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AGRICULTURAL PRODUCTSResearch Brief
Sustainable Industry Classification System™ (SICS™) #CN0101
Research Briefing Prepared by the
Sustainability Accounting Standards Board®
June 2015
www.sasb.org© 2015 SASB™
TM™
AGRICULTURAL PRODUCTS
Research Brief SASB’s Industry Brief provides evidence for the disclosure topics in the Agricultural Products industry. The
brief opens with a summary of the industry, including relevant legislative and regulatory trends and
sustainability risks and opportunities. Following this, evidence for each disclosure topic (in the categories
of Environment, Social Capital, Human Capital, Business Model and Innovation, and Leadership and
Governance) is presented. SASB’s Industry Brief can be used to understand the data underlying SASB
Sustainability Accounting Standards. For accounting metrics and disclosure guidance, please see SASB’s
Sustainability Accounting Standards. For information about the legal basis for SASB and SASB’s standards
development process, please see the Conceptual Framework.
SASB identifies the minimum set of disclosure topics likely to constitute material information for
companies within a given industry. However, the final determination of materiality is the onus of the
company.
Related Documents
• Agricultural Products Sustainability Accounting Standards
• Industry Working Group Participants
• SASB Conceptual Framework
INDUSTRY LEAD
Anton Gorodniuk
CONTRIBUTORS
Andrew Collins
Henrik Cotran
Sonya Hetrick
Eric Kane
Jerome Lavigne-Delville
Nashat Moin
Himani Phadke
Arturo Rodriguez
Jean Rogers
Levi Stewart
Evan Tylenda
Quinn Underriner
SASB, Sustainability Accounting Standards Board, the SASB logo, SICS, Sustainable Industry Classification
System, Accounting for a Sustainable Future, and Materiality Map are trademarks and service marks of the
Sustainability Accounting Standards Board.
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Industry Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Legislative and Regulatory Trends in the Agricultural Products Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Sustainability-Related Risks and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Greenhouse Gas Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Energy & Fleet Fuel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Water Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Land Use & Ecological Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Social Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Food Safety & Health Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Fair Labor Practices & Workforce Health & Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Business Model and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Climate Change Impacts on Crop Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Leadership and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Environmental & Social Impacts of Ingredient Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Management of the Legal & Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Appendix
Representative Companies : Appendix I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Evidence for Sustainability Disclosure Topics : Appendix IIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Evidence of Financial Impact for Sustainability Disclosure : Appendix IIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Sustainability Accounting Metrics : Appendix III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Analysis of SEC Disclosures : Appendix IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
References
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S
INTRODUCTION
Agriculture’s impacts on the planet are significant.
As global population growth and lifestyle changes
increase the demand for food, the challenge for
the Agricultural Products industry is to meet this
demand without jeopardizing natural resources or
human health. The key issues facing the industry
include climate change impacts on crop yields,
environmental externalities resulting from
agrochemicals and unsustainable farming
practices, ecological impacts of land use and
water withdrawal, workforce health, food safety,
and responsible supply chain management.
Meanwhile, consumer attitudes toward topics
such as organic foods, genetic engineering, and
agricultural subsidies are shifting because of rising
incomes, increased urbanization, and the
industrialization of agriculture.
The rise of industrialized farming techniques and
technology—including mechanization, genetically
modified crops, and chemical application—has
altered the industry, driving immense increases in
productivity over the past several decades. For
example, the Green Revolution in India
transformed the country from a net food importer
of many agricultural commodities to one of the
largest exporters in the world.1 Since 1960, world
wheat and rice production has tripled, and maize
production has risen nearly fivefold; per capita
agricultural production has risen by 30 percent
between 1980 and 2010.2 Global food production
must increase by approximately 60 percent by
2050 from 2005–2007 levels to feed an estimated
population of 9.1 billion people. Ninety percent of
the rise in crop production is expected to come
from greater crop yields and increased production
intensity, with the rest predicted to come from an
enlargement of arable land.3 Intensive agricultural
production can have impacts on biodiversity, soil,
and water and can cause deforestation.
This places agricultural products companies in the
sensitive position of having to balance the need to
increase productivity and yields, in order to feed a
growing population and generate revenues, with
the need to lower negative externalities and
thereby protect their long-term environmental
and social assets and maintain their license to
operate.
Management (or mismanagement) of material
sustainability issues, therefore, has the potential
to affect company valuation through impacts on
profits, assets, liabilities, and cost of capital.
Investors would obtain a more holistic and
comparable view of performance with agricultural
products companies reporting metrics on the
material sustainability risks and opportunities that
could affect value in the near- and long-term in
their regulatory filings. This would include both
positive and negative externalities, and the non-
SUSTAINABILITY DISCLOSURE TOPICS
ENVIRONMENT
• Greenhouse Gas Emissions
• Energy & Fleet Fuel Management
• Water Withdrawal
• Land Use & Ecological Impacts
SOCIAL CAPITAL
• Food Safety & Health Concerns
HUMAN CAPITAL
• Fair Labor Practices & Workforce Health & Safety
BUSINESS MODEL AND INNOVATION
• Climate Change Impacts on Crop Yields
LEADERSHIP AND GOVERNANCE
• Environmental & Social Impacts of Ingredient Supply Chains
• Management of the Legal & Regulatory Environment
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 1
financial forms of capital that the industry relies
on for value creation.
Specifically, performance on the following
sustainability issues will drive competitiveness
within the Agricultural Products industry:
• Reducing greenhouse gas (GHG)
emissions at crop milling and processing
facilities as well as from crop cultivation;
• Reducing total electricity and fuel
consumption;
• Improving water efficiency to reduce
water-related risks, especially in locations
of water scarcity;
• Preserving ecological resources and
biodiversity by limiting the contamination
and degradation of land and water
resources;
• Ensuring the safety and quality of
products, as well as responding to
growing health concerns of the
population;
• Ensuring worker health and safety and
following fair labor practices;
• Adapting to changing climate by
innovating in farming practices and
developing more resilient crops;
• Ensuring that the highest environmental
and social standards are met within
supply chain; and
• Ensuring that business strategy is in line
with the long-term interests of society.
INDUSTRY SUMMARY
The Agricultural Products industry is engaged in
growing, processing, trading, and distributing
vegetables and fruits, and producing and milling
agricultural commodities, including grains, sugar,
I Industry composition is based on the mapping of the Sustainable Industry Classification System (SICSTM) to the Bloomberg Industry
consumable oils, maize, soybeans, and animal
feed. Agricultural products companies are also
involved in wholesale and distribution of
products, such as grains and beans. I Agricultural
products are sold directly to consumers and
businesses for use in consumer and industrial
products. Vertically integrated agricultural
products companies operate farms, crop-
processing facilities, and storage and distribution
networks.4
The Agricultural Products industry generates close
to $640 billion in annual revenue globally. Sugar,
grain, and oilseed milling represents the largest
segment, accounting for $350 billion in revenue,
followed by the agricultural products wholesalers,
with almost $190 billion in revenue. The largest
companies listed on U.S. exchanges, Archer
Daniels Midland (ADM) and Bunge, are vertically
integrated and operate in both milling and
wholesale segments.5 The next largest companies
traded on U.S. exchanges are Ingredion, Seaboard
Corporation, Darling International, and
Andersons. As of May 2015, there were 15
companies listed on U.S. exchanges for which the
Agricultural Products industry is the primary SICS
industry. These companies generate
approximately $150 billion in revenue.6 Bunge,
ADM, Dole, and other companies in the industry
also own, either directly or through subsidiaries,
and manage farms and sugar plantations. At the
same time, companies may source a substantial
part of their agricultural commodities from
thousands of third-party growers from various
countries, which complicates their ability to
control some of the issues discussed in this brief.7
The Agricultural Products industry has a global
nature. While the U.S., China, India, the E.U.,
Russia, and Brazil are major producers, products
Classification System (BICS). A list of representative companies appears in Appendix I.
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 2
are traded internationally. Thirty-eight percent of
the world’s land area is used for agricultural
purposes.8 According to the United States
Department of Agriculture (USDA), the total
cropland acreage in the U.S. was 390 million
acres in 2012, spread over approximately 1.5
million farms.9
The industry produces low-cost agricultural
commodities and competes largely on prices. Key
factors affecting the industry include weather,
grain-based biofuel production, government
agricultural policies, exchange rates, and demand
from emerging markets.10 Weather has the most
direct influence over crop yields, both via gradual
climactic variations and via acute impacts such as
floods, droughts, and storms.11 To limit their
exposure to volatile agricultural commodities
prices and to enhance margins, companies in the
industry engage in hedging activities through
exchange-traded futures contracts.12
Performance of companies in the Agricultural
Products industry is dependent on crop yields and
agricultural commodity prices. As mentioned
above, extreme weather conditions may
significantly reduce growers’ yields and, therefore,
sales. While growers can partially offset reduced
sales by passing some costs on to consumers via
higher commodity prices, in the milling segment,
where crop prices are directly related to costs of
goods sold (COGS), low crop yields put a pressure
on margins as well as reduce sales. Therefore,
millers and producers may be able to increase
their efficiency though cost management. Where
cost of energy is a large portion of COGS,
companies can benefit from equipment upgrades
and new processing techniques, as well as by
relying on renewable energy sources and energy
independence.
As the global middle class expands, demand for
food and food products is expected to grow,
driving increasing production.13 Demand for
staple foods, including rice, maize, wheat, and
vegetables, collectively represents two-thirds of
the world’s food energy intake and is generally
noncyclical.14 However, certain products used in
industrial or fuel applications can exhibit greater
demand fluctuations. Long-term global consumer
trends indicate increasing expenditures on higher-
value foods such as meat, dairy, vegetables, and
fruit, and declining spending on staple crop
items.15 This shift is occurring at all income levels
and is primarily driven by emerging markets, with
their increases in income, urbanization, and
female employment.16
Consumer preference for organically grown crops
is also driving growth in the industry worldwide.
The USDA established national standards for
organic production and processing in 2002. In
2012, U.S. sales of organic foods reached $28
billion, from approximately $11 billion in 2004.
The top two organic food categories are produce
and dairy, which represent 43 and 15 percent of
organic food sales, respectively. However, total
organic-certified cropland made up only 0.8
percent of total U.S. cropland in 2011. The
highest adoption has been for fruits and
vegetables, and the lowest for feed grains. In the
U.S., 10 percent of carrot and lettuce acreage and
5 percent of fruit acreage were under organic
management as of 2011, while 0.3 percent of
corn acreage and 0.2 percent of soybean acreage
were organically managed. Growth in demand for
U.S. organic food has outpaced growth in organic
farmland during most years since the late 1990s,
creating a potential demand-supply gap and an
opportunity for further growth in organic-certified
cropland.17 Growth in organic production is a
global phenomenon, including in many emerging
markets, where specialty crops such as coffee and
bananas can achieve high sales in developed
markets.18 Organic foods are typically sold at
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 3
higher prices than conventional produce because
of the demand-supply gap, greater labor-input
costs, and inefficient marketing and distribution
chains, as well as the lower volume of products
available.19
Government agricultural policy has a direct
financial impact on the industry. Production of
some crops is heavily subsidized by governments
worldwide in the form of direct payments and
crop insurance subsidies. Many governments,
including those in the U.S. and the E.U., have paid
or continue to directly pay farmers to cultivate
certain crops. Also, government biofuel mandates
support the demand for some crops, especially
maize. This is the case with U.S. federal mandates
for ethanol use in transportation fuel.20
Barriers to entry for small farms are low relative to
those for industrial-scale farms, which require
significant capital inputs for machinery and land.
Profitability is strongly correlated with farm size;
operating profit margins and rates of return on
assets can be negative for small farms, while large
farms are more likely to have positive profit
margins.21 Given these low margins, many small
farms are able to survive only by receiving off-
farm income. On average, 71 percent of such
income is from earned sources (e.g., a wage or
salary job or self-employment) and the remainder
is from unearned sources (e.g., social security,
pensions, dividends, interest, and rent).22
Industry-wide, operating and net profit margins
for U.S. publicly listed companies in 2014 were
approximately 4.8 percent and 2.7 percent,
respectively, close to their 10-year averages.23
Costs vary depending on the type of crop and the
degree of mechanization possible; for example,
labor costs for vegetable farming represent a
considerable share of costs, while labor costs in
II This section does not purport to contain a comprehensive review of all regulations related to this industry but is intended to
grain production are lower because of
automation. Key cost drivers include the prices of
fertilizers and crop chemicals, seeds, water, labor,
electricity, and fuel and oils.24
A shift toward large, industrial agriculture has
been observed in the U.S. and elsewhere. The
proportion of production from small, family-
owned farms is relatively low today. This shift
underlies some of the industry’s sustainability
issues, as large farms have adopted more
intensive farming techniques that have the
potential to magnify environmental and social
externalities.25
LEGISLATIVE AND REGULATORY TRENDS IN THE AGRICULTURAL PRODUCTS INDUSTRY
Regulations in the U.S. and abroad represent the
formal boundaries of companies’ operations, and
are often designed to address the social and
environmental externalities that businesses can
create. Beyond formal regulation, industry
practices and self-regulatory efforts act as quasi-
regulation and also form part of the social
contract between business and society. In this
section, SASB provides a brief summary of key
regulations and legislative efforts related to this
industry, focusing on social and environmental
factors. SASB also describes self-regulatory efforts
on the part of the industry, which could serve to
pre-empt further regulation.II
Global Scope of the Agricultural Products
Industry
Given the global nature of agricultural goods’
production and trade, agricultural products
companies are subject to multiple regulatory
highlight some ways in which regulatory trends are impacting the industry.
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 4
frameworks. In the U.S., the industry is regulated
at the federal, state, and local levels. Broadly,
regulation addresses the release of substances
into air, water, and soil during farming and
processing, the safety of consumer foods, and the
health and safety of workers.
Regulations may impact the industry across
operations, supply chains, and end markets.
Environmental and human health regulations are
becoming increasingly strict in most markets.
Environmental laws in Latin America are evolving
rapidly toward higher degrees of regulation and
enforcement, as several countries have large
agricultural sectors that use an abundance of
insecticides, pesticides, fertilizers, and inoculants
are widely used. Brazil, reportedly the world’s
largest market for pesticides, has banned several
substances and, like most other countries in the
region, requires the registration of all pesticides
and the submission of health and safety data.26
Meanwhile, several Latin American countries’
constitutions enshrine access to water as a basic
human right. While the overall region is rich in
freshwater, much of it is concentrated
geographically and/or seasonally.27 Over the past
half century, water management in Latin America
has shifted from the construction of large
infrastructure projects for irrigation and electricity
generation to the provision of drinking water and
sanitation services to a focus on water
conservation, environmental protection, and
pollution control.28
Legislative and regulatory efforts in other major
markets are also relevant. In the E.U., the industry
is regulated by the European Commission through
the Common Agricultural Policy (CAP). The
Commission works with the agricultural ministers
of the 28 E.U. countries and the European
Parliament to set agricultural policy. The CAP was
established in 1962 and was most recently
reformed in June 2013. The CAP focuses on three
priorities: viable food production, sustainable
management of natural resources, and balanced
development of rural areas throughout the E.U.
The June 2013 CAP reform drives sustainable
farming by, for example, linking 30 percent of
direct farmer payments to environmentally sound
farming practices.29
Environmental Regulations
Agriculture can have significant impacts on
environmental resources, especially water and
land. Irrigated crop production requires large
amounts of water, while water contamination
arises from the use of fertilizers and pesticides as
well as from land erosion. In the U.S., the Clean
Air Act (CAA) and Clean Water Act (CWA)
regulate air and water emissions from operations.
The National Ambient Air Quality Standards
regulate emissions of particulate matter, including
agricultural dusts. Ambient air emissions from
farming practices are covered by Section 110 of
the CAA, which requires each state to develop a
State Implementation Plan (SIP) for identifying the
sources of air pollution and determining the
required restrictions for meeting federal air quality
standards. Grain terminal elevators with a
permanent storage capacity of more than 2.5
million U.S. bushels and grain storage elevators
with a capacity of 1 million U.S. bushels are
prohibited from discharging any gases with an
opacity more than 0 percent and/or particulate
matter in excess of 0.023 grams per dry standard
cubic meter. Moreover, loading and unloading
emissions are covered by the regulations.30
The CWA’s Oil Spill Prevention, Control, and
Countermeasures (SPCC) Program requires certain
facilities, including some farms, to develop and
implement plans to prevent oil discharges from
reaching U.S. waters or adjoining shorelines.31
SPCC covers farms that store, transfer, use, or
consume diesel fuel, gasoline, lube oil, hydraulic
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 5
oil, adjuvant oil, crop oil, vegetable oil, or animal
fat; store more than 1,320 U.S. gallons of oil or
oil products in aboveground containers or more
than 42,000 U.S. gallons in completely buried
containers; and could be “reasonably expected to
discharge oil to water of the U.S. or adjoining
shorelines.”32
Additionally, under the EPA’s Greenhouse Gas
Reporting Program (GHGRP), facilities emitting
more than 25,000 metric tons of carbon dioxide
equivalent (CO2e) must report their total GHG
emissions. The GHGRP is designed to collect data
to inform future policy decisions, including
programs to reduce emissions.33 Although there is
currently no federal carbon dioxide (CO2)
emissions reduction regulation in the U.S., certain
states and regions have implemented carbon cap-
and-trade programs to reduce emissions. The
most prominent example is California’s GHG
reduction law, commonly known as AB 32, which
took effect in 2012. The program introduced an
emissions cap that will be reduced by
approximately three percent annually for
industrial and other major emitters. Facilities must
either reduce emissions or offset them by
obtaining emissions credits.34 Milling and
processing facilities could be subject to the
aforementioned limits because of the relatively
high energy intensity of the processes.
Proposed bills to reduce emissions have included
the McCain-Lieberman Climate Stewardship Act,
which aimed to create a cap-and-trade system but
provided an exemption for residential and
agricultural areas; the Global Warming Pollution
Reduction Act of 2007, which aimed to increase
performance standards for electricity generation
and motor vehicles; and the American Clean
Energy and Security Act of 2009, which aimed to
establish an emissions trading plan similar to the
E.U.’s trading scheme but provided an exemption
for agriculture. Meanwhile, states are taking
action; more than half have climate action plans
and a growing number have set emissions
targets.35
In the Agricultural Products industry, GHG
emissions are not limited to those from facilities
but also include nonpoint emissions from livestock
and soil management activities as well as from
deforestation in developing countries, which is
often the result of increased land use for
agriculture. GHG from fertilizer application, soil
management such as tilling, and land clearing can
also be significant; typical estimates range from
11 to 15 percent of global emissions.36 Manure
management systems that emit methane (CH4)
and nitrous oxide (N2O) in amounts greater than
the reporting thresholds are the only agricultural
sources covered by the EPA’s GHGRP. Other
agricultural categories are exempt given the
difficulty and cost of measuring GHG emissions.
