Climate change

Date : 05 August 2013

 What’s the issue?

Climate changeThe Earth's climate has always been in a state of flux. However, since the early 1900s, it has changed particularly rapidly and according to the scientific consensus, this is mainly because of man-made changes to the atmosphere and in land use.

Assuming that climate scientists are broadly correct, we will live with the consequences of today’s higher greenhouse gas levels for the next few decades, regardless of any actions we now take. Beyond that time, climate change will depend on the rate at which we continue to emit greenhouse gases into the atmosphere.

Interactive map which explains the forecast impacts of rising global temperatures across the world

Growing demand for food must therefore be met against a backdrop of rising average global temperatures and changing patterns of rainfall. This affects crop growth, pests, losses, livestock health, fisheries and aquaculture yields in all regions. For instance, higher temperatures and drier soils would increase demand for irrigation of crops, which in the UK, are currently largely produced in drier areas.

Extreme weather events could become increasingly severe and frequent, causing ever-greater volatility in production and prices. Crop production could be affected by changes in sea level, river flows and water tables. UK Government advisers have warned climate change could require farmers to double their water productivity.

However, there could be some positive outcomes. Land at higher latitudes could become suitable for cultivation and some increased carbon dioxide fertilisation could take place (due to more CO2 in the atmosphere).

What risks does this present to individual food companies?

Almost all food products are likely to be affected by climate change to some extent and in ways that are impossible to predict precisely. This would be reflected in erratic market prices for various ingredients.

In the most extreme scenarios, some ingredients could become unavailable for extended periods of time.

Ingredients that are difficult or costly to store (such as fresh vegetables) are the most vulnerable.

Exposure also depends on the degree of substitutability. Risk is higher where the source of supply is geographically concentrated and where substitute ingredients are unavailable.

Companies relying on products with a high carbon footprint could be exposed to shifts in consumption if concerned consumers change their diets.

Future policies to mitigate climate change could also have a big impact on these products, e.g. through carbon taxes, carbon cap and trade schemes, emissions limits, grants or subsidies for lower carbon products.

What’s been the story so far?

  • The world has warmed by three-quarters of a degree in the last century. (Source: Met Office)
  • There has also been an increase in extreme weather events, including heatwaves and exceptional rainfall. Examples include:
    • In the summer of 2003, Europe experienced a particularly extreme heatwave. A record loss of 36% crop yield for corn occurred in Italy
    • Over the past ten years, Category 5 hurricanes have resulted in a 10% average loss of cultivated land in the coastal states of Mexico each year
    • In 2010, the Russian drought resulted in wheat yield reductions of 40% in key production areas whereas floods in Pakistan resulted in losses of half a million tonnes of wheat
    • In 2011, insurer Swiss Re reported the highest ever economic losses in history through natural disasters and man-made catastrophes – an estimated $370bn compared to $226bn the year before
    • In 2012, the UK suffered the wettest autumn on record, followed by the coldest spring for more than 50 years, reducing wheat yields by around one third and forcing food manufacturers to import 2.5 million tonnes of wheat - the amount the UK would normally export
  • According to Defra, research shows that 64% of UK businesses have suffered some supply chain disruption due to extreme weather and 70% of major businesses and their suppliers see significant risk from climate change. Yet only 40% of large businesses in the UK are taking action to be ready for the impacts of climate change

    Map of Food insecurity and climate change (Source: Met Office)
    Further food and climate change stats: http://www.metoffice.gov.uk/media/pdf/4/q/food_text.pdf 

What can companies do to reduce their own risks?

  • The first step is to identify particular supply chain vulnerabilities from climate change. “What if” scenario planning can help. It requires a total chain perspective, not just a view of immediate suppliers
  • The risks can be mitigated in various ways although they all involve trade-offs:
    • holding additional inventories (which raises cost)
    • incentivising suppliers to grow weather resistant crop varieties (which requires investment)
    • spreading the sourcing net widely geographically (which can make tracability more difficult)
    • lining up alternative sources of supply in case they prove necessary (which can be time-intensive)
    • vertical integration into primary production (which can reduce sourcing options)
    • agreeing long term price contracts with suppliers (which reduces flexibility)
    • using price hedging instruments (which can require paying a premium)
    • formulating flexible recipes that allow for substitute ingredients (which can make products less consistent)
  • Plan ahead for the impact of potential carbon pricing or rationing regulations. This requires calculating carbon footprints and developing decarbonisation plans, in particular by improving resource efficiency at carbon ‘hot spots’ in the supply chain
  • Sponsor and test ways to improve the adaptability of farming to climate change, for instance through new crop strains and production methods. This could include a programme of farmer training
  • Reduce the risk of a consumer backlash against your products by taking a proactive stance to reducing carbon emissions. Consider this relative to direct competitors and also potential substitute products

What can companies do to act responsibly?

  • Maximise your contribution to fighting climate change by ‘decarbonising’ (reducing emissions) both within your company and using your influence through your supply chains. Be fully transparent about carbon footprints
  • Apply a zero deforestation policy in sourcing all ingredients
  • Develop a dialogue with consumers about lower carbon lifestyles and support them in this, for instance helping them to reduce packaging and product waste

Who has taken action?

  • Through the British Retail Consortium’s voluntary agreement retailers have reduced emissions from stores by 33% between 2005 and 2012. Absolute emissions were reduced by 11%
  • In 2011 FDF members achieved a reduction in CO2 emissions from their manufacturing operations of 27% compared to the 1990 baseline
  • The Consumer Goods Forum council (of leading retailers and manufacturers internationally) has signed up to a target of zero deforestation throughout all member company supply chains
  • Many consumer goods companies report their company carbon footprint using the Carbon Disclosure Project system

Where can you go for more information?

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