How Climate Change Is Impacting An American Icon: Heinz Ketchup

When a company identifies sustainability as a way to both better our environment and drive profitability, how far will it go to achieve these goals?

Climate Change & Kraft Heinz:

Kraft Heinz, and other companies that rely on agricultural inputs, will be directly impacted by greenhouse gas emission driven climate change. While rising temperatures extend the length of growing seasons and crop yields in the short term, longer growing seasons increase demand on water as this resource becomes more constrained.[1] Over the long term, higher temperatures, the resulting increased pest, weed, and parasite issues, and extreme weather conditions are expected to decrease crop yields.[2] [3] A Climactic Change study modeling the impact of low and medium to high emission rates suggests by the end of the century a variety of crops ranging from cotton to tomato will experience notably decreased yields.[4]

Figure 1: Crop Yield Decline

crop-yields

 

Heinz will fall victim to climate change’s impact on the key input for their signature ketchup production, tomatoes. Beyond concerns of crop shortages and resulting increased costs for tomatoes and other agricultural inputs[5], decreased water availability will put pressure on manufacturing at Heinz.

 

Sustainability Efforts:

Acknowledging their ability to play a role in bettering our world’s environmental positon, Heinz set forth a number of sustainability goals, touting that “sustainability is not only better for the planet, but smart business.”[6] [7]  These goals ranged from reducing greenhouse gas emissions by 20% (which they surpassed, achieving ~23.8% reduction), to reducing solid waste sent to landfill by 20% (also surpassed, achieving ~51.2% reduction).[8] [9] Additionally, reducing energy consumption, and increasing use of renewable energy serves a dual purpose of minimizing greenhouse gas emissions and minimizing the financial impact of rising energy costs.[10]

 

Figure 2: Heinz Sustainability Achievements

heinz-sustainability

 

Heinz has also made strides in agricultural sustainability. Heinz reduced water consumption by 23% using hybrid tomato seeds requiring less water and drip irrigation minimizing water waste.[11] By increasing yields Heinz is able to use less land, translating to less fertilizer, water, and pesticide use.[12] Every step of the growing process has been thoroughly evaluated and adjusted to decrease negative impact on the planet, and in turn increase efficiency and eliminate costs for the company.

 

Video 1: Heinz Sustainable Agriculture

 

Sustainability Programs Though M&A:

The Kraft Heinz merger presents a great opportunity for Kraft Heinz to leverage learnings from each company’s efforts in sustainability (and long term profitability), to make their joint effort even more powerful than the two parts alone. However, we must be wary of the potential for a drop in focus on sustainability as the joint company seeks quick wins through cost cutting, perhaps overlooking the long term value of sustainability efforts.

 

Steps Towards Increased Sustainability:

There are many ways for Kraft Heinz to expand their efforts in reducing environmental impact. Taking Walmart’s lead, they should consider SKU consolidation, to limit excess packaging required for frequent shorter production runs.[13] Transportation also stands out as a key area to target given Heinz has not been successful in its goal of reducing transportation, instead increasing transportation by around 2.5%.[14]  One route could be leveraging the increased number of production facilities (from the merger), and performing processing and manufacturing of raw materials as close to the source as possible, thus decreasing fuel use and greenhouse gas emissions. Another route could be optimizing the use of truck space, perhaps moving trucks fewer times total with more stocked cabins in each run.  As has been successful in Heinz Netherlands[15], the company could consider additional opportunities to shift from truck to ship transportation to reduce carbon dioxide emissions.

Beyond incremental efficiencies in their processes, which are indeed a great step in the right direction, Kraft Heinz, as a key player in the food industry, should be completely rethinking their growing and manufacturing processes for Ketchup, and other products, to make more radical changes in ensuring sustainability for the future.

 

Word Count: 622

 

[1] The California Climate & Agriculture Network, “Climate Change Impacts on Agriculture,” http://calclimateag.org/wp-content/uploads/2011/09/Impacts-fact-sheet.pdf, accessed November 2, 2016.

[2] Lee, Juhwan, Steven De Gryze, and Johan Six, “Effect of Climate Change on Field Crop Production in California’s Central Valley,” Climatic Change 109 (2011): 335-353. http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/913318655?accountid=11311, accessed November 2, 2016.

[3] The California Climate & Agriculture Network, “Climate Change Impacts on Agriculture,” http://calclimateag.org/wp-content/uploads/2011/09/Impacts-fact-sheet.pdf, accessed November 2, 2016.

