Winning through sustainability

IT HAS become critical for CEOs to work at sustainability to bolster company reputation and build brands, which ultimately results to a healthy bottom line.

Within the food and beverage sector many companies have begun implementing programs aside from getting insights from industry best practices.

But risks posed by climate change, water crisis, and other environmental and social issues present a threat to the growth of businesses in the industry. The reason why there is a greater need for companies to embark on sustainability initiatives that can mitigate impact on business operations to ensure their long-term growth and viability.

The recent report Asian Fast Moving Consumer Goods: A Sustainability Guide for Financiers and Companies published by the World Wide Fund For Nature (formerly World Wildlife Fund), identified issues such as sourcing commodities, water risk and packaging as major areas of concern to sustainability.

We look at the financial and organizational benefits of addressing these issues and how some F&B companies in the region are finding ways to overcome challenges and creating opportunities.  

Keeping stable supply of responsibly produced raw materials

The WWF highlighted in its report that environmental degradation, problems with local communities and labor, and mounting issues such as climate change make it more challenging for producers to provide consistent and growing supplies of commodities.  

Global FMCG companies lead the way in effecting sourcing policies to eliminate risks from their supply chains but Asian manufacturers are only beginning to identify and manage these issues and may have weaknesses in their supply network, the research added.

The business benefits identified by the WWF for manufacturers that source responsibly produced commodities include: higher yields and robust supply chains resulting from certification processes; reduced reputational risks; positive branding opportunities; meeting requirements of retailer’s tighter sourcing policies; and regulatory compliance whereby non-fulfilment can mean supply disruptions and market access limits, among others.

Reputational risks when sourcing commodities

In 2014, Thai Union Frozen Product was linked to the issue of engaging slave labor on fishing boats that were supplying the seafood industry in Thailand. In response, the company immediately revised its Business Ethics and Labor Code of Conduct and put in place tougher procedures in monitoring and compliance.

Beginning this year, Thai Union announced that all processing work will be directly controlled by the company to ensure that all workers, whether migrant or Thai, are in safe, legal employment and are treated fairly and with dignity. Nearly a thousand workers employed by external pre-processors were offered the opportunity to work with Thai Union.

This episode highlights the importance of sourcing responsibly produced commodities. 

“I am pleased that we are implementing our plans to bring pre-processing of our shrimp products into Thai Union and are able to offer safe and legal employment to thousands more workers. This is a positive step towards our goal of ridding the Thai seafood sector of illegal labor practices. We are committed to leading improvements in the industry and we hope this reminds all operators that they must remain focused on promoting good labor practices – the abuse of human rights must not be tolerated,” stressed Mr. Thiraphong Chansiri, president and CEO of Thai Union in a press statement.

Likewise, Thai Union partnered with Migrant Worker Rights Network (MWRN) in holding workshops in their facilities for migrant employees about applicable labor and social welfare regulations in Thailand.

Efforts in sourcing certified commodities

Malaysia-based Dutch Lady Milk Industries Bhd is among the many companies in the region staunchly advocating responsible corporate conduct in their operations.

In their disclosure, they stated that since their parent company Royal FrieslandCampina N.V. is a Roundtable on Sustainable Palm Oil (RSPO) member, their products have been using only 100 percent sustainable palm oil.  In addition, they only use UTZ Certified cocoa for their other products. Netherlands-based UTZ is referred to as the largest program for sustainable farming of coffee and cocoa in the world.

Thai Union’s subsidiary Chicken of the Sea Frozen Foods, Global Aquaculture Alliance Aquaculture Certification Council-certified shrimps accounted for nearly 70 percent of its U.S. sales in 2014 which they intend to increase to 100 percent by 2020.

Also as part of its 2020 commitments, Thai Union vows full traceability for all purchased seafood, drastically reducing the risk of illegal, unreported, unregulated (IUU) fishing.

Water management

The WWF study also noted that water issues pose problems for FMCG companies, specifically in the Asian region. Manufacturers continue to depend significantly on water in various points of their supply chain and encounter water-associated risks and issues such as availability and quality, among others.

In the report, the WWF said: “Asian FMCG companies have only started to identify and manage these risks and generally they remain behind global leaders. The strongest approaches they can employ include significant engagement with stakeholders in the basins they rely on.”

