The Intersection of Ethics and Competence
Buyers can #BuildBackBetter
This originally appeared on LinkedIn, written by Justin White, Manager, Thriving People, Global Sustainability at Mars.
Today the Farmer Income Lab published Poverty and Procurement through a Pandemic - a report highlighting how COVID-19 is impacting small-scale farmer incomes and why these impacts matter to global agribusinesses. In researching for the report, I found that business is now the only institution seen as both competent and ethical according to the 2021 Edelman Trust Barometer. To me, ethics is doing something because it is right; competence is doing something because it creates superior value.
Should buyers of agricultural raw materials work to reduce small-scale farmer poverty because it is right or because it creates value for business? Buying competently and ethically, it turns out, are mutually reinforcing.
Procurement executives buying agricultural raw materials self-identify having five priority KPIs: ensuring food safety; securing reliability and quality of supply; optimizing costs; advancing reputation; and accelerating brand differentiation and innovation. Buyers who have the skills and incentives to shift small-scale farmer poverty from an externality to a strategic priority can be better positioned to deliver against their KPIs.
1. Addressing farmer poverty can improve food safety
Food produced by farmers who earn insufficient incomes is at higher risk of not meeting food safety standards. For example, recently published research found that re-using jute bags (burlap sacks) is linked to increased risk of aflatoxin cross-contamination – a poisonous fungus. Low incomes can limit the purchase of new bags after each harvest. When aflatoxin is detected, manufacturers must reject affected volumes or recall potentially contaminated goods at great expense. Investing in improved farmer incomes improves the quality of life for farming families and can mitigate food safety risks.
2. Addressing farmer poverty can increase quality & reliability of supply
Farmer poverty is linked to increased rates of post-harvest loss. A World Bank suggests that lack of adequate storage, “Causes 93 million small farmers in Nigeria to lose 25% of their annual income,” further reducing the cash needed to invest in more effective storage. The volatility created by post-harvest loss encourages buyers to dilute supply insecurity across sourcing regions, creating additional relationships to manage, more sites to monitor for supply chain risks, and exposure to regulatory risks.
3. Addressing farmer poverty can meaningfully advance corporate reputation
In the era of #BuildBackBetter, governments, civil society organizations, and media are looking to corporations to address salient social and environmental challenges. In Poverty and Procurement through a Pandemic we found that COVID-19 has increased both short-term and long-term farmer income volatility which could increase high-profile coverage of supply chain social risks. Meanwhile, the Deloitte Global Survey on Reputation Risk shares that more than a quarter of a firm’s value is directly attributable to its reputation and that reputation events have biggest impacts on revenue and brand value.
4. Addressing farmer poverty can differentiate brands
According to Sustainable Brands, 29% of Americans refrain from purchasing products that are incongruent with their values. Meanwhile, product differentiation through on-pack sustainability claims is driving superior value across consumer-packaged goods. According to one NYU Stern Center for Sustainable Business report, “Sustainability-marked products grew 5.6x faster than conventionally-marked products, and 3.3x faster than the CPG market.” These on-pack sustainability claims included both environmental and social claims, and outperformed conventional counterparts across more than 90% of the examined categories.
5. Addressing farmer poverty can facilitate cost optimization
Challenges to food safety, quality and reliability of supply, and corporate reputation all lead to challenges for cost optimization. Across the board, we see that the cost of inaction can be far greater for business than working to improve small-scale farmer incomes.
So, is poverty reduction an issue of ethics or competence for global agri-food buyers?
To the question of ethics, the answer has always been: of course. That is why one of Mars’ Five Principles is Mutuality – recognizing that shared benefits endure. To the question of competence, the answer is also: yes. But procurement practices that perpetuate farmer poverty will not be the practices that reduce it, which calls for businesses to radically redesign their sourcing strategies.
Where do we go from here?
While business can and should not act alone to address deeply systemic issues of small-scale farmer poverty, companies should do their part in reducing poverty and inequality through procurement practice, pre-competitive collaboration, and policy advocacy.
At Mars, we’re approaching this call to action in a variety of ways:
Merging the sustainability and procurement functions. Recognizing that poverty reduction in extended supply chains creates value for business and farmers, Mars’ structure allows our sustainability and procurement teams to collaborate on sustainable sourcing strategies.
Thinking in generations and incentivizing accordingly. In 2017, Mars launched our Sustainable in a Generation Plan – an ambitious set of goals to reduce our environmental footprint and improve conditions for people throughout our value chains. Underscoring the importance of this work, Mars created the Compass, signaling that positive societal impact is as important as strong financial results and we are beginning to measure senior leader performance against it.
Deepening strategic partnerships to accelerate impact. To achieve meaningful and lasting improvements of small-scale farmer incomes business needs collaborators. That is why Mars founded the Farmer Income Lab showing that cross-sectoral partnerships that leverage the expertise of global NGO partners like Oxfam are critical to make sustainable income improvements.
As agribusinesses seek to do our part to #BuildBackBetter, we must not lose sight of the fact that sourcing strategies that increase farmer incomes also develop resilient supply chains. COVID-19 has created immense challenges for small-scale farmers, and buyers have the opportunity to prioritize procurement practices that improve conditions for people and for business.