Fresh Del Monte: A Victim of its Own Success

Fresh Del Monte’s response to global warming.

Overview of Fresh Del Monte

Fresh Del Monte Produce (the “Company” or “Del Monte”) is a leading vertically integrated producer, marketer, and distributor of fruit and vegetables. Based in Coral Gables, Florida, the Company sources its products primarily from company-controlled (~45%) and independent farms (~55%) in Central and South America, Africa, and the Philippines. Del Monte is the largest marketer of fresh pineapples, the third-largest marketer of bananas, and a leading grower and marketer of tomatoes in the United States.[1] Similar to other agribusiness operators, Del Monte’s future success is uniquely tied to global climate change as its business model is both a meaningful contributor of global greenhouse gas (GHG) emissions yet also highly sensitive to the effects of climate change.

Agribusiness and Climate Change

While understandably vulnerable to changes in the global climate (changes in temperature, precipitation, etc.), agricultural production is itself a significant driver of climate change. In recent years, it’s been estimated that agricultural production has contributed to ~20% of direct GHG emissions, second only to the energy sector.[2] Not only is agriculture a primary driver of global deforestation, but livestock and the use of synthetic fertilizer also produce methane and nitrous oxide, super pollutants with higher global warming potential than carbon dioxide.[3] Additionally, the global transportation of, say, Del Monte bananas sourced in Costa Rica or pineapples from the Philippines further contributes to agriculture-driven GHG emissions. For a brief overview of farming emissions, see figure 1below

In 2008, a report by the Intergovernmental Panel on Climate Change estimated that climate change had reduced global agricultural production by 1 to 5 percent over the past 30 years and that extreme weather events impacting agricultural production played a meaningful role in global food price volatility.[4] Importantly, many scientists predict severe weather events will occur more frequently should the trend of increased emissions of heat-trapping gases continue. Already Del Monte has seen the impact on its operations from volatile weather patterns. In 2010, unusually heavy rains and flooding in Guatemala negatively affected the Company’s banana production operations and led to ~$6 million in losses.[5] Aside from more volatile weather events, other anticipated affects from climate change include stagnating plant production yields and changes in precipitation and rising sea levels that could reduce the availability of fresh water for irrigation.

Fresh Del Monte’s Response

In response to the increasing risk of global climate change, Del Monte has made several early efforts to reduce its operations’ impact on the environment, including setting 1-, 3-, and 5-year goals for reducing its generation of GHG. As an example, the Company recently launched an irrigation optimization project with the California Tomato Growers Association. The initiative is designed to reduce water use while maintaining crop productivity and thereby minimize the strain on drought-stricken regions and prepare for possible future periods of more arid conditions. Similarly, the Company has focused on optimizing the amount of fertilizer applied to crops with the hope of lowering the pollutant impact on nearby waterways and decreasing Del Monte’s overall use of synthetic fertilizers which are developed from non-renewable fossil fuels and generate ‘super pollutants’ in methane and nitrous oxide.[6]

In light of expected pressure on crop productivity as temperatures climb in key growing regions, Del Monte is engaged in developing higher yield crops to ensure continued operational productivity (e.g., a 10% increase in crop yield would result in ~10% less acreage required for the same level of production and ~10% fewer inputs such as synthetic fertilizer, farm equipment and fuel). Finally, given the economic and environmental implications of the Company’s energy use, Del Monte has implemented an array of energy reduction initiatives. As a result of these initiatives, in 2011, the Company received the Greenhouse Reduction Award from the California Manufacturers and Technology Association and the Industrial Environmental Association.[7]

What else should Fresh Del Monte consider?

As a noted key risk in the Company’s 2015 annual report, future regulations related to climate change and GHG emissions could have a meaningful impact on the food production industry. While Del Monte’s environmental initiatives are relatively incremental thus far, given its vulnerability to forecasted changes in the global climate, Del Monte should take on a more proactive role in leading the development of agribusiness emission regulation and in thinking strategically about how the industry can leverage new technology to create a shift towards lower impact agricultural production. Furthermore, with more than 55% of its produce sourced from independent growers, Del Monte should set standards for its entire supply chain to adopt science-based targets for emission reductions. Given the criticality of these issues on Del Monte’s operations, the Company shouldn’t wait to be compelled to act by government regulation.

Figure 1:

overview-of-farm-emissions

(775 words)

Sources:

[1] 2015 Annual Report Fresh Del Monte Produce Inc.

[2] Vermeulen, Sonia, 2012. Climate Change and Food Systems. Annual Review of Environment and Resources, 37, 195-222.

[3] Natasha Geiling. 2016. Agriculture, A Huge Contributor To Climate Change, Is Starting To Clean Up Its Act. [ONLINE] Available at: https://thinkprogress.org/agriculture-a-huge-contributor-to-climate-change-is-starting-to-clean-up-its-act-7032017be855#.oy8okmnsn. [Accessed 04 November 2016]

[4] Ecosystem Marketplace. 2016. Food and Climate: an Unsustainable Relationship. [ONLINE] Available at: http://www.ecosystemmarketplace.com/articles/14979/. [Accessed 04 November 2016]

[5] 2015 Annual Report Fresh Del Monte Produce Inc.

[6] Sustainability | Fresh Del Monte Produce Inc. 2016. Sustainability | Fresh Del Monte Produce Inc. [ONLINE] Available at: http://freshdelmonte.com/sustainability/. [Accessed 04 November 2016]

[7] Sustainability | Fresh Del Monte Produce Inc. 2016. Sustainability | Fresh Del Monte Produce Inc. [ONLINE] Available at: http://freshdelmonte.com/sustainability/. [Accessed 04 November 2016]

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2 thoughts on “Fresh Del Monte: A Victim of its Own Success

  1. Thank you for such an interesting post! I totally agree with your title — Del Monte is definitely a victim of its own success, and I think that at a higher level, this issue applies to all global agri-product companies.

    I also agree that Del Monte’s efforts today are very incremental, and I would push that further by saying they are so marginal that they barely scratch the surface. Given the scale that Del Monte operates at, I think it largely influences the eating habits of Americans by flooding the American produce market with products imported from South America, Africa and Philippines. With this power, comes a great responsibility that I believe they ignore: not only do they have an immensely large carbon footprint with global transportation, they also have unsustainable farming practices and questionable treatment of the workers on the farms in emerging markets. Further, they are still using chemical fertilizers, which as you pointed out, contribute to global warming. I think there should be a strong push to move to long-term sustainable practices that include using organic/natural fertilizers and sourcing produce locally. While this implies a change in the business model and will negatively impact their top line in the short-term, it is critical for long-term sustainability for Del Monte and the communities they operate in. Given this is such a fundamental change, I don’t believe it is feasible without any external pressure (governments, NGOs etc)

  2. I had no idea how much agricultural production has contributed to emissions. I’ve always thought that farming is a good thing for society and obviously producing food is good, but I am now more aware that we need to do it in a less environmentally-harmful way. From Del Monte’s actions, it seems like the current goals are to be more efficient with resources and to stop using harmful fertilizers. As you wrote, I also hope that new technology will help Del Monte reduce it’s impact.

    I think it is really scary how extreme weather events have more frequently impacted in global food availability and price volatility. Food is essential to life, so the outcomes could be extremely disastrous if we don’t get this right. Hopefully Del Monte can take the lead and hold its independent growers to its high (but necessary) standards.

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