Making Beer Green
Without water, there is no beer
After a long three case day, who doesn’t enjoy a nice cold beer? Well if we don’t do anything to stop climate change, you might not be able to enjoy that beer. Global Warming is effecting our clean water supplies in several ways. The rising temperatures are leading to a shrinking snow pack in our mountains which “reduces the amount of water available for irrigation downstream, while earlier spring snowmelt affects the timing” 1. Additionally, sea levels are rising causing “saltwater intrusion [that] may contaminate the supply from groundwater”2. Per a McKinsey report released in 2012, by 2030 overall demand for water may outstrip supply by 40 percent3. With the world’s water supply shrinking, the beer supply could shrink right along with it. To make beer, you need water and lots of it. Water accounts for 90-95% of beer by mass4. Even more shocking is that more than 90% of the water used in the production of beer is used in growing barely and other agricultural inputs5.
Water is the lifeblood of beer and it is disappearing from this earth leaving alcoholic beverage companies “exposed to supply disruptions that could significantly impact operations and add to costs. Companies operating in water-stressed regions that fail to address local water concerns may face further risk of losing their social license to operate. Improving water management through increased efficiency and recycling, particularly in regions with baseline water stress, can lead to lower operating costs, reduced risk, and higher intangible asset value”6. Recognizing this risk early on, AB InBev has been at the forefront of trying to combat the effects climate change for the beer industry. Starting back in 2012, AB InBev had a corporate initiative to help protect our planet’s natural resources. To make sure all lines of business were focused on this new initiative, performance was tied to sustainability measures. Goals were laid out over a five-year period with three of the eight goals tied directly to water protection7. The current results are as follows8:
AB InBev was able to make these strides by focusing on water reduction at every step of the production process. Since most the water used in the production of beer happens in the agricultural phase, they focused on “helping barley growers use enhanced irrigation technology and drought-resistant seeds to grow more barley with less water, increasing water use efficiency inside operations, – providing effluent (repurposed water) for community needs, and working with global and local stakeholders to improve water management and ecosystem conditions at the watershed level.9” AB InBev leveraged an irrigation scheduler program created by The Bureau of Reclamation called AgriMet. This program focuses on applying the right amount of water at the right time10. AB InBev has funded the instillation of these stations at key growers to help reduce water waste. This pilot program was a success with reductions in water use of up to 20% and will now be rolled out across more locations11. Fixing water waste is the first step in helping to ensure the future of beer. Here is a short video about all the ways AB InBev is working to reduce its footprint12:
Clearly AB InBev has realized the importance of combating climate change both from a fiscal and socially responsible point of view. However, there is still room to do more. These programs are currently only in “key” areas but is neglecting China, one of the largest areas of production. Focusing on helping water waste in some of the most constrained parts of the supply chain will have more of an impact on the region than in some of the “key” areas where the technology already exists. AB InBev can also consider other ways to use less water, like finding types of barley that require less water to grow. Water can be saved by the way it is used and the other inputs in the beer, not just solely by focus on waste.
Additionally, Ab InBev should not just focus on saving the water in its production but also making sure there is clean water for the areas around its production for workers and their families. It is not enough in this world to focus only on your bottom line, global warming is about more than profits and as an industry leader they need to set an example for the rest. If people do not have water for their families, they will not support the company that is using up all this precious resource. It is in their best interest not to lose “the social license to operate” as described in the Sustainability Accounting Standard report. Ab InBev needs to save the water, save the beer. Cheers to helping combat global warming.
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1,2 “Global Warming Effects on the Water Supply.” Global Warming Effects on the Water Supply. Union of Concerned Scientists, 2011. http://www.climatehotmap.org/global-warming-effects/water-supply.html. Accessed 02 Nov. 2016.
3 Giulio Boccaletti, Sudeep Maitra, and Martin Stuchtey, “Transforming Water Economies,” McKinsey & Company, 2012, p. 1. https://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Sustainability/PDFs/McK%20on%20SRP/SRP_09 _Water.ashx accessed November 1 2016.
