Reducing Deforestation Impacts in the Agricultural Supply Chain at Bunge: Is Algae Oil the Answer?

Bunge is a leading agricultural supplier that must dramatically alter its operational supply chain to reach its zero-deforestation targets.

Bunge is a food production company, predicated on suppling commodities, such as grains (corn, wheat, rice etc.) and oilseeds (soybeans, palm oil, etc.) to the world economy. Bunge’s operations are integrated across agricultural supply chains, as it sources directly from farmers and suppliers, manages a complex physical transport and storage flow, processes and refines products and then distributes them to foodservice companies.1 With a footprint in more than 40 countries, Bunge is a leading world exporter, operating 32 port terminals worldwide and 1,600 ocean voyages per year.2

Climate change should be top of mind for Bunge given that direct agricultural production contributes to at least 15% of global greenhouse emissions. Factoring in the wide-scale deforestation caused by agricultural expansion, that figure rises to 30%, given the loss of carbon-sequestering trees.3 Climate change in turn threatens food production because temperature shifts, extreme weather events, and heightened seasonal variability can all impact agricultural productivity.3 Thus, given Bunge’s positioning in the macro agricultural supply chain, Bunge is both susceptible to, and a potential contributor to, global climate change. As such, Bunge faces the threat of 1) shortened production supply from the farmers it works with directly 2) price changes in commodity markets due to changes in global supply (even if Bunge’s supply is stable) 3) operational disruptions to its transportation and logistics network due to extreme weather events and 4) reputational risk associated with being a climate change contributor.

Operating as a “full value chain” provider increases Bunge’s risk exposure, but also positions Bunge well to advance traceability of its products, ensuring they are sourced, transported, and processed sustainably. To that end, Bunge is pursing various initiatives to build a more resilient, sustainable supply chain. First, in 2015, it made a commitment to zero deforestation, aiming to have full compliance by 2020-2025.4 Given that soy and palm oil are two of the most detrimental commodities as it relates to deforestation,3 Bunge has focused its efforts on improving the supply chain of these products. Bunge aims to motivate its entire network of farmers and suppliers. For example, Bunge is seeking suppliers that do not disrupt High Carbon Stock (HCS) forests, as these are critical to reducing global GHG emissions. Bunge has put in place a robust system of recording and controls for its raw material inputs to validate and manage its supplier network.5 As of Q4 2016, Bunge was able to trace the origination of 87% of its palm oil production, with areas in Asia as the key region outstanding. Improving traceability in Asia is Bunge’s long-term goal to achieving its zero-deforestation target.6

As a short-term objective, Bunge seems to be diversifying its product mix to include a land-light line of business. Through a joint venture with TerraVia, Bunge is cultivating algae oil as an alternative to its existing oilseed products. Bunge and TerraVia have developed two AlgaWise products, an ultra omega-9 fatty acid algae oil and an algae butter, which are expected to launch in retail in 2018.7 The environmental ramifications of producing high volumes of algae oil remains to be seen, however, its cultivation should be a more sustainable offering relative to other oil alternatives. Bunge and TerraVia are in the early days of product development, but the commitment to pursuing alternatives that lessen their dependency on land cultivation is promising.

To pursue its zero-deforestation target, Bunge should invest more heavily in technology in the near term to ensure that its suppliers are following climate-focused protocols. As a point of reference, Cargill recently announced that it will be leveraging blockchain in its supply chain of its Honeysuckle White turkey product. Through a data tagging system on every turkey in its supply chain, Cargill will be able to better monitor product sourcing with digital tracking and analytics.8 Bunge could better digitize its palm oil and soy operations with similar systems.

In the medium to long term, rather than focusing on slowing deforestation, Bunge should help to reverse it through reforestation practices and agroforestry. By investing in agricultural products that are derived via thriving forest rather than cleared land, Bunge can grow its operations while also mitigating climate impacts. Sugar palm is an example of a product that relies upon agroforestry, in which vegetation such as trees and shrubs are integrated into crop and farming systems.3 The challenge is that Bunge’s current product portfolio does not lend itself to forest-minded agricultural practices – ultimately, palm oil and soy are detrimental to the land and expose Bunge to intractable climate risk. Bunge needs to support the development of alternatives to these products that will can satisfy global demand and should invest more heavily in R&D to that end.

What is Bunge’s role in reducing the use of palm oil across the supply chain? What will happen if they reduce its supply?

