Confidence in secure commodity supply chains 'misplaced'

By David Burrows

- Last updated on GMT

Deforested land cleared to make way for commodities. © iStock/Mihtiander
Deforested land cleared to make way for commodities. © iStock/Mihtiander

Related tags: Supply chains, Commodity market

Confident there’s enough soy, palm oil and beef to go around and your policies can weather the risks ahead on everything from climate change and deforestation to reputation and regulation? Think again, say the authors of two new reports.

The global supply chains for palm oil, soy and beef are teetering on the brink of collapse – but many companies that rely on these commodities appear blissfully unaware or are happy to turn a blind eye. That’s the damning conclusion from two detailed reports published this week.

The Carbon Disclosure Project (CDP) assessed the deforestation risk management strategies of 187 companies reliant on the three commodities above, as well as timber – this included agribusinesses, food manufacturers, retailers and global commodity trading giants.

Almost three quarters (72%) of the firms believe they will be able to access a secure and sustainable supply of forest-risk commodities going forward. But this confidence may be “misplaced​” for a number of reasons, CDP warned.

For example, just one in five firms is looking at risks beyond the next six years, whilst only 30% of manufacturers and retailers can trace these commodities back to the point of origin.

Fewer than half (42%) have evaluated the impact of the availability or quality of the commodities on their growth strategies further than 2020; this despite the fact that 81% of the agricultural producers assessed said their business has been affected by deforestation-linked impacts since 2010.  

Consider, then, that 24% of revenues depend on these four major commodities and a laissez faire​ attitude could put up to $906 billion (€845 billion) of annual turnover at risk, according to CDP.

Companies are playing a very risky game, suggested CDP head of forests Katie McCoy.

“Supply chains are like rows of dominoes​ – if unsustainable commodities enter the top of a supply chain, the effects will cascade throughout.”

Reputational risks

It’s not just supply that could be affected. There will also be knock-on impacts, most notably reputational damage (as a number of companies have discovered this year). Consumer boycotts, community opposition and increased regulatory scrutiny are amongst the risk facing companies producing, trading and using these commodities.

Still, action to decouple production from deforestation is not happening fast enough, according to the 2016 Forest 500 report, which was published to coincide with CDP’s report.

The annual assessment showed that 11% of companies have bumped up their scores through the establishment of new forestation policies or by improving existing ones. However, more than half (57%) of the 250 companies have weak policies or no policies at all.

As noted in other recent analyses, very few businesses have policies in place for all the commodities to which they are exposed. “Entire sectors lack action,”​ the authors noted, with only 16% of those operating in the cattle product supply chain having made commitments specifically on deforestation.

Leaders and laggards

As always there are leaders – Danone and Nestlé​ are among those scoring five out of five.

However, these companies can’t go it alone, with the Forest 500 concluding, as CDP did, that there are engrained problems within the supply chains of these commodities that are proving hard to weed out.

No matter how rigorous any one company’s policies and procedures are, companies working in isolation cannot expect to assure adequate supply of deforestation-free commodities,”​ the report noted.

Indeed, the laggards “continue to lag”,​ said the authors. Targets including the one made by the Consumer Goods Forum in 2010 to “mobilise resources within our respective businesses to help achieve zero net deforestation by 2020”​ are therefore unlikely to be met, they concluded.

“While they appear ambitious on face value, company policies need to close loopholes that simply relocate environmental and social impacts to new geographies, or sequester them into less sustainable supply chains,” ​said Sarah Lake, head of the supply chains programme at the Global Canopy Programme, which produced the scorecard and analysis.

GCP also found that demand for commodity products driving deforestation remains “unaddressed by major importing countries”.

Investors and lenders also need to up their game with just 3% (four lenders) having committed to removing deforestation associated with all four commodities from their portfolios. What’s more, 29 of the firms with commodity-specific policies lent more than $64 billion (€60 billion) to producers, processors or traders that didn’t have similar policies in place.

GCP said that “a small but incrementally growing number”​ of financial institutions are introducing policies on deforestation, but if more did do it would send a “strong market signal​” for companies to take action.  

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