June, 2009

Research Perspective and Comments & Analysis

All Aboard The Sustainability Train

To paraphrase tennis great Arthur Ashe (among others) on the topic of success, sustainability is a journey, not a destination. Produce Marketing Association’s (PMA) recent benchmark industry research on sustainability shows our members’ sustainability journey is well underway, and they are making strides toward becoming more sustainable within the three Ps: planet, people and prosperity. The research also reveals there is uncertainty over how to effectively measure the return on investment of resources being allocated to making sustainable changes. But why is that?

Our industry clearly supports sustainability — no surprise there, given what we do for a living. Per our research, more than 89 percent of respondents — from small companies to large firms — agreed that it is a priority for their organizations, despite the worst financial crisis in decades. However, more than 65 percent weren’t sure how to project the ROI of their efforts. Less than 30 percent of those surveyed could identify a projected break-even date for sustainability investments made during the past two to three years.

With the economy forcing industry members to sharpen their budget pencils, why aren’t we better analyzing the results of our sustainability efforts? Perhaps, as a number of respondents told us, operating sustainably is “just the right thing to do,” no matter the cost. Perhaps we think that sustainability’s payoffs are intangible, or even contrary, to being profitable. On the other hand, there is good evidence that sustainability need not come at the expense of prosperity. Sustainability inherently strengthens businesses, and many ROI measurements already exist. This journey’s mile markers just need to be more clearly placed.

If metrics are the issue, then there are plenty of examples to be found of substantial cost savings that are easily measurable. As one illustration from our own experience, consider PMA’s transition to virtual computer servers. Instead of 18 physical servers each generating heat and consuming electricity, the same work is now handled by only three servers. This change has resulted in a savings of $94,000 in hardware costs and almost $12,000 in annual energy costs — and we are reducing our carbon footprint in the process. PMA is already seeing its own sustainability ROI in reductions in such cost areas as energy, paper, waste disposal, facilities and transportation and logistics.

Further, respondents in PMA’s sustainability research reported their sustainability plans were largely driven by customers. This suggests that customer retention could be an appropriate metric of sustainability. (Our research also exposed a “disconnect” between our members’ motivations and consumers’ motivations; consumers place high value on the “people” or social issues aspect of sustainability, while our survey respondents most highly ranked the “planet” or environmental aspects.)

At our recent PMA Board of Directors meeting, we reviewed and learned from an array of sustainability initiatives presented by four of our directors: Miles Reiter of Driscoll’s, who looked at water shortages; Pablo Borquez of Campo Pablo Borquez, who focused on social factors; Rich Dachman of Sysco, who highlighted life-cycle assessment and distribution efficiency; and Mike Spinazzola of Diversified Restaurant System, who gave us a “glimpse under the hood” of Subway’s new ECO-Store. The discussion following these presentations made it clear that sustainability is less a trend and more a fundamental shift in the way most businesses are now thinking about our planet, our people and our long-term prosperity.

Like many of our members, PMA is early on our sustainability journey, and we are finding there’s much to learn — and many ways we can help. Within our industry, we are creating forums to share our discoveries, including this research and our new sustainability Web page found at http://www.pma.com/issues/sustainability.com. We encourage you to add your story to the dialogue we have started there. We are also blogging about sustainability on PMA’s new government relations and public affairs blog, Field to Fork. You can sign up to receive updates on sustainability and other topics at http://fieldtofork.pma.com.

Externally on our industry’s behalf, PMA is also working to monitor other groups’ efforts to establish sustainability standards that might impact our industry. We are participating to ensure the industry’s perspective and special needs are considered. This includes our work with the Stewardship Index for Specialty Crops, a multi-stakeholder initiative to develop a system for measuring sustainable performance throughout the specialty-crop supply chain.

Sustainability is clearly an initiative that is here to stay. If you’re in that 11 percent that doesn’t consider sustainability a priority, it’s time to get on board. If you’re already down the path, then we hope you will join the conversation. We are looking forward to traveling this path with you.

Search For Sustainability ROI Elusive

If you go to the United Kingdom, where sustainability has been a hot issue far longer than it has been in the United States, and you ask produce suppliers what sustainability means, they’ll most likely laugh at you. They will explain that each big supermarket chain has its own program and that the key issue is simply conformance with whatever that customer wants.

In this sense, sustainability is just another burden, another requirement dictated by the buying community.

It is a shame that sustainability should come to be so uninspiring, but probably inevitable, as the need for customers is so overwhelmingly important that in order to win business, most vendors will gladly put aside such academic debates as to the correct definition of a term.

Besides, sustainability is by definition a good thing. Would anyone say, “No, I wish to do unsustainable things,” and make any sense? So, very often the things that seem to be “no-brainers” in practicing sustainability are resisted for very good reasons.

It is satisfying to read about PMA’s new servers and the energy they save. Yet another operation, perhaps without cash or credit to buy new servers, may stick with the old energy hogs because, until something changes, that is its way to stay in business or, put another way, to sustain its business. So passing judgments about others is a tricky wicket when it comes to sustainability, because the exact same action, taken by two different players, can have quite different results.

Defining sustainability is a double challenge. First, because sustainability traditionally involves three spheres — the social, the economic and the environmental — a definition is elusive because there is no obvious way to trade off between these responsibilities. If one company elects to invest money in, say, solar power, but doing so provides a lower return on capital than some other investment and thus, will lead to slower growth with fewer jobs produced, is that decision more or less sustainable than that of a company that made the opposite choice? What if one grower goes fallow every few years to save water, but that means lower production over a multi-year cycle so that it results in higher food costs for consumers? Is that more or less sustainable?

Just balancing — or choosing — between the three pillars of sustainability would make definitions difficult. Then, add to it that each organization has its own imperatives that change the balance between these items, and one sees the virtual impossibility — and the great danger — of “top down” sustainability being dictated by buyers.

I was with Bryan at the PMA Board Meeting and had the opportunity to hear the truly inspiring stories that he recounts in his column. Yet we would also submit that the stories show how any broad-based standard is bound to fail as each story grew out of a particular situation. To give two examples:

Pablo Borquez of Campo Pablo Borquez did, as Bryan indicated, focus on social factors. It was such an uplifting story of helping to raise up his employees and serve his community that one wanted to rush and give him a medal.

We realize that not every Mexican grower would think in such an ennobling fashion, so we wish to take nothing away from Pablo. Yet, surely, those decisions to emphasize the social sphere in that way grow out of the fact that he is a Mexican-based grower and the public support system is thin in Mexico.

In the United States, an equally kindhearted grower might take different actions because in the United States, people are eligible for Medicaid, food stamps, subsidized housing, etc. If a community doesn’t have clean water, a U.S. grower may be more inclined to call up the County Health Department than to do what Pablo did, which is bring clean water to the community on his own dime.

Miles Reiter of Driscoll’s would be the first to acknowledge that he was speaking of the water problem in one particular valley, and what was the right course in that valley may not work elsewhere.

So although there are many metrics that can be used in sustainability, they are mostly useful on a self-assessment basis to judge how one is proceeding along the journey. If big buyers start to use these metrics as requirements — use less than X amount of water per pound of a particular produce item produced — useful tools will lose their nuance and the orders from buyers will neither take into account the tradeoffs from different spheres of sustainability nor the individualistic situation of each company and location.

The search for an ROI in sustainability is natural, but it implies a kind of alienation of sustainability from the rest of the business enterprise, which doesn’t really make sense. Sustainability should be integrated with the efforts a business makes and its ROI flows through all those efforts as greater attention is paid to the broader, long-term implications of every decision.