1.3 Stakeholder Pressure

Taking the Lipton Tea case cited in the previous page as an example, the firm’s competitive context already gives a sense of the importance of the firm’s stakeholders in helping to formulate a business case for sustainable sourcing. Deriving a sustainability strategy that guarantees a competitive advantage means that you have to do your homework first. Who can help?

Your stakeholders can. In fact, stakeholders act as an effective motivational factor since through their actions, they put sustainability issues on the radar screen of companies. Shareholder and public activism are increasingly pushing for more transparency and action on key sustainability issues. In a highly networked and global social media driven communications context, risks to corporate reputation through negative media exposure are greater than ever before. Governments and regulators are increasing regulations (for example around carbon emissions, pollution and child labour) and imposing more sustainability standards. Shifting consumer demands are evident through a growing base of consumers that are demanding sustainable product options. Overall, sustainability has become a business imperative in several key areas affecting companies: sustainable sourcing of agricultural raw materials is one of them. So here is your next question:

Which stakeholders are pushing sustainability related issues onto your corporate strategic radar screen when it comes to sourcing of agricultural raw materials?

The biggest push for a sustainability sourcing strategy often comes from corporate stakeholders further down the chain of command than the producing farmers; this is because there are specific issues that are of relevance to them. Plotting the issues that come up in each part of the value chain via the stakeholders will ensure that you understand the “red threads” of the sustainability issues that have business relevance because they lead to either risk or opportunity for the firm.

Of course, given corporate growth objectives and the vital need to provide shareholder value, the company’s primary stakeholders (investors, customers, consumers) are the most visible to decision-makers when it comes to any kind of strategic decision-making. However, as a result of the increasing focus on the entire value chain, “second tier” stakeholders are gaining in importance, particularly in recent years as firms are under increasing scrutiny, and as they learn more from their own stakeholders about inherent risks in value chains. Engaging stakeholders can be extremely challenging for firms, however. See Example 3 below on how the company Friesland Campina started to bring a very key stakeholder - the dairy farmer - on board with its sustainability strategy, through a participative, listening process.

Example 3. Friesland Campina: Getting Dairy Farmers Onboard

Friesland Campina has adopted a co-operative sustainability approach to set a credible standard for responsible dairy farming – so as to ensure responsible dairy farming both at the farm level (compliance, animal welfare, mineral balance, outdoor grazing, assuring biodiversity) and at the processing level (mainly reducing GHG emissions).

Friesland Campina has set a number of ambitious goals to attain by 2020, ranging from the short term to longer term:

  • Reduce use of antibiotics to 1999 levels
  • Maintain current levels of outdoor grazing
  • Comply with legislation for manure phosphates and prevent new legislation
  • Achieve 30% reduction of GHGs between 1990 and 2020
  • Reduce animal health issues to natural levels
  • Achieve 100% responsible soy in cattle feed by 2015
  • Recognise the role of the farmer in management/maintenance of the landscape

The firm has implemented measures to attain each objective but the most important of all was to get the dairy farmers on board. This meant adopting an inclusive approach by stimulating and facilitating individual learning and training of the farmers using tools, workshops, “train the trainer” sessions and collaborations (for example, with vets and feed suppliers), while monitoring and measuring the practical use and cost effectiveness of results.

To stimulate innovation, the dairy farmers needed to develop their knowledge, and to learn from each other. They also needed tools to support sustainability at the farm level and to measure the results. A farmer’s intranet was created enabling a knowledge sharing and feedback process. Agreement was also reached on measuring and monitoring of objectives with a standard approach allowing comparisons, comprehensive data collection and giving credibility to the process. Standards were set up for every dairy company and implementation started in 2012.

Friesland Campina’s activities have not only increased accountability of the firm but also of the entire Dutch dairy sector. Today, the sector’s objective is to set the standard for sustainable dairy farming and is inviting all stakeholders to support a similar approach to that of Friesland Campina.

Developing a sustainable sourcing strategy means tackling a myriad of sustainability issues, of an environmental, social and ethical nature.

These are often fragmented within the value chain, making it difficult for managers to assess their scale and impact as well as points of influence. Moreover, the public prominence of issues and the “facts” may seem at odds—different countries and cultures will have different concerns or affinities for technologies or business activities. Business insiders may want to dismiss concerns as unscientific or idealistic but this attitude are not necessarily helpful when engaging with pressure groups.

How do you identify the sustainable agriculture (SA) issues that are most relevant in the value chain for the sustainable sourcing of agricultural raw materials? You begin by plotting the issues that are most economically relevant within the value chain. As an example, depending on the raw material you are focusing on, your chart might look similar to this:

 

 

Growing

Buying/trading

Processing

Storing/Transport

Environmental

Land availability

Inputs/Fertilizers

Energy usage

GHG emissions

Water usage

Biodiversity

Deforestation

 

Waste mgmt/disposal

Deforestation

Water usage

Energy usage

GHG emissions

Energy usage

GHG emissions

Social

Child/slave labor

Discrimination

Health & safety

Farmer loyalty

Community care/education

Demographic changes

 

Health & safety

Health care programs

Employee training

 

Economic

Farmer return (inefficient operations)

Farmer return (input costs)

Farmer security

Access to supply

Alternative crop usage

Employee succession

 

Farmer return (fair pricing)

Farmer return (auction fees)

Employee succession

Utility costs

Waste disposal costs

Employee succession

Utility costs

Farmer return (fuel costs)

Fuel availability and costs

       
Once a comprehensive list of relevant sustainability issues is established, it is important to prioritise these issues from a strategic standpoint. One way of doing this is to chart the relative economic importance of the issue according to both 1) long-term financial impact and 2) reputational/brand value impact. In order to do this, you need to comprehensively analyse the value drivers that are contributing to converting your investments in sustainable sourcing into value for the firm and its stakeholders.

 

 
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