Climate Change: How will climate change impact market requirements for Victoria’s agrifood exports?
Introduction
Climate change, anthropogenic carbon emissions, carbon footprinting and carbon labelling have received significant attention in the media and in political spheres during recent years. The focus of much of the discourse on adaptation of food production and manufacturing to climate change has been on compliance with carbon emission regulations (McCarl & Schneider, 2000; Thomassin, 2003; Garnaut, 2008) or practice change to cope with changed climatic conditions (Smith et al. 2000; Olesen & Bindi, 2002; Smit & Skinner, 2002; Jones et al. 2007). However, in addition to regulatory, physical and behavioural factors there are market drivers that may encourage food producers and manufacturers to adapt to climate change.
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Figure 1. Through chain measurement of green house gases |
Interest in the contribution of food value chains to carbon emissions has grown. From early attempts at understanding a food product’s environmental impact such as ‘food miles’ (Lang, 1999) the discourse has moved to focus on carbon footprints and labels along with other environmental factors, to reflect a product’s complete journey through its supply chain (Refer to figure 1).
In 2008 the Victorian Deptartment of Primary Industries published the "How will climate change impact market requirements for Victoria’s agrifood exports?" report. This report investigated responses to climate change by regulators/legislators, consumers and retailers. It was evident at that time that any movement in the climate change space, particularly from the market and legislative perspective, could possibly present itself as a potential trade barrier to Victorian and Australian exports. As an export oriented state it was therefore important to identify these emerging trends and where possible stay ahead of them.
This "How is climate change impacting market requirements for Victoria’s agrifood exports?" report seeks to provide an insight into the discourse and activity since 2008 on climate change related market requirements.
Key findings
Trends towards climate change related market requirements have not moved as quickly as they could have in the past three years. This can be attributed to the global financial crisis, and the inherent complexity of establishing and developing such requirements. Since 2008, however, there have been significant changes to the current operating environment and proposals that will take effect in the near future. This section summarises these changes in government policy, consumer behaviour and the supply chain.
One finding that has remained from 2008 is that the Victorian agricultural sector must be able to measure and mitigate greenhouse gas (GHG) output. This need comes from the regulatory risk of taxes, trading schemes and penalties; and, being able to access global retail chains in preference to other suppliers.
Government
Since 2008 there have been five key developments in placing a price on carbon. These developments are as follows: the Western Climate Initiative in the USA and Canada has worked towards introducing a state based mandatory emission trading scheme; mandatory emission trading schemes both in Japan and South Korea have been scheduled to commence in 2013; New Zealand's mandatory emission trading scheme has come into effect; and domestically there is legislation on allowable offsets on farms as well as a proposed carbon tax.
Several Asian, European, South American and Californian legislative bodies, have either drafted or enacted legislation on Product Carbon Footprinting. Chile's activity in this area aims to reduce the risk of market requirements on exports.
With a lack of international harmonisation on a price on carbon, it is difficult to ensure emissions embodied in imported goods have been treated equally to locally produced goods. This is known as 'carbon leakage'. Overcoming this will be a major aspect of an international agreement and will reduce the risk of unfair trade barriers.
ISO standard 14067 will unify greenhouse gas measurement and reporting standards into a consistent method internationally. The voluntary nature of the ISO standard, however, will not overcome issues surrounding the lack of international harmonisation on a carbon price.
Consumers
There is an unfulfilled, latent demand for 'green' products that could be realised through increased product development, in-store communication, and availability.
Almost all shoppers are open to buying 'green products' and many know what a 'green product' is or found themselves looking for a 'green product' during their shopping trip. However, the grocery aisle is a moral minefield due to the tradeoffs in products that consumers need to make.
Despite the openness and willingness of shoppers to buy these products, only 22 % of people surveyed in a study by Deloittes purchased a 'green product'.
Carbon labelling in particular has very low consumer appeal, even those willing to pay a premium for organic products are not willing to pay a premium for low carbon.
Consumers are more likely to make purchases of a more altruistic nature when the product is equal in price or cheaper than standard products
Supply chain
In 2008, retailers displayed a greater awareness of the physical, regulatory and social risks of climate change, now this awareness is shared by many varied chain members.
