Sustainable value chains – moving from pipedream to reality

Close your eyes.  Think hard.  Can you come up with an example of a sustainable value chain?  A set of relationships and processes that delivers goods and services to market, where the economic benefits accrue equally to all organisations, where environmental impacts are minimal or zero and where social capital builds over time?

No?  Thought not. Why? Because right now, value chains are not sustainable in the truest sense.  Some may work from an economic perspective, but it’s unlikely that environmental and social sustainability are equally taken into account.  More common features of both global and local supply chains, particularly in the food system, are resource shortages, disruptions in supply, and all too often, poor working conditions.

Why is this? At Forum for the Future, we think there are (at least) three key barriers to truly sustainable value chains:

1. Dysfunctional business models.  The configuration of many business models that underpin today’s value chains means that power and profit can often be unfairly distributed. Producers and growers in particular often take a disproportionate share of risk (too much) and reward (too little).  This in turn means that agricultural production in particular is less and less attractive for young people in developing and developed markets alike. Meanwhile, the average age of a UK farmer is close to 60.
2. Environmentally unsustainable production systems.  No news here really, bleak pictures of fields sporting barren soils have been with us for a while.  And now there are climate change impacts to deal with, putting even more pressure on production systems overly reliant on non-renewable resources.  Resilience remains a nice-to-have for many primary production systems.
3. A disconnected consumer.  Millions of citizens around the world are totally disconnected from where their goods come from.  This is particularly true for food, where in the UK we waste up to a third of the food we buy.  This disconnect fuels our throw-away society and is a key driver of the inherent unsustainability in many value chains.

However, the good news is that we believe that there are three solutions which could address these barriers, and help deliver sustainable value chains.

1. Gear business models to deliver sustainable livelihoods and shared value.  It’s time to rethink financing mechanisms, which means moving, where possible, to long-term contracts with risk reward profiles that promote sustainability, use advance payments to provide much-needed upfront capital and re-gear loan arrangements.  It’s also time to focus on market linkages, turning the market from the master to the servant.  This is where organisations such as ethical intermediaries, such as Cotton Connect can really be effective.  And why the work of bodies such as The Shell Foundation in looking at ways of scaling up such organisations is critical.  Finally, in order for business models to work for the whole value chain, the conventional wisdom of the buyer needs to be turned on its head.  Focusing on cost alone will never allow sustainability to flourish through value chains.  Time to rewire procurement practice then, so that issues such as provenance and working conditions have equal status.
2. Sustainable production systems.  Design agricultural production so that it  builds the value of natural capital, not erodes it.  All very easy to say, but something that is becoming increasingly possible with the advent of the whole practice of ecosystem asset valuation.  The purists might say that putting a dollar sign on bees is reductionist and tainting the natural world with the evils of capitalism. The pragmatists, however, would say that if you can put a monetary value on something as critical as ecosystem assets, then it becomes a whole lot easier to manage them in a way that builds their value.  Also key to sustainable production systems is full risk management – risk management processes which are extended in their time horizons, as well as their scope – one of the biggest sets of risks today is associated with climate change adaption, not just mitigation.  Cafédirect’s work in helping their small-scale producers prepare for the reality of climate change needs to be replicated across all value chains.  As does Sainsbury’s work in helping its dairy farmers reduce their energy bills.
3. Reconnecting Consumers.  Perhaps a tough agenda to contemplate in an economic downturn.  We know that in straightened times, consumers’ worlds shrink, their concerns are often ‘me, my family and my community’.  Whilst interest remains high in issues such as food waste and packaging - the more visible side of sustainability (and where, in the case of food waste, money can be saved) - ,right now it is quite a challenge to communicate issues such as climate change.  However, the digital age offers enormous opportunities to lever brands and connect consumers with producers in new and different ways. One of the UK’s most loved tea brands, Tetley, has recently enjoyed huge success with its Farmers First Hand initiative, where a Facebook page is used to connect Malawian tea farmers with UK tea drinkers.

Key to delivering any of these solutions is collaboration. 
Vertically, within supply chains, where shared goals can deliver new trust and new ways of working. Supplier forums run by most retailers in the UK are great examples of vertical collaboration. Horizontally, between brands, where clear rules on competition are needed.  The Sustainability Consortium and Consumer Goods Forum are both successful examples of horizontal collaboration. And then there is multi-stakeholder collaboration: business and NGOs and others coming together to tackle issues that are just too big for one organisation to tackle alone. In the UK, Dairy 2020 showed that good things can happen when the whole value chain and interested stakeholders come together, and globally, our Sustainable Shipping Initiative is making good progress in shifting an entire sector to a sustainable footing.

The solutions we can point to today are great examples of pioneering practice. The real challenge lies in scaling up this pioneering practice, creating a tipping point and making sustainable value chains the new mainstream. How can you replicate pioneering practice? How could you scale up the good ideas out there? The answers might be hard, but the prize is one worth having.