It added that water risk management offers business benefits such as:

·   Preventing supply chain disruption

·   Mitigating operational risks

·   Maintaining a good reputation, and

·   Staying in line with regulations

Direct water use best practices

Thai Union has identified that 11 out of their 25 factories are located in “high” water shortage risk areas. This represents nearly half of its operations. Last year, the company’s total water consumption was nearly 9.3 million cubic meters, of which almost 80 percent or 7.4 million cubic meters are municipal water. Its subsidiary Songkla Canning PCL (SC) uses municipal water as its water source bringing with it problems such as poor quality and erratic supply. It has resulted to business interruptions and even conflict with the local community.

To tackle the issue, SC developed alternative water sources. In 2014, 19.2 percent of its total water withdrawal came from municipal water supply, 15.4 percent came from recycled water, 4 percent from its rain reservoir and 61.4 percent from external rainwater and runoff reservoirs. SC also implemented a comprehensive water quality inspection and water treatment program that meets European standards for export.

Moreover, to address water quality, the company installed water treatment facilities not only for its water sources but also to recycle wastewater. In 2014, 15.4 percent of SC’s water consumption or nearly 151,000 cubic meters came from recycled water which translated to around 3.3 million Baht in cost saving.

For Dutch Lady Malaysia, its Operations department, with the support of its parent company, has established a strategy and actions to cut the company’s water footprint by 20 percent per kilo by 2020 compared to 2010, through an efficiency gain of 2 percent per year. To complement the strategy, water recycling initiatives were also implemented in different production plants.

In addition, the company’s Engineering unit regularly performs audits to identify areas of leakage in the plant and repair or replace faulty pipes to prevent further wastage.

Sustainable packaging

Packaging plays an essential part in protecting a product aside from its promotion and branding functions.

But according to WWF’s Asian FMCG Guide packaging “creates multiple environmental problems. The extraction of raw materials often contributes to issues such as deforestation and fossil fuel depletion; and packaging production processes can cause emissions to land, water and air. Packaging is also one of the most common items to be mismanaged at the end of its life, adding to problems like ocean waste.”

It went on to say that “for FMCG companies, poor management of the problems around packaging creates potential reputational and longer-term regulatory risks, as well as supply chain resilience issues.”

Winning in the marketplace points toward sustainable packaging with business benefits such as:

·   Saving money

·   Enhancing branding and reducing reputational risk

·   Increasing operational resilience, and

·   Minimizing regulatory risk

Cost savings in packaging optimization

Since 2004, Thai agro-industrial and food conglomerate Charoen Pokphand Foods PCL (CPF) has committed to continuous improvement and development of packaging that supports environmental impact mitigation.

CPF trimmed down consumption of plastic and paper by 1,700 tons, including 170 tons in 2014. The reduction of resources used and the efficiency improvement in packing and loading capacity generated cost savings of up to 230 million Baht (USD6 million) from 2007 to 2014. Increased loading capacity also meant lower transportation costs for its customers.

Charoen Pokphand Foods cuts plastic and paper consumption, generating 230 million Baht (USD6 million) in cost savings

Dutch Lady demonstrates its commitment to responsible forestry by using the Forest Stewardship Council (FSC)-certified materials as the primary packaging for its Dutch Lady UHT Milk. They were the first manufacturer in Malaysia to use FSC-certified packaging since mid-2013. Aside from primary packaging, the company ensures that its programs continue to secondary packaging in terms of using certified responsible materials.

Leading food and beverage player in Singapore and Malaysia Fraser and Neave Limited (F&N) assessed the bottle design for its F&N and 100PLUS carbonated drinks to see if they can reduce the PET resin used in the production of bottles.

The initiative produced lighter and more streamlined designs for the 500 ml and 1.5 liter PET bottles for carbonated drinks. The weight of a 500 ml bottle was down from 27.5g to 22.7g, while that of the 1.5 liter bottle was down from 46g to 42.75g. With the lightweighting project, F&N is looking to save 68.7 tons of plastic packaging including material cost saving of S$ 126,000 (USD91,800) annually. - Jonel Guittap