At the same time, emissions estimates, rather
than their direct measurement, would be a
burden to a large number of small entities and
would not provide enough certainty, according to
the EPA.37
In the U.S., environmental regulations are largely
implemented at the state and local levels and are
based on federal guidance. Some agricultural
operations are exempt from EPA regulations if
they are regulated under the Federal Insecticide,
Fungicide, and Rodenticide Act (FIFRA).38 The
United Nations Programme on Reducing Emissions
from Deforestation and Forest Degradation (UN-
REDD), launched in 2008, works with indigenous
peoples and other forest-dependent communities
to implement results-based payments using an
online forest monitoring tool.39
Bioenergy mandates heavily influence the industry
by driving demand for agricultural products,
primarily maize. The 2005 U.S. Energy Policy Act
and the 2007 Energy Independence and Security
I N D U S T R Y B R I E F | A G R I C U L T U R A L P R O D U C T S | 6
Act require progressive growth in biofuel use in
U.S. transportation fuels.40 In the E.U., biofuels
are expected to contribute to the region’s goal of
using 10 percent renewable energy as a share of
the total transportation sector energy use by
2020. The E.U.’s directives ensure the use of
biofuels that generate net GHG savings without
adversely impacting biodiversity and land use.41
Regulations on Food and Worker Safety
The Global Food Safety Initiative (GFSI), an
international food safety organization, provides
food safety guidance frameworks for crop
farming and perishable plant products, including
within supply chains. GFSI maintains benchmarks
for food manufacturers and farm assurance
standards with the goal of ensuring consumer
confidence in food safety. Agricultural products
companies, as well as retailers, manufacturers,
and food service companies, can obtain
certification through a third-party audit against
certain schemes recognized by the GFSI.42
The U.S. Food Safety Modernization Act (FSMA),
passed in 2011, gives the FDA increased authority
over how foods are grown, harvested, and
processed. Shifting the FDA’s focus from
responding to contamination to preventing it,
FSMA requires farmers and food processors to pay
a $500 annual fee to fund increased FDA
inspections, enforcement, and food safety
research. (The Tester-Hagan amendment exempts
local farmers and processors that make less than
$500,000 per year and that sell more than 50
percent of their products directly to consumers in
the same state and within a 400-mile radius.) The
passage of FSMA was prompted by several high-
profile outbreaks of food-borne illnesses in the
U.S.43
The industry is also required to adhere to specific
employee health and safety and other labor
standards. In the U.S., worker health and safety
standards are enforced by the Occupational Safety
and Health Administration (OSHA), part of the
Department of Labor, and by the EPA. The U.S.
Fair Labor Standards Act establishes standards for
a minimum wage, overtime pay, record keeping,
and youth employment, while the Migrant and
Seasonal Agricultural Worker Protection Act
provides standards for pay and working
conditions for seasonal and migrant
farmworkers.44
The USDA oversees numerous aspects of the
country’s agriculture, including plant health, crop
insurance, quality assurance, biotechnology, and
regulations on the inspection, distribution, and
exportation of grain.45 The FDA’s Animal and
Plant Health Inspection Service regulates the
import and export of plants, while the Grain
Inspection, Packers and Stockyards Administration
regulates the export of grains, oilseeds, and
agricultural commodities.46
In the U.S., crop chemical use is controlled by
FIFRA. Aspects of the law include labeling and
registering chemicals, permissible crops and sites
for application, environmental impacts, and
chemical tolerance levels on products for human
consumption.47
Evolving Industry Trends
Regulations regarding the importation and/or
cultivation of genetically modified crops vary
across countries. In the U.S., the FDA and the
USDA have actively worked to introduce
genetically modified organisms (GMOs) and have
not imposed labeling requirements. Meanwhile,
the E.U. has generally followed the precautionary
principle to prevent and/or delay the approval of
GMOs.48 Elsewhere, GMO regulations tend to
depend on a country’s relations with the U.S. and
the E.U.; countries that trade with and are
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influenced by the U.S. (e.g., Latin America) tend
to support GMO crops, while former colonies of
Europe (e.g., African countries) and countries that
trade with the E.U. tend to be less supportive.49
Nevertheless, the public perception of GMOs, as
well as the regulatory environment, is constantly
changing. For example, the bulk of Brazil’s export
crops use GMOs, but food products for domestic
consumption that contain 1 percent or more
GMO derivatives must be prominently labeled as
transgenic. Several Andean nations have restricted
the use of GMOs: Peru has a 10-year moratorium,
and Bolivia and Ecuador have enacted bans. All
the major Latin American countries have signed
the Cartagena Protocol on Biosafety, which seeks
to protect biological diversity from the potential
risks posed by GMOs.50
Another source of changing regulations on trade
policy and agricultural products is the U.S. Food,
Agriculture, Conservation, and Trade Act
(commonly called the Farm Bill). The Farm Bill, the
primary agricultural legislative tool of the federal
government, expires and needs to be renewed
every five years.51 It includes provisions for rural
development, trade and foreign agriculture,
agricultural research, conservation, and renewable
energy. One of the most significant changes made
in the 2014 Farm Bill was the removal of direct
subsidy payments to farmers.52 The presence or
absence of subsidies, as well as the ability to
obtain crop insurance, may provide various
incentives for farmers using more efficient and
effective techniques and equipment that reduces
environmental externalities.
Agricultural policy also addresses key
environmental and social issues. The 1990 Farm
Bill defined “sustainable agriculture” as a system
that will satisfy food and fiber needs, enhance
environmental quality and the agricultural natural
resource base, make the most efficient use of
nonrenewable resources, sustain the economic
viability of farm operations, and enhance the
quality of life for farmers and society.53
SUSTAINABILITY-RELATED RISKS AND OPPORTUNITIES
Industry drivers and recent regulations suggest
that traditional value drivers will continue to
impact financial performance. However,
intangible assets such as social, human, and
environmental capital, company leadership and
governance, and a company’s ability to innovate
to address these issues are likely to increasingly
contribute to financial and business value.
The Agricultural Products industry is a mainstay of
developed and emerging markets alike. A dynamic
regulatory environment, shifting consumer
preferences, extensive use of land and other
natural resources, and the impact of climate
change on agriculture underlie key sustainability
trends within the industry.
Broad industry trends and characteristics are
driving the importance of sustainability
performance in the Agricultural Products industry:
• Use of natural resources: Agriculture is
directly dependent on natural capital
inputs such as land, energy, and water.
Regulations, resource constraints,
population growth, and climate change
impacts drive the importance of efficiently
using such resources. The inefficient use
and inept management of such critical
resources can lead to higher costs or
unstable supplies, affecting the value of
agricultural products companies.
• Environmental and social
externalities: Inadequately growing and
processing agricultural products can have
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wide-ranging negative environmental and
social externalities. These include GHG
emissions; air, land, and water pollution;
food spoilage; and poor working
conditions. Mitigating such impacts is
important to protect and enhance
shareholder value, given the increasingly
stringent environmental and safety
regulations and the shifts in consumer
preferences. These trends could lower the
demand for, or constrain the supply of,
agricultural products while also potentially
increasing the costs of production.
• Food supply risks from climate change
impacts: Through various channels,
climate change is expected to affect crop
yields worldwide. Without adequate risk-
mitigation efforts on the part of
agricultural products companies and their
suppliers, this could have implications for
the food supply of a growing population,
as well as for industry revenue and
profitability.
• Management of extensive supply
chains and governance risks: The
industry’s social license to operate
depends on strong corporate oversight of
supply chains and on regulatory influence.
Companies in the industry can have vast,
geographically diverse supply chains. In
the eyes of consumers and regulators,
there may be little difference between the
responsibilities of the agricultural
products companies and those of the
actors in their supply chains. Each
component of the supply chain could be
affected by emerging environmental and
social regulations, customer pressures,
and physical impacts from climate
change, posing governance challenges for
the industry.
As described above, the regulatory and legislative
environment surrounding the Agricultural
Products industry emphasizes the importance of
sustainability management and performance.
Specifically, recent trends suggest a regulatory
emphasis on environmental externalities, which
will serve to align the interests of society with
those of investors.
The following section provides a brief description
of each sustainability issue that is likely to have
material implications for companies in the
Agricultural Products industry. This includes an
explanation of how the issue could impact
valuation and evidence of actual financial impact.
Further information on the nature of the value
impact, based on SASB’s research and analysis, is
provided in Appendixes IIA and IIB.
Appendix IIA also provides a summary of the
evidence of investor interest in the issues. This is
based on a systematic analysis of companies’ 10-K
and 20-F filings, shareholder resolutions, and
other public documents, which highlights the
frequency with which each topic is discussed in
these documents. The evidence of interest is also
based on the results of consultation with experts
participating in an industry working group (IWG)
convened by SASB. The IWG results represent the
perspective of a balanced group of stakeholders,
including corporate professionals, investors or
market participants, and public interest
intermediaries.
The industry-specific sustainability disclosure
topics and metrics identified in this brief are the
result of a year-long standards development
process, which takes into account the
aforementioned evidence of interest, evidence of
financial impact discussed in detail in this brief,
inputs from a 90-day public comment period, and
additional inputs from conversations with industry
or issue experts.
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A summary of the recommended disclosure
framework and accounting metrics appears in
Appendix III. The complete SASB standards for the
industry, including technical protocols, can be
downloaded from www.sasb.org. Finally,
Appendix IV provides an analysis of the quality of
current disclosure on these issues in SEC filings by
the leading companies in the industry.
ENVIRONMENT
The environmental dimension of sustainability
includes corporate impacts on the environment.
This could be through the use of natural resources
as inputs to the factors of production (e.g., water,
minerals, ecosystems, and biodiversity) or through
environmental externalities and harmful releases
in the environment, such as air and water
pollution, waste disposal, and GHG emissions.
The Agricultural Products industry generates, and
is influenced by, a variety of environmental
externalities, which create regulatory and
operating risks resulting in financial impacts to
companies. Crop cultivation and agricultural-
products processing release GHGs into the
atmosphere. Climate-related regulations aimed at
curbing GHG emissions may affect the industry,
including through adjustments to farming
practices. The industry is reliant on water for both
crop irrigation and product processing. Increasing
global water scarcity, due to climate change and
supply and demand factors, can result in lower
water availability; higher water-related costs, such
as irrigation pumping; and reduced crop yields.
Finally, environmental pollution and habitat
degradation caused by agrochemical use, land
clearing for cultivation, and certain farmland
management practices create regulatory risks and
may adversely impact crop yields.
Since the Agricultural Products industry’s value
chain is highly dependent on environmental
factors, the management of strategic natural
resources such as water, energy, land, and
biodiversity is a key sustainability and business
challenge.
Greenhouse Gas Emissions
Agriculture is a significant contributor to global
GHG emissions, particularly extremely potent
non–CO2 emissions. In the Agricultural Products
industry, direct GHG emissions occur during
different stages of value creation. Unlike other
GHG-intensive industries such as manufacturing
and energy production, which burn large
quantities of fossil fuels and generate CO2, the
majority of emissions in crop cultivation stem
from land management practices, including
fertilizer application, land clearing, and crop
burning, and occur primarily in the form of CH4
and N2O.54 As mentioned in the issue of
Legislative and Regulatory Trends in the
Agricultural Products Industry, the monitoring and
control of such nonpoint emissions is more
challenging than that of point sources.55
Proposals for regulations that include emissions
from crop cultivation sources have been set forth
in the U.S., while international organizations,
including the United Nations (UN), are developing
resources to assist policymakers in regulating
agricultural GHG emissions.56 These actions
suggest that future GHG regulations could affect
crop cultivation, with direct and indirect impacts
(the latter through the supply chain) for the
Agricultural Products industry. A heavy reliance on
biofuel manufacturers as the main consumers of
corn and soy is likely to incentivize growers to
reduce their emissions from cultivation. As
regulations of lifecycle emissions from renewable
fuels become more stringent, biofuel
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manufacturers are likely to switch to farms with
lower environmental impacts.
In addition, some of the industry’s major activities
that result in point-source emissions fall under the
scope of current GHG regulations in the U.S. and
abroad. Sugar, grain, and oilseed milling is the
largest segment of the Agricultural Products
industry globally.57 Milling grain is an energy-
intensive process; energy is used for steam
creation and may be generated from coal, natural
gas, wood, fuel oil, or electricity. The use of such
fuels within companies’ operations can result in
Scope 1 GHG emissions, which are subject to
regulation in some regions. Many companies in
the industry also utilize sugar bagasse (the fibrous
portion of the sugarcane that remains after the
juice is extracted) and other types of biomass for
electricity generation at milling and processing
facilities.58 While emissions from most renewable
sources, such as agricultural crops or waste,
biodiesel, and fuel ethanol, are currently excluded
from compliance obligations, the regulatory
environment may become more stringent in the
future, with a potential to materially affect
agricultural companies.59
Less significant sources of GHG emissions in the
industry include energy use for operating
agricultural machinery, including irrigation pumps.
These are primarily CO2 emissions.60 Moreover,
companies in the Agricultural Products industry
may own and operate large fleets of vehicles and
vessels. Emissions related to crop transportation
are discussed in the issue of Energy & Fleet Fuel
Management, below.
Agricultural companies involved in crop cultivation
are reducing their nonpoint emissions by
switching to more advanced farming practices
that help them reduce the amounts of fertilizers
and pesticides used without affecting yields. At
the same time, the use of renewable sources of
energy and the reduced reliance on grid electricity
may deliver substantial cost savings as well as
decreased risk of exposure to evolving regulations
and volatile energy prices.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Gross global Scope 1 emissions;
• Biogenic CO2 emissions; and
• Description of long-term and short-term
strategy or plan to manage Scope 1
emissions, emission-reduction targets, and
an analysis of performance against those
targets.
Evidence
The broader agricultural sector, including livestock
production, is the largest contributor to non-CO2
anthropogenic GHG emissions, generating about
54 percent of such emissions in 2005 globally.61
Methane (CH4) and N2O are the primary GHGs
generated from agriculture and are, respectively,
25 times and 310 times more potent GHGs than
CO2.62 Emissions from crop cultivation stem
primarily from agricultural soil management and
land use changes, and to a lesser extent from
agricultural machinery.
Agricultural soil management, which includes the
use of fertilizers and tillage practices, contributed
74.8 percent of the total U.S. N2O emissions in
2012.63 This is largely due to the amount of
nitrogen-based fertilizers that are applied to
increase crop yield.64 From 2005 to 2030, global
agricultural N2O emissions are expected to rise by
35 percent, to 2,483 million tons of CO2e—or
35.8 percent of agriculture’s total GHG
emissions—after rising by 11 percent between
1990 and 2005. The rise in synthetic fertilizer use
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and agricultural acreage is the primary driver of
this increase.65
Land management practices correlate with N2O
emissions and CO2 sequestration. Techniques such
as slow-release fertilizers, conservation tillage,
manure application, nitrification inhibition, and
fertilizer-application timing can significantly
reduce the amount of nitrogen emissions.66
Carbon can be sequestered within organic matter
in soils; however, there are trade-offs involved.
Although soil sequestration can be used to store
CO2, it may result in a rise in N2O emissions, given
the increased volume of decomposing organic
matter.67
Land clearing for crop production is another
major GHG source globally, particularly in
developing countries with considerable forest
resources. Mature forests store significant
amounts of carbon absorbed from the
atmosphere in wood, leaves, and soil.
Deforestation contributes to 15 percent of global
GHG emissions.68 Worldwide demand for palm
oil, an important oilseed crop produced by many
companies in the Agricultural Products industry,
has led to widespread forest clearing and
peatland burning to create plantations in
Indonesia. As a result, Indonesia is now one of the
top GHG emitters in the world.69
According to the USDA, reforestation represents
the greatest potential carbon sink because of the
large tracts of land currently under cultivation and
the storage potential of forests. Reforestation
offset 13.5 percent of total U.S. GHG emissions in
2012.70 However, the expected rise in food
demand in the coming years makes wide-scale
reforestation difficult.71 International groups are
working to address GHG emissions from land
clearing. UN-REDD works to reduce deforestation
and forest degradation in developing countries,
including from forest conversion to cropland,
which is one of the leading causes of
deforestation.72 If the Agricultural Products
industry is able to reduce its nonpoint GHG
emissions by switching to more sustainable
farming practices, it is likely to mitigate
aggravating climate change impacts and to ensure
greater productivity in the long term.
Analysis by the U.K. Committee on Climate
Change suggests that most options for
agricultural abatement of emissions are cost-
saving. Only three options (new species of
nitrogen-fixing plants, anaerobic digestion on pig
farms, and covered lagoons and slurry tanks on
beef and dairy farms) entail a positive cost.73
Using production data from farms in and around
southwest Minnesota, researchers from the
University of Minnesota and Colorado State
University showed that limiting nitrogen fertilizer
application to optimal levels and minimal tillage
practices could reduce GHG emissions by 65
percent.74
Whether biofuels actually reduce GHG emissions,
compared with fossil fuels, depends on the effects
of land use change—i.e., whether natural lands
are converted to farmland. The U.S. Energy
Independence and Security Act of 2007, which
expanded the Renewable Fuel Standard (RFS),
requires conventional renewable fuels (e.g.,
cornstarch ethanol) to reduce lifecycle emissions
relative to fossil fuels by at least 20 percent,
biodiesel and advanced biofuels to reduce
emissions by 50 percent, and cellulosic biofuels to
reduce emissions by 60 percent after accounting
for indirect land use change.75 In 2010, the
European Commission encouraged governments,
industry, and non-governmental organizations to
set up voluntary schemes to certify biofuel
sustainability under the criteria established by the
Renewable Energy Directive. To meet E.U.
standards, biofuels must lower GHG emissions by
at least 35 percent when compared with fossil
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fuels, an amount that will rise to 50 percent in
2017 and to 60 percent in 2018.76
The biofuels industry is one of the main
purchasers of corn and soy in the U.S. As of 2013,
approximately 43 percent of the corn grown in
the U.S. was used for ethanol and dried distillers
grains, a coproduct of ethanol production used to
feed livestock and poultry.77 In 2013, 13 percent
of the oil from the soybean crop was used for
ethanol, as was 24 percent of the oil from
crushed soybeans.78 Lower-carbon ethanol may
present an opportunity for companies in the
Agricultural Products industry to grow revenues
because of market price premiums and/or
increased market share due to greater demand
from biofuel producers. If agricultural products
companies can reduce the carbon-intensity
coefficient associated with corn production, it will
likely reduce the carbon intensity of ethanol,
benefiting both farmers and producers. For
example, in its FY2013 Form 10-K, Pacific Ethanol
stated, “[t]he lower carbon-intensity rating of
ethanol we produce or resell is valued in the
market by our customers and has enabled us to
capture premium prices for our ethanol.”79 In
addition, more ethanol could be demanded under
compliance with the federal RFS—and in
California, with the state’s Low Carbon Fuel
Standard—if the ethanol emissions are lower than
CO2 emissions.