4 Hepler, Lauren. “From Budweiser to Miller, Greening the Big Beer Supply Chain.” GreenBiz. N.p., 02 July 2015. https://www.greenbiz.com/article/budweiser-miller-greening-big-beer-supply-chain. Accessed 02 Nov. 2016.
5 “Water | AB InBev.” Water | AB InBev. N.p., 2016. http://www.ab-inbev.com/better-world/a-cleaner-world/water.html. Accessed 02 Nov. 2016.
6 Sustainability Accounting Standards Board. “ALCOHOLIC BEVERAGES Sustainability Accounting Standard.” Sustainability Accounting Standards Board. Sustainability Accounting Standards Board, June 2015. http://www.sasb.org/wp-content/uploads/sites/4/2015/07/CN0202_Alcoholic_Beverages_Standard.pdf?__hssc=105637852.1.1478123642522&__hstc=105637852.976404890721bf97a3c25b480a074bd1.1478123642521.1478123642521.1478123642521.1&__hsfp=3202166073&hsCtaTracking=8950e8c8-252f-4a2f-bb80-b23bc8d6547c%7Ca76ea41e-cf29-4fd5-a7ac-043099317a1e. Accessed 01 Nov. 2016.
7,8 AB InBev. Best Beer Company Bringing People Together For a Better World. Investor Presentations. AB InBev, May 2016. http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/investors/presentations-pdf-archive/presentations/2016/AB%20InBev%20SRI%20Road%20Show%20May%202016.pdf. Accessed 02 Nov. 2016.
9 “Water | AB InBev.” Water | AB InBev. N.p., 2016. http://www.ab-inbev.com/better-world/a-cleaner-world/water.html. Accessed 02 Nov. 2016.
10 Reclamation, Bureau Of. “Great Plains Region.” AgriMet Stations. N.p., 26 Apr. 2016. http://www.usbr.gov/gp/agrimet/. 03 Nov. 2016.
11 Contributor, 3p. “What We’ve Learned About Collective Action on Water.” Triple Pundit People Planet Profit. N.p., 09 June 2015. http://www.triplepundit.com/2015/06/what-weve-learned-about-collective-action-on-water-stewardship/. 03 Nov. 2016.
12AB Inbev News. “Anheuser-Busch InBev – 2017 Global Environmental Goals.” YouTube. N.p., 13 Sept. 2013. https://www.youtube.com/watch?v=5qfhVbxRvqk. 02 Nov. 2016.
Smitha made a great point in a similar analysis, that although most of the water is used in the upstream processes of beer manufacturing, industry leaders such as ABInBev prefer changing their internal processes, which has lower impact but they have more control oover the processes. What do you think about it?
Siddhart, I agree with you that many of the highest-impact processes are far upstream in the supply chain. However, just to identify upstream suppliers is a challenge and takes time. For these reason, many times companies tend to start by changing their internal processes, which has an immediate impact and is completely legitimate. As AJR post indicates, AB Inbev has engaged with its suppliers in order to reduce water waste. That effort is particularly important, since collaboration among the supply chain is particularly attractive for the consumer packaged goods (CPG) sector, especially when we are talking about beer.
In an industry were price is constantly under pressure, the temptation for retailers is to transfer the pain upstream to their suppliers by forcing them to bear an increasing share of costs. The suppliers, by its turn, have less and less room to absorb additional costs, since the volatility in input prices put the squeeze on margins and require expensive marketing campaigns to differentiate the product. In that context, CPG players must look at collaboration initiatives as a way out of the damaging spiral of antagonistic relationships. I that regard, I believe that AB Inbev has done a great job, as described by AJR. By applying the right amount of water, at the right time, AB Inbev is making its supply chain more integrated and efficient. However, I agree with AJR that in order to me more impactful AB Inbev must scale its initiative.
