October, 2008

Research Perspective and Comments & Analysis

Making Sense Of Sustainability

Some savvy produce industry members will save millions of dollars this year from steps they’ve taken to be more sustainable. From eco-friendly refrigeration systems to bio-diesel truck fleets to sustainable buildings, energy-saving initiatives and conservation can deliver a big return on investment. And, safe to say, companies gain a competitive advantage when their green practices are part of a sustainable business model — one that meets present demands profitably without compromising future generations’ ability to satisfy their own needs.

These leaders also know that consumers play an important role in sustaining their businesses and that shoppers’ opinions on how sustainable we are increasingly drive where they choose to spend their food dollars. Sustainability is here to stay as a consumer force and as a business force. Produce Marketing Association (PMA) recently surveyed consumers to learn how they define sustainability and how they grade our industry’s sustainability efforts, from farmers to retailers.

Survey results show consumers have a decent understanding of sustainability, with 32 percent citing environmental, green or ecological themes; another 11 percent describe sustainability using terms such as “long-lasting” or “continuous.” These shoppers hold our industry accountable for a range of sustainable actions, most notably worker safety and compensation, water and energy conservation programs and reductions in transportation-related pollution. And they want sustainability efforts to be verifiable.

A caveat before I venture into reporting what consumers tell us: Yes, Jim, what consumers tell researchers they value and are willing to pay for is not directly comparable to their purchasing behavior! But I also watch for trends in what they say are priorities, and see signs of directional movement. Take a look at the explosive growth of reusable grocery bags or increased sale of FairTrade coffee as examples.

Respondents say they are serious about the significance of these issues — so much so that they tell us they’re willing to pay 25¢ per pound more for produce to ensure the industry exercises these sustainable activities. Thirty percent of those surveyed are willing to pay at least an extra quarter per pound to guarantee produce workers receive a fair wage, and 26 percent would also pay an extra quarter to ensure lower transportation pollution.

Twenty-five percent of respondents also said they would pay a quarter or more per pound for energy conservation programs, water conservation programs and reduced pesticide usage. We shouldn’t expect consumers to practice all of what they say to us, and I don’t expect to see all of this impact at the cash register. But asking consumers to vote with their money does give us good information about where their priorities are.

Surveyed shoppers also understand that sustainability extends beyond environmental efforts alone. At PMA, we define sustainability as incorporating three priorities: planet, people and prosperity.

Planet means sustainable practices must focus on crop production, resource conservation, energy efficiency, ecosystem protection, integrated waste management, packaging, and office, warehouse, meeting and event efforts. People are an important component of our sustainable business, which means exercising fair labor practices, providing community benefits, supporting social causes and fostering a work environment that supports health, wellness and proper nutrition. Prosperity means keeping our businesses thriving through cost savings, revenue generation, customer- and market-enhancing efforts and a positive public image.

PMA is taking a holistic approach to sustainability — engaging with others in discussions about how our industry can best measure sustainability efforts, monitoring other groups’ sustainability activities, education and information for members, and internal efforts at the PMA office and at our events.

It’s rewarding to see so many creative PMA members supporting sustainability, such as the member who recently built a processing facility that runs on methane gas from a nearby landfill and uses reclaimed and cleaned water from a mining operation, or the many buyers and sellers partnering to source more fruits and vegetables locally or sell produce waste to composters.

If you are reading this article as you attend PMA’s Fresh Summit International Convention & Exposition, I invite you to get involved in the dialogue. Sustainability will be a big part of this year’s convention, from my annual State of the Industry address to our educational workshop programming, to registrant and exhibitor bags made from recycled material, to the fact that we will be posting workshop presentations online rather than printing them out. See your Fresh Summit directory for more details about our sustainability track — and don’t forget to recycle that directory at the end of the event.

PMA is committed to influencing sustainability-related activities to help our members and our association to manage business in a way that creates an overall positive impact on society and delivers a vision of where we want to lead our industry. After all, the produce industry’s enduring prosperity has to be part of any sustainability solutions.

