You have very ambitious targets on the sourcing of agricultural raw materials: you say that by 2020 your aim is to source 100% sustainably. However, in the past ten years, you have only managed to reach a 10% share of sustainable sourcing. How will you reach 100%, in particular while your parallel aim is to double your business? Do you honestly believe this is feasible?
It is a very complex thing, for sure. We buy 7.5 million tonnes - about 350 different agricultural materials, that's a broad range of raw materials. In order to move that to sustainable sourcing, you need to work with a broad coalition. You need to bring in the knowledge of sustainable agriculture and sourcing, train and educate, set up supply chains and in many cases verify the supply chains to make sure they are sustainable. So it isn't that easy, and that is why we tackle it at different levels – as there is no single solution.
Firstly, we help with the 'big materials' that we have, such as tea and palm oil. We work with the broader industry coalition to get sustainable sourcing. On palm oil, we have created the Roundtable on Sustainable Palm Oil - manufacturers, retailers and consumer goods companies like ours are all included in this and we try to move the market forward together. So, on the big projects we work with the big players.
On the smaller projects - paprika, tomatoes, purple carrot - it's a little more difficult. A lot of our projects there are with small farmers. One of the things you see in this report is our commitment to integrate 500,000 more smallholder farmers into our supply chain.
Currently, one billion people suffer from malnutrition. Unfortunately, with the economic crisis, that number is going up. Many people have tried to solve the problem of malnutrition with different things but linking more smallholder farmers into our supply chain must be part of the solution.
Therefore, farmers in emerging markets can be self-sufficient with food but also produce a little bit more to form a livelihood and create economies. With our sustainable sourcing commitment, we will reach 500,000 of such small-hold communities..
How will you increase the number of small-scale farmers?
For example, in Azerbaijan we are now working with Oxfam on vegetables. We guarantee the supply for our Knorr product so that there is a market which will bring these people together in a community.
Don't forget that we have a global tea business where we source a lot of our tea already from smallholder farmers. We also get gherkins from India and paprika from South Africa in this way and are working with the Tanzanian government on getting a whole corridor of Tanzanian smallholder farmers on board.
The main message coming out of this is that you cannot do this alone. It is good for the economy, livelihoods and for ensuring supply, and solving broader problems such as malnutrition – but you cannot do it alone.
So you think 100% sustainable agricultural sourcing is feasible in the long-term for a multinational like yours?
I think that there are enough examples in the public domain that make me feel confident that this can be done.
What do your sustainable initiatives mean for the value of your business? I ask this because I have this perception that if something is done sustainably it costs more – because yields may be lower from the same size of land, for example. I imagine that if you ask a farmer to produce in a sustainable manner, you might need to pay them more to do so, to maintain their income level.
In many cases, it is indeed only a perception that sustainable farming is more expensive. Done well, it actually uses less fertiliser and it doesn't involve deforestation, which is responsible for 20% of global CO2 emissions. In addition, it often actually gives you a higher yield as well.
Let me give you an example on palm oil: if you get it from deforested land – obtained through illegal logging - you may get two and a half tonnes per hectare. With sustainable farming, this can go up to ten tonnes per hectare. So it is not necessarily a trade-off that because something is more sustainable, it is more expensive.
Often, because people are better trained, it requires less use of water and other materials for soil.
Ultimately, the prices will be decided by market forces. But you can certainly create livelihoods and have a responsible supply. There will undoubtedly be some challenges along the way where it might be more difficult and you need to make an investment.
When we start small-hold farmer projects, it does cost a lot of money in the beginning. A company like ours can afford that, but you have to make some investments to train people and put the infrastructure in place – all investments you can hopefully share with others.
But on an ongoing basis, small-hold farmers can give us as efficient sourcing as industrial farming does. Frankly, industrial supply alone isn't enough to supply what the world needs - you need to do both.
How do you plan to communicate your sustainability pledge to consumers?