The industry also contributes to CO2 emissions
through the fossil fuels used to power agricultural
machinery. A study published in Environmental
Research Letters found that emissions from diesel-
fueled irrigation pumps in arid regions of China,
the world’s second-largest crop irrigator,
contribute approximately 33 megatons of CO2e
annually, or about the same amount of emissions
generated by the country of New Zealand.
Pumping water for irrigation in China represents a
substantial portion of direct energy use on
farms.80
GHG emissions present a regulatory risk, as
policymakers worldwide continue to advocate for
more-stringent emissions reductions. Currently, a
number of organizations and policymakers are
working to include agricultural sources of
emissions into institutional climate change
frameworks. For example, as part of its 2007
Climate Change and Emissions Management Act,
Canada’s Alberta Province established voluntary
N2O emissions-offset options for crop farmers. In
the U.S., agricultural GHG emitters, including
animal and crop agriculture, have opportunities to
participate in voluntary emissions reporting and
reduction programs; in 2006, the USDA created
technical guidelines for a voluntary GHG reporting
program for agricultural and forestry sources,
which the Department of Energy adopted.81
Several climate bills proposed in the U.S. Congress
would create a carbon credit system to account
for emissions based on agricultural land
management. Emitters would receive tradable
carbon credits for emissions offsets. However, the
incentive-based crediting systems do not force
emitters to comply, as there is no penalty for not
doing so.82 The USDA predicts that gross
agricultural revenue from offsets will reach $2.4
billion per year by 2020 and $29.7 billion per year
by 2050.83
New GHG regulations may also bring various
opportunities to companies in the industry. The
Climate Action Reserve, a nonprofit carbon-offset
registry for North America, provides opportunities
for farmers to earn revenue by reducing the
application of synthetic nitrogen fertilizer to corn
crops.84 The California Air Resources Board is
considering a protocol to allow rice farmers in the
Sacramento Valley and the Mississippi River Valley
to earn revenue for reducing GHGs.85
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In fact, while the proposed GHG cap-and-trade
schemes in the U.S. would not directly regulate
agricultural emissions related to land
management and cultivation, the availability of
carbon credits could encourage crop producers to
utilize GHG mitigation practices.86 The California
Air Resources Board estimates that by 2020,
agriculture, including livestock production, could
contribute as much as 10 percent, or 17 million
metric tons of CO2e, toward the state’s GHG
reduction target.87
To reduce nonpoint GHG emissions, companies
may seek innovative ways of increasing the
efficiency of fertilizers. For example, planting
crops that utilize nitrogen more effectively would
require less nitrogen-based fertilizer to achieve
equivalent yields, resulting in lower N2O
emissions. At the same time, this would
noticeably reduce costs for growers.88 Cargill’s
AgHorizons business, which provides farmers with
agronomic solutions to improve yields while
reducing required inputs, created detailed field-
management plans for fertilizer and chemical use
for more than a million acres in Canada. The
company also developed variable-rate nutrient
maps for 500,000 acres in the U.S. that would
help crop producers identify soil fertility levels and
determine where fertilizer application is the most
beneficial. The maps allowed farmers to reduce
the amount of GHG per bushel of crop
produced.89
A significant portion of direct emissions of
companies in the Agricultural Products industry
occurs at their milling facilities. As discussed
earlier, sugar, grain, and oilseed milling is the
largest segment of the industry in terms of
revenues generated.90 Milling is a very energy-
intensive process; for example, wet-corn milling
accounts for 15 percent of the energy of the
entire food industry. Most of this energy, in the
form of electricity, steam, or fuel, is used for
drying and grinding; fuel is usually used for steam
generation or direct drying.91
Such emissions pose current and near-term
regulatory risks for the industry. According to the
EPA’s GHG Reporting Program, direct emissions
from the U.S. processing facilities of agricultural
products companies amounted to 27 million
metric tons of CO2e in 2013, not including
emissions from the transportation of agricultural
products.92 In 2013, ADM reported to CDP
(formerly the Carbon Disclosure Project) almost
14.8 million metric tons of Scope 1 emissions
globally.93 The same year, Cargill reported
approximately nine million metric tons of Scope 1
emissions, and Bunge, a vertically integrated
producer of grain and oilseed products, reported
1.5 million. Most of the emissions from all three
companies occurred at their U.S. facilities and
were in the form of CO2.94
California’s Cap-and-Trade Program, adopted in
2011, aims to curb GHG emissions by establishing
limited GHG allowances for covered entities and
by providing an exchange mechanism for the
distribution and pricing of these allowances.
Entities that emit 25,000 metric tons or more of
CO2e are subject to mandatory reporting
regulation and record-retention requirements.
Emissions from sources like agricultural crops and
waste, biodiesel, and fuel ethanol do not count
toward the compliance obligation, but do count
toward the reporting threshold.95 Companies in
the Agricultural Products industry generate a
significant share of their energy from biomass-
derived fuels. While emissions associated with
biomass fuels may not currently represent a
material risk from the compliance perspective,
evolving climate change regulations may become
more stringent. Therefore, companies that focus
on reducing their total Scope 1 emissions,
including those from biomass sources, may be
better protected from regulatory risks.
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Besides the regulatory risks associated with GHG
emissions, companies have an incentive to reduce
the cost of purchased fuel and natural gas, which
account for a substantial part of their operating
expenses. The 2011 Annual Survey of
Manufacturers by the U.S. Census Bureau found
that the cost of purchased fuel in wet-corn milling
accounted for six percent of the total cost of
materials and more than nine percent of total
value added. The average numbers for all
manufacturing industries were 1.3 percent of
materials and 1.8 percent of total value.96 In its
FY2014 Form 20-F, Adecoagro stated that fuel
constituted 11 percent of its cost of production.
Further, the company disclosed risks associated
with increasing energy prices and interruptions of
the energy supply due to “new laws or
regulations, imposition of new taxes or tariffs,
interruptions in production by suppliers,
imposition of restrictions on energy supply by
government, worldwide price levels and market
conditions.”97 Given the volatility in energy prices,
companies have an opportunity to significantly
reduce their cost of revenue through energy
efficiency.
Some companies have achieved energy-cost
savings through emissions reductions. In 2013,
Associated British Foods, a diversified agriculture,
food, and retail company, reported that it was
able to reduce its CO2 emissions by seven percent,
from 3.36 to 3.14 million metric tons. The
reduction was achieved through the increased use
of renewable fuels in the total energy mix and the
reduced use of heavy fuel oil. The company puts
strong emphasis on carbon emissions reduction
and energy efficiency improvements and is
working toward energy- and carbon-savings
targets under the U.K. government’s Climate
Change Agreements.98
In general, company financial disclosures allude to
institutional and policy efforts to address GHG
emissions, including some of the key channels of
impact discussed above. In its FY2013 10-K,
Bunge stated, “[t]he imposition of regulatory
restrictions on greenhouse gases could … affect
land-use decisions, the cost of agricultural
production, and the cost and means of processing
and transport of our products, which could
adversely affect our business, cash flows, and
results of operations.”99
Value Impact
More stringent GHG regulations that include crop
cultivation in their scope present risks and
opportunities for the Agricultural Products
industry. Regulation could require cultivation
practices that produce less GHG emissions, such
as reduced nitrogen fertilizer use, which in turn
could adversely impact yields. Diminished yields
could reduce salable products, resulting in lower
revenues. At the same time, regulatory
compliance can increase the costs of doing
business, lowering operational efficiency,
particularly for those companies not adept at or
face difficulties in managing GHG reductions.
Conversely, GHG reductions could be monetized
through carbon-offset credits. By reducing GHG
emissions at the crop cultivation stage, companies
in the industry may benefit from stronger demand
from producers of renewable fuels who seek to
minimize the lifecycle emissions of their products.
Given that fuel used in milling processes accounts
for a large portion of total costs, companies that
invest in energy efficiency and manage their
energy mix effectively can substantially reduce
their operating expenses and improve their profit
margins. Firms that currently derive most of their
energy from biogenic sources may benefit from
the lower risks associated with energy
independence, less volatile fuel prices, less
frequent supply disruptions, and regulations that
exempt biogenic emissions from compliance. On
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the other hand, if the regulatory environment
were to change toward requiring an accounting
of these emissions as Scope 1, agricultural
products companies may be materially impacted.
To meet more stringent regulatory norms,
agricultural products companies may be required
to increase their capital expenditures toward new
equipment.
While regulatory development in this area is an
inherently slow and politically charged process
whose outcome is nearly impossible to predict,
the probability and magnitude of the impact of
GHG emissions on the industry are likely to
increase in the near to medium term, given the
trend toward greater regulation of GHGs.
Energy & Fleet Fuel Management
Sugar, grains, and oilseed milling requires
substantial quantities of energy, which is sourced
from the direct combustion of fossil fuels and the
electrical grid. At the same time, extensive fleets
of companies in the wholesale segment require a
substantial amount of fuel to operate. Fossil fuel
and electrical energy consumption can contribute
to environmental impacts, including climate
change and pollution. The industry’s energy-
intense production has direct regulatory
implications due to Scope 1 GHG emissions from
on-site fossil fuel use. The financial risks from the
direct use of fossil fuels were discussed earlier in
the issue of Greenhouse Gas Emissions.
Furthermore, impacts from purchased electricity
consumption, including emissions from utilities,
have the potential to indirectly affect the
operations of agricultural products companies.
Sustainability factors—such as increasing GHG
emissions regulations, incentives for energy
efficiency and renewable energy, and risks
associated with nuclear energy and its increasingly
limited license to operate—are leading to
increases and volatility in the prices of
conventional electricity sources while also making
alternative sources cost-competitive.
The trade-off between on-site versus grid-sourced
electricity and the use of alternative energy can
play an important role in influencing both the cost
and reliability of a company’s energy supply, as
well as the extent of its direct versus indirect
emissions. As climate change regulations become
stricter, companies may become accountable for
their Scope 1 emissions from biogenic sources of
energy. Therefore, it is becoming increasingly
important for companies to manage their overall
energy efficiency, their reliance on different types
of energy and the associated risks, and their
access to alternative energy sources.
Moreover, companies involved in the distribution
and wholesale of agricultural products may
operate extensive logistics networks and own
trucks, railcars, and ships, and therefore consume
a significant amount of fuel. Transport fuel can
exhibit pricing volatility, given global demand-
supply dynamics and regulatory pressures related
to GHG emissions and other environmental and
social externalities, making this an important
aspect of operations to manage. While GHG
emissions from mobile sources are typically not
regulated directly, the cost of transportation fuel
can represent a substantial portion of operating
expenses.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Operational energy consumed,
percentage grid electricity, percentage
renewable; and
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• Fleet fuel consumed, percentage
renewable.
Evidence
Energy is a critical input for the activities of the
Agricultural Products industry, including
processing and transport. The significant costs of
purchased fuels, whose combustion contributes to
the industry’s Scope 1 GHG emissions, were
discussed earlier in the issue of Greenhouse Gas
Emissions. Similarly, the industry accounts for a
significant share of purchased electricity
consumption relative to other industries and has
relatively high costs associated with such
purchases. According to the U.S. EPA Annual
Survey of Manufacturers, companies in the
Agricultural Products industry purchased almost
24 million megawatt-hours (MWh) of electricity
for heat and power in 2011—approximately three
percent of the total electricity purchased by all
manufacturing industries. The total cost of
purchased electricity was more than $2 billion for
the industry and accounted for 2 to 6 percent of
the value added and 1 to 4 percent of the total
cost of materials, depending on the activity. In
comparison, the average for all manufacturing
industries was two percent of the value added
and 1.6 percent of the total cost of materials.
Wet-corn milling, for example, is the most energy-
intensive process when considering value added,
while sugarcane and oil refining is the least
intensive among the industry’s different
activities.100
The Energy Information Agency (EIA) estimates
that the retail prices of electricity in the U.S. will
increase at a modest pace through 2035. In 2014,
the average retail electricity price per megawatt-
hour was $110 for commercial use, $72 for
industrial use, and $127 for residential use. The
III 1 cwt = 50.8 kg.
EIA’s 2014 Annual Energy Outlook forecasts the
2035 retail electricity prices for commercial,
industrial, and residential uses to be $118, $82,
and $142, respectively.101
Companies report their Scope 2 emissions from
electricity and steam purchase to the CDP. For
example, in 2013, ADM had almost 3 million
metric tons, Cargill more than 6 million metric
tons, and Bunge just under 1.5 million metric tons
of Scope 2 emissions. In the same year, global
facilities of the three companies purchased 4.8,
9.6, and 1.7 million MWh of electricity,
respectively.102
A report on the manufacturing industries by the
U.S. Census Bureau estimated that in 2005,
production of one hundredweight (cwt)III of flour
required 4 to 7 kilowatt-hours of energy. Using
2005 energy prices, the energy cost of milling one
ton of wheat was $4 to $7.IV In milling operations,
electrical motors account for about three-quarters
of electricity consumption. Therefore, improving
the energy efficiency of equipment can help
reduce operational costs.103 Maximum-capacity
usage in the overall process can reduce energy
consumption by 5 to 10 percent, using high-
efficiency motors and total efficient maintenance
can deliver 2 to 5 percent in energy savings, and
optimizing air flow and avoiding leaks in
conveying systems can reduce energy use by 10 to
20 percent.104
Companies can generally achieve significant
energy-cost savings by reducing inefficiencies at
their milling facilities. For example, GE provided
its industry clients with equipment and
technologies to help reduce their energy use.
Modifying the cleaning process of a wet-corn
milling plant improved its cleaning quality and
process efficiency, which saved the client
IV Daily wheat flour production is about 1 million pounds for average mills and 2 to 3.2 million pounds for the largest mills in the U.S.
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$300,000 in energy costs and $61,000 in cleaning
costs. The return on investment of this project
was more than 400 percent, with annual savings
of $290,000.105
Aside from increasing electricity prices, the
interruption of an energy supply could present
significant risks to companies in the Agricultural
Products industry, particularly in developing
countries, where the existing electricity grid may
not be able to meet growing demand. According
to Adecoagro’s FY2014 Form 20-F, several of the
company’s facilities in Argentina are subject to a
quota system aimed at reducing energy use at
industrial facilities to ensure adequate supply for
residential buildings during peak months of the
year. The company therefore experiences frequent
electricity disruptions during certain work shifts.
Adecoagro tries to minimize these risks by
utilizing off-grid sources of energy, such as
firewood and liquefied natural gas, and by
stocking required supplies in advance of high-
demand periods.106
To reduce the risk of energy-supply disruptions,
some companies in the industry invest in projects
that will help them achieve energy independence.
These projects may also improve profitability by
hedging against volatile energy prices. For
example, Bunge operates cogeneration facilities at
its sugarcane mills. By burning sugarcane bagasse,
the company generates enough electricity to meet
the energy requirement of its mills. At most of its
mills, the company also generates extra revenue
from selling surplus electricity to the local grid. In
2014, Bunge’s cogeneration capacity was around
314 megawatts, 112 megawatts of which the
company was able to resell to third parties,
according to its FY2014 Form 10-K.107
The largest companies in the industry are vertically
integrated and operate extensive logistics
networks for crop transportation. For example,
according to ADM’s FY2014 Form 10-K, the
company owns approximately 13,500 railcars,
2,100 barges, 1,300 trailers, 300 trucks, and nine
oceangoing vessels. It also leases approximately
14,600 railcars, 500 barges, 300 trucks, and 32
oceangoing vessels. The company further stated
that its transportation operations are heavily
dependent on the costs of diesel and other fuels
and may be adversely affected by greenhouse gas
regulation or taxation.108 Bunge operates and
manages approximately 200 ships, which it uses
to transport approximately 35 million tons of
grains and oilseed and 2.5 million tons of
vegetable oils annually.109
Powering such large fleets requires a lot of fuel;
companies can realize substantial cost savings by
reducing fuel consumption across all
transportation means. For example, by optimizing
routes from mills to customers’ locations for
shipments, Cargill was able to reduce emissions
by 252 metric tons of CO2 during fiscal year 2013,
which also indicates a reduction in fuel
consumption and therefore fuel costs.110 In its
2014 Corporate Responsibility report, ADM stated
that investments in fuel efficiency, such as
installing auxiliary power units in its trucks, have
helped the company save 458,000 gallons of fuel
since 2008. Moreover, the company’s oceangoing
vessels emit 27 percent less CO2 than
conventional bulk carriers do. ADM’s riverboats
deploy double-hull protection around the fuel and
lubricant bunker tanks, which delivers a 10 to 12
percent fuel savings annually.111 To reduce fuel
consumption, 25 percent of Bunge’s fleet has run
at eco-speed as of July 2013.112
Reducing fuel consumption can therefore have a
direct impact on expenses and can help expand
profit margins. The SmartDrive Commercial
Transportation Fleet Fuel Efficiency Study, issued
in 2011 by transportation technology company
SmartDrive Systems, found that truck drivers who
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use eco-driving techniques can improve fuel
efficiency by an average of 22 percent. That 22
percent improvement means fleet operators could
save up to $12,553 in fuel costs per vehicle every
year. The study evaluated 695 Class 8 tractor-
trailers, heavy-duty trucks, and drivers in a broad
range of locations. Eco-driving best practices
include accelerating and decelerating smoothly,
reducing excess idling, avoiding hard turning, and
maintaining a consistent speed.113
Value Impact
Energy management primarily impacts current and
future costs of operation. Climate regulation and
other sustainability factors could result in higher
electricity and fuel prices, increasing operating
costs for agricultural products companies.
Likewise, companies have an opportunity to
generate cost savings through improved energy
efficiency of equipment at milling and processing
facilities and of vehicles and vessels, greater use
of electricity produced onsite, and renewable
energy. In addition to impacts on operating costs,
there could be one-time effects on cash flows
through capital expenditures for energy-related
projects. Active energy management can also
reduce a company’s risk profile and its cost of
capital in the face of volatile electricity prices and
electricity supply risks.
