Is The Global Food Industry Sustainable?


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This is an outline of my doctoral research findings over the last two years. This is also the background work that will go into the development of the serious game "Galapagos"

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Is The Global Food Industry Sustainable?

  1. 1. Marigo Raftopoulos Doctoral Candidate, Monash University May 2009
  2. 2. Is the global food business sustainable?
  3. 3. “The environmental and social problems of today’s agriculture are severe enough to warrant immediate action. With the steep rise in the price of food on global markets already leading to riots and starvation, the need for fundamental change is tragically underscored” UN Environment Program 2008
  4. 4. How we produce it How we sell it How we consume it
  5. 5. The old paradigm was created by a world view of abundance which drove an unsustainable use of natural resources & fossil fuels and a business accounting system that did not factor the real cost of production
  6. 6. • All businesses require a continuous renewal of their internal capabilities, structure&culture that align with a changing business environment • Current business assumptions and accounting systems do not factor the full externalities of running a food company • Static business assumptions & capabilities will destroy shareholder and stakeholder value over the long term
  7. 7. • A new sustainable paradigm has emerged: integration of triple bottom line responsibilities – economic, social, environmental • Separation of these three elements is a fallacy – and unsustainable • Businesses are now facing a community push rather than a competitive pull towards sustainable food production • This is the source of future competitive advantage for food industry
  8. 8. • The capabilities required to run a sustainable and competitive food business are not clearly defined or evident in academic literature • These business capabilities are still new and emerging and are very difficult to generalise • Case studies are ‘situational’ and are dependent on a firm’s values and choice of strategic approach • There is no formula for success – sustainable businesses practices appear to be unique to each firm
  9. 9. • Innovate on approaches to integrate economic, social & environmental elements of the business • Questioning traditional internal paradigms and assumptions (and that of supply chain partners): – Experiment and Take risks – Continuously Learn and Adapt • See the opportunity (and not just the threat) • Strategies must combine business adaptationandreform initiatives
  10. 10. • Industry power is skewed to the retail end of the value chain - food retailing is a concentrated, competitive industry • The retailers drive the key market signals down the chain to manufacturers & beyond • Retail business model is predicated on: – Low cost, high throughput & turnover – Consumer choice and convenience – Complex global supply chains designed to minimise accounting costs and max profits – However they have a large carbon footprint that is not accounted for
  11. 11. • In contrast, global food manufacturing companies are not as concentrated – The largest 50 global companies account for only 20% of global packaged food sales • Excellent relationships with retailers are essential for effective distribution • Food manufacturing is a low margin business that is sensitive to changes in supply chain costs • Farmers have the least economic power due to a high level of fragmentation, low levels of resources and low profitability – And farmers are at the pointy end of climate change, bearing the cost but not the returns
  12. 12. 1 Food companies need to 1 Food companies maintain that revisit their business consumers say they want sustainability but are unwilling to pay for it; assumptions and capabilities consumers want cheap food. 2 Future competitive 2 Food companies won’t make the leap advantage will need to be from ‘green initiatives’ to full sustainable sustainability reporting due to the perceived cost disadvantage. 3 Capabilities for sustainable 3 Lack of an alternative business model competitive advantage are will continue to slow adoption of emerging but still not clear sustainable practices. “Green-washing” is prevalent. 4 Strategic foresight and 4 Industry structure drives firm behavior; entrepreneurial leadership is concentrated industries that are cost & key to survival turnover focused (retailers) dictate terms based on price. Businesses will comply but are reluctant to lead.