One way to do that would be to reinforce collaboration in the chain. Historically, AB Inbev has had a reputation for squeezing its suppliers and for transacting with whoever offers the lowest price at any given time. That practice may be risky as it makes harder for the supplier to invest in water efficiency processes that are costly and increase the supplier’s fixed costs (therefore reducing its competitiveness). However, if the supplier has the guarantee that AB Inbev will purchase and promote environmental friendly products it would be more willing to make such investments and sell their products to AB Inbev. Therefore, to motivate suppliers to improve environmental performance, AB Inbev should begin to make long-term purchasing commitments. For that, AB Inbev should try to commit to purchase a larger quantity over a longer period of time, which could result in a lower price per unit for the company in the long run. In addition to making explicit quantity commitments with some suppliers, AB Inbev could also consider to change its overall procurement practices to shift quantity to suppliers with better environmental performance. By doing so, AB Inbev would promote more collaborative practices and reach the upstream of the supply chain in a broader way that is not limited to the company internal processes.
In fact, as AJR mentioned in the post, AB Inbev is going beyond the mere improvements in its supply chain and is taking actions to make sure that there is clean water around its production so that worker and their families (here referred as stakeholders) have a better quality of life. By doing that, the company is actually reaching social targets that are not limited by its business. So, I will respectfully disagree with you that AB Inbev is limiting their selves for only changing internal processes that they have more control. As mentioned by AJR they are actually trying to achieve a broader impact, on all the stakeholders, which is an important step in combating environmental issues.
AB Inbev might have a hard time forcing upstream supply chain members to bear all of the cost of water reduction efforts. As Student12 correctly points out, AB InBev has forced costs onto its suppliers in the past, including $1.2 billion working capital move after the Anheuser-Busch transaction (1). Could AB InBev do this again? Do suppliers have enough margin in their cost structure to absorb incremental water reduction costs? It is hard to say without more information.
Still, there could be a way for AB InBev to increase its impact, without once again completely aggravating its suppliers: form a joint initiative, with shared risk and reward. Smitha’s post (“Wasted Water: An Inside Look at AB InBev’s Water Risk Approach”) offers a great theoretical framework for what a plan like this could look like.
Sources:
Williams, C. (2000). Management. Cincinnati, OH: South-Western College Pub.
I agree with Student12 that, by focusing on its supply chain, AB Inbev can create a significant, positive impact that goes beyond environmental and touches social as well. If we consider the Triple Bottom Line concept, we could state that the company is working on the three pillars: Planet, Profits and People.
On the other hand, I think AB Inbev should go beyond and act on 2 complementary fronts:
1) Developing sustainable business for its suppliers: if the company claims to benefit workers and people related to the supply chain, it should consider that this impact is today limited to the environmental impact. For their business to be actually sustainable and really generate Social impact, the company should consider establishing better relationships with its suppliers. As Student12 mentioned, the 120 day payment conditions and reverse auctions really squeeze margins and do not allow small suppliers to remain in business. It favors the largest suppliers instead. Thus, to really generate a social impact, AB Inbev should consider developing these suppliers and offering more feasible economic conditions for them to grow and create competitive advantages. This, as a result, will also incentivize them to adopt eco-friendly measures, despite potential higher costs.
2) AB Inbev could leverage the power, influence and reach of its brands to promote consciousness around consumers. Little has it done in terms of communicating how consumers can help with, for example, package recycling, water waste management and support to brands that are eco-friendly. This could be another step for the company to fully impact the whole supply chain, including its end consumers.
Hey Ali, our posts interestingly seem to have different views on AB Inbev’s sustainability initiatives. In my eyes, they have not nearly done enough to regulate supply chain water use. While they have initiated pilots “helping barley growers use enhanced irrigation technology and drought-resistant seeds to grow more barley with less water,” I haven’t found credible metrics on the amount of water reduction from these initiatives or plans for scale. Furthermore, when you look at another beverage company leader, Coca-Cola, I found that they have instituted more stringent regulations on their upstream suppliers to effectively curb water use throughout the supply chain (Source: http://www.coca-colacompany.com/stories/setting-a-new-goal-for-water-efficiency). Given AB Inbev’s minimal influence on supplier water use, I’m still not convinced they are really making a real impact and greatly reducing their total water footprint. Thoughts?
Cheers, Smitha