Economy May Affect Behavior

It was a year ago this month at the 2007 PMA convention in Houston that this author presented a workshop unveiling important consumer research related to sustainability. In the year since, we have learned a lot, both about how consumers react to sustainability initiatives and about how businesses can deal with sustainability under different circumstances.

As Bryan says, when it comes to consumers, the PMA research is different than a consumer behavior study; it is intriguing but offers the opportunity for more questions rather than giving definitive guides to behavior.

Consumers say they will pay a quarter a pound more for sustainably produced and sold produce, but if given a choice — two stacks of bell peppers, one a quarter more a pound with a sign saying “certified sustainable” — will the consumer buy the more expensive offering? Or does it mean the consumer would like his or her retailer to buy and sell only sustainable product and would accept that this retailer is more expensive?

In the United Kingdom, when it comes to FairTrade — a mechanism by which product is sold with a premium going to producers and their communities in developing countries — it was mostly the latter. FairTrade was commonplace as an option on bananas, but the big boost came when two chains, first the small but very upscale Waitrose and then the much larger but still upscale Sainsbury’s, decided to go 100 percent with FairTrade bananas.

It was this decision by retailers to establish FairTrade as a procurement standard on bananas that created the real boom in FairTrade in fresh produce.

Yet even this example leaves more questions than answers. Waitrose and Sainsbury’s are both upscale retailers that attempt to differentiate themselves based on their values. But neither Wal-Mart’s U.K. subsidiary ASDA — a highly price-oriented retailer — nor the middle-class leader Tesco — the biggest U.K. retailer — went this FairTrade route.

It seems to imply FairTrade is like charity — something we might expect the rich to be more able to afford than those struggling to get by. Is this the kind of definition we can use for sustainability?

PMA’s Planet, People, Prosperity model, echoing countless other models built around the same precepts — The Triple Bottom Line, People/Planet/Profits, etc. — are all useful in reminding us what we are talking about but all problematic in not establishing any clear basis for trade-offs among these concepts.

In other words, if a business is considering putting solar panels on the roof of its facility, we all know it should do so if the return on investment — considering savings on not buying electricity and tax credits — is adequate. But this alone makes sustainability a concept of limited meaning, saying not much more than one should have a sharp accountant. The more serious question is this: Is there something in the intersection between what PMA calls Prosperity and the People and Planet spheres of sustainability that means one should put up the solar panels even if the ROI is inadequate?

Our work in sustainability has led us to define three precepts that help “square the circle” on sustainability and provide a basis for action that is not solely the same thing as saying the ROI is adequate:

First, sustainability involves long-term thinking. If a private equity firm just invested in your company and is intent on selling out in two years — and so won’t invest 15¢ if the investment won’t pay off within two years — this kind of thinking is inherently unsustainable. A lot of sustainability involves recognizing the true long-term costs of doing things the way they have always been done. So instead of mindlessly replacing a light bulb with the same type just because we always did, we are going to look at where a more expensive but more energy-efficient bulb might pay off over the long term.

Second, sustainability involves considering the value of “reputational capital.” We live in a world in which government, individuals, non-governmental organizations (NGOs) and the media can play an important part in the success or failure of a business. The ability to build a store, expand a warehouse, use a chemical, etc., is often determined not simply as a matter of right but as a consequence of reputation. Sometimes there may be value in doing things that don’t obviously pay off because they pay off in reputational ways that will ultimately create financial value for the business.

Third, sustainability is about avoiding inadvertent results. An idea such as “stakeholder engagement” — basically reaching out to all those that may have a stake in whatever actions you might take, even if they have no contractual relationship to you — is partly a belief that input from more sources will produce better decision-making, but stakeholder engagement is also a way of getting an early wake-up call on what troubles may lie down the road.

With the financial crisis at hand and economies around the world going south, we are finding sustainability is rapidly retreating as a corporate concern. Or to be more precise, corporations are morphing their sustainability efforts into cost-saving programs, although with the recent retreat in energy prices, projects that looked sustainable a few months ago now no longer seem feasible.

Will consumers find meaning in programs that become just corporate cost-saving regimens? Will they care about sustainability if the family income gets squeezed? Can the world find a meaning for sustainability that accords with the difficult economic circumstances we may yet confront? This is still very much an open question.