Campbell’s Climate Challenge: Preserving An Iconic American Food Brand

As a major user of water and agricultural products, Campbell's is significantly threatened by climate change on its supply chain. How is it addressing these problems and what should it do in the future?

Founded in 1869, Campbell Soup Company (“Campbell’s”) is an iconic American food company with ~8B[1] in revenue. Best known for soups and its eponymous brand, Campbell’s has diversified into other products such as pasta sauce (Prego), salsas and dips (Garden Fresh Gourmet, Pace), juice (V8), salad dressings (Bolthouse Farms), and snack foods (Pepperidge Farms).[2] A common attribute of many of its products is a high degree of water and fruit/vegetable content, which contribute meaningfully to COGS, which is 61% of total revenue.[3]

Climate change poses challenges for Campbell’s supply chain in a number of ways. First, climate change directly affects the availability of water, an important direct ingredient in Campbell’s products. For example, the Natural Resources Defense Council found that 1/3 of counties in the U.S., where much of Campbell’s manufacturing occurs[4], are at risk of water shortages due to climate change by mid-century.[5] Second, water shortage also affects ability to grow crops, including Campbell’s five key agricultural ingredients (tomatoes, carrots, celery, potatoes, and jalapenos). Third, climate change can lead to more extreme temperatures and precipitation, which can directly affect crop yields.[6] Producing and sourcing water and agricultural products is essential to Campbell’s business, and the effects of climate change could substantially increase costs in those parts of the supply chain.

In the last decade, Campbell’s has increasingly emphasized its concerns over climate change in its external communications and exhibited a commitment to action. In 2005, Campbell’s set its first global greenhouse gas (GHG) emission reduction target as part of the U.S. Environmental Protection Agency’s Climate Leaders Program.[7] In 2010, Campbell’s announced a 2020 sustainability goal to reduce environmental footprint (water and GHG emissions per ton of food) by 50% relative to 2008 baseline.[8][9]

So far, Campbell’s has made meaningful progress. It has reduced water use by 18% per ton of food produced relative to 2008 baseline [10] by making capital improvements to reduce water use, especially after relaunching it Sustainable Agriculture Program. For example, for tomatoes, its biggest agricultural ingredient which it grows almost exclusively in California, it has increased use of more water-efficient drip irrigation from 29% of crop grown in 2012[11] to 51% in 2016, leading to a significant reduction in water use.[12] Campbell’s also reduced water use at its California tomato processing sites by 35% between 2010 and 2015.[13]

Campbell’s has also reduced GHG emissions by 24% by reducing energy use, increasing reliance on renewable energy, increasing recycling, decreasing packaging per product, and increasing sourcing of packaging materials from sustainable sources.[14]

Campbell’s has also ramped up support of efforts to reduce climate change more broadly, especially through public policy. In 2015, it joined the California Water Action Collaborative aimed at improving water security in California.[15] More recently, Campbell’s joined We Mean Business,[16] a global coalition of environmental non-profits and 600+ companies, aimed at working together to promote sustainability and lobby for pro-climate policy.[17] In July 2017, Campbell’s publicly expressed its objection to the U.S. decision to exit the Paris Climate Agreement.[18]

So far, Campbell’s has shown itself to be a leader in sustainability. Unsurprisingly, it has been part of Dow Jones’ Sustainability Index for nine consecutive years.[19] Campbell’s should continue with the general framework of its approach: (1) reduce water use so that its supply chain is less reliant on a resource likely increasingly scarce due to climate change; (2) reduce its own GHG emissions to do its part to combat climate change; (3) partner with non-profits and other businesses to promote collective action and advocate for policy solutions on climate change. For each of these three items, Campbell’s should go further in the coming years.

With regards to (1) and (2), Campbell’s should create a new sustainability target for the next decade (i.e. 2030). In conjunction with this, it should invest further in R&D and capex to improve operations to waste less water and energy and improve product design to further reduce packaging. Doing so will likely require investments in next-generation water-saving, renewable energy, and energy efficiency technologies. These technologies may currently be quite expensive, but without early adoption, they will likely remain cost prohibitive for the broader market for much longer.