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  1. Bunge Limited, “Our Businesses,” https://www.bunge.com/our-businesses, accessed November 2017.
  2. “Investor Day,” Bunge Limited 2016 Investor Day Presentation, December 13, 2016, on Bunge Limited website, https://bunge-ltd-micro.prod-use1.investis.com/~/media/Files/B/Bunge-Ltd-Micro/event-calendar/2016-investor-day-presentation.pdf, accessed November 2017.
  3. Sonia Vermeulen, Bruce Campbell, John Ingram. “Climate Change and Food Systems,” Annual Review of Environment and ResourcesNo. 37, 2012, p. 195–222.
  4. “Non-Deforestation Policy: Grain and Oilseeds Update” Non-Deforestation Progress Report, September 2017, on Bunge Limited website, http://www.bunge.com/sites/default/files/non-deforestation_progressreport_sep2017.pdf, accessed November 2017.
  5. Bunge Limited, “2016 Global Sustainability Report,” https://www.bunge.com/sustainability2016/index.html, accessed November 2017.
  6. “Global Palm Oil Sourcing Update,” March 2017, on Bunge Limited website, https://www.bunge.com/sites/default/files/bunge_palm_oil_update_-_033117.pdf, accessed November 2017.
  7. Elaine Watson, “TerraVia algae butter to launch in early 2018, could be a ‘blockbuster,’ predicts CEO,” FoodNavigator-usa.com, May 3, 2017, https://www.foodnavigator-usa.com/Article/2017/05/04/TerraVia-algae-butter-to-launch-in-early-2018#, accessed November 2017.
  8. “Honeysuckle White®brand leads the way in food transparency, delivering a farm-to-table Thanksgiving featuring first-ever traceable turkeys,” Cargill press release, October 25, 2017, on Cargill website, https://www.cargill.com/2017/honeysuckle-white-brand-leads-the-way-in-food-transparency, accessed November 2017

 

 

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5 thoughts on “Reducing Deforestation Impacts in the Agricultural Supply Chain at Bunge: Is Algae Oil the Answer?

  1. Olivia, I appreciated how you highlighted Bunge’s unique predicament: the company is both vulnerable from and a contributor to climate change. I think Bunge’s efforts to ensure that none of its suppliers are disrupting HCS forests by achieving 100% traceability of its palm oil products are a good start. I’m interested, though, in understanding how you think Bunge could better digitize its palm oil operations to ensure near-term compliance with climate-focused protocols. What would this look like in practice? I’m concerned that such an initiative would put Bunge at a competitive disadvantage given that many of its suppliers likely aren’t accustomed to implementing advanced technologies in their agricultural operations.

  2. I agree that Bunge is in the predicament laid out in Mike’s comment and in the blog post. I am most intrigued with research into the alternatives to palm oil to eventually replace this ubiquitous commodity. Several companies are currently pursuing the algae oil alternative, but many are struggling with how to scale it successfully to make it a feasible option for the regular consumer (low price, high melting point, fast production). The Guardian recently highlighted the backlash one company (Ecover) received to its algae oil because of the genetic modification required to scale the production for commercialization. [1] However, research indicates there are certain genetic strains of algae that are able to grow in mass. If Bunge can be a first mover in this new commodity, they will have a huge advantage over their competitors while simultaneously decreasing its impact on climate change.
    1. The Guardian. “From Algae to Yeast: The Quest to Find an Alternative to Palm Oil”, https://www.theguardian.com/sustainable-business/2017/sep/29/algae-yeast-quest-to-find-alternative-to-palm-oil, accessed November 2017.

  3. Great piece! I agree with Mike that Bunge finds itself in a tough place given that it is both affected by climate change and also contributes to climate change. What I would like to find out though is how their efforts to mitigate their impact on the environment are affecting their competitiveness. Have their products become more expensive or by taking care of the environment have they been able to realize some gains in efficiency and lowered their costs?

  4. Very interesting article, Olivia! As I was reading about how Bunge is trying to improve traceability to make sure that the whole supply chain is “sustainable”, I could not help but think about the important role that blockchain could play here. I’m glad that you are suggesting that Bunge consider blockchain. It will deter farmers, distributors and other players in the supply chain from adopting processes that do not address climate change concerns. Blockchain will also help Bunge prevent potential reputational issues.

    I also like the fact that they are considering diversifying their product mix by introducing algae oil as an alternative to oilseed products. There are many companies that are exploring alternative ingredients, which are produced in labs, to fight climate change (as well as food security and farm animal welfare). It comes to my mind Impossible Foods and their “creation” of a meatless burger that tastes just like meat.

  5. I really enjoyed reading this article because it brings up a larger, more broad problem: what to do as a company when the demand is there? Although I agree that companies, including Bunge as a perfect example, should push for more actions to reduce their impact on climate change, I struggle to understand how the majority of shareholders are going to put global consciousness before their short-term greed.
    One way, of course, is when this impact actually will affect the company in the future, as it is mentioned in your article; nonetheless, the demand for the products will always be there and increase as the global population increases exponentially.
    The thought of supply substitution is interesting here because as long as the demand is there, someone will be there to supply it, regardless of what Bunge or other companies do.

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