Processors, retailers and food service operators are keenly aware of the physical risks of climate change, yet have limited solutions to such risks. Furthermore, investment in on-farm adaptation and mitigation from these chain members has been minimal.
Through chain GHG measurement has been driven by supply chain requirements and GHG targets from retailers, food service operators and processors with regulation now acting as a driver in some markets.
There are various applications of through chain measurement. Some schemes provide consumer information on GHGs, others roll the information into a sustainability assurance.
Through chain measurement is a costly exercise and the question of who bares this cost is uncertain.
Australian peak bodies and research organisations have responded to these risks and requirements. Uncertainty around scientific evidence and regulation, however, has limited this investment.
These changes are summarised in figure 2.
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Figure 2. Summary of key changes since 2008 |
Government
There are two areas of government activity influencing market requirements: 1) national Greenhouse Gas (GHG) reporting requirements and 2) efforts to mitigate GHGs. Greenhouse gas mitigation policies include Emission Trading Schemes (ETS), carbon taxes, and environmental labelling laws.
This section provides an overview of these requirements and policies, as well as the standards that underpin them. Company responses to such policies are detailed in the 'supply chain' section of this report, subsection: 'regulatory and legislative risk'
Greenhouse Gas reporting requirements
International reporting requirements since 2008 have remained relatively unchanged (Refer to Box 1). One significant development has been in the USA, with the introduction of national GHG reporting requirements.
Reporting requirements in the USA have stemmed from the Consolidated Appropriations Act, 2008 (USA Congress, 2008). The U.S Environmental Protection Agency enacted this legislation in December 2010, requiring emitters of 25,000 tons or more per year of carbon dioxide equivalents (Co2-e) to report on annual emissions (EPA, 2011). Wal-Mart, for example would have to report on emissions due to this law.
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Box 1: International agreements on climate change Current reporting commitments and requirements have been set out in the initial United Nations Framework Convention on Climate Change (1992) and subsequently the Conference of Parties (COP) known as the Kyoto Protocol (1997). After Australia's ratification of the Kyoto Protocol in 2007 there was optimism over extending reporting requirements and mitigation commitments. The following COP meetings in Poznañ, Copenhagen, and Cancun did not establish a post Kyoto Protocol commitment for 2012 and onwards as intended. |
Emission trading schemes and taxes
Since 2008 there have been six key developments in placing a price on carbon. These developments are as follows:
- The Western Climate Initiative (WCI) has been formed, comprising of seven US states and three Canadian states. The WCI aims to introduce a mandatory cap and trade scheme in the participating states (WCI, 2011).
- Mandatory emission trading schemes both in Japan (ME Japan, 2010) and South Korea have been scheduled to commence in 2013 (Reuters, 2010).
- New Zealand's mandatory emission trading scheme has come into effect (CCNZ, 2011).
- A proposed Chinese carbon tax and emission trading scheme.
- Domestically, there is legislation on allowable offsets on farms well as a proposed carbon tax (DCC-Au, 2011).
Along with these new developments there are three long standing programs in place influencing emission reporting internationally. These are: the European Union ETS, including 30 countries; the Midwestern GHG reduction Accord in the USA; and Tokyo's ETS.
Each of these schemes increases the requirement for organisations to report their scope one and two emissions (Refer to Box 2). Measurement of through chain emissions (scope three) are being driven by other mitigation legislation and regulations.
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Box 2: Definition of emission scopes Scope 1: All direct GHG emissions. Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam. Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. transport and distribution losses) not covered in Scope 2, outsourced activities, waste disposal, etc. (Direct quote: GHG Protocol, 2011) |
Environmental labelling laws and regulations
Several Asian, European, South American and Californian legislative bodies, have either drafted or enacted legislation on Product Carbon Footprinting (PCF). These are detailed below.
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Figure 3. Product carbon footprinting applied to Tesco labels |
- Japan's voluntary emission labelling scheme now includes 252 consumer products, including many agrifood products (CFP, 2011). There are also product category rules in Japan defining Life-Cycle Assessment (LCA) system boundaries for food products.
- South Korea, introduced carbon labelling in 2009, and will adopt the international standard for product carbon footprinting (ISO 14067) when released in 2012.