On (3), Campbell’s should further ramp up its support of organizations/initiatives promoting collective action in sustainability and advocating for policy solutions. Given the current resistance to addressing climate change from the Trump Administration, Campbell’s will likely need to further shift its focus to achieving policy wins on the state/local level as opposed to federal level.

Questions for Discussion:

To what extent can Campbell’s pass along the costs of its sustainability efforts to customers without losing market share?

How can Campbell’s better address the collective action problem around combating the effects of climate change? Is there a better way to coerce free riders?

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[1] Campbell Soup Company, FY’17 Annual Report, p. 41, http://investor.campbellsoupcompany.com/phoenix.zhtml?c=88650&p=irol-reportsannual, accessed November 2017.

[2] Campbell Soup Company, “Our Businesses, ” https://www.campbellsoupcompany.com/about-campbell/our-businesses/, accessed November 2017.

[3] Campbell Soup Company, FY’17 Annual Report, p. 41, http://investor.campbellsoupcompany.com/phoenix.zhtml?c=88650&p=irol-reportsannual, accessed November 2017.

[4] Campbell Soup Company, FY’17 Annual Report, p. 18, http://investor.campbellsoupcompany.com/phoenix.zhtml?c=88650&p=irol-reportsannual, accessed November 2017.

[5] Theo Spencer, “Climate Change, Water, and Risk: Current Water Demands Are Not Sustainable”, https://www.nrdc.org/sites/default/files/WaterRisk.pdf, July 2010, accessed November 2017.

[6] U.S. EPA, “Climate Impacts on Agriculture and Food Supply”, https://19january2017snapshot.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply_.html, accessed November 2017.

[7] Campbell Soup Company, “MAKING A DIFFERENCE AS THE CLIMATE CHANGE DIALOGUE HEATS UP”, https://www.campbellsoupcompany.com/newsroom/news/2014/10/17/making-a-difference-as-the-climate-change-dialogue-heats-up/, October 17, 2014, accessed November 2017.

[8] Campbell Soup Company, “2017 Corporate Responsibility Report”, p. 42, http://www.campbellcsr.com/_pdfs/Campbells_2017_CSR_Report.pdf?v4, accessed November 2017.

[9] Campbell Soup Company, “CAMPBELL UNVEILS 2020 SUSTAINABILITY AND CITIZENSHIP GOALS IN 2010 CORPORATE SOCIAL RESPONSIBILITY REPORT”, https://www.campbellsoupcompany.com/newsroom/press-releases/campbell-unveils-2020-sustainability-and-citizenship-goals-in-2010-corporate-social-responsibility-report/, accessed November 2017.

[10] Campbell Soup Company, “2017 Corporate Responsibility Report”, p. 40-44, http://www.campbellcsr.com/_pdfs/Campbells_2017_CSR_Report.pdf?v4, accessed November 2017.

[11] Campbell Soup Company, “MAKING A DIFFERENCE AS THE CLIMATE CHANGE DIALOGUE HEATS UP”, https://www.campbellsoupcompany.com/newsroom/news/2014/10/17/making-a-difference-as-the-climate-change-dialogue-heats-up/, October 17, 2014, accessed November 2017.

[12] Campbell Soup Company, “WATER, SUN AND STEAM—INGREDIENTS IN OUR SUSTAINABILITY STORY”, https://www.campbellsoupcompany.com/newsroom/news/2016/04/22/sustainabilityearthday2016/, April, 22, 2016, accessed November 2017.

[13] Campbell Soup Company, “TAPPING OUR RESPONSIBILITY TO CONSERVE WATER” https://www.campbellsoupcompany.com/newsroom/news/2016/03/22/tapping-our-responsibility-to-conserve-water/, March 22, 2016, accessed November 2017.

[14] Campbell Soup Company, “2017 Corporate Responsibility Report”, p. 40-44, http://www.campbellcsr.com/_pdfs/Campbells_2017_CSR_Report.pdf?v4, accessed November 2017.

[15] Campbell Soup Company, “WATER AS A HERITAGE”, https://www.campbellsoupcompany.com/newsroom/news/2017/03/22/water-as-a-heritage/, March 22, 2017, accessed November 2017.

[16] Marc Gunther, “Why Won’t American Business Push for Action on Climate?”, http://e360.yale.edu/features/why-wont-american-business-push-for-action-on-climate, February 16, 2017, accessed November 2017.

