getting into your supply chain, where most of the emissions are. This is the hardest to track, so it’s important to set up systems so you can collect that information and really engage your suppliers and make sure they are also working to decarbonize.”

“This is really about developing strong relationships with your suppliers so you can have joint planning so that when there are any supply chain disruptions, you know what to do.”

Christy Slay

CEO, The Sustainability Consortium

Bridging…

Once organizations have some transparency on the climate risks inherent to their current supply strategies, Slay says the next step is to find ways to “bridge” with supply partners. This involves coordinating with those partners about risk awareness and planning as well as potentially providing funds and expertise to help them make targeted improvements. It also, she says, should include other ways to help strengthen the buyer-supplier relationship.

“This is really about developing strong relationships with your suppliers so you can have joint planning so that when there are any supply chain disruptions, you know what to do,” says Slay. “We know that there are going to be disruptions from climate change moving forward. So having the kind of relationship where you can have an open dialogue to support suppliers, to plan ahead, and to have some kind of control plan in place is important.”

Ellajosyula believes bridging should go beyond just maintaining those relationships with suppliers. It should also include strategic partnerships with other organizations that can help you manage your global supply chain more effectively, including government and regulatory organizations, and even other companies. He cites the work ofi is doing with the U.S. Agency for International Development (USAID) and Hershey called the Landscape Approach to Sustainable and Climate Change Resilient Cocoa and Coffee Agroforestry (LASCARCOCO), which supports the growing of these important ingredients in Indonesia. (See the case study in the sidebar at the bottom of the article.)

“We seek partnership because it offers multiple things. One is commitment,” he explains. “Hershey benefits by future-proofing their supply chain. The government of Indonesia wants to protect its farmers. And we work with other partners to bring in the knowledge and the information about how to make cocoa and coffee growing more sustainable.”

Devine recommends that organizations get involved with pre-competitive platforms and multi-stakeholder groups to leverage the “collective action” of companies to facilitate change—and reduce supply risks in the process.

“Sustainability is not a competitive issue,” says Devine. “Everyone needs to become more sustainable and, if companies share information, they learn more quickly.”

Pre-competitive platforms like the Global Salmon Initiative and the Swiss Platform for Sustainable Cocoa have been able to make great progress by working together to address climate change issues that affect their supply chains. Companies, big and small, benefit when they take part in these pre-competitive groups, too.

Bear adds that partnerships with local universities with strong agriculture expertise, including tried and tested regenerative agriculture practices, can also provide important information about how to help growing partners mitigate climate risks.

“There’s no one-size-fits-all solution that every supplier can take on. We should not expect everyone to do the same practices,” she says. “Working with the research entities who prove the science behind climate-friendly practices is important. And it allows us to approach farmers, and our greater supply chain, with a menu of options to not only help them grow in a way that makes sense for them but also build trust.”

“Sustainability is not a competitive issue. Everyone needs to become more sustainable, and if companies share information, they learn more quickly.”

Katherine Devine

director of business case development, World Wildlife Fund’s Markets Institute

…and Buffering

Having such a “menu of options” can help organizations find ways to protect themselves against climate-related supply chain issues. Even the best suppliers are going to face disruptions, explains Slay. Organizations can “buffer” against those problems by making changes to the way they handle inventory, lead time, capacity, liability, and costs. Many organizations, like Conagra, are already “co-sourcing” or “dual sourcing” for key ingredients.

“A lot of companies are buffering inventory by warehousing more product than they have done in the past so they have what they need when supply chains aren’t moving as they should,” says Slay. “Then there’s having a capacity buffer, which is making sure you’ve identified different suppliers that you can go to if there is a problem. When you do your due diligence, you can make sure you are sourcing from countries and suppliers that have been pre-vetted. You can build that into how you do business so you can manage for any disruption.”

Certainly, organizations are making strong investments in regenerative farming practices, helping farmers within their supply chain leverage evidence-based practices to increase yields, while also protecting the environment. But, sometimes, buffering may require the reformulation of a product when ingredients become unavailable or simply too costly to use, says Ellajosyula. He says ofi’s innovation centers can help their partners make such adjustments.

“Maybe this particular ingredient or origin is not available. A different grade is required. How do I adjust my formulation? How do I manage costs?” he posits. “You need to be able to be nimble. When you think about future-proofing, it’s not just about ensuring that an ingredient is available. It’s also about how to manage your formulations and the costs with your formulation if it is not.”

Jaime Reeves, executive vice president of product development and commercialization at Mattson, a Silicon Valley–based food and beverage insights and innovation firm, says that some companies are getting quite creative by upcycling, or creatively reusing ingredients, within and across their supply chains.

“We have one client, Atomo Coffee, that realized during COVID that coffee beans were going to go away because of global warming,” she says. “They came to us with the idea of making a beanless coffee. They use date pits or seeds, roast them, and get very similar flavor profiles. When they added in caffeine from green tea extract, they were able to really build in the same dimensions of coffee.”

Smaller companies, especially, says Reeves, can harness such inventive approaches to help them stand out among competitors. But larger food manufacturers are also seeing value in this approach.

“Even big companies like Anheuser-Busch are upcycling their barley, utilizing the flour and protein to get it into different products on the market,” says Reeves. “That’s what really excites me the most, and I hope to see gain more traction in the future. We can find ways to make sure we use everything and find unique ways to help manufacturers process their raw ingredients so they don’t spoil, and they can be used in unexpected ways.”