The probability and magnitude of these impacts
could increase in the future as emerging
governmental regulations on environmental
impacts continue to influence energy costs.
Water Withdrawal
The Agricultural Products industry is reliant on
water for crop cultivation and product processing,
with crop yields dependent on receiving requisite
amounts of water. The industry generally
accounts for relatively large water withdrawals
compared with those for other uses in a
community or region. Increasing water stress
worldwide is therefore a critical issue for the
industry.
While water has typically been a freely available
and abundant commodity in many parts of the
world, it is becoming a scarce resource. This is
due both to increasing consumption from
population growth and rapid urbanization and to
the potential for climate change to reduce
supplies. Furthermore, water pollution can render
water supplies unusable or expensive to treat.
Based on recent trends, it is estimated that by
2025, important river basins in the U.S., Mexico,
Western Europe, China, India, and Africa will face
severe water problems as demand overtakes
renewable supplies. Many important river basins
can already be considered “stressed.”114
In the U.S., allocation of surface waters and
groundwater varies according to each state’s
regulatory system. Historically, there were three
allocation systems: the riparian in the East, where
water is abundant; the prior appropriation in the
West; and the hybrid system in a few states.
According to the prior-appropriation system, the
most senior appropriator has the highest priority
on water rights and may not have to reduce its
water use during a shortage.115 The recent
drought in California, however, prompted state
officials to impose water-use limits on farmers
with the strongest water rights.
The water risk for an agricultural products
company is determined by its degree of vertical
integration, the type of crop(s) it processes or
grows, and its operational presence in regions of
elevated water stress. For companies with no
direct cultivation operations, water risk is present
primarily in the availability of water for product
processing.
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Significant volumes of direct water consumption,
particularly in water-stressed regions, introduces
operating risks due to reduced availability, higher
water prices, and competition with other water
consumers for water resources, potentially
creating social tensions. Growing water scarcity
can therefore affect operating costs, revenues,
and the productivity of the assets of agricultural
producers. These factors can be exacerbated by
inefficient irrigation practices.V
Methods to improve water efficiency in irrigation
and processing and agricultural management
practices to mitigate adverse effects on crop yields
offer the industry opportunities to manage risks,
reduce costs, and preserve assets over the long
term.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• (1) Total water withdrawn and (2) total
water consumed, percentage of each in
regions with High or Extremely High
Baseline Water Stress; and
• Discussion of water withdrawal risks and
description of management strategies and
practices to mitigate those risks.
Evidence
Agriculture accounts for the majority of
freshwater consumption worldwide—
approximately 70 percent of global freshwater use
is directed toward crop irrigation and livestock
watering. In the U.S., agriculture consumes
approximately 37 percent of total freshwater
withdrawals.116 In Organization for Economic
Cooperation and Development countries,
V Crops are also dependent on rainfall. Climate change raises the probability of extreme weather events, including droughts and
agricultural water withdrawals account for 44
percent of freshwater withdrawals, while in
developing nations they may reach more than 90
percent.117
The industry’s reliance on irrigation to support or
enhance crop growth presents an operating risk,
especially in areas of water scarcity. Substantial
increases in water costs or inadequate supplies
could result in higher operating costs and reduced
crop yields, which could lower potential revenues.
Irrigated land is, broadly speaking, more
productive than non-irrigated land: Global
irrigated cropland totaled 304 million hectares in
2008, accounting for more than 40 percent of
crop production on less than 20 percent of
cultivated land.118 The rise in global crop
cultivation for food and energy over the past 50
years has driven the increased use of irrigation to
enhance productivity. During that period, global
cultivated land area rose by 12 percent, while
irrigated farmland nearly doubled.119 The UN Food
and Agriculture Organization estimates that
harvested irrigated land will grow by 17 percent
by 2050, leading to an 11 percent increase in
water use after accounting for projected
improvements in water efficiency.120
The rise in the industry’s water requirements
places strain on irrigated lands and other
consumers. Exacerbating the issue, agricultural
water efficiency tends to be low; by one estimate,
60 percent of the 2,500 trillion liters used globally
per year is lost from runoff or
evapotranspiration.121 High water requirements
and inefficiency contribute to a growing problem
with water stress, as 15 to 35 percent of water
use in irrigation may be unsustainable, with
withdrawals exceeding the natural supply.122
floods, which can adversely affect crop yields. This aspect is covered in the issue Climate Change Impacts on Crop Yields.
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Global climate change is expected to increase the
frequency and intensity of droughts and other
extreme weather events. Droughts and irregular
rainfall can increase the need for irrigation in
order to limit the impact on crop yields. At the
same time, increased water stress due to droughts
can reduce the availability of water supplies for
irrigation. With the possibility of more frequent
and more intense droughts brought on by climate
change, local or regional governments could
begin restricting water use, or water utilities could
increase water rates, affecting large consumers of
water. For example, 2014 was the hottest year in
California since 1895, with average temperatures
4.5 degrees Fahrenheit above the 20th-century’s
average.123 Nine million acres of farmland are
irrigated in California, which represents 80
percent of all human water use.124 The state’s
four-year drought prompted the governor, Jerry
Brown, to issue an executive order for mandatory
statewide water restrictions—the first of its kind
in U.S. history.125 Water agencies failing to reduce
water use by 25 percent will be penalized with
$10,000-a-day fines. On June 12, 2015, California
ordered the largest water cuts in history by
farmers with the state’s senior-water rights in the
Sacramento, San Joaquin, and Delta watersheds.
Earlier, thousands of farmers with less secure
water rights were ordered to stop pumping from
the San Joaquin and Sacramento watersheds.126
A study by the University of California, Davis, with
assistance from California Department of Water
Resources, estimates that the 2014 drought in the
state led to a reduction of 6.6 million acre-feet in
surface water available to agriculture and resulted
in an increase in groundwater pumping by more
than 5 million acre-feet. The study further
concludes that the resulting net water shortage
could cause an $810 million loss in crop revenue
VI Based on the World Business Council on Sustainable Development (WBCSD) Corporate Water Tool, version 2012.
and a $203 million loss in livestock and dairy
revenue. Additional pumping costs were
estimated to amount to $454 million. Overall, the
2014 drought’s cost to the state was $2.2 billion,
including $1.5 billion in direct costs to agriculture.
Moreover, California lost 17,100 seasonal and
part-time jobs.127
The effects of climate change are likely to
exacerbate the existing water stress on arable
lands; approximately 28 percent of global
cropland is in areas of high water stress,
according to the World Resources Institute.128 For
example, almost 90 percent of irrigated maize
farmland in the U.S. is in areas of high or severe
water stress.129 Globally, 56 percent of irrigated
crops and 21 percent of rain-fed crops are grown
in areas of high or very high water stress.130 On an
individual company basis, water intensity varies
with factors including the type of crop(s)
processed and the scale and location of farming
or processing operations, which determine the
extent of the impact on operations from
increasing water stress.
Companies operating in regions of high water
scarcity could be at a greater risk for crop failure
or water-related disruptions to product-processing
operations. Bunge consumed approximately 64
million cubic meters (16.9 billion gallons) of water
in 2013. While only 12 of its more than 200
processing facilities are located in areas of water
stress of any degree,VI Bunge indicates that some
of its crop origination occurs in areas of water
stress, including Argentina, India, South Africa,
Australia, and the U.S.131
Companies recognize the costs and risks to
operating results from increasing water scarcity.
Chiquita Brands reports that the average water
footprint of a kilogram of bananas is 400 to 600
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liters, and approximately 90 percent of this
footprint lies in the cultivation phase. The
company found that the “increasing irregularity
and intensity of rainfall and droughts caused by
climate change have already led to an increased
need for irrigation, and potential cost increases,”
adding that “water scarcity will probably lead to
new regulatory frameworks for water allocation
and higher water prices.”132 Similarly, ADM stated
in its FY2013 Form 10-K, “[a]ny major lack of
available water for use in certain of the
Company’s processing operations could have a
material adverse impact on operating results.”133
According to the Agria Corporation’s FY2014
Form 20-F, “[t]he Australian rural sector is
particularly susceptible to drought, which has the
potential to result in a material adverse impact on
that country’s agricultural revenue.”134
Companies in the industry have already
experienced direct adverse impacts from water
shortages, underscoring the importance of water
efficiency. A drought in the South-Central region
of Brazil in 2010 and 2011 caused a decline in the
sugarcane harvest, resulting in lower capacity
utilization at BRF’s sugarcane mills and weaker
financial results in Bunge’s sugar and bioenergy
segment.135
The 2012 drought in the U.S. caused ADM to
nearly lose access to water at some of its
processing facilities in Decatur, Illinois, as the city
aimed to “lessen the strain” on its water supply.
(ADM used to withdraw 14.8 million gallons per
day from Lake Decatur). As a result, the company
agreed to pay the city $2.5 million to develop
alternate water sources in consideration of future
water shortages. The agreement allowed ADM to
build two underground collector wells to provide
water to its North Water Treatment Plant.136
Several agricultural companies are working to
address this issue. In 2013, Chiquita Brands set a
goal of reducing the use of freshwater in its
operations by 15 percent by 2020 relative to a
2007 baseline. In its FY2013 Form 10-K, the
company also reported that it works with third-
party growers to reduce their water and pesticide
use.137 Adecoagro reported that it was working to
increase the efficiency of water use and
simultaneously decrease the risk of soil erosion.
The company’s efforts include rainwater
harvesting for certain irrigated crops such as rice,
precise leveling of the land to reduce irrigation
requirements, and the use of pivot spraying
systems and soil moisture sampling for crops such
as corn and sunflower seeds.138 Meanwhile, berry
company Driscoll collects data in real-time on
water use from its California Central Coast
farmers.139
In addition, food and beverage companies have
sent signals to agricultural producers by
developing policies and setting goals to source
ingredients sustainably. Coca-Cola, PepsiCo, and
Unilever have agricultural policies; General Mills
and Kellogg have time-bound sustainable
sourcing pledges. Meanwhile, General Mills is
providing interest-free loans to broccoli and
cauliflower growers in Mexico’s Irapuato region to
increase the adoption of drip irrigation,
contributing to 1.1 billion gallons in annual water
savings.140
Value Impact
Water use can have diverse financial implications.
A stable water supply is crucial to crop cultivation
and agricultural products processing. Rising water
stress related to climate change or other factors
increases the risk of crop failure, directly lowering
revenues of crop producers and raising raw
material costs for crop processors. Furthermore,
limited access to water could directly affect a
company’s ability to operate processing facilities
or could require investment in alternate sources of
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water. Disruptions to operations or crop failure
could affect cash flow, and, in turn, negatively
affect a company’s credit profile, impacting its
cost of capital.
All the aforementioned impacts indicate that the
value of water rights for agricultural products
companies could significantly increase in the
future. As evidence shows, climate change
impacts may prompt regulatory authorities to limit
companies’ ability to withdraw necessary amounts
of water, especially in regions with high or
extremely high baseline water stress. These
actions are likely to significantly increase the cost
of doing business, as exacerbating water stress
and irregular rainfall also introduce the need for
increased irrigation. To balance the need for
additional irrigation and regulatory limitations,
companies will have to increase their capital,
operating, and R&D expenditures to improve their
agricultural processes and to secure alternative
water sources.
Unsustainable agricultural practices with respect
to water withdrawal and use are likely to have a
negative reputational impact on the Agricultural
Products industry. As food and beverage
companies are becoming more concerned about
the environmental performance of their suppliers,
agricultural products companies that fail to
manage the issue may experience lower demand
for their products.
Given the increasing water scarcity and the
potential for increases in water prices, the
probability and magnitude of the impact of water
management on financial results in the
Agricultural Products industry are likely to
increase in the near term.
Land Use & Ecological Impacts
Land and ecosystems are key natural resources for
the Agricultural Products industry. The vast global
land footprint of crop cultivation, combined with
intensive modern agricultural practices, has
diverse ecological impacts that generate
regulatory risks and can adversely affect crop
cultivation. The primary channels by which the
industry can affect ecological resources are
through the discharge of agrochemicals, including
pesticides and fertilizers, to the environment and
through species’ habitat degradation and
biodiversity loss resulting from the use of
agrochemicals, monoculture cultivation, forest
fragmentation, and land clearing.141 Monoculture,
the practice of growing the same crop over large
areas each year, is typically pursued by
agricultural products companies to try to achieve
economies of scale and/or to produce high
volumes of profitable crops, while land clearing is
pursued to meet growing worldwide consumer
demand.142
Genetic engineering in agriculture and the
development of herbicide-resistant and insect-
resistant crops allow for an increased use of
fertilizers and pesticides. While there are positive
impacts on crop yields, the use of these chemicals
also has environmental and social consequences.
Several studies link exposure to pesticides to
human health hazards. Pesticides are also known
to have adverse impacts on land and biodiversity
by killing beneficial insects and soil
microorganisms. Moreover, excessive application
of nitrogen- and phosphate-based fertilizers may
result in the eutrophication (nutrient loading) of
water systems.
The deterioration of soil quality and the
biodiversity loss due to the use of pesticides and
fertilizers can diminish agricultural productivity,
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which can have an adverse impact on crop yields
and the supply of raw materials. Water, air, and
soil pollution resulting from the use of
agrochemicals also presents a regulatory risk,
given the potential bans on the use of pesticides
or restrictions on land use in ecologically sensitive
areas.143
As the global population continues to grow, the
agricultural industry will face further challenges in
keeping its land productivity high to satisfy
increasing demand. For these reasons, agricultural
products companies are faced with the challenge
of maintaining high yields in the long term while
also reducing environmental externalities
associated with fertilizer and pesticide use,
monoculture cultivation, forest fragmentation,
and land clearing. Companies in the industry can
mitigate their operating risks from the
abovementioned factors and ensure their long-
term growth and profitability by addressing
environmental externalities through reduced
pesticide and fertilizer use, increased utilization
efficiency, and protection of biodiversity, water
quality, and sensitive lands. Company
performance in this area can be analyzed in a
cost-beneficial way through the following direct
or indirect performance metrics (see Appendix III
for metrics with their full detail):
• Descriptions of strategies to manage land
use and ecological impacts;
• (1) Volume of wastewater reused and (2)
volume of wastewater discharged to the
environment;
• Number of incidents of non-compliance
with water quality permits, standards, and
regulations;
• Amount of fertilizer consumption by (1)
nitrogen-based, (2) phosphate-based, and
(3) potassium-based fertilizers; and
• Amount of pesticide consumption by
hazard level.
Evidence
The use of agrochemicals and the ecological
impacts created by agricultural products
companies have global reach, because of the
international nature of many of these companies’
operations. While the factors discussed below are
most relevant for companies that own land and
have direct control over their farmer suppliers,
they are still important for companies without
direct control for which supply chain factors may
be more applicable.
The world’s population is expected to reach 9
billion people by 2050, and the UN Food and
Agriculture Organization estimates that 70
percent more food—or one billion tons of wheat,
rice, and other cereals and 200 million tons of
beef and other livestock—will be needed from
farmers to support this growth. It is a complicated
problem to solve, as most of the available
farmland is already being cultivated. Moreover, in
many cases, cultivation practices can diminish
land’s productivity through soil erosion and water
waste.144
While the “green revolution” and increased use
of fertilizers and pesticides helped boost the
world’s overall cropland productivity by 150
percent between 1961 and 2009, a recent UN
report found that in many areas of the world, the
growth rates fell after 2009, mostly because of
poor farming practices. According to the report,
25 percent of the world’s farmland is highly
degraded, 8 percent is moderately degraded, and
36 percent is stable or slightly degraded with soil
erosion, water degradation, and biodiversity loss.
Poor land use practices have led to pollution of
soil and aquifers in Western Europe, which has
resulted in further biodiversity loss.145
Modern agriculture is dependent on the
application of fertilizers, pesticides, and other
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chemicals to boost yields and prevent crop losses.
This practice can generate significant
environmental externalities, including biodiversity
loss, and can lead to regulatory action, including
fines or restrictions on the use of certain
agrochemicals. The use of these substances
presents a challenge for the Agricultural Products
industry, as companies must balance agricultural
productivity with unintended impacts on the
environment. Crop losses due to pests and disease
without the use of pesticides range from 30 to 50
percent, depending on the crop, while fertilizer
application averaged 133.5 kilograms per hectare
of arable land between 2009 and 2011.146
Furthermore, crops are sometimes cultivated in
regions outside their natural range, and more
intensive application of agrochemicals is required
to sustain their yields. This increases the risks
stemming from environmental pollution, which
are addressed below.147
The industry uses various types of fertilizers, and
some may be more harmful to the environment
than others. For example, the application of
nitrogen- and phosphate-based fertilizers and
manures can lead to eutrophication in rivers,
lakes, and oceans, including algal blooms that can
release toxins and cause severe hypoxic water
conditions, which can injure or kill aquatic life.148
While nutrients contribute to eutrophication of
waters, nitrates in drinking water also carry a
hazard to humans and animals. A well-known
example of eutrophication is the large “dead
zone” in the Gulf of Mexico, created in part by
agricultural runoff from the American Midwest,
which enters the gulf via the Mississippi River.149
In terrestrial ecosystems, levels of biologically
available nitrogen have doubled since 1960, while
flows of phosphorus have tripled.150 Nitrate is the
most prevalent groundwater contaminant
worldwide.151
According to the Center for Sustaining
Agriculture and Natural Resources at Washington
State University, the breeding of herbicide-
resistant crops resulted in a 527-million-pound
increase in herbicide use in the U.S. while driving
insecticide applications down only by 123 million
pounds. Therefore, 404 million pounds, or seven
percent, more pesticide was used in the U.S.
between 1996 and 2011. Glyphosate-resistant,
Roundup Ready (RR) crops provide farmers with a
very flexible and forgiving weed-management
system. An increase in the use of glyphosate
accounted for the largest share of the increase in
total herbicide use.152 Besides the environmental
externalities of increased herbicide use, there is
potential for impacts on human health. Not all
pesticides can be removed from food before it
gets to consumers, leaving so-called pesticide
residue.
In 2015, a report by the International Agency for
Research on Cancer classified glyphosate,
malathion, and diazinon as “probably
carcinogenic to humans.” According to the
report, there was “limited evidence of
carcinogenicity” in humans for non–Hodgkin
lymphoma.153 The findings prompted strong
criticism from agriculture companies, particularly
Monsanto, which is one of the largest sellers of
glyphosate in the world.154 Debate about the
carcinogenicity of widely used herbicides like
glyphosate could prompt future regulatory action
limiting its use, with the potential to impacts the
productivity of agricultural products companies.