On agriculture, we are one of the founders of the Sustainable Agriculture Initiative, which we have broadened to the entire industry.
It is very important that we enrol consumers into a sustainable model. It is not only agriculture; it is all aspects of resource use. There are many different ways of doing this. I think that the most important way is what we are doing: help the consumer by building sustainability into our innovation programme.
For example, we have a Comfort one-rinse fabric softener whereby the consumer only needs to rinse clothes once. 125 billion laundry washes are done each year using our detergents. If you only rinse once – compared to rinsing twice or three times – 500 million litres of water can be saved right there. This is why we say that sustainability drives innovation. Consumers get a better-performing detergent at lower temperatures. So you save energy as well.
The second thing you need to work on is ensuring consumers have transparent communication. This can be on packages and in advertising. But now, consumers are inundated by many different claims such as 'bio', 'green' or 'organic', and they aren't always sure of what they mean, so we have to provide that transparency.
Then we also have to provide consumers with choice. Take Lipton - we moved it to sustainable tea. We know we cannot charge more for it, as consumers aren't ready for that. We know that we cannot change its taste, as consumers don't want that. But if you have sustainable tea as well as having the right price and taste, then consumers will buy it.
When we moved with the Rainforest Alliance to sustainable tea, we saw our volumes go up by 8-10% in many places where we did that. So consumers are, in some cases, asking for this already and are ready for it and in some very few cases they are willing to pay for it.
But in general they are not yet ready to pay for this, however, especially with the economic crisis. So it is up to us to provide added reasons for buying, such as by saving energy and packaging and providing a better performance.
Perhaps you don't charge more for sustainable goods at the moment, but what about in the future? As global talks on pricing natural resources - such as water and forestry – gain momentum, the trend might drive all prices up in the future, putting sustainable producers at a huge competitive advantage – such avoiding potential extra taxation on unsustainable use of natural resources.
I don't know what the future will be in terms of taxation and pricing as a lot of factors come into that equation, including supply and demand, government policies and population growth. So a lot of things ultimately affect the price of a product. The one thing I know for sure is that if we don't create more sustainable sourcing, then we will not have the source in the first place. By focusing on this, we guarantee that we can continue to feed the world, in my opinion.
I also want to emphasise that sustainable sourcing does not have to cost more.
Sustainable sourcing can be done in a way that is fair to society and has a competitive price. This is what we are trying to say. People think that for something to be sustainable it must cost more money. The reason for this is that the initial sustainable products that came on the market were advertising things and charging more for it.
We are saying a totally different thing - we are advocating integrating sustainability into innovation programmes and products as a way of doing business.
We are now moving all Ola's ice cream cabinets to cabinets using natural refrigerants' into ones without HFCs, a pollutant, and we have other companies such as Coca-Cola joining – increasing the demand for these cabinets and thus lowering the production cost of these cabinets. In addition, these cabinets use less energy and emit less C02. Consumers are not willing to pay more for that, but if we label cabinets then that will help us.
It doesn't necessarily cost more money – we have to get out that mindset. We just need to get sustainability into our design and business model from the beginning.
For example, when you introduce drip irrigation system into small-scale farming you see an increase of 30% in yield and reductions in water use of 30-40% - so yields improve and the cost structure for farmers goes down, so it is better for the farmer. For us, it enables us to see what water we can save in our upstream supply chains.
Another example is a new design for packaging deodorants – this helps us to save 15-30% of packaging material and naturally reduces the costs.
In life, many people accept trade-offs. They think that in order to improve their product they need to pay for it. This is not true at all. Going from vinyl discs to digital didn't increase the cost of music. If you don't accept those trade-offs, - that something needs to be more expensive to be better or environmentally friendly - you will find solutions.
It is now time for the world to get out of these pre-conceived notions on many of these cases and solve these trade-offs. If you get into an 'and' mentality – versus an 'or' mentality - where you have better products and lower costs, where you have environmentally-friendly products and offer better performing products to consumers: that is the model that will win and is the model the world needs.
