Is Big Green Doing Enough to Reduce Emissions?

John Deere pollutes both through its manufacturing process and the machinery it produces. Why should the company be concerned about global warming, and what steps can it take to reduce its environmental impact?

Deere & Company (John Deere) is a multinational manufacturer of agricultural, construction and forestry equipment headquartered in Moline, IL. Founded in 1837, the company has become a household name, with its iconic green and yellow deer logo found everywhere from lawnmowers to clothing. With factories located around the globe, the company generates revenues of approximately $29 billion[1]. Deere employs approximately 63,000 people in a variety of roles, from factory operations to financial services[2].

John Deere has made efforts to improve its environmental record, such as establishing eco-efficiency goals aimed at limiting the use of energy, water and materials[3]. However, the manufacturer is a major contributor to global greenhouse gas emissions on two levels:

  • Manufacturing – The company employs an energy intensive heavy manufacturing process to produce equipment and parts for assembly into tractors and machinery.
  • Product Use –Deere’s products are powered by combustion engines during use in agricultural and construction activities.

This double effect on emissions makes it all the more important for Deere to limit its environmental impact. Deere should not only be concerned about emissions from the standpoint of corporate responsibility, but also because of the impact that global warming will have on the long-term viability of agricultural.

Why Should John Deere Care?

Greenhouse gas emissions are expected to have a significant impact on the global climate in years ahead. As emissions rise, agricultural activities will be strained by higher temperatures and more extreme weather conditions. By 2100, yields are forecasted to decline by 30-46% in the current U.S. growing regions under the slowest warming scenario or by 63-82% under the most rapid warming scenario[4]. On top of that, warmer weather may attract crop damaging weeds, insects and diseases that require additional herbicides and pesticides to control[5]. Finally, climate change can increase the frequency of extreme weather events such as hail storms, floods and droughts, thereby destroying crops[6].

From the standpoint of Deere’s customers, lower yields will shift their supply curves inward. This has the dual effect of reducing quantity and raising prices.

supply-demand-curve

Combined with higher input costs to irrigate fields during droughts and control pests with chemicals, farmers both domestically and abroad will have lower profits if climate change goes unabated. Deere’s agricultural business, which accounts for over 75% of its revenue[7], will likely suffer as their buyers will have lower operating profits to pay for capital intensive machinery and equipment. Moreover, Deere’s growth opportunities in developing markets will be limited by the inability of local farmers to grow and scale their businesses without higher revenues and profits.

jd-symbiosis

What Can John Deere do to Help?

Deere & Company has taken steps to improve its efficiency, thereby lowering operational costs, while also finding innovative engineering solutions to pass savings onto their customers. On the sustainability front, the company has committed to a set of 2018 Eco-Efficiency Goals[8]:

  • Reduce energy consumption and greenhouse gas emissions by 15% per ton of production.
  • Reduce water consumption by 15% per ton of production.
  • Recycle 75% of waste.

Deere has continuously sought improvements to lower its products’ emissions by developing innovative solutions, including:

  • Compression Wave Injection –This technology exceeded the EPA’s emission standards for two-stroke and handheld engines at lower costs than alternatives. Not only did this create a competitive advantage for Deere’s lawn and garden equipment, but the company was also able to license this technology to competitors[9].
  • Hybrid Wheel Loader – Deere engineers designed a hybrid-electric drive system to replace a conventional drivetrain in its 944K loader, leading to fuel efficiency gains of up to 40%[10].

944k-loader

Going forward, the company can continue to improve by:

  • Replacing traditional energy sources with renewables.
  • Taking carbon emission costs into account for financial planning decisions[11].
  • Partnering with farmers in developing nations to teach sustainable agricultural practices[12].

Deere has taken significant steps to reduce its overall impact on GHG emissions. However, I would encourage the company to become a more vocal advocate in the fight against climate change. Using its superior engineering talent, Deere can turn the challenges posed by emission reductions into a competitive advantage, building a long-term competitive moat. In the process, the company can build brand loyalty by offering more fuel-efficient and cost-efficient products that ensure their customers will be able to continue farming for generations to come.

(716 words)

_____________________________________________________________________________________________________

[1] “2015 Form 10-K, Deere & Company” (PDF). United States Securities and Exchange Commission.