For companies in the Agricultural Products
industry, regulatory risks exist because of
concerns over potential biodiversity harm from
pesticides use. In 2013, the E.U. adopted a
proposal to ban three common pesticides used to
control insect populations. A report issued in
2014 by three E.U. farming associations said that
the ban could lead to a surge in pests; affect
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production of crops, including apples, carrots, and
peas; and reduce farming profits by £1.7
billion.155 Studies have linked the pesticides to a
significant decline in bee colonies in North
America and Europe, and regulators are
concerned because bees are responsible for
approximately 80 percent of the pollination of
flowering plants, including many crops. The
California Beekeepers Association has said that
supplies of vegetables and fruits may be harmed if
the decline in bee populations continues.156
Water quality is also affected by pesticide residue,
which adds to the eutrophication of fresh and
coastal waters and to development of toxins that
eventually could result in the death of various
aquatic species. At the same time, as discussed
above in the issue of Greenhouse Gas Emissions,
soil cultivation eventually results in the release of
N2O.157
Recent studies link pesticides with invertebrate
biodiversity loss. Researchers at the Helmholtz
Centre for Environmental Research in Leipzig,
Germany, found that highly contaminated streams
in Germany, France, and Australia had up to 42
percent fewer species than uncontaminated
waters. Another study suggests that pesticides
may accumulate in the environment because their
half-life generally ranges between one and four
years, meaning that chemicals applied once a year
will accumulate.158
Companies in the industry discuss the risks
associated with agrochemicals in their financial
disclosures. In its FY2014 Form 10-K, Anderson
stated, “[a]ll products containing pesticides,
fungicides and herbicides must be registered with
the EPA and state regulatory bodies before they
can be sold. The inability to obtain or the
cancellation of such registrations could have an
adverse impact on our business.”159 In its FY2014
Form 10-K, Fresh Del Monte Produce stated,
“[o]ur business depends on the use of fertilizers,
pesticides and other agricultural products…A
decision by a regulatory agency to significantly
restrict the use of such products that have
traditionally been used in the cultivation of one of
our principal products could have an adverse
impact on us.”160
Concerns over the externalities of excessive
fertilizer could lead to regulatory action requiring
farmers to reduce fertilizer loads. For example, the
EPA’s Chesapeake Bay Program controls
reductions in nitrogen and phosphorus runoff
from nonpoint sources, including agricultural
fields. The program emphasizes practicing
nutrient management, where fertilizer loads are
calculated to meet the requirements of the crops
in order to reduce excess fertilizer application.161
Farmers may receive small financial penalties for
not following the requirements.162
Contamination of water from pesticide and
fertilizer runoff can increase the risks to
agricultural products companies that are
associated with the issue of Water Withdrawal,
discussed previously. Integrated pest management
(IPM) is a mitigation measure supported by the
EPA that can be used to prevent contamination of
water sources.163 IPM utilizes a variety of insect-,
weed-, or disease-control strategies to reduce
pesticide use while also minimizing pollution from
the use of chemical pesticides. IPM can help
companies improve food safety, reduce
occupational hazards and environmental risks
related to pesticide use, and reduce the pollution
and contamination risk of water sources.
Moreover, it can help businesses to minimize pest
management costs, which are estimated at 4.1
billion annually.164 Optimizing the use of
pesticides contributes to the long-term
sustainability of crop production and maintains
biodiversity. For example, the use of IPM helped
farmers in southern India protect their water
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resources while doubling yields and reducing
fungicide use by 78 percent.165 Another approach
to reducing pesticide use is that taken by
Indofood Agri Resources, which reports that it is
breeding barn owls to control rodents instead of
using chemical pesticides.166 Meanwhile, ADM has
a program to audit its participating soybean
growers on the responsible use of fertilizers as
well as other environmental, legal, and agronomic
standards.167
Some cherry producers utilize in-the-field
microclimate information obtained from
monitoring equipment and scouting—one of the
IPM techniques. This allows them to change their
spraying schedules to meet the current
conditions, helping them to reduce the amount of
fungicide and insecticide used by 25 percent,
saving $40 per acre in pesticide costs.168 Since
pesticide costs are estimated to be 34 percent of
a farmer’s variable costs, these costs savings are
significant.169
Del Monte Foods applies principles of IPM to
reduce pesticide use, helping the company
minimize the risk of contaminated runoff from
fields, protect the health of farmers, reduce
biodiversity loss, and decrease the risks of
pesticide residue on harvested and processed
crops. Some of the practices include application
of pest-resistant crops, rotation of crops, and
avoidance of sewage sludge and biosolids as
fertilizers. The company’s new seed treatment
provides 30 days of protection for sprouting
green beans and reduces the use of broadcast
insecticide by 3,700 gallons per year. Moreover,
through its green bean breeding program, Del
Monte is developing white-mold-resistant varieties
of the crop, which could allow it to reduce the
use of fungicide sprays by more than 50 percent
over 18,000 acres in the Midwest.170
The world’s soil resources are becoming depleted
at an accelerating pace. A review paper by the
top U.S. soil scientists highlights farming practices
such as deep plowing and monoculture as the
main reason for erosion and nutrient removal.
Several risks are associated with this trend and
require improved land management practices.
First, soil health is a primary factor for higher
yields crucial to support a growing population.
Moreover, the top three meters of Earth’s soil
store around 2,300 gigatons of carbon, which is
more than all the world’s plants and atmosphere
combined. Therefore, soil depletion significantly
contributes to climate change.171
Furthermore, land use requirements of agriculture
are a driving force behind deforestation and land
being converted to cultivated fields, which in turn
adversely impact biodiversity. Approximately 38
percent of the world’s land area is used for
agricultural purposes, while agriculture is
responsible for approximately three-quarters of
global deforestation.172 With food demand
projected to grow by 50 percent by 2030, land
clearing for agricultural purposes is likely to
continue. In fact, past trends indicate that an
additional 10 million square kilometers will be
cleared by 2050.173 Agricultural producers are
susceptible to biodiversity changes primarily
because biodiversity loss can alter agricultural
systems’ susceptibility to pathogens and pests,
and can affect the risk of crop failure due to
changing environmental factors.174 Deforestation
and land use can directly influence biodiversity,
primarily through monoculture cultivation and the
physical loss or fragmentation of habitat.175 In
addition, land requirements for crop cultivation
can present operating risks to companies if their
operations are in or near ecologically sensitive
areas.
In 2006, driven by a damaging Greenpeace
campaign, major Brazilian soy companies
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established a moratorium on forest conversion to
prevent deforestation for soy expansion in the
Amazon. The moratorium drove down the soy
expansion through deforestation from 30 percent
to around 1 percent. The soy production almost
doubled while deforestation decreased, as farmers
planted already deforested lands.176 In 2008,
Brazil’s Central Bank accepted a resolution
(Resolution 3.545/2008) forbidding government
banks to finance “agriculture and ranching in
properties that had fines pending with the
environmental authorities.”177 Similar policies,
either enforced by governments or established by
the private sector, could materially affect industry
players and would prompt companies to adapt
their operational practices in consideration of
environmental externalities.
In 2013, major agriculture companies such as
Cargill, ADM, Bunge, and Monsanto were
criticized for their contribution to deforestation of
500,000 hectares of land in Brazil, Argentina, and
Uruguay and for planting GMO soybeans in these
countries. Moreover, the herbicide use on their
crops was found to cause health issues, including
neurological diseases.178
By maximizing the efficient utilization of land,
companies can reduce their need for expansion
and increase yields. For example, by growing
plants closer together, Del Monte was able to cut
pesticide and fertilizer use in its spinach
production by 82 and 18 percent, respectively,
while reducing cultivated acreage by 42 percent.
According to the company, benefits attributed to
the high-density agriculture outweigh the initial
investment in research.179
Companies in the industry discuss the risks
associated with land use and ecological impacts in
their financial disclosures. Adecoagro
acknowledges the importance of biodiversity and
land resources to its business, stating, “[n]atural
resources are the main foundation of our
activities, with land being the most relevant
natural resource in our operations.” The
company’s environmental management plan,
which includes biodiversity factors, is designed to
“enhance land productivity and therefore increase
land value.” Furthermore, in regard to the
accessibility of lands for cultivation, the company
stated, “[t]here are ecosystems that we do not
consider appropriate for the use of agricultural
development, such as heavy forest and key
wetlands.”180 Similarly, Bunge stated, “[o]ur
operations are also subject to laws relating to …
restrictions on land use in certain protected areas,
[and] forestry reserve requirements.”181 The
anticipated growth in agricultural production to
meet rising food demand will continue to
emphasize the need for efficient management of
existing land resources.
Crop cultivation is highly species-concentrated; of
the approximately 7,000 plant species cultivated
by humans over the history of agriculture, just 12
species supply nearly 75 percent of global food
today. While the common modern agricultural
practice of monoculture may decrease production
costs, given its economics of scale and reduced
competition from other plant species, genetically
similar plants are also more susceptible to insects,
plant diseases, and other variations in growing
conditions. This can lower yields and increase the
risk of widespread crop failure, potentially
canceling out the benefits of lower production
costs.182
The industry’s environmental externalities,
whether from land use changes or pollution, can
generate substantial costs at an industry-wide
level. According to the World Resources Institute,
ecological damage, including erosion, water
contamination and eutrophication, and air
emissions cost the U.K.’s agriculture industry $2.6
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billion in 1996, or 9 percent of the industry’s
average annual revenues.183
Value Impact
Ecological externalities of agricultural production
can impact companies through two primary
channels. First, pollution of water and land
resources presents a risk of regulatory fines or
restrictions on the use of agrochemicals or land
resources, which could have an impact on
operating expenditures or production revenues.
Second, externalities can adversely affect crop
yields, reducing the value of a salable product.
Moreover, companies unable to prudently
manage agricultural productivity and mitigate
long-term environmental impacts may experience
devaluation of their land.
Unsustainable land management practices are
likely to have a negative reputational impact on
the Agricultural Products industry. As food and
beverage companies are becoming more
concerned about the environmental performance
of their suppliers, agricultural products companies
that fail to manage the issue may experience
lower demand for their products.
Overapplication of fertilizer has negative
externalities and could lead to future regulation,
bringing on additional expenses and scrutiny,
which can harm a company’s social license to
operate and may even put that license at risk
altogether. With fertilizer as the leading source of
GHG emissions from agricultural activity, any
regulation on GHG emissions will increase the
cost of using fertilizer. As the use of various types
of fertilizers may lead to different environmental
externalities, the amount of fertilizer consumption
by type can help analysts assess a company’s
exposure to regulatory risks.
Companies in the Agricultural Products industry
that expand their R&D expenditures and adopt
the most advanced land use practices may not
only protect themselves from the financial risks
associated with environmental externalities of
crop cultivation but may also capture growth
opportunities. Adoption of IPM may allow
companies to minimize the amount of fertilizer
and pesticide used, which is likely to reduce the
cost of doing business. At the same time,
reducing the use of pesticides is likely to help
companies mitigate regulatory risks, as the use of
highly hazardous pesticides furthers the potential
for increased scrutiny, given their heightened
human and environmental health effects.
As population growth continues, it is becoming
more challenging for agricultural companies to
balance higher demand for food with more
stringent environmental regulations. Therefore,
the probability and magnitude of impacts on
companies in the industry are likely to increase in
the future.
SOCIAL CAPITAL
Social capital relates to the perceived role of
business in society, or the expectation of business
contribution to society in return for its license to
operate. It addresses the management of
relationships with key outside stakeholders, such
as customers, local communities, the public, and
the government.
As main suppliers to the food and beverage
industries, agricultural products companies are
subject to consumer-driven demand fluctuations.
Concerns over food quality and safety can result
in regulatory action and damage to brand
reputation, as well as affect a company’s social
license to operate.
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Food Safety & Health Concerns
Agricultural products are sold directly to
consumers in raw form (e.g., vegetables) or are
further processed into a wide variety of foods.
Maintaining product quality and safety is critical,
as contamination by pathogens, chemicals, or
spoilage presents serious human and animal
health risks. Sources of such contamination
include bacteria that inhabit the surfaces of fruits
and vegetables; molds that develop in grains
during unusually wet or dry growing periods; poor
farming practices, such as the disposal of solid
waste on land; damage and stress during
harvesting or storage; malfunctioning or
improperly sanitized equipment during
processing; misuse of cleaning materials; and
rodent and insect infestations.184
Pesticide application may leave residue on the end
products. While there is no consensus on the
health hazards from pesticide residue, general
public perception tends to be negative. Pesticide
residue on food is regulated by several
government agencies, but independent studies
show that current testing processes may not be
robust enough to properly identify health risks.
The problem is exacerbated for GMOs, as
genetically modified crops tend to withstand
larger amounts of pesticides during cultivation
Companies can be impacted by food safety issues
through product recalls, damaged brand
reputation, and increased regulatory scrutiny.
These factors can lower revenues in both the
short and long term, through lost sales and via
consumer aversion to at-risk products and other
shifts in consumers’ perceptions of food safety.
Furthermore, regulation can lead to higher costs
or lost revenues through trade restrictions.
To reduce the risks associated with the issue,
agricultural products companies should ensure the
highest quality of products at each stage of
production. Obtaining food safety certification
helps companies in the industry communicate the
quality of their products to buyers. Agricultural
products companies increasingly work toward
ensuring robust evaluation of health and
environmental risks and finding effective ways to
communicate the safety of their GMO crop to
consumers and regulators. To satisfy the growing
demand for organic products, firms are switching
to organic farming methods within their own
operations as well as securing suppliers of non-
GMO crops.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• GFSI audit conformance: (1) major non-
conformance rate and associated
corrective action rate and (2) minor non-
conformance rate and associated
corrective action rate;
• Percentage of agricultural products
sourced from suppliers certified to a GFSI
scheme;
• Number of recalls issued, total amount of
food product recalled; and
• Description of strategies to manage the
use of GMOs.
Evidence
Data from the Centers for Disease Control and
Prevention suggest that each year in the U.S there
are 48 million episodes of foodborne illnesses,
128,000 hospitalizations, and 3,000 deaths. The
annual cost of foodborne diseases in direct
medical expenses and lost productivity is $5 billion
to $6 billion.185 The World Health Organization—
whose slogan for World Health Day 2015 was
“from farm to plate, make food safe”—
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recognizes access to safe food as key to good
health.186 Food safety concerns are prevalent
throughout the Agricultural Products industry. In
2012 there were more than 600 food recalls in
the U.S. and Canada, most of which were
voluntary.187
Agricultural products companies address a broad
range of risks related to food safety in their SEC
filings. For example, in its FY2013 Form 10-K,
Bunge stated, “[w]e are subject to food and feed
industry risks which include, but are not limited
to, spoilage, contamination, tampering or other
adulteration of products, product recalls,
government regulation, including regulations
regarding food and feed safety, nutritional
standards and genetically modified organisms
(GMOs), shifting customer and consumer
preferences and concerns, and potential product
liability claims. These matters could adversely
affect our business and operating results.”188
Agricultural products must meet government food
safety standards as well as high quality and safety
levels to maintain consumer confidence. In its
FY2014 Form 10-K, Del Monte reported, “[o]ur
[quality] specifications require extensive sampling
of our fresh produce at each stage of the
production and distribution process to ensure
high quality and proper sizing, as well as to
identify the primary sources of any defects. Our
fresh produce is evaluated based on both external
appearance and internal quality, using size, color,
porosity, translucence and sweetness as
criteria.”189 Cargill, in its FY2014 Annual Report,
noted that all food production facilities would
receive Food Safety System Certification (FSSC
22000) in 2014 and that certain grain-handling
and animal-feed facilities would be certified by
2015.190 Demand for agricultural products is
determined by companies’ ability to obtain
aforementioned certification, as many food and
beverage companies are seeking certification for
their ingredients. For example, Kraft Foods is
requiring ingredient suppliers in most of its
product categories to achieve GFSI certification by
2015.191
Product recalls are a primary channel through
which a company’s sales and reputation can be
adversely impacted by safety and quality concerns.
In a survey of 36 Grocery Manufacturers
Association members, 86 percent of whom
represented food companies such as Del Monte
Foods and Blue Diamond Growers, 81 percent of
respondents reported that the financial risk of a
recall was “significant” or “catastrophic,” while
58 percent of respondents had issued one or
more recalls in the 2007–2011 period. The
average financial impact of a recall, including
sales losses and direct recall costs, was typically
$30 million to $49 million, although 5 percent of
recalls had a financial impact of more than $100
million.192
Recalls may happen for numerous reasons,
including packaging defects, food contamination,
spoilage, and mislabeling. A 2006 outbreak of a
lethal strain of Escherichia coli (E. coli), 0157:H7,
in contaminated Dole brand baby spinach, caused
the confirmed illness of 205 people and three
deaths. The contamination originated during
spinach production at facilities operated by
Natural Selection Foods, Dole’s supplier.193 The
outbreak caused the FDA to issue a nationwide
advisory against consuming raw or packaged
spinach. The leafy-green industry ultimately lost
an estimated $350 million, as consumption of
bagged spinach plunged by more than 70 percent
in a matter of weeks.194 An Ernst and Young
survey of top food industry executives found that
the greatest risk to financial value from product
safety issues is damage to brand reputation.195 In
2008, a Salmonella outbreak led to more than
1,400 illnesses in the U.S. and caused an
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estimated $250 million in losses to the tomato
industry.196
Trade restrictions and import bans due to
concerns about food safety have been impacting
agricultural products companies for decades. In
2015, Malaysia banned the import of two
varieties of California apples over concerns they
were tainted with the Listeria bacteria.197 Two
decades earlier, the U.S. banned imports of the
1998 Guatemalan raspberry crop given concerns
over cyclosporiasis. In 1996, Guatemala had
supplied $22 million worth of raspberries to the
U.S., nearly 40 percent of the imported
raspberries eaten by Americans, and Guatemalan
growers’ voluntary decision to keep their 1997
crop off the U.S. market cost them $12 million in
exports.198
Product demand may also be affected by
consumer perceptions about the safety of
pesticide residue as well as about genetically
modified products in general. In a 2013 study of
1,000 Americans conducted by Lindberg
International on behalf of Stonyfield Farms, 71
percent reported that they were worried about
pesticides in their food and 74 percent wanted to
eat foods produced with fewer pesticides.199
Similarly, a 2014–15 survey of 2,000 consumers
conducted by Healthline found that 85 percent of
consumers want the government to conduct more
testing on the impact of GMO products and
pesticides in food.200
In the U.S., limits on pesticide residue on food
and feed products and commodities are set by the
EPA. Testing of the food supply for pesticide
residue is a responsibility of the FDA and USDA.