- Taiwan has introduced carbon labelling to manufactured products. "On 4 June 2010, the EPA held a kick-off ceremony for the first batch of Taiwan products to achieve carbon labelling accreditation" (EPA-T, 2010).
- Thailand - Dried food and rice have been labelled in trial scheme. "In Thailand, we have started down the path of putting Carbon Labels on products" (TGO, 2011).
- European Commission - since 2008 embodied carbon emissions are now considered when awarding the EU Ecolabel to a product (EC, 2011).
- Germany - embodied carbon emissions are now considered when awarding the Blue Angel eco-label (Blue angel, 2011).
France - In 2010 an environmental act known as Grenelle 2 was passed. A voluntary trial of environmental labelling started from July 2011. Of 230 organisations volunteering, 168 were accepted into the trial (AE, 2011). Additionally, "France has shown support for the EU to establish a reduced rate of value added tax on products with low impact on the climate" (Legalifrance, 2010). - United Kingdom - Department of Food Environment and Rural Affairs (2011) has provided guidelines on making environmental claims. These guidelines state that environmental claims are subject to legislation protecting consumers from misrepresented information. Refer to figure 3 for an example of carbon footprinting in the UK
- The Chilean government has introduced carbon footprint rules, to mitigate the risk of export market requirements (FFP, 2010).
- California has introduced legislation to allow the operation of a voluntary carbon labelling scheme. "Consumer choice can play a significant role in helping California meet its greenhouse gas emission reduction targets, but only if consumers have usable and reliable information about the greenhouse gas emissions resulting from their product choices" (California legislature, 2009).
Lifecycle assessment and footprint standardisation
There are three standards that have provided a basis for communicating information on embodied GHG emissions: the Publicly Available Specification (PAS) 2050, the GHG Protocol and International Standard Organisation (ISO) standards on quantifying GHG emissions (Refer to Box 3). An ISO standard (14067) currently under development will unify these standards into a consistent method for the quantification and communication of GHG emissions in products.
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Box 3: ISO standards relating to scope 3 emissions The three standards on the communication of embodied carbon: PAS 2050, the GHG Protocol and ISO 14067, depend on two overarching ISO standards: ISO 14040 and ISO 14044 (Wührl, 2010). ISO 14040 provides the principles and framework for Life-Cycle Assessment (LCA), and ISO 14044 provides requirements and guidelines for LCA (ISO, 2009). |
The International Standard Organisation's (ISO) standard 14064 provides requirements and guidelines for measuring and reporting organisational GHG footprints (scope 1 and 2). This standard provides the basis for measurement and reporting of embodied emissions along the whole chain (scope 3).
The Green House Gas (GHG) Protocol became the de facto international GHG accounting standard for organisational footprint measurement and communication (PCF WFa, 2010). In 2008 the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBSCD) invited comments on this standard. From this consultation period WRI and WBSCD have worked to include standards on the measurement and communication of GHG emissions in products. The first draft was released in November 2008, followed by road testing by 60 organisations from January to June 2009. The final consultation of the revised standard closed in November 2010 (PCF WFa, 2010); the standard was then released in May 2011.
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Figure 4. ISO standard: complex packaging and valuable content. |
The Publicly Available Specification (PAS) 2050 was first published in 2008 by the British Standards Institute (BSI) in collaboration with The Carbon Trust and the British Department for Environment, Food and Rural Affairs (DEFRA). This was the first standard on the measurement and communication of product footprints. Revision of PAS 2050 began in 2009 (BSI, 2009). Public consultation closed on the 14th of March 2011, and the revised PAS 2050 is now available.
International Standard Organisation's standard (ISO) 14067 has been developed in collaboration with the authors of PAS 2050 and the GHG Protocol. It is expected that the revised standards and the new ISO standard will have the same underlying requirements and guidelines (ABARE, 2009). The final consultation of the revised standard closed in March 2011, with the standard scheduled to be released early 2012 (PCF WFb, 2010). The draft standard has two sections, ISO 14067-1 provides requirements and guidelines for the quantification of product carbon footprints, and ISO 14067-2 details the communication of product carbon footprints (ISO, 2009). Figure 4 is representative of many ISO standards, being bland and complex in some respects, but providing valuable content to guide governments and organisations.Conclusions
Government policies and international standards have developed slowly in comparison to supply chain activity. Despite the pace of development there have been several significant introductions of reporting requirements, emission trading schemes/taxes and environmental labelling laws. Without international commitment to a post-Kyoto agreement, there will be uncertainty around the development of new emission trading schemes and taxes, and how these schemes and taxes will interact internationally.
