February 12, 2003:
I felt a bit like a fish out of water as I walked into the
Harvard Business School Agribusiness Executive Seminar. My
whole professional life has been spent working on behalf of
farming communities. At Harvard I was in the midst of a fraternity
of people who run the food system.
There were 160 participants, most of them senior managers
of large agribusiness companies, half from the U.S., all of
whom paid $5,000 for three days of case study analysis and
strategic planning. We talked through the financials and current
challenges of Cargill, Monsanto, Starbucks, a couple of Asian
conglomerates and a dozen other companies.
These are very bright and energetic people. Whatever the rules
of the game, they will be successful. It just so happens that
the business game they are part of rewards only short-term
financial success. I didn’t hear much conversation about
sustainability, but I did conclude that if business were structured
in such a way that success were about sustainability, many
of these same people would be competing to be the most sustainable.
Some of these corporate leaders have already taken steps toward
sourcing sustainably produced commodities. Starbucks CEO Orin
Smith described his partnership with Conservation International
on a project in a Chiapas rainforest, and he described newly
proposed guidelines for the coffee industry that, if adopted
by the larger players, could have an enormous impact. The
guidelines include soil, water and forest protection as well
as provisions for wages, working conditions and rights to
organize. The big players like Nestle will find it difficult
to adopt these guidelines, unfortunately, because economic
momentum pushes in the opposite direction. In the global economy
the lowest price almost always makes the sale. These companies
are structured to pursue competitive advantage with scale
and financial efficiency.
The irony is that although many of us on the “outside”
of corporate boardrooms assume that these CEOs have the power
to change the way business is done, most of these powerful
people on the “inside” experience real constraints
to their ability to act toward environmental and social goals.
When the Chiapas coffee farmer story was discussed, most of
the executives assembled at Harvard expressed not only sympathy
for the farmers but also deep concerns for biodiversity and
rain forest protection. But shareholder values have to increase,
which requires an increase in the rate of sales and decrease
in costs. Farmers and rainforests are not part of the equation
now, in most of these calculations.
Not only do incentives and rules of the competitive market
stand in the way of a “greener” business climate.
There’s also an internal culture in the business world
that lulls its leaders into a cozy complacency. These business
people think of themselves as bringing progress and development,
and creating jobs. If small coffee farmers working on forested
hillsides can’t compete with new lowland plantations,
and if these small farmers are driven into urban slums, such
ecological and social dislocation is described as the inevitable
price we must all pay for a robust economy. Charles Muscoplat,
Dean of the College of Agriculture of the University of Minnesota,
described the consolidation of power and wealth in agriculture
as “inevitable.” Bill Lapp, economist and VP of
ConAgra Foods, said “Adam Smith’s ‘invisible
hand’ is the Mother Nature of economics.” Bill
and I got to be pretty good friends, but I told him that his
formulation about Adam Smith reminded me of fundamentalist
use of the Bible. My sense is that Adam Smith’s concept,
that competition results in the common good, is used to justify
the consolidation of economic power in ways that would make
Adam Smith uncomfortable.
As I reflected on Adam Smith and the self-congratulatory atmosphere
of this Harvard seminar, I was particularly curious about
why the food business culture supports a united defense of
Monsanto and biotechnology in agriculture, even though biotechnology
does not increase the profits of most of these companies.
They like to talk of themselves as carriers of “reason
in the face of irrationality,” the lonely champions
of sufficient production for a growing population. Only a
few of them see the irony of trying to force European consumers
to accept genetically engineered food these consumers don’t
want. There’s a “school spirit” among these
executives that makes it difficult for any of them to question
the wisdom of transgenetic crops, even in the face of consumer
resistance. Technology equals progress which ensures the common
They like to believe that they have science on their side.
U.S. Undersecretary of Agriculture J.B. Penn was almost apoplectic
about how the European “precautionary principle”
contradicts “sound science.” (Since when is it
unscientific to be prudent?)
These companies have two powerful motivators: the drive for
efficiency and the search for unique values that increase
market return. The whole system is constructed on squeezing
inefficiencies out, procuring and moving commodities VERY
cheaply, adding unique value at the lowest possible cost to
the next customer up the chain, or getting a premium by adding
some desired attribute that the customer wants. Cargill won’t
make a sale of corn or soybeans to ConAgra Foods without charging
a lower price than ADM or Bunge are charging. ConAgra Foods
won’t make a sale to WalMart without offering a lower
price than Kraft. All along this chain, in addition to squeezing
out inefficiencies to lower price, each supplier attempts
to create new values to charge for. Cargill might supply to
ConAgra Foods the best inventory management and on-time delivery.
ConAgra Foods might supply to WalMart a specific packaging
or branding quality.
The increasing consumer orientation of food companies holds
perhaps the best leverage opportunities for sustainability.
Terry Leahy, CEO of the UK supermarket giant Tesco, cautioned
other industry leaders in the audience to, “Keep sufficient
humility to let in signals that indicate the context is shifting
even in times of success.”
This is where I found hope for the future. Consumers are giving
clear signals that change is in order, and food companies
will respond to these signals. McDonalds refused genetically
modified potatoes and is now providing organic milk in the
UK; their purchases of Chipotle and The Boston Market have
proven very successful. Food safety is such a huge concern
that ConAgra Foods has divested itself of meat processing.
A few specialty marketers like Starbucks are adding environmental
or fair trade characteristics to their market claims.
If governments catch up with consumer shifts and public needs,
change will be even more rapid. If tax policy, for example,
were to reward responsible behaviors and penalize irresponsible
ones, the competitive terrain would evolve. Using up non-renewable
resources like oil could become unprofitable, and stewarding
soil and water could become profitable.
Producers and buyers could negotiate sustainable catch levels
for fish, marketable volumes and adequate reserves for agriculture,
and prices that would sustain producer communities. If governments
were to help facilitate these agreements, and if consumers
were willing to pay a bit more for fish and chicken, for example,
in order for there to be sustainable wild fisheries and chickens
raised humanely, the whole system would radically shift.
Many of these same companies and same executive managers would
be part of the solution instead of part of the problem.
Hal Hamilton is director of Sustainability Institute in
Hartland Four Corners, Vermont (www.sustainer.org).
Hamilton is also a part-time farmer and a Food and Society