Specifically, findings of the Food Safety and
Inspection Service (FSIS) and the USDA’s
Agricultural Marketing Service are used to provide
data on dietary exposure to pesticides over time
and to enforce the residue-tolerance levels set by
the EPA. In 2014, a report by the Government
Accountability Office concluded that testing
programs used by the FDA and FSIS are not
statistically significant, as they fail to select
random samples in the process. Moreover, some
of the pesticides with tolerance levels set by the
EPA are not being tested by the FDA.201
Converting crops to organic farming methods
could provide a revenue opportunity for
agricultural products companies. Global demand
for non-GMO food and beverage products,
estimated at $400 billion in 2012, is expected to
double by 2017 at a compound annual growth
rate of 15 percent. If this occurs, non-GMO
products will make up 14.5 percent of total
worldwide food and beverage sales. Companies
such as Coca-Cola and Nestlé have introduced
non-GMO versions of their products to satisfy
consumer demand in Europe, while in the U.S.,
verification by the Non-GMO Product is
backlogged because of a surge of verification
requests from manufacturers.202 In its FY2014
Form 10-K, Adecoagro stated, “[t]he use of GMOs
in food has been met with varying degrees of
acceptance in the markets in which we
operate…It is possible that new restrictions on
GMO products will be imposed in major markets
for some of our products or that our customers
will decide to purchase fewer GMO products or
not buy GMO products at all, which could have a
material adverse effect on our business, results of
operations, financial condition or prospects.”203
Ingredion acknowledges the risk of negative
public perception toward genetically modified
foods in its financial disclosure: “The sale of the
Company’s products which may contain
genetically modified maize could be delayed or
impaired because of adverse public perception
regarding the safety of the Company’s products
and the potential effects of these products on
animals, human health, and the environment.”204
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Government approval of the use of GMO plants is
varied; major producers, including producers in
the U.S. and Brazil, currently allow the use of
GMO crops in foods. Meanwhile, while not
stating that GMOs are unsafe for human health,
more companies are asking suppliers to develop
non-GMO options so they can be ready in case
labeling requirements become more
widespread.205 Whole Foods has pledged to label
all GMO-containing foods that it sells by 2018,
while more than 20 U.S. states have by 2016, and
Vermont will become the first state to require
mandatory labeling.206 Future GMO regulations
and consumer acceptance of GMOs are primary
risks to GMO product sales.207
As major food retailers such as Walmart, Costco,
and Whole Foods are seeing increased consumer
demand for healthier and more natural
ingredients, they are calling for food companies
to use sustainably sourced ingredients.208 This
trend has caused ripple effects through the supply
chain. For example, Coca-Cola’s Sustainable
Agriculture Guiding Principles recognize that “a
healthy agricultural supply chain is essential to the
well-being of the communities in which we
operate, and is critical to the success of our
business.”209 Chipotle—which aims to procure
organic, locally grown ingredients and meat from
“naturally raised” animals—in 2013 became the
first U.S. chain to label and move toward the
elimination of GMO ingredients.210 Hershey, the
largest chocolate manufacturer in North America,
in 2015 pledged to switch to non-GMO sugar and
soy lecithin in its chocolate kisses and bars.211
As this trend among food and beverage
companies continues, agricultural products
companies will be able to increase their
profitability by charging a premium for organic
crops. Those companies in the Agricultural
Products industry that are able to secure suppliers
that grow non-GMO crops are likely to obtain a
competitive advantage. For example, ADM, in
partnership with Unilever, pays a 10-cent-a-bushel
premium to Iowa soybean farms for enrollment in
the Field to Market program.212
Value Impact
Food quality and safety issues can lead to
consumer-driven demand changes and regulatory
action. Product recalls can harm brand reputation,
reduce revenues, and lead to costly fines.
Companies that experience frequent or high-
profile recalls may experience weaker financial
performance, including reduced revenues and
costs associated with recalling the product. Poorly
performing companies may also open themselves
to the risks of lawsuits resulting in costly
litigations and settlements. Companies that
maintain a strong quality and food safety
performance may better avoid costly recalls, and
could strengthen their reputation and gain market
share from competitors.
Conformance with the GFSI scheme provides a
good indication of companies’ performance on
the issue, where major non-conformances may
indicate systemic governance risks, which could
affect risk premiums. High non-conformance rates
and low corrective action rates could indicate risks
to food safety, which could lead to recalls, lost
contracts, and remediation costs. Major non-
conformances typically signal a risk of high-impact
food-safety events, while minor non-
conformances may indicate routine, low-impact
manufacturing and operational challenges.
Moreover, minor non-conformances may expose
findings that, if not corrected, could turn into
major non-conformances that present higher-
magnitude repercussions.
Social trends indicate that customers are
becoming increasingly concerned with the health
impacts related to the consumption of GMO
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products. As a response to these concerns and
changing consumer preferences, food and
beverage companies look for opportunities to
increase the amount of organic product offerings.
Therefore, agricultural products companies able
to convert their practices to growing non-GMO
crops may capture a larger share of the rapidly
growing GMO-free products market.
HUMAN CAPITAL
Human capital addresses the management of a
company’s human resources (employees and
individual contractors), as a key asset to delivering
long-term value. It includes factors that affect the
productivity of employees, such as employee
engagement, diversity, and incentives and
compensation, as well as the attraction and
retention of employees in highly competitive or
constrained markets for specific talent, skills, or
education. It also addresses the management of
labor relations in industries that rely on economies
of scale and compete on the price of products
and services. Lastly, it includes the management
of the health and safety of employees and the
ability to create a safety culture within companies
that operate in dangerous working environments.
In the Agricultural Products industry, human
capital is an important input. The industry’s labor
force is characterized by a high degree of
seasonal and transient employment and by the
legal employment of children, and workers are
exposed to acute and chronic health hazards.
Agricultural occupations are dangerous: acute
physical risks stem from exposure to large
machinery and heavy vehicle hazards, while
exposure to agrochemicals can create chronic
health risks. Safety culture is critical to proactively
guarding against accidents. In addition, the
nature of the industry’s workforce, including
employment of migrant and child workers,
exposes it to labor-related risks.
Fair Labor Practices & Workforce Health & Safety
Agricultural products companies have diverse
operations ranging from crop cultivation to grain
milling. The industry’s human capital across these
operations can be adversely affected by labor
issues in poorly managed operations. Data
indicate that the industry has relatively high injury
and fatality rates. The physically demanding
nature of the work increases the risk of accidents,
and the merged nature of working and living
conditions for many subsistence farmers and
waged workers increases the environmental
spillovers from occupational risks.213 Common
hazards include falls, transportation accidents,
heat-related illness or injury, asphyxiation,
machinery accidents, and hearing loss.214
Furthermore, workers in both farming and milling
are exposed to toxic substances such as
agricultural pesticides—whether because of spills,
inadequate protective equipment, direct spray, or
drift from nearby fields—that can be harmful with
long-term exposure.215 These issues create
regulatory risks, including from violations of
safety standards, as well as lower productivity,
higher health costs, litigation, and reputational
risks.
In addition to the hazardous nature of the work,
other labor issues of concern in the Agricultural
Products industry include fair pay, the rights of
migrant workers and children in farmwork, and
working and living conditions. In many countries,
only some categories of agricultural workers are
protected by national legislation, insurance, or
workplace injury benefits, and legislation is not
consistently enforced.216
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Child labor is common in farming for many
reasons, including historical precedent, limited
access to education, poverty, inadequate
agricultural technology, and traditional beliefs
about the role of children in farming.217 For
example, in colonial America, children played an
integral role in the agricultural and handicraft
economy, either working on the family farm or
being hired out to other farms, and child labor
was not controversial.218
Migrant workers are also common in farming;
each year up to 3 million farmworkers in the U.S.
travel to plant, harvest, and pack fruits,
vegetables, and nuts. Also, 52 percent of all
farmworkers are unauthorized, with no legal
status in the U.S.219 Reasons for migrant work
include economic instability, political unrest,
population growth, land reform issues, and
limited job opportunities in farmworkers’
countries of origin, as well as demand for low-
cost labor to fill jobs that are no longer attractive
to U.S. citizens because of low wages and/or poor
workplace conditions.
Workplace conditions are generally poor, as
farmworkers with low levels of literacy and
language skills are often unaware of their rights
under occupational health and safety laws. In the
U.S., only 2 percent of farmworkers are unionize
and only 5 percent have completed education
past high school. Also, workers may be reluctant
to demand improvement in their working
conditions because unemployment is high and
wages are low, and they may not seek help from
government agencies given fears of
deportation.220 Managing the industry’s human
capital assets is an important issue, especially in
regard to health, safety, and child labor.
Developing a strong safety and labor culture,
VII Here, “agriculture” is defined by the U.S. Department of Labor’s Bureau of Labor Statistics. Occupational Injuries and
including improved workforce training and
incident reporting, can minimize or avoid negative
consequences related to workforce management.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Percentage of farms and facilities certified
for fair labor practices;
• (1) Total recordable injury rate (TRIR), (2)
fatality rate, and (3) near miss frequency
rate (NMFR) for (a) direct employees and
(b) seasonal and migrant employees; and
• Description of efforts to assess, monitor,
and reduce exposure of direct, seasonal,
and migrant employees to pesticides.
Evidence
Workers in the Agricultural Products industry are
exposed to various safety, health, environmental,
biological, and respiratory hazards.221 The higher-
than-average injury and fatality rates in the
Agricultural Products industry present regulatory
and reputational risks for companies. In 2011,
570 U.S. agriculturalVII workers died from work-
related injuries (276 of those were caused by
vehicular accidents). This is seven times higher
than the overall fatality rate for workers in the
private sector.222 Worldwide, according to the
International Labour Organization, more than
170,000 agricultural workers are killed each year,
and many accidents, deaths, and occupational
diseases go unreported.223
According to data from the Bureau of Labor
Statistics, the nonfatal illness and injury rate for
the crop production industry (North American
Industry Classification System 111) was 5.5 per
100,000 full-time equivalent U.S. workers in
Illnesses and Fatal Injuries Profiles database queried by industry for Agriculture, Forestry, Fishing and Hunting (GP2AFH).
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2013, compared with the U.S. national average of
3.5 for all industries and 2.8 for the wet-corn
milling industry (NAICS 311221).224 The industry
experienced 224 total fatalities in 2012, the
highest number per 100,000 full-time equivalent
U.S. workers.225 Tractor overturns are the leading
cause of death for farmworkers.226
Apart from acute impacts, fieldworkers, farmers,
and agricultural product plant workers may be
exposed to harmful agricultural pesticides, which
can have chronic health impacts. A study of acute
pesticide exposure cases in the U.S. between
1998 and 2005 found that the majority (87
percent) experienced health impacts of low
severity, 12 percent of medium severity, and 0.6
percent of high severity.227 Exposure to pesticides
occurs through spills or splashes, inadequate
protective equipment, direct sprays, breathing in
pesticide “drift,” eating with pesticide-
contaminated hands, eating contaminated fruits
and vegetables, or eating in a pesticide-
contaminated field.228
Respiratory risks to agricultural workers are
presented not only by endotoxins and chemical
toxicants but also by organic and inorganic
dusts.229 Harvesting, drying, handling, storage,
and processing of various grains produce dust.
Grain dust can lead to respiratory difficulties, and
is an explosion risk.230 Under its 1987 Grain
Handling Facilities Standard, OSHA regulates
companies that process agricultural products that
create dust. Agricultural facilities must control
fugitive grain dust, defined as combustible dust
particles of a certain size.231 In 2008, an explosion
at a sugar refinery in Georgia that killed 14
people and injured 36 led OSHA to propose an
$8.7 million fine, which was the third largest in
the agency’s history.232
Companies that fail to provide adequate
protection to their workers and to reduce the risk
of accidents may face regulatory penalties.
Typically, regulatory fines are assessed following
health and safety violations that result in an
injury. For example, OSHA fined CHS $211,000 in
April 2014 for repeatedly failing to reduce worker
exposure to grain dust in the workplace. In April
2015, negligence at one of the Cargill’s
operations in the U.K. led to the death of a truck
driver who was buried in eight metric tons of
animal feed. The company was fined £600,000.233
In 2013, Bunge Canada was fined CAD$115,000
for violation of the Occupational Health and
Safety Act that led to the serious injury of one of
its workers.234
While individual cases may not result in significant
penalties, chronic violation of worker safety
procedures may have a significant impact on a
company’s financial performance through
increased premiums for workers’ compensation
insurance, wage replacement, labor strikes, work
stoppages, and/or decreased employee morale.
According to the industry group Agricultural
Safety and Health Council of America,
occupational injuries in agriculture result in $8.3
billion each year in medical costs and lost
productivity.235 In addition, companies that pay a
living wage and protect workers’ rights to
collective bargaining and freedom of association
may experience lower turnover and higher
productivity. Furthermore, poor enforcement of
labor standards regarding the employment of
children and migrant workers presents an
additional reputational and regulatory risk.
Agriculture is by far the largest global employer of
child laborers, as defined by the International
Labour Organization’s Convention No. 138 on
Minimum Age (1973) and Convention No. 182 on
Worst Forms of Child Labour (1999).
Approximately 98 million children ages 5 to 17
are employed in crop and livestock production, or
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59 percent of the total number of child
laborers.236
As companies are increasingly being held
accountable for labor issues in their global supply
chains, they are demanding more products made
without the use of child labor or slave laborers. In
2012, Whole Foods Market suspended sales of
Hershey’s artisan chocolate after activists accused
Hershey’s of ignoring child labor abuses by its
suppliers.237 In 2014, a U.S. appeals court ruled
that ADM and two other companies could be held
accountable for allegedly allowing child labor in
their cocoa supply chains.238
In the U.S., lax agricultural labor standards and
enforcement are ongoing issues. Under the U.S.
Fair Labor Standards Act (FLSA), agricultural
workers are not entitled to overtime pay if they
work more than 40 hours in one week; they also
may not be entitled to the FLSA minimum wage if
they are local hand-harvest employees, they are
working for their families, or their employer uses
less than “500 man days” of labor in a year
(where a “man day” is defined as a day in which
a worker worked for at least one hour).239 Hired
farmworkers, who make up approximately one-
third of those working on farms, have historically
faced high unemployment rates, given the
seasonal nature of agriculture as well as their
often-limited English-language skills and low
levels of education. In 2010, the unemployment
rate for U.S. hired farmers was 13.5 percent,
compared to an 8.1 percent national average for
all jobs.240 The median income from farmwork
that year was between $2,500 and $5,000, and
61 percent of the farmworker population lived
below the federal poverty line.241
Under the FLSA, children of any age may work on
a farm owned or operated by their parents;
children ages 12 and up may be employed at the
same farm as their parents or at any outside farms
with their parents’ consent, and children ages 14
and up may work outside school hours without
their parents’ consent.242 In other industries,
children must usually be 16 years old to work.243
A 2010 Human Rights Watch report found that as
many as 400,000 children work on commercial
farms in the U.S., some routinely working for
more than 10 hours per day and often for wages
well below the federal minimum.244
The FLSA does not provide the same wage and
workday requirements for children in agricultural
occupations as it does for children in other
occupations. Several attempts to update
agricultural labor standards have been made in
recent years, but none have become law. In 2011,
the U.S. Labor Department proposed updated
labor regulations for children employed in
agricultural and related occupations. The proposal
aimed to strengthen outdated standards for
youths employed in pesticide handling, grain
storage and transportation tasks, and the
operation of power-driven equipment.245 Per U.S.
labor laws, child workers under the age of 16 are
allowed to handle all but the most dangerous
pesticides, and the EPA’s rules governing when
employees can return to fields after pesticide
application do not take into account that children
are likely to be more susceptible to the chemicals’
effects.246 In February 2014, the EPA announced
proposed changes to its worker protection
standards, which govern pesticide exposure in
agricultural occupations. The proposed changes
include provisions focusing on vulnerable groups,
such as minority populations and child workers.247
Moreover, several companies in the Agricultural
Products industry have been criticized for not
allowing their workers to unionize. For example,
Dole, Del Monte, and Chiquita Brands appeared
in various issues of the “Working for Scrooge”
reports by the International Labor Rights Forum as
being the worst companies related to the right to
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associate. One of the subsidiaries of Chiquita
Brands was accused of using violence to
undermine union membership and failing to
provide a minimum wage, safe work conditions,
and access to social security. Dole was accused of
paying to intimidate its workers in Colombia,
while its subsidiary in the Philippines allegedly was
systematically violating workers’ rights to
organize.248
In the U.S., according to the Human Rights Watch
report, undocumented migrant workers may be at
an elevated risk for health and safety abuses in
the workplace because they may be disinclined to
report incidents for fear of retaliation by their
employers. A shareholder resolution filed in 2014
with ADM specifically addressed the health and
safety of migrant workers in the company’s direct
operations and supply chain. The resolution was
withdrawn after the company agreed to address
the issues raised.249
Companies in the industry have implemented
internal labor standards for their international
operations, where laws protecting child labor can
often be weak or poorly enforced. Chiquita
Brands reports in its FY2013 Form 10-K, “[a]ll
owned banana farms in Latin America have
achieved certification to the Social Accountability
8000 labor standard, which is based on the core
International Labor Organization conventions. We
were the first major agricultural operator to earn
this certification in each of the Latin American
countries where we have owned farms.”250 The
Social Accountability 8000 labor standard is an
auditable certification standard that covers human
rights and socially acceptable practices in the
workplace. On the positive side, the standard can
help businesses implement and receive
recognition for using best practices in ethical
employment; on the negative side, it can be used
as a cover by businesses seeking to avoid further
scrutiny from activists.251
Value Impact
Violations of health, safety, and labor standards
could result in monetary penalties and costs for
corrective actions. High injury rates, particularly
fatality rates, may lead to significant reputational
harm and indicate weak governance structures
and safety culture. Further, a near-miss rate can
be a useful tool for management to stem
potential problems before they become
punctuated and potentially high-magnitude
events.
While the certification of farms to fair labor
practices may lead to a direct increase in the cost
of goods sold, such practices may open additional
markets, meet customer demands, and benefit
worker productivity, leading to increased revenue.
Implementation of fair labor practices can help
build brand image while promoting worker moral,
which can increase productivity, reduce worker
turnover, and enhance community relations.
The industry’s use of migrant and child labor
could lead to more stringent government
regulation that may impact the cost or availability
of labor. Therefore, the probability and
magnitude of aforementioned impacts are likely
to increase in the future.