Policies for mitigating GHG through product carbon footprinting are in the early stages, and ABARES suggests that this will not pose a market requirement in the short term. ABARES (2009), however, acknowledge that "there is a risk that a carbon label may be used as a technical barrier to trade, especially if the design and implementation of a national carbon labelling scheme is not coordinated with other countries". International standards only go part of the way to mitigating this risk, as these standards are voluntary.
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Box 4: Managing carbon leakages With a lack of international harmonisation on a price on carbon, it is difficult to ensure emissions embodied in imported goods have been treated equally to locally produced goods. This is known as 'carbon leakage'. Overcoming such carbon leakages will be a major aspect of an international agreement, and will reduce the risk of unfair trade barriers. |
Consumers
Credence attributes are an important consideration in consumer behaviour. Credence attributes are defined as non-tangible attributes that influence the perceived value of a product. Consumer adoption of products with credence attributes such as 'environmental impact' was only 4% in 2008. Since this time the world has experienced a global financial crisis the like of which has not been seen for over 70 years and the impact has affected consumer purchasing behaviour.
Since 2008, more research has been done to validate how responsive consumers are to environmental credence attributes in their food purchase decisions (Refer Box 5). This section reviews how consumer behaviour towards environmental attributes has changed since 2008.
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Box 5: Environmental attributes of food products Surveyed Australian consumers in 2010 defined 'green' product attributes to mean:
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Food Purchasing Decisions
There are a number of salient points regarding consumer food purchase decisions and the environment:
- Environmental considerations are relatively insignificant factors in individual's food choice, which instead tends to be determined by price, marketing and availability (DEFRA, 2009).
- Food choice is very complex and is determined by a wide array of factors at multiple levels. Food choice can be hard to intervene in, both because of the number of factors and the interactions between them (DEFRA, 2009). A study commissioned by the Australian Food and Grocery Council (Net Balance, 2010) highlights this complexity stating that "the grocery aisle is a moral minefield due to the tradeoffs in products that consumers need to make". Refer to figure 5 for an example of packaging with multiple factors - discount, freshness and product carbon footprinting.
- At the individual level, most food selection behaviour is not based on rational choice. Preference and habit strongly influence dietary intake. Labelling is an enabling factor for some, but not a silver bullet. Carbon labelling in particular has very low consumer appeal, even those willing to pay a premium for locally sourced or organic products are not willing to pay a premium for low carbon.
"It would be unlikely that more than 10% of the population would use a carbon reduction label as a basis for product selection without some incentive such as reduced price" stated Upham et. al (2010).
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Figure 5. Carbon footprint along side promotional offer and freshness claim on orange juice |
The complexity regarding consumer food purchase decisions and the environment are further highlighted in the study commissioned by the Australian Food and Grocery Council (Net Balance, 2010) which identified that:
- 100% surveyed of the 935 think a retailer’s effort to reduce their environmental impact is important
- 84% are concerned about the impact of their purchasing decision on the world
- 80% think about environmental issues when shopping
- 50% know the environmental reputation of companies
- 13% bought 'green' on the day data was collected
While 84% of shoppers expressed concern about the impact their shopping decisions were having on the environment, only 13% of shoppers reported they had purchased a product because of its environmental features that day (Net Balance, 2010). Similarly, a Deloitte Green Shopper Survey (2009) found "almost all shoppers are open to buying green products and many know what a green product is or found themselves looking for a green product during their shopping trip... but only 22% of people surveyed purchased a 'green product' in their surveyed shopping experience" (Deloittes, 2009).
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Figure 6. Environmental considerations in food service |
Sustainability considerations either drove or influenced the buying decisions of more than 50% of shoppers interviewed in the Deloitte Green Shopper Survey (2009). For most shoppers sustainable considerations become a tie-breaker when other factors are in relative parity.
