by Hal Hamilton
— January 27, 2003 —
I felt a bit like a fish out of water as I walked into the Harvard Business School Agribusiness Executive Seminar. My whole professional life has been spent working on behalf of farming communities. At Harvard I was in the midst of a fraternity of people who run the food system.
There were 160 participants, most of them senior managers of large agribusiness companies, half from the U.S., all of whom paid $5,000 for three days of case study analysis and strategic planning. We talked through the financials and current challenges of Cargill, Monsanto, Starbucks, a couple of Asian conglomerates and a dozen other companies.
These are very bright and energetic people. Whatever the rules of the game, they will be successful. It just so happens that the business game they are part of rewards only short-term financial success. I didn’t hear much conversation about sustainability, but I did conclude that if business were structured in such a way that success were about sustainability, many of these same people would be competing to be the most sustainable.
Some of these corporate leaders have already taken steps toward sourcing sustainably produced commodities. Starbucks CEO Orin Smith described his partnership with Conservation International on a project in a Chiapas rainforest, and he described newly proposed guidelines for the coffee industry that, if adopted by the larger players, could have an enormous impact. The guidelines include soil, water and forest protection as well as provisions for wages, working conditions and rights to organize. The big players like Nestle will find it difficult to adopt these guidelines, unfortunately, because economic momentum pushes in the opposite direction. In the global economy the lowest price almost always makes the sale. These companies are structured to pursue competitive advantage with scale and financial efficiency.
The irony is that although many of us on the “outside” of corporate boardrooms assume that these CEOs have the power to change the way business is done, most of these powerful people on the “inside” experience real constraints to their ability to act toward environmental and social goals. When the Chiapas coffee farmer story was discussed, most of the executives assembled at Harvard expressed not only sympathy for the farmers but also deep concerns for biodiversity and rain forest protection. But shareholder values have to increase, which requires an increase in the rate of sales and decrease in costs. Farmers and rainforests are not part of the equation now, in most of these calculations.
Not only do incentives and rules of the competitive market stand in the way of a “greener” business climate. There’s also an internal culture in the business world that lulls its leaders into a cozy complacency. These business people think of themselves as bringing progress and development, and creating jobs. If small coffee farmers working on forested hillsides can’t compete with new lowland plantations, and if these small farmers are driven into urban slums, such ecological and social dislocation is described as the inevitable price we must all pay for a robust economy. Charles Muscoplat, Dean of the College of Agriculture of the University of Minnesota, described the consolidation of power and wealth in agriculture as “inevitable.” Bill Lapp, economist and VP of ConAgra Foods, said “Adam Smith’s ‘invisible hand’ is the Mother Nature of economics.” Bill and I got to be pretty good friends, but I told him that his formulation about Adam Smith reminded me of fundamentalist use of the Bible. My sense is that Adam Smith’s concept, that competition results in the common good, is used to justify the consolidation of economic power in ways that would make Adam Smith uncomfortable.
As I reflected on Adam Smith and the self-congratulatory atmosphere of this Harvard seminar, I was particularly curious about why the food business culture supports a united defense of Monsanto and biotechnology in agriculture, even though biotechnology does not increase the profits of most of these companies. They like to talk of themselves as carriers of “reason in the face of irrationality,” the lonely champions of sufficient production for a growing population. Only a few of them see the irony of trying to force European consumers to accept genetically engineered food these consumers don’t want. There’s a “school spirit” among these executives that makes it difficult for any of them to question the wisdom of transgenetic crops, even in the face of consumer resistance. Technology equals progress which ensures the common good.
They like to believe that they have science on their side. U.S. Undersecretary of Agriculture J.B. Penn was almost apoplectic about how the European “precautionary principle” contradicts “sound science.” (Since when is it unscientific to be prudent?)
These companies have two powerful motivators: the drive for efficiency and the search for unique values that increase market return. The whole system is constructed on squeezing inefficiencies out, procuring and moving commodities VERY cheaply, adding unique value at the lowest possible cost to the next customer up the chain, or getting a premium by adding some desired attribute that the customer wants. Cargill won’t make a sale of corn or soybeans to ConAgra Foods without charging a lower price than ADM or Bunge are charging. ConAgra Foods won’t make a sale to WalMart without offering a lower price than Kraft. All along this chain, in addition to squeezing out inefficiencies to lower price, each supplier attempts to create new values to charge for. Cargill might supply to ConAgra Foods the best inventory management and on-time delivery. ConAgra Foods might supply to WalMart a specific packaging or branding quality.
The increasing consumer orientation of food companies holds perhaps the best leverage opportunities for sustainability. Terry Leahy, CEO of the UK supermarket giant Tesco, cautioned other industry leaders in the audience to, “Keep sufficient humility to let in signals that indicate the context is shifting even in times of success.”
This is where I found hope for the future. Consumers are giving clear signals that change is in order, and food companies will respond to these signals. McDonalds refused genetically modified potatoes and is now providing organic milk in the UK; their purchases of Chipotle and The Boston Market have proven very successful. Food safety is such a huge concern that ConAgra Foods has divested itself of meat processing. A few specialty marketers like Starbucks are adding environmental or fair trade characteristics to their market claims.
If governments catch up with consumer shifts and public needs, change will be even more rapid. If tax policy, for example, were to reward responsible behaviors and penalize irresponsible ones, the competitive terrain would evolve. Using up non-renewable resources like oil could become unprofitable, and stewarding soil and water could become profitable.
Producers and buyers could negotiate sustainable catch levels for fish, marketable volumes and adequate reserves for agriculture, and prices that would sustain producer communities. If governments were to help facilitate these agreements, and if consumers were willing to pay a bit more for fish and chicken, for example, in order for there to be sustainable wild fisheries and chickens raised humanely, the whole system would radically shift.
Many of these same companies and same executive managers would be part of the solution instead of part of the problem.
© Sustainability Institute