BUSINESS MODEL AND INNOVATION
This dimension of sustainability is concerned with
the impact of environmental and social factors on
innovation and business models. It addresses the
integration of environmental and social factors in
the value-creation process of companies,
including resource efficiency and other
innovations in the production process. It also
includes product innovation and efficiency and
responsibility in the design, use-phase, and
disposal of products. It includes management of
environmental and social impacts on tangible and
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financial assets—either a company’s own or those
it manages as the fiduciary for others.
The Agricultural Products industry plays a crucial
role in meeting global food and nutrition demand.
Therefore, companies’ adaptability to a changing
climate will determine the industry’s success in
maintaining productivity sufficient to satisfy
societal needs. Climate change is expected to
alter global average temperatures and
precipitation patterns; to lead to increased
frequency of severe weather, including droughts,
floods, and storms; and to facilitate the spread of
plant diseases and pests. The Agricultural
Products industry’s value chain originates with
crop cultivation, which is in turn heavily
influenced by climate. Thus, adaptation to the
effects of climate change is a fundamental driver
of the long-term sustainable growth of the
industry.
Climate Change Impacts on Crop Yields
Anthropogenic climate change can have a
significant impact on the Agricultural Products
industry, primarily in regard to increased
difficulties or, conversely, opportunities with crop
cultivation. Global average temperature increases
are expected to contribute to changes in
precipitation patterns, temperature variation, and
the number and range of crop diseases and
pests.252 In higher latitudes, agricultural
production may rise as the growing season
lengthens and temperatures moderate. However,
low latitudes could experience falling yields as
drought, flooding, extreme temperatures, and fire
become more frequent.253
Impacts on crop yields directly affect the quantity
of salable agricultural products. Through strategic
changes such as alternative planting methods,
seed modification, and crop selection—which, in
some cases, may require long lead times to be
successfully implemented—companies in the
Agricultural Products industry can mitigate the
long-term negative effects of climate change on
crop yields while maximizing the opportunities for
increased yields.254
The adaptation potential for the industry is
dependent on a variety of factors. Companies can
better manage climate change’s effects through
proactively addressing its potential impacts,
including by implementing adaptive farming
strategies. By increasing research and
development spending toward breeding more-
adaptive crops, agricultural products companies
may be able to ensure higher yields in the long
term.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Amount of crop losses, percentage offset
through financial mechanisms;
• Average crop yield and five-year standard
deviation per major crop type by major
operating region; and
• Identification of principal crops and
discussion of risks and opportunities
presented by climate change.
Evidence
As discussed in the earlier issues, companies in
this industry are facing various challenges related
to the environmental externalities of agricultural
processes. While a growing world population will
continue to create demand for agricultural
products, soil deterioration and changing climate
patterns can affect yields, with the potential for
significant impact on the results of operations of
agricultural companies. For example, annual rice-
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yield growth is currently just about one-third of
what it was during the “green revolution”, while
demand for rice is rising by 2 percent annually in
Asia and by 20 percent in Africa.255 Continued
increases in yield are important to meet the
growing demand for agricultural products.
Climate change is a major variable in agricultural
productivity. The effects of climate change have
the potential to both positively and negatively
affect crop yield, largely depending on crop type
and region. Companies that are maintaining or
increasing crop yield may successfully mitigate the
effects of climate change. At the same time,
companies with decreasing yields may be more
exposed to the effects of climate change.
Reduced average yields as a result of climate
change can affect crop prices. Studies published
by the Institute of Development Studies, the
International Food Policy Research Institute, and
the UN Food and Agriculture Organization predict
that changes in expected average temperature
and precipitation worldwide will be a significant
driver of increasing market prices for the staple
crops maize, rice, and wheat in the next 20 years.
An Oxfam research study examined the possible
impacts of the increased frequency of severe
weather events, another likely outcome of climate
change, on the yields of maize, rice, and wheat in
the world’s major exporting regions of these
crops. The study found that these events, which
include droughts and intense precipitation, will
have more serious impacts on crop yields than
gradual changes in climatic means (temperature
and precipitation). Crops can be damaged at
specific developmental stages, and severe weather
events can physically disrupt farming procedures,
lowering efficiency and productivity.256 For
example, the severe heat wave in the U.S. in 2012
led to higher prices of maize and wheat.257
Climate change can affect crop yields through
several channels, including impacts on water. For
example, rice farming is a very water-intensive
process and consumes almost one-third of global
freshwater.258 The impacts from climate change
on precipitation and water availability present a
serious risk to the industry, given the sensitivity of
crops, such as rice, to water availability. For
different crops in general, climate change factors
that decrease yields include increased days
without precipitation and the increased intensity
of precipitation when it does occur. Less-balanced
precipitation can lead to drought conditions,
while a rise in precipitation intensity can lead to
flooding, which may increase erosions and reduce
soil nutrient content.259 This highlights the need
for adaptation to changing environmental
conditions.
Furthermore, crop responses to rising
temperatures vary widely, but it is generally
observed that temperatures above a plant’s
optimal growing range can reduce yields,
especially during the plant’s reproductive
phase.260 By one estimate, a rise in temperature of
between 1 and 2 degrees Centigrade could lower
average yields by between 10 and 15 percent
globally.261 This is due in part to proliferation of
weed and pathogen species in higher latitudes, as
well as to decreased soil moisture from the
increased presence of perennial herbaceous
plants.262
Several companies in the Agricultural Products
industry have experienced drought-related crop
losses that led to significant material impacts.
Fresh Del Monte, in discussing its 2014 asset
impairments in its FY2014 Form 10-K, included a
$1.3 million charge from the effects of the
continued drought in Chile on its non-tropical
fruit plantations.263 In 2013, Adecoagro marked
down the value of its corn, soybean, and
remaining crops by $5.9 million, $16.6 million,
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and $2.7 million, respectively, because of drought
conditions that decreased yields by 21 to 31
percent versus historical averages.264
Interestingly, rising atmospheric CO2 levels, a
consequence of human activities, may actually
enhance crop growth because CO2 is used by
plants during photosynthesis. However, weeds
will likewise benefit from this trend, making
herbicides less effective.265 Farmers in the U.S.
currently spend approximately $11 billion
controlling weeds.266
Research by California’s Air Resources Board
found that by 2050, average temperatures in the
state may rise by as much as 3.6 degrees
Fahrenheit, while the Sierra Nevada snowpack,
which supplies much of the state’s water, may
decline by as much as 40 percent.267 By some
estimates, diminished water availability could lead
to productivity losses of up to $1,700 per acre in
California, the U.S.’s most productive agricultural
region. In California, higher temperatures and
water stress are expected to contribute to
declining crop yields, increased pests and invasive
weeds, and soil erosion and are predicted to lead
to revenue losses of as much as $3 billion per year
by 2050, the most of any sector, because of
reductions in irrigated acres. If action to reduce
GHG emissions is taken, losses may fall to $1.5
billion.268 Similarly, a 2014 Stanford University
study found that an expected warming of 3.5
degrees Fahrenheit in Europe could reduce wheat
and barley yields by more than 20 percent, while
maize yields may fall by 10 percent.269
Studies indicate that farms must adapt to climate
change via the adoption of new crop
management technologies and strategies.270
Agricultural products companies can adapt to the
effects of climate change by implementing
alternative cultivation methods, including
switching varieties of crops and growing crops
suitable to the local environment.271
Adaptation may require research and
development of innovative technologies or
varieties of crops. Rice provides 544 kilocalories of
energy per capita, more than any other food
source in the world.272 The mission of the
International Rice Research Institute (IRRI) is to
reduce poverty and hunger through rice
science.273 In recent years, IRRI developed
drought-tolerant varieties of rice that can be
planted in dry fields and can subsist on rainfall,
much like corn and wheat. Salt-tolerant varieties
of rice were created for countries like Bangladesh,
where rising sea levels bring saltwater into rice
fields; saltwater may poison rice before farmers
are able to detect it. None of these varieties is
actually genetically modified. A flood-tolerant rice
created by IRRI helped farmers in 128 villages in
the Indian state of Odisha increase their yields by
more than 25 percent.274
Major companies currently disclose varied risks
related to climate change in their financial
statements. For example, in Bunge’s FY2013 Form
10-K, the company discussed risks related to
climate change including “changes in rainfall
patterns, water shortages, changing sea levels,
changing storm patterns and intensities, and
changing temperature levels that could adversely
impact [its] costs and business operations, the
location and costs of global agricultural
commodity production, and the supply and
demand for agricultural commodities.” Bunge
concluded, “[t]hese effects could be material to
our results of operations, liquidity, or capital
resources.”275
Agricultural products companies invest in research
and development to improve their products,
making them more climate-resistant. For example,
Wilmar International performs genetic crosses to
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breed drought-resistant palm, which can produce
a higher oil yield and content, while reducing
plant stature. The palm is being developed for the
dry African climate.276 In its 2014 CDP report,
Bunge stated that utilizing improved and drought-
tolerant sugarcane varietals and enhancing
irrigation and other agronomic practices help the
company to mitigate adverse weather conditions
and to ensure the long-term supply of sugarcane
for its industrial operations.277
Shareholder resolutions filed with major food
products companies indicate investor interest in
the effects of climate change on agricultural
production. In 2011, Calvert Asset Management
filed a resolution with the J.M. Smucker Company
requesting that the company detail how it will
respond to risks and opportunities presented by
climate change to coffee cultivation in the
company’s supply chain. Nearly one-third of its
shareholders voted in favor of the resolution.278
Value Impact
Climate change may significantly disrupt the
cultivation of crops worldwide through a variety
of physical impacts. It will likely increase the risk
of crop failure and lower yields. This directly
lowers revenues of primary crop producers and
raises the price of sourced crops. The amount of
crop losses provides insight into both the
progressive and the punctuated effects of events
related to climate change. A company’s crop yield
per hectare directly affects the bottom line: as
crop yield per hectare increases, so, too, does the
potential for generating revenue, an increase in
yield can reduce expenses through gained
efficiencies.
The increased risk of crop failure may also lead to
a rise in crop insurance costs. Adapting to climate
change could require R&D expenditures to
advance new methods of cultivation or to grow
new crop varieties. These costs could reduce
operating income in the near term, but they could
also strengthen a company’s growth potential.
Agricultural producers able to successfully adapt
to climate change challenges are likely to ensure
competitive advantage and strengthen their risk
profile, which can have a positive long-term
impact on the cost of capital. The probability and
magnitude of climate change impacts are likely to
increase, particularly in the absence of successful
GHG mitigation.
LEADERSHIP AND GOVERNANCE
As applied to sustainability, governance involves
the management of issues that are inherent to the
business model or common practice in the
industry and are in potential conflict with the
interests of broader stakeholder groups
(government, community, customers, and
employees). They therefore create a potential
liability, or worse, a limitation or removal of the
license to operate. This includes regulatory
compliance, lobbying, and political contributions.
It also includes risk management, safety
management, supply chain and resource
management, conflict of interest, anti-competitive
behavior, and corruption and bribery.
Governance risks can impact agricultural products
companies through a variety of channels,
including through the supply chain and
management of the regulatory environment.
Many companies in the industry source a portion
of their raw crop inputs from farmers and other
companies. The largest industry players have
extensive global supply chains with thousands of
individual suppliers. The sustainability challenges
addressed elsewhere in this brief can affect the
prices and availability of sourced crops, creating
financial risk for firms in the form of higher
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operating costs, and can also adversely affect
brand reputation.
Special interest groups and corporations advocate
on behalf of the industry regarding regulatory
policy. Sustainable management of regulatory and
political influence includes consideration of the
long-term social and environmental externalities
that can result from this influence.
Environmental & Social Impacts of Ingredient Supply Chains
Agricultural products companies source a portion
of their inputs from farmers or other corporations
globally. Managing sustainability risks, including
environmental and social issues, within supply
chain farms and companies is critical to securing
raw materials and to reducing the risk of price
increases. For agricultural companies that are not
vertically integrated, many of the issues discussed
above may be relevant as a result of impacts on
their suppliers.
Specific factors that can affect the supply of raw
materials include reduced crop yields due to
climate change, increasing water scarcity, land
management, labor conditions, and the
environmental impacts of cultivation. Lower crop
yields or higher costs related to sustainability
factors among suppliers could directly increase
purchase costs, while a purchaser’s association
with suppliers that perform poorly on
environmental or social issues could result in
reputational damage. A damaged reputation is
likely to affect demand from food and beverage
companies, whose customers are increasingly
concerned with the environmental and social
footprint of products. Companies recognize these
risks and engage with key suppliers to implement
sustainable agricultural practices.
Corporate disclosure regarding key supply chain
risks and opportunities will enable investors to
better identify risk exposure and to effectively
measure the efficacy of a company’s efforts to
strengthen its supply chain and to sustain long-
term value for shareholders.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Percentage of agricultural raw materials
sourced from regions with High or
Extremely High Baseline Water Stress;
• Description of management strategy for
environmental and social risks arising
from contract growing and commodity
sourcing; and
• Percentage of agricultural raw materials
that are certified to a third-party
environmental and/or social standard.
Evidence
Some companies source a significant portion of
their raw materials from suppliers, including
farmers and distributors. The primary channels of
financial impact from the supply chain are the
price and availability of crop inputs. For example,
according to Bunge’s FY2014 Form 10-K, the
company purchased a third of its sugarcane from
third-party suppliers.279
Companies purchase a wide variety of crops for
resale or as raw materials to produce vegetable
oils, milled grains, ethanol, and other
commodities. Crop yield is the main factor
affecting the supply of these materials. Some key
inputs to the industry are grown in concentrated
regions: wheat in North America and South
America, maize in North America, and rice in Asia.
This concentration can amplify the effects of
lower yields on prices.280
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As mentioned in the Climate Change Impacts
issue above, lower yields are likely to result in
higher crop prices. As the frequency of severe
weather event increases, farmers are likely to
experience additional difficulties in cultivation
procedures and bare-crop losses. Therefore,
companies in the industry that work closely with
suppliers on increasing their climate change
adaptability will be better protected from volatility
in crop prices and from disruptions in crop
supplies. An analysis of the SEC reports of the
largest players in the industry shows that most
companies disclose that extreme weather events
as a result of climate change may impact—and in
some cases have impacted—their performance,
either directly or through their supply chain.281
The industry’s crop sourcing is a key sustainability
issue raised in corporate responsibility reports.
This is due in large part to the fact that
agricultural products are mostly grown in
emerging markets, where environmental and
social regulations may not be as stringent. Poor
performance on environmental and social factors
among suppliers of these products can result in
reputational damage. The noteworthy
externalities associated with the production of
some crops, including palm oil, cocoa, cotton,
and bananas, have garnered public attention. For
example, ADM reports that key factors examined
in the palm oil supply chain include “biodiversity
and the environment, by refraining from
expanding cropland into sensitive animal habitats
and high-conservation-value forest land, and
human rights, by maintaining labor standards that
prohibit worker exploitation and discrimination,
and by helping to ensure that the land used for oil
palm does not diminish tribes’ legal or customary
rights without their free, prior, and informed
consent.”282
Indonesia is one of the world’s largest suppliers of
palm oil.283 The country has lost 46 percent of its
forests since 1950, fueled by palm oil production.
In 2011, Indonesia imposed a moratorium on the
issuance of new permits for land development in
protected primary forest and on peatlands. The
moratorium did not have a negative effect on the
growth of Indonesian palm oil production, and at
the same time, it reduced the share of palm oil
that was sourced unsustainably.284
In 2011, Wilmar International was criticized for
the alleged destruction of the environment and
for human rights violation in Indonesia.285 Cargill,
which has 25 percent of the global palm oil
market, sources 95 percent of its third-party crude
palm oil in Indonesia from members of the
Roundtable on Sustainable Palm Oil (RSPO). RSPO
members, which are committed to not clearing
land via burning, are often criticized by the
Rainforest Action Network (RAN) for a lack of
carbon or climate standards as well as “problems
with the implementation of social safeguards.” To
improve the palm oil industry in Indonesia, RAN
focused its campaign on Cargill, which in 2014
committed to adopt a global palm oil policy that
addresses widely recognized gaps in the RSPO
standards and improves the transparency and
traceability of its supply chain.286 Cargill agreed to
monitor its suppliers for compliance with ceasing
deforestation, exploitation of indigenous peoples,
and other egregious practices.287
A 2014 shareholder resolution filed with ADM
addressed the need for strong supply chain
management in the face of environmental and
social risks, highlighting investors’ concern with
the issues. The resolution was withdrawn after
ADM agreed to address the issues.288 Moreover,
the company states on its website that it will
terminate any contract with a supplier that
violates U.S. national labor laws.289 In another
example, Bunge, as part of its Global Labor Policy
in Brazil, stated, “[w]e cross-reference our
agricultural suppliers against the Brazilian
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government's list of farms that have been found
to commit labor abuses and violate environmental
laws to ensure that farms with serious labor or
environmental infractions are excluded from our
agricultural supply chain.”290
For those companies with extensive global supply
chains, active management of sustainability
concerns is needed to reduce reputational
damage and ingredient supply impacts. In 2010,
one of Cargill’s and Bunge’s suppliers, Guarani
farm, was found by the Brazilian Ministry of Labor
and Employment to be in violation of fair labor
practices. Reportedly, Guarani’s workers were not
receiving regular wages and were forced to work
14-hour days without time off on weekends.
Moreover, workers were not provided with
adequate housing, access to drinking water,
hygiene facilities, or legally required protective
equipment.291
During the 2014 FIFA World Cup, Coca Cola was
criticized for sourcing its sugar from Bunge,
which, in turn, buys it from the land that was
allegedly stolen from Guarani people of Brazil.
The land grab resulted in a dramatic increase in
suicides among the Brazilian Guarani, who have
the highest suicide rate in the world.292 While in
some cases, companies in the Agricultural
Products industry are primarily involved in
business-to-business transactions and their
reputations may not be directly impacted by end
consumers’ perceptions, they may still be
significantly affected through the loss of clients.
As many agricultural companies’ clients operate in
food and beverage industries that are themselves
end-consumer-facing, they have a high degree of
concern for their reputation and brand value.
When poor performance on environmental and
social issues is found within their supply chains,
food and beverage companies may discontinue
sourcing from specific agricultural companies.
In additional evidence of food and beverage
companies focusing on the sustainability of their
supply chains, in 2013, General Mills announced a
commitment to sustainably source 10 key
ingredients, which make up 50 percent of its raw
material purchases, by 2020.293
Value Impact
Agricultural products companies rely on stable
supplies of agricultural inputs. Climate change
and environmental degradation could increase the
probability of crop failure or lower yields, and in
turn raise purchase costs. In addition, issues such
as labor abuses can similarly raise purchase costs
if supplies are constrained or truncated because
of labor issues. Supply chain interruption can
cause a loss of revenue and market share if
companies are not able to find alternatives to key
suppliers, and can raise purchasing costs if
supplies are found elsewhere at a higher cost.