[17] We Mean Business, “About,” https://www.wemeanbusinesscoalition.org/about/, accessed November 2017.

[18] Campbell Soup Company, “OUR POSITION ON THE PARIS CLIMATE AGREEMENT AND CLIMATE CHANGE” https://www.campbellsoupcompany.com/newsroom/news/2017/06/02/position-paris-climate-agreement-climate-change/, June 2, 2017, accessed November 2017.

[19] Campbell Soup Company, “CAMPBELL NAMED TO THE DOW JONES SUSTAINABILITY INDICES FOR NINTH CONSECUTIVE YEAR”, https://www.campbellsoupcompany.com/newsroom/press-releases/campbell-named-to-the-dow-jones-sustainability-indices-for-ninth-consecutive-year/, September 7, 2017, accessed November 2017.

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4 thoughts on “Campbell’s Climate Challenge: Preserving An Iconic American Food Brand

  1. This article is yet another example how climate change will negatively impact corporations and if companies do not take a long-term view on climate change, they are risking their entire business. While Campbell has seemingly made great strides in improving their sustainability practices, I can’t help but question whether the percentage improvements cited look impressive because the baseline sustainability practices were almost non-existent – it is easy to improve metrics such as water usage when the comparative base figures may imply extreme water wastage. Regardless of this, it is good to see Campbell tying their business operations to sustainability efforts and not simply viewing sustainability as a corporate social responsibility (CSR) / PR stunt.

    I also question whether the rise of GMO options for Campbell’s raw ingredients may derail their sustainability efforts. With GMO technology, food can grow in tougher climates, e.g. with less water (1). The proliferation of GMO and thereby the ability to reduce a crop’s dependence on water leads me to question whether companies will learn to do more with less rather than invest heavily in fighting climate change.

    As for your question regarding Campbell’s ability to pass rising costs on to consumers, I do not think this is a viable option for the company given the space they play in. Their assortment of brands do not easily lend themselves to premium pricing. I think they must view this investment in sustainable practices more as a capex investment that will bolster their supply chain and defend it from impending resource scarcity.

    (1) https://www.forbes.com/sites/gmoanswers/2016/08/30/gmos-water-balance/#7395bca66975

  2. MIT Sloan Management Review recently posited that water prices must necessarily rise in order to better align intensity of water use with actual availability (http://sloanreview.mit.edu/article/does-your-supply-chain-risk-management-strategy-hold-water/). I think when/if this happens, the impact will be felt ubiquitously, but the companies that made early investments into water efficiency will fare relatively better. As a result, my thoughts on the first question you pose (rising price impact to market share) is that Campbell’s may actually benefit in that eventual future when their price inflation is mitigated relative to that of other soup/food producers.

  3. Interesting piece. In my eyes – the ability of Campbell’s to pass on any future costs of creating a more sustainable supply chain to consumers is a critical piece of the puzzle here – and will determine whether Campbell’s can remain a “leader in sustainability”.
    Currently the average consumer’s appetite to pay for “sustainability” is extremely limited, particularly when it comes to goods which are in some way commoditized (sadly soup falls into this category).

    I would hazard a guess that some of the progress made so far has actually been successful in reducing costs; less water intensive manufacturing, less (ie lower cost) packaging, less energy. I wonder what happens when (or if) Campbell’s has to make real trade-offs between a more sustainable and supply chain and increasing costs.

    Companies like Campbell’s (and others) need to start to think about how they can get consumers to willingly pay for more sustainable products, or risk shrinking margins. They should start now, before it is too late.

  4. I’m not sure if consumers of Campbell’s traditional product lines will absorb these sustainability costs, but consider Campbell’s recent acquisitions (https://www.crunchbase.com/search/acquisitions/field/organizations/num_acquisitions/campbell-soup-company). Organic brands are winning market share from incumbents, and become targets for legacy CPG companies like Campbell’s. Campbell’s operating model is to allow recent acquisitions to continue operations independently. When brands like Plum Organics retail at higher rates than competitors, the costs are passed along to the consumer who is willing to pay a premium for a sustainability-focused organization (https://www.plumorganics.com/faqs/packaging-sustainability).

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