[2] “2013 Form 10-K, Deere & Company” (PDF). United States Securities and Exchange Commission.

[3] “2016 Global Citizenship Report” (PDF). Deere & Company website.

[4] Wolfram Schlenker and Michael J. Roberts, “Nonlinear temperature effects indicate severe damages to U.S. crop yields under climate change.” PNAS, September 2009, Vol. 106, No. 37.

[5] Cynthia Rosenzweig, Ana Iglesias, X.B. Yang, Paul R. Epstein, and Eric Chivian, “Climate change and extreme weather events – Implications for food production, plant diseases, and pests.” Global Change & Human Health, 2001, Vol. 2, No. 2.

[6] J. Hatfield, G. Takle, R. Grotjahn, P. Holden, R. C. Izaurralde, T. Mader, E. Marshall, and D. Liverman, Ch. 6: Agriculture. Climate Change Impacts in the United States: The Third National Climate Assessment, J. M. Melillo, Terese (T.C.) Richmond, and G. W. Yohe, Eds., U.S. Global Change Research Program, 2014, pp. 150-174.

[7] “Investor Presentation, September / October 2016” (PDF). Deere & Company website.

[8] “2016 Global Citizenship Report” (PDF). Deere & Company website.

[9] Funk, Karina, “Sustainability and Performance.” MITSloan Management Review, Winter 2003, Vol. 44, No. 2.

[10] “2016 Global Citizenship Report” (PDF). Deere & Company website.

[11] Hugh Jones, “What Is an Internal Carbon Price, and Should My Business Implement One?” Triple Pundit website, December 21, 2015. http://www.triplepundit.com/2015/12/what-is-an-internal-carbon-price-and-should-my-business-implement-one/

[12] “2016 Global Citizenship Report” (PDF). Deere & Company website.

Previous:

Coca cola responses to threat of climate change

Next:

Climate Change — > A Scientific Theory for Most Nations = An Existential Crisis for Maldives

3 thoughts on “Is Big Green Doing Enough to Reduce Emissions?

  1. Great post, Merkel. While I think it’s great that Deere has begun to adopt more climate-friendly approaches to its manufacturing and sales, I wonder if the greater obstacle is convincing their consumers that hybrid or electric-only technology is robust enough to handle the demands of the job site and farm. Having worked on a farm, I think many would be resistant to the change, fearing either inadequate equipment or not being taken seriously by other farmers or tradesmen. For many farmers, buying a Deere tractor or implement is a huge capital investment, second only to the purchase of actual land. To make such a jump to a new technology, I think that the farmer is really going to have to be convinced that they’re not buying a lemon. In that regard, I think Deere’s marketing efforts may be just as important as their R&D to ensuring a successful “green” transition.

  2. Sam — Thanks for the strong post. I definitely have not considered the someone ironic reality that in the process of manufacturing heavy-duty farming equipment, John Deere is fundamentally jeopardizing the future of its own customers. All of that said, I actually encourage you to check out my post on Trimble, which develops a bunch of the software/hardware that is plugged into John Deere tractors for navigation and data extraction/management purposes. I imagine a partnership between the two could be quite effective w/r/t optimizing equipment efficiency, utilization, best practices, etc.

    Also, another potential way that John Deere could contribute to the climate change conversation is through the Global Village Construction Set (GVCS). My understanding is that an organization called Open Source Ecology (link below) is in the process of designing and prototyping a set of 50 industrial machines that are essential to sustaining any modern civilization. These machines would theoretically be easy to build, low cost and low maintenance. Most importantly, the organization is releasing the blueprints online for all to see and marketing them in emerging markets. As you can imagine, a number of these industrial machines are in John Deere’s product portfolio, such as tractors and backhoes. While emerging markets may not be an economically viable line of business for John Deere in the near-term, a partnership could be an opportunity the company to share its knowledge and expertise, as well as gain a toehold in new markets.

    http://opensourceecology.org/gvcs/

  3. Very Insightful post Sam. I think John Deere can also work with its suppliers (mainly component suppliers) to develop new light weight and high strength material. It will help them manufacture better fuel efficient equipment.

Leave a comment