Because of this effect, sustainability characteristics drive a relatively large amount of product switching. However, once a more sustainable product has captured the shopper’s commitment it tends to create brand stickiness by retaining the shopper’s loyalty through repurchase (Deloittes, 2009).
It is also worth noting that sustainability considerations apply both in supermarkets and food service. See Figure 6 for an example of carbon foot printing in food service.
Market Scope
The consumer market for natural, healthy and sustainable products and services in Australia has "grown over 25% to $15 billion in 2008 and [was] expected to reach at least $22 billion by 2010" (Netbalance, 2009).
The consumer research above suggests that there is an established and growing number of consumers looking for more sustainable products and services but they are not necessarily turning this into purchasing behaviour.
Despite this, a significant minority of committed and proactive "Green Shoppers" are willing to pay more for green products.
Deloittes (2009) identified that 'green shoppers' were diversely spread along all income ranges, age brackets, education levels and various household sizes. On average Green Shoppers were a little older, tended to have higher incomes and education, but a substantial number of Green Shoppers could be found distributed across the consumer population.
'Green shoppers' represent a high value segment that are active consumers who buy more and shop more and demonstrate more brand and retailer loyalty in purchasing behaviour, often as opposed to the image of an austere minimalist. They are less price sensitive than the average shopper and they are generally not bargain hunters (Deloittes, 2009).
For most 'green shoppers', sustainability considerations are an important purchase driver, but secondary to other dominant purchase drivers. "We found that 'green shoppers'are still on a learning curve. They do not always understand the social and environmental benefits and they need help at the point of purchase. We found the rate of green purchase was very sensitive to the use of in-store communication and information" (Deloittes, 2009).
'The What Assures Consumers' study conducted in 2008 by Net Balance Foundation (in conjunction with Accountability and Lloyds Register Quality Assurance), identified that in order to harness the enthusiasm of green purchasers and expand the market, clearer direction must be provided to consumers and significant barriers to consumer behaviour change must be overcome. These include more leadership from government, better labelling and assurance of product claims and financial obstacles (Net Balance, 2009).
"There is an unfulfilled, latent demand for green products that could be realized through increased product development, in-store communication, and product availability" Deloitte Green Shopper Suvery (2009)
Conclusions
Almost all shoppers are open to buying 'green products' and many know what a 'green product' is or have looked for a 'green product' during their shopping trip which indicates a growing number of consumers looking for more sustainable products and services. However, actual purchase of 'green products' is low ranging from (13- 22% of consumers surveyed) as environmental considerations are relatively insignificant factors in individual's food choice, which instead tends to be determined by price, marketing and availability. Carbon labelling in particular has a very low consumer appeal.
Consumers are more likely to purchase 'green products' when the product is equal or cheaper in price than standard products. A discerning ‘Green Shopper’ consumer segment is proactive and willing to pay a premium for 'green products'. Yet like the general consumer they need help at the point of purchase as 'green purchase' is sensitive to the use of in-store communication and information. Therefore, there is an unfulfilled latent demand for 'green products' that could be realised though increased product development, in-store communication and information and product availability.The supply chain
In 2008 several UK food retail chains championed a move towards increased carbon measurement and reporting. At that time it was already clear that there was typically no premium paid by retailers for carbon measured and managed food despite being a retailer requirement. Carbon measurement was viewed as part of a retailer's risk and reputation management strategy and an opportunity to appeal to a niche market segment.
Three years on from the market requirements report in 2008, carbon measurement and reporting is now focused on by each stage of the agrifood supply chain. Retailers, food service operators, processors and agricultural industry bodies are all responding to a carbon constrained operating environment. The driver for this response has been from the physical risk of the effects of climate change (flood, drought and altered growing conditions), regulatory requirements, and reputation management. The body of this supply chain section describes how supply chain members have responded to each of these drivers between 2008 to 2011.