It is up to us to work together to overcome the apparent trade-offs of the past. This is what we are really saying with this plan.
Could you expand more on the nutrition part of your Sustainable Living Plan? And perhaps a word on responsible food marketing.
There are three major commitments that we make as a company: the first is to de-couple growth from environmental impact. The second is to give one billion more people access to health and nutrition. Thirdly, all of our agricultural products will be sourced sustainably by 2020.
A good example of giving one billion more people access to health and nutrition is our hand-washing - 1.3 million children die from infectious diseases like diarrhoea each year. By giving them the chance to use a bar of soap, we can reduce that by 25%. School attendance will then go up 40% because of reduced sickness and absenteeism.
So, we are rolling out our hand-washing campaigns from 130 million people to one billion – because we operate at global scale. No government can do that. These are big numbers and we need to do this together.
It's the same with nutrition, we make clear commitments. We have been improving our products, using less salt, sugar and trans-fatty acids. But what we are now saying is that we are accelerating the number of products with a positive health profile. In our report, one of our fifty measures taken is to put clear standards behind this.
So, part of the sustainable model is to take in a broader view and not only have sustainable sourcing but to have a socially-responsible model. We are also saying that we will bring 500,000 small-scale farmers into our supply chain, creating economic empowerment opportunities. So we are making social, health and nutrition commitments for growth as well as sustainable commitments.
How would you define your role as an industry player in people's dietary habits? Do you try to affect them? Do you claim a role in a healthy diet?
Absolutely - one of the key things in the world is that you have, on the one hand, malnutrition and one billion people who don't have sufficient access to food and on the other hand, at the same time there is an obesity problem. And we are working on both of them.
You first have to deal with malnutrition. We have programmes with the World Food Programme where we provide donations and have reinforcements of products like margarine and Annapurna or iodine in our Knorr bouillon.
Obesity is an area where industry needs to take action together in order to tackle the problem. It has to do with nutritional labelling, the formulation of products, advertising to children, encouraging physical activities.
However, it is overly-simplified to say that food companies can solve this alone. If it takes two-three years to agree on actions at EU level then this does not help. If we have to register products in each EU member states where they are not implementing the European one, then it's very difficult to get improvements as fast.
We want to be a part of the solution. When we get more people to eat our margarine, we have a reduced intake of three kilos a year of trans-fatty acids, which we know affect cholesterol and cardiovascular diseases.
Finland has deliberately decided to consume healthier margarine. It used to have a very high heart attack rate but has now improved, together with exercise and other things. So, the food industry is very much there to find healthy solutions; but together with others.
A lot of our advertising on food goes into changing consumers' behaviour for healthier diets. Because if life expectancy was to go down, it wouldn't be good for anyone. And it has actually increased thanks to the availability of food and the quality of nutrition, not because of other things. So the food industry has played a major role in providing healthier, longer lives.
The issue is now that lifestyles have changed, the food industry takes a responsibility, co- responsibility, to help change consumer behaviour not to get a pandemic of cardiovascular diseases. So that is why I feel very good if more people eat margarine instead of butter - your heart can become three years younger in doing so. So, consumer behaviour is an integral part of our plan and more sustainable business model.
Do you feel that you are the best player in the 'sustainability market'?
This is not a 'race to the top'. Fortunately, there are a lot of responsible people out there. We would like to show that a company of our size and global footprint not only has the liberty to operate but also the responsibility to do so in a sustainable way. It can be done and it can be done successfully.
To my knowledge, I am not aware of such a holistic plan of any other company of our size. There are many companies that do individual pieces of the puzzle very well. But we really want to lift this up and say that this is a new business model. Our initiative is not just a sustainable project - as tea may be - but is a sustainable business model for how businesses should operate now and for years to come. And this is why it is social, economic and environmental.
