Rapid global expansion of supply chains have simultaneously fueled decades of global growth of both GDP and temperatures. Now, corporations are beginning to face the costly reality of their greenhouse gas (GHG) emissions as the consequences manifest themselves in many ways, from rising raw material prices to business disruptions. Because of the resulting pressures of climate change, entire supply chains are realizing higher costs forcing corporations to decide between bearing the higher costs and generating lower profits, passing costs on to customers and risking the wrath of their elasticity, or forcing their supply chains to adapt. Mars Inc., one of the largest food companies in the world with $35 billion in sales and operations on every continent across more than 73 countries, is serving as a beacon and leading the charge in adapting its supply chain .
Mars Supply Chain Exposed
Raw material is one of Mars’ largest areas of exposure to climate change impacts. Rising temperatures and changing precipitation patterns have resulted in more frequent and severe heatwaves, droughts, and floods, lowering commodity supplies and causing farmers to increase planting to offset lower yields. Mars has felt this pressure in recent years via cacao, one of its largest inputs. Cacao, the primary input for chocolate, is a particularly vulnerable crop with a typical tree yielding only 10% in perfect conditions . Production is extremely concentrated with 70% originating from West Africa, an area that has seen increased temperatures reduce regional humidity levels – a necessary condition for cacao tree growth – in recent years. The result has been a significant supply-demand imbalance that drove cacao prices in 2016 to multi-year highs .
Mars’ immense global manufacturing footprint leaves the company’s profit margin particularly sensitive to energy, transportation and warehousing costs. As climate change impacts increase, government regulation over fossil fuel-based energy will grow and prices will continue to rise hurting both production and transportation costs. Additionally, energy usage is expected to grow in order to maintain consistent facility temperatures in light of increasing temperatures – particularly relevant to Mars’ food storage . Transportation costs are also further challenged by an increase in disruptions from severe weather events such as hurricanes. Beyond fossil fuels, Mars will need to deal with a growing rate of water scarcity in its chains – 43% of Mars plants operate in high-water stress areas. If water efficiency is not addressed, Mars will need to re-assess its existing footprint to areas that are less likely to be impacted .
Sustainability in a Generation
In 2017, Mars launched its Sustainability in a Generation Plan (SAGP) and has committed to investing $1 billion over the next few years to combat threats facing the world and its business, including climate change . Such plans are not completely new as Mars has set specific sustainability goals in past years; however SAGP is a bold stroke plan in that it aims to create step-function change that will adapt Mars’ entire value chain to the changing environment. Furthermore, Mars is committing to do its part in helping achieve the international Paris Agreement’s goal to keep global temperatures from rising above 2 degrees Celsius from pre-industrial times by reducing GHG emissions by 27% by 2025 and by 67% by 2050 from 2015 levels .
Mars is adapting its value chain by working directly with suppliers to implement its plan. Only a few key examples of numerous intitaives employed by SAGP include:
- Forming development and village centers to educate farmers on efficient farming practices;
- Sourcing 23 raw materials (60% of sourcing volume) as 100% certified sustainable (varying timeframe by commodity);
- Investing in mapping of genome sequences of key crops to identify traits that improve yields, water efficiency, and climate adaptability; and
- Purchasing and producing renewable electricity to cover 100% of operations in 11 countries by 2018 .
Although the SAGP addresses the more obvious and tangible risks, it is unclear how Mars plans to mitigate supply chain disruption from the higher potential for short duration extreme weather events such as hurricanes or blizzards that have potential to cause longer-term disruption. Despite Mars scale and ability to absorb these type of historical one-time impacts, Mars must still focus its efforts on disaster recovery as these events are likely to no longer be one-time.
Profits or Social Responsibility Aside – is it Enough?
Beyond managing climate change’s impacts to their supply chain and profits, Mars is clearly also responding to a growing pressure by consumers to hold corporations responsible for their impact to our environment. The good news is that 66% of consumers are willing to pay more for sustainable brands, a statistic that has been growing steadily over the past few years . However, Mars states its goal is to stay within its own share of future global GHG emissions – why should Mars’ efforts stop there? As one of the largest food manufacturers in the world, or should it carry more responsibility than just its own?
Exhibit 3: M&M’s Fans of Wind Commercial
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