Analysis is based on disclosures from the Carbon Disclosure Project (CDP) (Refer Box 6), Corporate Social Responsibility (CSR) reports, interviews and publications from: three Australian industry bodies, seven processors, 22 retailers, and nine food service operators. Primary interviews were conducted with Dairy Australia, a processor and with the U.K. retailer Waitrose. (Refer to Appendix 1 for source list)
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Box 6: What is the Carbon Disclosure Project (CDP)? CDP is an annual survey of over 3,000 organisations in 60 countries. The survey aims to gather "information on GHGs, the significant risks and opportunities related to climate change, and the actions companies are taking to manage those risks and opportunities" (CDP – CSSR, 2010). In 2010, 44 organisations in the food products and staples sub-sectors responded to the survey, representing the highest response rate of all sectors. |
Physical risks of climate variability
Affects of physical climate risk of variable rainfall and temperature differ at each stage in the chain. At the production stage, farm systems are directly affected by variability. Processors and retailers can also be directly affected from extreme weather events, for example, flooding a plant, high power costs (refrigeration) through increased temperatures, or disrupting logistics. Processors and retailers can also be indirectly affected by availability of supply and costs.
The majority of the physical climate risk to the supply of agrifood products occurs on farm through production variability. Agricultural industry bodies are investing in mitigating this risk. Meat and Livestock Australia (MLA), for example, "is assisting producers to adapt to climate change and manage climate variability through research and development initiatives" (MLA, 2010). Research initiatives across industries can be categorised as 'quantifying risks' (Box 7), adapting farm management practices and land use change.
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Box 7: Research into quantifying risks for livestock industries Quantifying risks involves estimating changes in temperature and rainfall; and subsequent pasture growth depending on location, soil and pasture type. Findings from these research categories are continuously being refined and made available online and through extension. |
There is variability in the assessment of physical climate risk between individual processors, retailers and food service operators (Box 8). One retailer and one food service operator identified little to no physical climate risk. Food service operators, Dominoes identified one direct risk of "increasing use of energy for refrigeration, cooling and air conditioning if annual temperatures rise" (CDP - Dominoes, 2010). The South African retailer, Supervalu, stated that "climate change may result in an increase in the frequency of extreme weather events which could impact our day to day ability to provide services to our customers and consumers". All other processors, retailers and food service operators identified the risk of natural disasters and identified agrifood supply factors, summarised by Kraft foods as follows: "climate change, in the next 5-15 years and beyond, may result in a variety of uncertain changes at the agricultural level, including changes in water availability and overall precipitation patterns, yields, soil quality, and others. Overall, these changes may result in potentially decreased supply of various raw materials, increased procurement costs for food manufacturers and/or the need to shift sourcing locations due to declining production in key areas" (CDP - Kraft, 2010).
Tesco identified an additional risk, asserting that "the physical effects of climate change will lead to a change in patterns of customer demand" (CDP - Tesco, 2010). This is based on an extreme scenario, where for example hundreds of thousands of people would be displaced due to sea level rise and other factors.
There has been little advancement from 2008 on how to manage supply chain physical climate risks including, water availability, limitations in supply, increased costs, shifting sourcing locations, and changes in consumer demand. An Australian retailer has considered it important to support primary producers in adjustment through finances and research, where "from 2007 to 2009 Woolworths donated over $17M ... two-thirds of the money was donated to provide financial relief to farmers struggling to pay basic bills. The other third of the funds has been [used] to finance over 150 projects to improve farming productivity and trial drought [resistant] alternatives” (CDP - Woolworths, 2010). UK retailer Tesco, known as a market leader in product carbon footprinting, seems to have been less practical in supporting adaptation, suggesting that monitoring the effects of climate change is the best plan of action, “We continually monitor our supply chains and aim to build strong, long-term relationships with our suppliers; we will therefore be well placed to identify the effects of a changing climate on supply at an early stage, and find ways to adapt to them. We can also capture changes to our customers' buying preferences through data from our loyalty card” (CDP - Tesco, 2010).
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Box 8: Supply chain members state that climate change is not the only concern Sainsbury: “Changing climate, over exploitation of resources, water scarcity, and unsustainable farming practices threaten the long-term sustainability of agricultural production. We aim to maintain the resilience of our supply chains by ensuring products are produced in the most sustainable manner.” (CDP - Sainsbury, 2010) Waitrose:" Yes [climate change] is important, but not the top of the agenda from an environmental point of view.” (IFMA, 2011) |
Regulatory and legislative risk
In the 'Government' section of this report there are four areas of regulatory and legislative risks identified to be influencing market requirements. These are: environmental reporting requirements, cap and trade schemes, border taxes, and product labelling regulations. An additional risk consistently identified by companies in CDP is the uncertainty of these policies.