Atomo 50/50 Remix is a proprietary blend of 50% beanless coffee and 50% sustainably sourced coffee. Photo courtesy of Atomo

Utilizing Technology to Strengthen the Ingredient Pipeline

Assessing where you are—as well as putting the right bridges and buffers in place—requires data. To collect that data, many organizations are relying on different technology platforms like ofi’s AtSource, TraceGains, HowGood, and The Sustainability Insight System (THESIS) to understand where their ingredients are coming from and whether they are being produced using sustainable practices. Many of these solutions also provide information about suppliers’ carbon footprints. Slay, whose organization supports THESIS, says these platforms provide key insights and metrics to help food manufacturers see where their supply chain is—and how it could be improved.

“This is a way for companies to see that their suppliers are improving—and they can also use the data and results from THESIS to have conversations with their suppliers about areas that may still be of concern,” she explains. “By tracking data about top sustainability issues, we can better support our retailers, suppliers, and consumer goods companies to understand not only the key issues but the key metrics to see where they are going and what they need.”

Mattson, Reeves says, is in the process of developing its own proprietary system to create a “knowledge set on ingredient vendors and functionality.” That system will leverage artificial intelligence to help food manufacturers easily identify alternative vendors for ingredients. And Bear, for her part, is excited to see future platforms use AI for “predictive” purposes.

“It would be great if AI could help predict extreme weather so we could understand what part of our supply chain might be affected or even reroute our trucks to avoid weather problems,” says Bear. “If AI can eventually ready year-over-year trends, help producers know what crop varieties to grow that year or to choose to grow drought-resistant species, it could make a huge difference.”

“When you think about future-proofing, it’s not just about ensuring that an ingredient is available. It’s also about how to manage your formulations and the costs with your formulation if it is not.”

Kamesh Ellajosyula

president and chief innovation and quality officer, ofi

‘No Crisis Should Be Wasted’

As previously noted, there is no one-size-fits-all solution to future-proofing supply chains. The WWF published a report in 2023, Reducing Greenhouse Gases with Incentives at the Farm, which highlights several approaches that companies are currently using to become more sustainable. But, Devine says, each company has to take careful stock of their needs and goals to come up with strategies that will work for them. But even so, she argues, there is no need for each company to “reinvent the wheel.” By working with experienced and trusted partners—including strong precompetitive platforms—they can gain the knowledge they need to be successful.

“This isn’t an easy win, but we encourage companies to work with their supply chains to mitigate risks—and make sure that any risks aren’t just passed on,” she says. “A lot of companies have made commitments to be more sustainable. But it all starts by understanding where your emissions come from and starting somewhere. Because that’s what everyone needs to do: start somewhere, learn, and build from there.”

Ellajosyula agrees, and adds that while it may be easy to feel overwhelmed by climate change, the current crisis presents food manufacturers as well as ingredient companies with a fantastic opportunity to make a real difference.

“No crisis should be wasted,” he says. “This can be a massive call for change that protects our environment, your brand, and your own bottom line. You have an opportunity to learn, to change, and to future-proof your business. Why would you not do it?”ft

 

Case Study: Moving Cocoa to Indonesia

Experts from ofi train local cacao farmers in Indonesia about sustainable growing practices. Photo courtesy of ofi

 

To help buffer against rising cocoa prices due to uncertain weather in West Africa, ingredients company ofi is helping to bring cocoa farming to Indonesia to aid in solidifying Hershey’s supply chain with USAID’s Landscape Approach to Sustainable and Climate Change Resilient Cocoa and Coffee Agroforestry (LASCARCOCO) project. By working in partnership, the group is assisting smallholder farmers in the region with successfully growing this threatened crop.

 

“We have a Center of Expertise that is a great enabler for us, helping us to convey information not only to our sustainability teams, but to our customer partners, government extension institutes, and other partners [about] what you can do to improve yields and deal with pests using model plots,” says Kamesh Ellajosyula, president and chief innovation and quality officer at ofi. “Farmers can learn firsthand how to do integrated pest management, how to manage run-offs, and learn from others about how to take a landscape approach to grow climate-resilient cocoa and coffee.”

 

The program is supporting 6,500 farms in different parts of Indonesia, with the goal of not only increasing cacao farm yields by 25% but also conserving at least 14,000 hectares of watershed land by the end of 2025. While people in the food manufacturing sector will likely recognize the names Hershey, USAID, and ofi, Ellajosyula says that the program engages many local partners, too.

 

“This is a program that puts boots on the ground to make changes,” explains Ellajosyula. “We are not sitting somewhere else talking about how we are going to save the world. We are literally right by the farm where food is being produced—providing knowledge and expertise to help Hershey meet their sustainability goals while also protecting their supply chain.”

 

The program has helped local farmers learn how to appropriately prune the tree canopy, as well as plant banana trees between the cacao trees to help protect cacao seeds from pests and the spread of disease.

 

“This protects your crop. But it also helps farmers diversify their farming. Now you are not just selling cocoa, you can also sell bananas and banana leaves,” he says. “You can use the banana leaves to wrap and ferment the cacao with less risk of the mold that often grows on tarps and makes the beans unfit for use. This is just one example of how plant science can come together to make a difference for a small farm.”

 

Jemma Ralphs, a communications specialist at ofi, says it’s important, when looking to future-proof your supply chain, to take a “holistic” approach. It has to go beyond just thinking about your supply chain. It must also consider the needs of your suppliers, going right back to the farmer who produces your ingredients.

 

“It can’t just be about the farming itself. You have to make sure that farmers can make a decent income from growing your crop,” she says. “You have to take an interconnected approach because the welfare and the livelihoods of the farmer directly impact the quantity and the quality of cocoa generated.”