Their join report entitled Rattling Supply Chains: The Effect of Environmental Trends on Input Costs to the Fast Moving Consumer Goods Industry is claimed to be the first to calculate the financial impacts of environmental challenges facing the sector and to recommend solutions.
Speaking exclusively to FoodProductionDaily.com, Daniel Mahler, partner with AT Kearney said: “For the first time we can put a price tag on broad sustainability challenges surrounding resource scarcity and the impact of climate change affecting the consumer packaging goods sector.”
Commodity prices
Food packaging firms are in the front line, he continued. “They are enormously at risk, more than other consumer goods companies, because they are dependent on commodity prices and water throughout the supply chain.”
Although key commodity prices are now declining after two years of growth, the long-term upward trend will resume, according to the report. It identifies four drivers that will lead to what the authors term ecological inflation or ecoflation resulting in higher costs for packaging companies. Those include: Climate change policy, water scarcity, deforestation and biofuels.
These factors will drive a rise in cereal commodities of between 6 to 13 per cent, says the report.
While governments have a responsibility to tackle these challenges, there’s much packaging companies can do now to minimize the impact on their profits, said Mahler. “This report demands a fundamental rethink (of the way companies operate). Some companies have made changes already …. but the response should be transformational and structural rather than technical.”
Over specification
Mahler advised companies to focus on three areas: The dangers of over specification, efficient sourcing and energy efficiency. Packing companies should avoid over specifying their products and look for green innovation, he said. Sourcing policy, concentrating on local supply rather than global networks, together with distribution policy could also help to minimize the impact of ecoflation.
Finally, more effort should be made ensure energy efficiency through the use of better techniques and new technology such as solar panels, he said.
The report also advises companies to prioritize the risks by ranking environmental challenges according to their current and future potential impact on costs, revenues and reputation.
“Winning companies will anticipate this changing landscape. The companies will collaborate with suppliers and other stakeholders and make environmental sustainability a key business principal,” said Mahler.