4.8 Taking the Lead, Following or Teaming Up with your Peers?

Should your company take the lead in the development of sustainability standards for specific agricultural raw materials?

When defining and implementing your sustainable sourcing strategy, ask yourself what role your firm can or should play in relationship to other firms in the same sector. Is there an opportunity to be a leader and/or first mover? If so, what would be the associated advantages and disadvantages – in terms of visibility, financial costs and benefits, etc? Can first mover steps contribute to a firm gaining competitive advantage over others? By leading, will others follow, thus levelling the playing field? Take the Unilever Lipton Tea case in Example 2. Initially there were questions asked by internal decision-makers about competitors capturing market share. They argued that if other major tea brands also switched to certified tea, sustainability would no longer be a competitive advantage. The answer lay in the positive economic impacts for Unilever of a transformation of the entire industry to certified tea. If a significant share of both tea producers and buyers around the world switched to certified sustainable tea, prices would inevitably increase across the board. With prices moving upward, the company realised that the historical trend of commoditisation of tea would be reversed, allowing retail prices to rise gradually. Because Unilever had the largest global market share, it would be able to capture the major part of the income growth. The company saw that it would gain significantly from an end to the downward spiral of process and quality variance on the global tea market. And it considered this move as one of its responsibilities as the single biggest tea purchaser in the world.

Leading the way means playing a decisive role in setting sustainability benchmarks that may eventually be included in company-independent sector-wide standards, from which other entities – including your competitors – will eventually profit. Companies may do this by playing a leading role in multi-stakeholder initiatives. Examples in the past were:

A company that wishes to source agricultural raw materials for which external standards are still lacking (or where there is a confusing variety of standards) should ask itself whether it can be profitable to take the lead in standard development or not. Arguments in favour of such a role are the volumes traded by the company, the visibility of the company and its brands.

In fact, taking the lead may take different forms:

  • making the internal company standard available as an open source standard to the industry;
  • setting up cooperation projects in the industry and with farmers to define best practices as a basis for standard setting;
  • promoting mutual recognition between standards and harmonisation between standards;
  • promoting a common understanding of best practices and industry minimum standards in an existing platform, such as an industry association;
  • setting up an industry or multi-stakeholder sustainability standard / certification initiative.

Evidently, one company may be a ‘leader’ on one commodity and a ‘follower’ on another. For example, Unilever is a leader in the discussions around palm oil and the RSPO because it is a major purchaser and user of palm oil. However, it explicitly takes a lesser role in commodity markets where it is a smaller purchaser and user. Mars is a leader in the cocoa arena, but more of a follower in palm oil as a relatively small consumer.

Example 11. McDonald’s Europe and Sustainable Beef

McDonald’s has a partnership with the conservation organisation WWF, which worked with the company in 2010 to undertake an analysis of commodity purchases globally with the greatest potential sustainability impact. This work identified beef as the raw material in McDonald’s global supply chain that has the greatest overall impact.

McDonald’s recognised that, in order to effect any change in the production of the beef it purchases, it must work in partnership with the beef industry and its stakeholders on a pre-competitive basis. Globally, the firm was one of six hosts for the Global Conference on Sustainable Beef (GCSB) in 2010. The Global Roundtable for Sustainable Beef (GRSB), a not-for-profit organisation founded in early 2012, was born out of the GCSB. The GRSB is a global and multi-stakeholder initiative which aims to advance continuous improvement in the sustainability of the global beef value chain. McDonald’s is represented on the Executive Board.

In Europe, the company has been involved in efforts to address the sustainability of primary beef production for a number of years. The McDonald’s Agricultural Assurance Programme (MAAP) has been in operation since 2001 and is the firm’s key agricultural programme in Europe. MAAP enables the company to manage the sustainability of the farm products used in restaurant menu items through a series of targets for direct suppliers. The Flagship Farms programme builds on the MAAP by identifying and sharing the best practices that are in operation on some of the most progressive farms in the supply chain. McDonald’s Europe is also involved in several multi-stakeholder and industry-led platforms:

  • The company is a member of the industry-led SAI Platform and chairs its Beef Working Group.
  • McDonald’s was also a founding member of the multi-stakeholder European Animal Welfare Platform (EAWP), a three year (2008-2011) project sponsored by the European Commission. The EAWP achieved for the first time broad consensus on the key welfare issues, and identified best practices and research needs for major farm animal species.

The company is also running a number of national-level initiatives on sustainable beef:

  • Across France, Germany, the UK and Ireland, McDonald’s is working to measure and reduce greenhouse gas emissions from beef farms.
  • In Germany, the BEST beef project provides an incentive programme for beef farmers by rewarding sustainable farming practices with bonus payments.
  • Through their Farm Forward programme, McDonald’s UK is supporting the training of young farmers in key farming and business skills, and is helping more than 200 beef farmers across the UK and Ireland to measure and reduce the greenhouse gas emissions of their enterprise.

McDonald’s vision is to engage with suppliers and major stakeholders from across the industry to identify sustainability principles and drive best practices into mainstream beef production. This will help better equip the sector to meet the challenges of tomorrow – and provide for a sustainable beef supply chain that is able to deliver sufficient high-quality raw materials well into the future.

Source: Company information.

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