4 ways the food and consumer goods industries can decarbonize their supply chains

Measuring and reducing carbon emissions across supply chains is a pressing challenge for companies who have made or been working towards making net-zero commitments. Food and FMCG (fast-moving consumer goods) industries together produce more than one-third of global emissions, which mainly come from their upstream supply chains.

Analysis shows that more than 70% of the food industry’s emission sources come from land use, more specifically by agriculture and deforestation. With this large carbon footprint, decarbonizing value chains in these sectors is a gamechanger for achieving the net-zero goal. The consumer goods industry is a key player intertwined across the entire value chain from production and processing to logistics and retail use, losses and waste management; through greater collaboration across this entire spectrum, supply chain resilience will also be strengthened.

Below are four actions companies can take to shape resilient and sustainable supply chains:

Smallholder farmers are the backbone of food production in the world today, producing around one-third of the world’s food. According to research, they are responsible for roughly 5% of all emissions globally, including 32% of emissions from the agriculture sector and 29% of emissions from agriculture-driven land-use change. Therefore, efforts in empowering smallholder farmers contribute simultaneously to production efficiency and agricultural carbon-emission reduction.

Introducing digital technology can provide such farmers with better knowledge of agricultural practices, crop prices, production efficiencies, etc. The private sector can also take proactive action to collaborate with national and local government to catalyze mindset and behaviour changes among farmers with financial packages corresponding to demand in the agricultural sector and market dynamics.

For example, 28% of smallholder farmer income in rural areas comes from forest or other natural resources. Charoen Pokphand Group, in partnership with Thailand’s national and local authorities and communities, have leveraged their business resources and expertise to eliminate deforestation, rehabilitate degraded forest land and develop an effective reforestation model that benefits both local livelihoods and ecosystems. Previously, private companies had not been permitted to carry out reforestation projects, but now they can recoup carbon credits generated by farmers implementing the project on the ground.

The foundation of the agriculture and food system, soils contain a wealth of biodiversity and play a key role in regulating, storing and filtering water. In addition, they also store carbon for climate change mitigation. The combination of these improvements can promote productivity as well as reduce carbon emissions.

A shift to a productive and regenerative approach to restoring soil health and fertility is an emerging opportunity, expected to generate $1.14 trillion of annual business opportunities by 2030. Yara International, a world-leading fertilizer company, has shifted from fertilizer production to being a provider of digital solutions and precision irrigation and fertilization to improve agricultural efficiency. Fostering soil nutrients and maintaining soil health provide not only a strong basis for sustainable farming, but also a new business growth point for the company.

More than 10 million hectares of land is deforested every year, impacting the livelihood of over 3.2 billion people worldwide. Around 30-40% of deforestation is driven by agricultural trade commodities (such as soy, palm oil, cattle, palm and paper, cattle, etc.), making it a big contributor to climate change and threat to biodiversity.

In 2021, 145 countries, accounting for more than 90% of the global forest land, have committed to reversing deforestation and land degradation. Twelve of the largest global agricultural commodity companies, with a combined annual revenue of almost $500 billion, have also made a joint statement on halting and reversing forest loss associated with agricultural commodity production and trade.

Many leading consumer-faced companies, such as Nestle and Unilever, have committed to achieving zero deforestation in their primary supply chains. They actively engaged with their top priority suppliers on sustainable sourcing, with capacity-building and community outreach, and have further driven them to commit to the pledges with KPI reporting. Through consistent supplier engagement, the impact grows exponentially and eventually drives greater benefits to business resilience and sustainability.

Consumer use and post-use can represent up to 90% of Scope 3 (indirect, along the value chain) emissions for consumer-facing companies, and thus it is paramount to positively influence citizens in their transition to a new set of consumption behaviours to achieve climate-friendly outcomes.

It is important to improve information transparency to allow better consumer decision-making. L’Oréal, for example, have built a database measuring their products’ carbon footprint through all stages from raw materials to packaging, covering 14 impact factors, from air and water to climate and energy. It has also worked with one of the largest e-commerce platforms, Alibaba, on streamlining its operations by reducing the use of plastics generated from parcel and product packaging. These efforts aim to strengthen engagement with consumers, as well as shape their mindsets and behaviours.

Such initiatives serve as good foundations. But more needs to be done to scale and accelerate the efforts to clean up supply chains, such as the calculation and measurement of the carbon emissions of forest and agricultural land, and how they contribute along supply chains; the private sector is the catalyst for this transformation. With COP27 and the Biodiversity Conference (UNCBD COP15) upcoming, public-private collaboration is key to keep up momentum to decarbonize Scope 3 carbon emissions and preserve biological diversity. Through collaboration with government, smallholder farmers, suppliers and consumers, the private sector can play its part in shaping more resilient and sustainable supply chains across the world.