These risks have similar implications for many agrifood chain members (Refer to Box 9 for a comment on these risks). Each risk requires a level of measurement of GHGs to operate in the market. With the inclusion of border taxes and labelling regulations over the past two years, the need for quantification also applies to emissions through the chain. Dairy Australia commented that "maintaining access to markets with GHG reporting requirements is an increasing concern for dairy processors and the Australian Dairy industry" (Pers. Comm. D.A. Catherine Phelps, 2011).
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Box 9: Risk of penalties, a driver for GHG measurement A multinational food service operator comments that “the failure to adhere to current legislation and to evaluate environmental risks coupled with pressure from government and our clients for qualitative and quantitative data could result in fines” (CDP – Amamark, 2010). |
To mitigate these risks chain members have: implemented emission reduction targets, proactively measured emissions through the chain, and have invested in emission reduction activities. (Refer to Box 10)
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Box 10: How the market leader's views have changed In 2008 Tesco emphasised the risk that the lack of political commitment posed to their investment in a low carbon future. In 2010 they mention specific international agreements, cap and trade schemes and environmental labelling schemes. Tesco is now well positioned to capitalise on environmental labelling trends. In 2008 Wal-Mart stated “we do not foresee significant regulation of our operations. However, we do expect regulation that would impact our energy suppliers and, therefore, increase our energy costs” (CDP – Wal-Mart, 2008). Now in 2010 Wal-Mart identify the U.S. cap and trade system, the U.K. Carbon Reduction Commitment and international agreements as potential risks. Predicting financial implications, including: “higher tariff fees, referred to as either “border adjustments” or “green tariffs,” assessed on goods imported from countries without GHG reduction requirements ...; increased costs incurred by our supply chain resulting in increased costs of the products we sell; [and] decreased discretionary income of our customers” (CDP – Walmart, 2010). |
Reduction targets
Targets reduce the risk of long term cost increases incurred from a price on carbon. These targets can be used reactively to a carbon price, or in cases such as Wal-Mart, pre-emptively (Box 10). Emission reduction targets have implications for the whole supply chain.
Organisations having specific emission reduction targets have increased over the past two years, and now “the industry group with the highest proportion of respondents reporting [emission reduction] targets is food products, with 96% unsurprising, as the industry cited the highest proportion of regulatory and other risks from the [consumer staples] sector” (CDP –CSS report, 2010).
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Figure 7. Food service through chain measurement used in product carbon footprinting and comparison. |
Through chain measurement
The measurement of emissions through the chain has increased over the past two years in Europe, the USA, parts of Asia, Australia and throughout multi-national organisations (Box 11). This has been led by retailers, food service operators, processors and industry bodies (Refer to figure 7 for an example food service through chain measurement). The managing director of a Victorian lamb processor commented that “carbon labelling will become a major issue in the future and there will be increased requirements on food suppliers to account for the carbon emitted in producing the product” (Pers. Comm. CRF Jack Barclay, 2010).
Australian industry bodies are investing to reduce this risk. "Dairy Australia has increased investment into GHG measurement and mitigation over the past three years. In 2006 we invested approximately $40,000 into GHG mitigation research, to now investing in 2010/2011 approximately $1.0M in measurement and $0.2M in pre-farm gate mitigation" (Pers. Comm. D.A. Catherine Phelps, 2011).
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Box 11: Comparison of Tesco’s emission measurement activity since 2008 2008: “We are starting to measure our total supply chain footprint looking at emissions created by our suppliers and customers. The results of this work will be available shortly” (CDP – Tesco, 2008). 2010: “In the UK, we have now foot printed over 500 of our products and labelled 120, including light bulbs, orange juice, potatoes, washing detergent, milk, kitchen towel and toilet tissue. In March 2009 we launched carbon labelling in [South] Korea and 30 products including milk and tofu have been labelled so far” (CDP – Tesco, 2010). Refer to Appendix 2, Box A for Wal-Mart comparison |
Emission reduction activities
Investments by chain members in emission reduction activities range from incentives given to management, information resources for supply chain members and on-farm mitigation.