[4] Ibid.

[5] Medellín-azuara, Josué, Richard E. Howitt, Duncan J. Macewan, and Jay R. Lund, “Economic Impacts of Climate-Related Changes to California Agriculture,” Climatic Change 109 (2011): 387-405. http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/913318714?accountid=11311, accessed November 2, 2016.

[6] Manna, Dean R., Gayle Marco, Brittany Lynn Khalil, and Cara Esola, “Sustainable Markets: Case Study of Heinz,” Journal of Business Case Studies 7 (2011): 35-42. http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/893661721?accountid=11311, accessed November 2, 2016.

[7] Heinz, “Supply Chain,” Vimeo, published May 7, 2014, https://vimeo.com/94399859, accessed November 2, 2016.

[8] Manna, Dean R., Gayle Marco, Brittany Lynn Khalil, and Cara Esola, “Sustainable Markets: Case Study of Heinz,” Journal of Business Case Studies 7 (2011): 35-42. http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/893661721?accountid=11311, accessed November 2, 2016.

[9] Heinz, 2014 Social Responsibility Report. http://www.heinz.com/data/pdf/hnz_CSR_pdf_report.pdf.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Smorch, Patrick. “Nine Steps to Greater Profitability, Sustainability,” Packaging Digest 03 (2007), 46-48. http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/215275303?accountid=11311, accessed November 2, 2016.

[14] Heinz, 2014 Social Responsibility Report. http://www.heinz.com/data/pdf/hnz_CSR_pdf_report.pdf.

[15] Ibid.

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4 thoughts on “How Climate Change Is Impacting An American Icon: Heinz Ketchup

  1. I wonder how Heinz might be able to source and produce its condiments more locally to reduce its transportation carbon footprint. Through some quick research, I found that tomatoes are grown in every U.S. state and they are commercially grown in 20 states (http://www.ers.usda.gov/topics/crops/vegetables-pulses/tomatoes.aspx). I wasn’t able to find more recent numbers, but as of 2007, 80% of Heinz Ketchup was produced at one factory in Fremont, Ohio (http://www.post-gazette.com/business/businessnews/2007/04/17/Fremont-Ohio-A-visit-to-the-heart-of-Heinz/stories/200704170329). Perhaps, given the merger with Kraft, there are Kraft factories around the country and around the world that could begin manufacturing Heinz products using local raw ingredients, thus reducing the new to transport ketchup over long distances. Even if this is not the case, the company could also look into the costs and benefits–both in dollars and to the environment–of opening new factories to reduce the need for long-distance shipping and transit.

  2. Interesting! It’s challenging to think about a product like ketchup for Kraft Heinz, which pretty much has to come from tomatoes. That really narrows the options down for adapting. In terms of operating decisions, I agree that Kraft Heinz should reduce SKUs in order to reduce production costs overall. And not just in volumes – there are a lot of slight variations in products – it would be interesting to see how critical each of them are to Kraft Heinz’s portfolio. For example, in “regular” flavored ketchup alone, I see Regular, No Salt, Reduced Sugar, “Simply Heinz,” and Organic.

  3. How interesting! It’s great to see that Kraft Heinz has made moves towards sustainability with Ketchup production. I am particularly interested in what happens to the bottles after they have been used. Whilst efforts are being made to reduce materials used in packaging (http://www.heinz.com/sustainability/supplychain/packaging.aspx) and allow for recycling, the latter is not an option everywhere in the world. I would love to see Kraft Heinz go one step further and invest in biodegradable plastics. I imagine that this would be an expensive move, but if one of the largest companies in the world doesn’t have a duty to think big on these topics, I don’t know who does.

  4. Very interesting post MM. Although I often first think of plant-based commodities when I think about industries most impacted by climate change, I have never really thought of tomatoes as being a plant that is also severely impacted by the changes in temperature. I thought it was really fascinating to read about how Heinz has focused on engineering hybrid tomato seeds in order to address this issue. I am also really blown away by the 51% solid waste reduction at Heinz to the point that it makes me wonder how in the world they were generating that much more solid waste beforehand! As you pointed out, however, I am also really concerned with how the cost-cutting emphasis of Kraft Heinz owner 3G Capital will impact their opportunity to continue implementing new sustainability trends. Given their track record with Burger King and indirectly with A-B InBev, I really struggle to believe that they will be willing to implement additional sustainability efforts at the combined entity if it does not align with their cost-cutting strategy — regardless of its impact to the greater good of society.

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