Food security is a critical issue for any food & beverage company. It is self-evident that food is the business for such a company, so any macro-level issue regarding food is inherently important, but there are specific considerations that drive the relevance of food security.
First, food security reflects on the long-run sustainability of the business. It may sound silly to say it, but food companies need food in order to survive. They need to grow it, process it, package it and sell it. So at the supply chain level, threats to food security need to be taken seriously. The world today is just now starting to legitimately look like a zero sum game with respect to many resources, food being one. If the world needs to produce much more food than what has been produced in the past, but as much as a quarter of agriculture land is already compromised (AP, 2011), and much more threatened by water constraints and climate change (Wheeler, 2013). For a food company, global food security issues will affect its ability to get the materials that it needs to produce the food that it wants to produce for profit. It is not hard to imagine a future where big food companies are targeted by governments, as food security needs will ultimately outweigh the perceived right of these companies to control the food supply.
But there is also tremendous opportunity. Where food companies can provide benefit, they can gain in terms of their status. If there is growing demand for food, any company that can meet that demand will be able to increase its profits. While one can reasonably argue that the UN's 70% figure is overstated -- it assumes that people have the inherent right to demand and receive a Western-level of calorie consumption -- there is little doubt that there is going to be a greater imbalance between what we produce and what we need to produce. The degree to which a food company can close that gap will go a long way to determining if such a company is going to succeed in a future where food security becomes a much bigger policy issue.
Companies in the food business will need to take a number of different steps to address the issue. But it can be hard to predict what the future holds. The future could be like in science fiction where food companies monopolize production and markets for food; or governments terrified of starving populations dismantle big food companies and nationalize production and distribution of food seeking greater security and efficiency (yes, efficiency, as the capitalistic food system is incredibly wasteful). An executive running a food company will necessarily want to consider strategies, which could range from increased vertical integration to positioning the company as a food security solutions provider, to reducing waste dramatically to avoid being the first target. But before that can happen, the company has to monitor the situation. Threats and opportunities will not be evenly distributed around the world.
Many international food companies operate with a geographic organizational structure, or a matrix structure for companies that have several billion-dollar brands. These structures allow for local divisions to gather information about food security. This information is not always collected, even by local government officials, but food companies are fairly well-connected with the local food production conditions. These are usually combined with information about water, and demographic data, to determine a region's food security. In many cases where a region lacks food security, the food companies are already involved in making up the gap. Thus, food companies have the means, should they choose to dedicate some internal resources, to determining the level of food security in a region and understanding what the business and political implications of that are going to be.
One of the biggest issues for food companies is balancing short- and long-term interests in food security. In some areas, agriculture is relatively sustainable in the short-run, but reliance on groundwater, or the predicted effects of climate change are going to compromise food security in the long run. Food companies, usually public...
This is a genuine concern where long-run sustainability is concerned, because managers are not incentivized to think long-term. A manager could make a decision today that negatively affects long-run sustainability, but will be dead by the time that full effects of that decision are known -- there is just no incentive to think long-term, which is why we have such a massive problem dealing with climate change. In the past, managers could exploit new markets if an old market dried up, but the world's largest companies today have no more new markets, so much start thinking a little bit more about long-run sustainability, and that begins by gathering data, and using available resources and models, to understand what the long-run needs are going to be in different parts of the world.
Policies, Mechanisms and Structures
The food and beverage industry is motivated by short-run returns, as there are no genuine long-run consequences to be paid by executives for their decisions. It is difficult to incentivize the long-run. If we lived longer, this would be more real, but someone who is in their sixties today has no reason other than altruism to care what the world will look like in the latter half of the 21st century -- they pay lip service to this but actions speak otherwise.
Basic economic theory tells us that if there is no market-based incentive then the incentives for behavior that is causing negative externalities -- market failure -- then such incentives need to be imposed by government. Government is the only entity with the formal authority to introduce such incentives and enforce them, and government is the only entity with a lifespan as long as a corporation. Thus, the mechanisms need to be taxes or levies on behavior that creates the negative externalities in the long run. This is not an exact science -- basing today's restrictions and taxes on potential future outcomes- but there are areas where government can guide policy. In the past, government support of infant industries eventually allowed such industries to be viable so there is evidence that in the past a government with a lot of foresight has been responsible for progressive policy decisions who positive effects took many years to materialize. There are instances where we know what the right policies are today -- like the amount of water used for agriculture in California is completely unsustainable -- but there are other instances where punitive policies to manage corporate behavior are speculative.
But companies can themselves act in a more responsible, sustainable manner. This requires vision, and maybe even some sacrifice, but effective selling of a vision can be done. If a company lacks vision -- the big automakers for example -- then someone else like Tesla will come along with a vision instead. So for the food makers, there may not be economic incentive today to think about long-run food security and sustainability, but that does not mean that such thought should not exist. A strategy should be developed, looking at the data and the key issues, because the companies that are in the best position, ready when crisis arrives, to capitalize, will be the ones that succeed through the 21st century. A company that does not think long-term will become the food version of Kodak, completely shut out of the market after it evolves.
On the consumer side, one of the factors that is going to become more important is the trade-off between calories and nutrition. Calories are relatively easy to produce, and ultimately nutrition is harder, and more of something that individuals need to think about. In a world with a growing population, focusing on calories at the expense of nutrition has no real costs for food companies, because even if lifespans are shortened, people are replaced with new consumers.
Food security overlaps everything that we have discussed. Climate change is a source of overlap, because climate change affects the amount of agricultural land available for cultivation. This in turn overlaps with the idea of the nation-state, because when the climate changes some areas will have more agricultural potential and some less. Nations cannot control the size of their population, but with migration flows limited by national boundaries and food supply limited by mother nature, there is little doubt that some areas will face food crisis much faster than others. Consider a country like Canada, which is sparsely populated and will probably have more agricultural land as temperatures rise, thereby extending growing seasons. Canada will be fine, but sub-Saharan Africa will suffer greatly. With minimal migrations, and maybe even difficulties in fostering trade, the gains made in Canada will not be able to offset the declines in sub-Saharan Africa. So climate change with other factors will not only…
AP (2011). UN: Farmers must produce 70% more food by 2050 to feed population. The Guardian. Retrieved December 11, 2014 from http://www.theguardian.com/environment/2011/nov/28/un-farmers-produce-food-population
Satran, J. (2013). Water scarcity must be addressed urgently to avoid food shortages, Nestle CEO Paul Bulcke says. Huffington Post Retrieved December 11, 2014 from http://www.huffingtonpost.com/2013/02/26/water-scarcity-nestle-ceo-paul-bulcke_n_2768390.html
Wheeler, T. & von Braun, J. (2013). Climate change impacts on global food security. Science. Vol. 341 (6145) 508-513.
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