Retailers and processors have invested significantly in internal emission reductions, and have started to apply pressure on agricultural industries to do the same (Box 12).
The combined effect of direct and in-direct regulatory pressure has resulted in increased investments in on-farm mitigation research. Dairy Australia commented that "our efforts have been driven by two areas: a potential ETS/CPRS, and market signals coming from major food and drink companies" (Pers. Comm. D.A. Catherine Phelps, 2011). Meat and Livestock Australia are “focused on developing practical on-farm options for significantly reducing emissions from livestock”; Horticulture Australia Limited (HAL) state that: “Two of the priorities for Australian Horticulture in mitigating greenhouse gasses are to determine the carbon footprint which all horticulture make to N2O and CO2 emissions, and to identify and promote horticulture specific Best Management Practices which minimise N2O and CO2 emissions”.
Investment in measurement and abatement, however, has been restricted by regulatory uncertainty.
Kellogg stated that “Product labelling costs are difficult to estimate until the details of any regulatory program have been finalized” (CDP – Kellogg, 2010). Dairy Australia asserts that “until the government legislates a carbon reduction policy, it is not possible to recommend abatement strategies” (DA, 2010).
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Box 12: Wal-Mart's reduction along the chain Wal-Mart “wants to work with its 100,000 suppliers to cut GHG emissions in the supply chain by a total of 20 million tons in 2015 . . . The company will work together with its suppliers to work first on those categories with the most embedded carbon” (Wal-Mart, 2010). Dean Foods, a US dairy processor, suggests that “suppliers who do not or cannot assist with this goal [of a 20 million ton reduction] are at risk of losing business" (CDP - Dean foods, 2010). |
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Figure 8. Scorecard approach to provide a sustainability assurance to customers. |
Reputation management
Product footprinting is also being used as a reputation management tool with consumers and investors. Activities vary between individual processors, retailers and food service operators. Some are including environmental labelling on packaging, shelves or menus (refer to figure 9 and 10). Wal-Mart and McDonalds are providing customers with a sustainability assurance from a range of factors and others are still keeping a watching brief (Box 13). For an example of the basis of a sustainability assurance, refer to figure 8.
The cost of environmental labelling has been estimated by several processors, retailers, and food service operators. This cost is higher than regulatory requirement reporting because of the level of detail required for an accurate assessment. Kellogg estimate “the cost to conduct a carbon footprint for one stock keeping unit can easily range from U.S. $50,000 - $100,000” (CDP – Kellogg, 2011). Metcash estimate higher costs for the first product: “voluntary product carbon labelling is around $110,000 for the first product plus a percentage of sales under the Planet Ark scheme” (CDP – Metcash, 2010). There has been no comment on the degree to which these costs are internalised or distributed along the chain.
Refer to Appendix 2 Box B for quotations on retailer carbon labelling.|
Box13: Drivers for environmental labelling (CDP, 2010)
(Refer to Appendix 2 Box C for more information) |
Conclusions
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Figure 9. Carbon labelling in Tesco |
An increasing number of chain members are focused on the physical, regulatory and social risks of climate change. In 2008, retailers displayed a greater awareness of these risks, now this awareness is shared by many varied chain members. Processors, retailers and food service operators are keenly aware of the physical risks of climate change, yet have limited solutions to such risks. Only one of the observed post farm gate organisations had invested in on farm adaptation research, where as the majority planned to monitor the effects of climate change and respond where necessary.
Regulatory requirements have increased the reporting of GHG emissions at an organisation level. Through chain GHG measurement, however, has been driven by supply chain requirements and GHG targets from retailers, food service operators and processors with regulation now acting as a driver in some markets. Supply chain requirements vary, with some aiming to provide consumer information on GHGs and others providing a sustainability assurance drawing on a range of factors. Due to the complexity of through chain measurement, it is a more costly exercise than reporting for regulatory requirements. The question of who bares this added cost is still uncertain, but may well be an added cost for Victorian producers to participate in some European, U.S, Asian and Australian supply chains.
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Figure 10. Carbon labelling in a Swedish Restaurant. |
Australian research organisations have responded to these risks and requirements through investment in measurement, mitigation and adaptation research. This investment may well help prepare Victoria for such risks in the future.
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