“I help to feed the world; I make world-class products; I care about my employees.” These are all values shared among the dairy processor community I get the opportunity to work with, and they are essentially for any successful organization. While these concepts are not new, the need for change and adaptation in businesses is inevitable. The drivers of change include efficiency, emerging opportunities, new regulations, and most significantly, consumer demand. In the past five years, consumer and generational demands have transformed more rapidly than in the previous 50 years. It is challenging to run a business today without directly dealing with or considering terms like Environmental, Social, Governance (ESG) Diversity, Equity and Inclusion (DEI) or sustainability, which happens to be my personal favorite.
Meeting Evolving Demands
In this article, I want to focus on sustainability through the processor lens. While these concepts aren’t new, I am fortunate to soon experience the producer’s viewpoint and understand what’s changed and why. From where I stand, the dairy industry’s supply chain has made significant progress and has even more instore in terms of what has changed and why.
To provide some context on why sustainability is an issue and how it may affect your business or your thoughts, the concept of greenhouse gas emissions has been around for over 25 years and originated from the Kyoto Protocol in 1997. This agreement established the Greenhouse Gas Protocol (GHG), which, although it may not have garnered much attention back then, has become a focal point today. GHG provides a standard framework for measuring and managing greenhouse gas emissions for the public and private sector. Fast forward almost 20 years, and the Paris Agreement was adopted by 196 countries in 2015. Its goal is to limit global temperature increases to 2 degrees Celsius above pre-industrial levels, ideally only to 1.5 degrees Celsius. The consensus on how to get there is by adopting a neutral balance of greenhouse gas emissions by the middle of this century. It’s worth noting that methane stays in the atmosphere for approximately 12 years, nitrous oxide for about 109 years, and carbon dioxide emissions have a lifecycle lasting thousands of years. Methane is roughly 28 times more potent than carbon dioxide, while nitrous oxide is about 273 times more potent. Moving forward, how have these developments impacted retail and wholesale partners, consumer packaged goods partners, consumer demand and the requirements proposed by EPA in May? To recap the timeline, emissions may or may not have been in focus since the Industrial Revolution began around 1750. Fast forward to 1997 when formal action was first taken, followed by voluntary action in the early 2000s and most recently, some have been forced to take action. That’s accelerated change in a very short period.
Supply Chain Sustainability
What we know is that the industry is doing more than ever to mitigate the impact to the environment. On the processing side, we have made remarkable progress in wastewater treatment, water usage and improved energy efficiency. However, one of the biggest challenges for processors in terms of carbon accounting is that over 90 percent of the greenhouse gas footprint lies within the farms, not within the processors, transporters and retailers involved in the value chain. Processors are diligently managing their direct impacts while also analyzing, suggesting and encouraging their supply chain partners to better manage their indirect impacts. Regarding the achievements of the processing industry, a 2021 study by the U.S. Dairy Stewardship Commitment, hosted by the Innovation Center for U.S. Dairy, highlights the following:
- U.S. dairy processors were net positive for water, returning more than they withdrew from municipal and other sources by making use of the water present in milk.
- More than 95 percent of waste from reporting processors was recovered, redirected and put to beneficial use instead of being sent to landfills.
- The U.S. dairy community provided 1.538 billion servings of fresh milk and dairy foods in 2020 to food banks in the Feeding America network, representing a 33 percent increase over 2019.
- The U.S. dairy industry supported 3.3 million jobs in the U.S. and contributed $752.93B in total economic impact.
The path to a more sustainable system is undoubtedly a partnership between processors, the supply chain and the dairies the produce this vital source of nutrition. The question we should be asking ourselves is who is driving the demand for sustainability and, more importantly, what’s next? Change often comes at a cost, and it is crucial to determine who bears that cost. While there may be some subsidizing, consumer-driven or a regulatory change, hesitate to directly charge consumers to accommodate sustainability efforts. One of my final and most significant points is understanding the “why” behind your commitment to sustainability. A recent study by Bain & Company polled 600 client executives representing oil and gas, power utility, chemical, mining and agribusiness industries. Nearly 78 percent of respondents identified customer unwillingness to pay higher prices as the greatest obstacle to decarbonization.
There are three reasons for change: I want to, I have to or I am paid to. Naturally, our business decisions are primarily driven by economic factors. The industry made significant progress in becoming the best environmental steward it can be to date. As we consider the next steps, each of us finds ourselves at different stages. The question remains: why will you make the next change and who will pay for it? I eagerly look forward to discussing the producer side in my next article to showcase their evolution and what lies ahead for them.