Recurring supply chain disruptions can create
operational risks, and the resulting financial
consequences may harm a company’s credit
profile over time, impacting its cost of capital.
Having to source a greater amount of products
from water-stressed regions may indicate higher
input costs, increased competition for quality
resources, and/or disruptions to the supply chain.
Sourcing from certified suppliers gives agricultural
companies assurance that the inputs to its
products have been developed in accordance with
a high standard for social and environmental
principles, reducing the risk that a company will
face a loss in brand image due to its sourcing
practices.
Evolving regulations focused on addressing
environmental externalities are likely to become
more stringent, increasing the probability and
magnitude of the aforementioned impacts in the
future.
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Management of the Legal & Regulatory Environment
The interaction of companies with the regulatory
environment includes political contributions and
lobbying, which can be directed towards issues
with sustainability implications, such as crop
insurance subsidies and the RFS program in the
case of the Agricultural Products industry.
Corporate lobbying is particularly relevant for U.S.
markets, where financial contributions and
lobbying by registered lobbyists are legally
recognized ways of engaging with policymakers.VIII
While commonly used by a number of companies
and industry associations across different
industries, political lobbying and contributions
have been criticized for unduly influencing
government policy, thereby creating negative
social and environmental externalities or policy
outcomes that may not align with society’s best
interests in the long term.
In the Agricultural Products industry, corporate
lobbying is often directed towards crop-insurance-
subsidies policy and the RFS program that is likely
to support demand for certain crops. These
actions can benefit the industry by lowering risks
and improving profitability in the short term.
Nonetheless, the potential for long-term adverse
environmental impacts from some of these
policies or the ways they are designed may
ultimately create policy reversals or unfavorable
changes; these could include, for example,
lowering of government subsidies or
conditionalities introduced for obtaining subsidies.
In some instances, government subsidies support
overproduction, which may lead to environmental
VIII In other countries, where there may be more legal restrictions on, or less formal recognition of, interactions of corporate interests and government officials or lawmakers, weaker institutional environments for enforcing related laws, and/or general social acceptance of bribery, influence of government policy through bribery and corruption may be more prominent
degradation through expanded acreage into
marginal lands or more harmful intensive farming
practices.294 Crop insurance mitigates weather
and environment-related risk, which could
increase significantly in the future because of
climate change. However, this is an area where
despite short-term gains, lobbying could create
adverse sustainability impacts in the long term—
subsidies for crop insurance, without appropriate
measures to incorporate long-term sustainability
considerations, may reduce incentives to practice
farming techniques such as conservation tillage,
cover-cropping, and more efficient irrigation. This
could ultimately impact company results by
impacting crop yields. Support of policies that
affect or delay corporate action on both climate
mitigation and adaptation as well as ecological
impacts could be detrimental to shareholder value
in the long term.
In addition to lobbying in support of crop
insurance subsidies, a heavy reliance on the
biofuel industry—one of the main purchasers of
corn and soybean crops—prompts agricultural
companies to lobby for support of the U.S. EPA’s
RFS program, which creates demand for biofuels
based on such crops. While fuel-cycle GHG
emissions of biofuels may be lower than those
from fossil fuels, there are negative externalities
related to agricultural feedstock production for
biofuels—such as ecological impacts from the use
of fertilizers and pesticides in intensive agriculture
and water consumption for crop irrigation
discussed earlier in this brief, as well as possible
influences on food prices. Such externalities are
prompting proposals for a shift in regulatory
support from crop-based biofuels to advanced
concerns. Bribery and corruption to influence policies may also be concerns in U.S. markets, but such instances may be less prevalent in countries such as the U.S. with strong enforcement of related laws. For U.S.-listed companies in the Agricultural Products industry, the disclosure topic of bribery and corruption was not found to be likely to constitute material information.
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biofuels that use alternative feedstocks and have
lower environmental and social externalities.
The Agricultural Products industry therefore faces
risks from its reliance on corn and soybean
demand created by fuel mandates. As climate
change regulations continue to evolve, the
demand for ethanol and other food crop-based
biofuels may decrease if government support for
such biofuels is reduced or withdrawn, putting a
substantial share of agricultural companies’
revenue at risk.
Agricultural products companies could benefit
from a clear strategy for engaging policymakers
and regulators that is aligned with long-term
sustainable business outcomes and that accounts
for societal and environmental externalities.
Companies putting in place strategies to manage
such externalities from their operations in addition
to engaging with their regulatory and legislative
environment directly, could be better positioned
to deal with any policy changes that take into
account externalities. By engaging with regulators
and by managing sustainability issues relevant for
their industry, focused on positive societal
outcomes, companies will likely be better
prepared for medium- to long-term regulatory
adjustments.
Company performance in this area can be
analyzed in a cost-beneficial way through the
following direct or indirect performance metrics
(see Appendix III for metrics with their full detail):
• Discussion of positions on the regulatory
and political environment related to
environmental and social factors and
description of efforts to manage risks and
opportunities presented.
Evidence
In 2013, the U.S. Farm Bill was the sixth-most
lobbied measure in Congress, with more than 350
organizations spending money to influence the
bill.295 Agricultural product companies were a
significant contributor, spending $21.8 million in
2013 and $21.1 million in 2014, as well as
investing additional funds into the campaigns of
many representatives who crafted the bill.296
Lobbying was heavily focused on the Federal Crop
Insurance Program (FCIP), which is replacing direct
payments to farmers as a primary vehicle for
agricultural subsidies.297 The direct payments
system has been criticized for being provided to
farmers without regard to their needs. While the
FCIP is arguably a less transparent and more costly
system, it is nevertheless rapidly gaining
popularity.298
As discussed earlier, crop insurance subsidies is an
area where short-term gains obtained through
lobbying could be overturned due to adverse
sustainability outcomes in the long term,
ultimately impacting company results. The FCIP
insures U.S. farmers against weather-related crop
failure. The program paid out a record $17.3
billion in insurance proceeds in 2012 after
drought triggered widespread crop failure across
the U.S.299
The amount of subsidies provided through the
FCIP has increased in the past decade. In 2001,
the USDA subsidized approximately 30 percent of
crop insurance, or $2 billion. In 2011, the agency
paid $7.4 billion in subsidies, or nearly 62 percent
of total insurance premiums.300 In 2012, taxpayers
covered 60 percent of the crop insurance
premiums and absorbed 75 percent of the
insurance payouts.301 The subsidies are technically
unlimited, and the USDA is not required to
disclose who the recipients are. The level of
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insurance chosen by the producer is positively
correlated with USDA subsidies.302
Government subsidies, which covered 60 percent
or $14 billion of the farmers’ crop insurance
premium costs in 2014, may reduce the incentives
for farmers to protect themselves from climate
change and extreme weather events.303 It has
been argued that the FCIP program may reduce
incentives to practice farming techniques such as
conservation tillage, cover-cropping, and more
efficient irrigation.304
Research indicates that crop insurance can also
contribute to environmental degradation by
encouraging planting in marginal and/or drought-
stricken lands. According to a 2014 report by
Ceres, a nonprofit organization of investors,
companies, and public interest groups advocating
for sustainable business practices, the FCIP “sets
premium formulas that encourage riskier decisions
such as expanding production onto marginal land
and planting maize on the same plot year after
year.”305 According to researchers at the
Environmental Working Group, from 2008 to
2011, crop insurance and high agricultural
commodity prices contributed to the conversion
of 23 million acres of grassland, shrubland, and
wetlands to farmland in the U.S. Midwest.306
Lobbying for insurance that limits or does not
provide incentives to mitigate climate or
ecological impacts can benefit producer income in
the short term, but it can negatively affect long-
term productivity by advancing unsustainable
agricultural practices.
Another regulatory area of focus for the industry
is government incentives for biofuels. Corn and
soybeans are the two largest crops in the U.S.307
Demand for corn for ethanol production, created
in large part by the RFS program and other
regulatory support for biofuels, has pushed up the
price of corn and incentivized an increase in corn
acreage.308 As of 2013, approximately 43 percent
of the corn grown in the U.S. was used for
ethanol and dried distillers grains, a coproduct of
ethanol production used to feed livestock and
poultry.309 In 2013, 13 percent of the oil from the
soybean crop was used for ethanol, and 24
percent of the oil from crushed soybeans was
used for ethanol.310 These percentages have
grown over time; in 1980, only 0.3 percent of
U.S. corn was used for fuel ethanol.311 With 2015
corn segment revenues expected to be at $47.5
billion and soybean segment revenues at $32.5
billion, a significant share of agricultural
companies’ sales depend on the demand for
biofuels.312
Agricultural products companies such as ADM,
Cargill, and POET Ethanol Products have joined
together to lobby for corn ethanol. Although the
largest subsidy, the $6 billion annual volumetric
ethanol excise tax credit expired in 2011,
mandates for biofuels have existed since 2005
under the RFS.313 There is some disclosure among
agricultural products companies of their lobbying
efforts. Bunge reports that it “supports market
based approaches to promoting economically and
environmentally efficient first generation biofuels”
such as corn and soybeans.314 ADM reports that,
among other policies, it lobbies to maintain the
RFS program.315 From 2007 to 2013, ADM spent
$10.9 million on lobbying, while POET Ethanol
Products spent $5.1 million.316
Currently more than 60 countries have biofuel
targets or mandates, but calls for a repeal of corn
ethanol mandates are growing, as increasing
demand for corn inflates food prices,
disproportionately affecting the poor.317 At the
2011 G20 summit in Paris, a joint
recommendation by the UN Food and Agriculture
Organization, International Monetary Fund, the
Organization for Economic Co-operation and
Development, the World Trade Organization, and
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the World Bank, among other international
entities, called for governments to adjust biofuels
mandates when food markets are pressured.318
The environmental externalities that can be
created by government subsidies and policy
support for corn- and other food crop-based
biofuels are other reasons why there is increasing
pressure for the RFS program to shift support
from traditional biofuels to advanced biofuels that
might have lower externalities.319 As with crop
insurance subsidies, subsidies and other policy
support for traditional biofuels also have the
potential to distort incentives and lead to the
expansion of crop production in areas with poor
soil and water scarcity.320 The potential for
environmental degradation caused by expanding
acreage of corn for ethanol is currently not fully
taken into account in programs such as the RFS.
Were such concerns accounted for, biofuels
produced from corn grown with environmentally
sustainable practices may become favored.
By and large, renewable fuel policies reflect
concerns about food-crop-based biofuels
production by progressively increasing the volume
of biofuels from non-food crop sources blended
with transport fuels. Some governments have
even moved to cap the production volume of
crop-based ethanol.321 In June 2014, the E.U.
agreed on a plan to limit the use of food-based
biofuels for transportation to seven percent of
total volume, down from the original target of 10
percent. The decision came after a failed 2013
attempt to implement a five percent cap on fuels
produced by food crops including corn and
rapeseed. Research that found the production of
fuel from food crops contributed to the
displacement of other food crops, food price
inflation, and destruction of natural habitats
drove the E.U. to impose the limit.
Changes to biofuels policies that limit, reduce, or
remove support of corn ethanol could have acute
or progressive impacts on the demand for corn
production and corn prices, depending on the
nature of the policy change. In its FY2014 Form
10-K, ADM acknowledged, “[g]overnmental
policies affecting the agricultural industry …
including policies related to … renewable fuels,
and low carbon fuel mandates, can influence the
planting of certain crops, the location and size of
crop production.” The company further indicates
that changes in the RFS program may have a
significant impact on its financial performance.322
Corn ethanol lobbying interests have been in
support of adding corn ethanol to the list of
advanced biofuels, which would largely eliminate
the need to shift production in the biofuels
industry to utilize non-food feedstocks.323 Such a
shift could introduce long-term sustainability
challenges, including food security issues. Policies
progressively reducing the amount of food crop-
based biofuels or encouraging use of sustainably
produced feedstocks might allow agricultural
products companies to adjust to policy changes
with fewer disruptions. Companies could continue
to have the opportunity to generate revenues
from the biofuels markets through provision of
alternate feedstocks such as woody biomass and
crop waste, which could supply cellulosic ethanol
without the need for additional cropland.324
The adoption of sustainable agricultural
production is likely to be a significant driver of
long-term profitability in the industry. Industry
efforts to preserve or enhance policies that delay
or affect corporate action on sustainability issues
may not be aligned with the public’s best interest
and could prove detrimental in the long run.
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Value Impact
The financial impact of managing the political and
regulatory environment manifests itself over the
long term, as regulations governing
environmental and social externalities of
agriculture will likely become more stringent over
time. Lobbying, campaign contributions, and
other politically influential spending or activities
that promote policies creating perverse incentives
related to the industry’s social or environmental
impacts could erode companies’ social license to
operate over the long term. While successful
lobbying could result in positive short-term gains,
these benefits could subsequently be reversed to
reflect the balance of corporate and public
interest in these issues, leading to a more
burdensome regulatory environment. Lobbying
can therefore create regulatory uncertainty,
increasing the risk profile of companies and their
cost of capital.
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APPENDIX I FIVE REPRESENTATIVE AGRICULTURAL PRODUCTS COMPANIESIX
IX This list includes five companies representative of the Agricultural Products industry and its activities. This includes only companies for which the Agricultural Products industry is the primary industry, companies that are U.S.-listed but are not primarily traded over the counter, and for which at least 20 percent of revenue is generated by activities in this industry, according to the latest information available on Bloomberg Professional Services, accessed May 26, 2015.
COMPANY NAME (TICKER SYMBOL)
Archer Daniels Midland Company (ADM)
Bunge (BG)
Ingredion (INGR)
Seaboard (SEB)
Adecoagro S.A. (AGRO)
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APPENDIX IIA EVIDENCE FOR SUSTAINABILITY DISCLOSURE TOPICS
Sustainability Disclosure Topics
EVIDENCE OF INTEREST
EVIDENCE OF
FINANCIAL IMPACT
FORWARD-LOOKING IMPACT
HM (1-100)
IWGs EI
Revenues &
Costs
Assets & Liabilities
Cost of Capital
EFI
Probability & Magnitude
Exter-
nalities
FLI
% Priority
Greenhouse Gas Emissions 50* 82 7 High • • Medium • • Yes
Energy & Fleet Fuel Management
33 - - Medium • • Medium • Yes
Water Withdrawal 88* 96 1 High • • • High • Yes
Land Use & Ecological Impacts
46 93 3 High • • • High • • Yes
Food Safety & Health Concerns 71* 100 2 High • • • High • • Yes
Fair Labor Practices & Workforce Health & Safety
38 89 6 Medium • • Medium No
Climate Change Impacts on Crop Yields
75* 85 4 High • • High • • Yes
Environmental & Social Impacts of Ingredient Supply Chains
29 85 5 Medium • • • High • • Yes
Management of the Legal & Regulatory Environment
0 89 8 Medium • Medium No
HM: Heat Map, a score out of 100 indicating the relative importance of the topic among SASB’s initial list of 43 generic sustainability issues. Asterisks indicate “top issues.” The score is based on the frequency of relevant keywords in documents (i.e., 10-Ks, 20-Fs, shareholder resolutions, legal news, news articles, and corporate sustainability reports) that are available on the Bloomberg terminal for the industry’s publicly listed companies. Issues for which keyword frequency is in the top quartile are “top issues.”
IWGs: SASB Industry Working Groups.
%: The percentage of IWG participants who found the disclosure topic likely to constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.
Priority: Average ranking of the issue in terms of importance. 1 denotes the most important issue. (-) denotes that the issue was added after the IWG was convened.
EI: Evidence of Interest, a subjective assessment based on quantitative and qualitative findings
EFI: Evidence of Financial Impact, a subjective assessment based on quantitative and qualitative findings
FLI: Forward-Looking Impact, a subjective assessment of the presence of a material forward-looking impact
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APPENDIX IIB EVIDENCE OF FINANCIAL IMPACT FOR SUSTAINABILITY DISCLOSURE TOPICS
MEDIUM IMPACT H IGH IMPACT
Evidence of
Financial Impact
REVENUE & EXPENSES ASSETS & LIABILITIES RISK PROFILE
Revenue Operating Expenses Non-operating Expenses Assets Liabilities
Cost of Capital
Industry Divestment
Risk Market Share
New Markets Pricing
Power Cost of
Revenue R&D CapEx Extra-
ordinary Expenses
Tangible Assets
Intangible Assets
Contingent Liabilities & Provisions
Pension & Other
Liabilities
Greenhouse Gas Emissions
•
•
•
Energy & Fleet Fuel Management
•
•
•
Water Withdrawal •
• • • •
•
Land Use & Ecological Impacts
•
• • • • •
•
Food Safety & Health Concerns
• • •
• • •
•
Fair Labor Practices & Workforce Health & Safety
•
• • • •
Climate Change Impacts on Crop Yields
• • •
•
Environmental & Social Impacts of Ingredient Supply Chains
• • •
•
Management of the Legal & Regulatory Environment
•
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APPENDIX III SUSTAINABILITY ACCOUNTING METRICS | AGRICULTURAL PRODUCTS
TOPIC
ACCOUNTING METRIC CATEGORY
UNIT OF MEASURE
CODE
Greenhouse Gas Emissions
Gross global Scope 1 emissions Quantitative Metric tons (t) CO2-e
CN0101-01
Biogenic carbon dioxide (CO2) emissions* Quantitative Metric tons (t) CO2-e
CN0101-02
Description of long-term and short-term strategy or plan to manage Scope 1 emissions, emission-reduction targets, and an analysis of performance against those targets
Discussion & Analysis
n/a CN0101-03
Energy & Fleet Fuel Management
Operational energy consumed, percentage grid electricity, percentage renewable
Quantitative Gigajoules (GJ), Percentage (%)
CN0101-04
Fleet fuel consumed, percentage renewable Quantitative Gigajoules (GJ), Percentage (%)
CN0101-05
Water Withdrawal
(1) Total water withdrawn and (2) total water consumed, percentage of each in regions with High or Extremely High Baseline Water Stress
Quantitative Cubic meters (m3), Percentage (%)
CN0101-06
Discussion of water withdrawal risks and description of management strategies and practices to mitigate those risks
Discussion & Analysis
n/a CN0101-07
Land Use & Ecological Impacts
Description of strategies to manage land use and ecological impacts
Discussion & Analysis
n/a CN0101-08
(1) Volume of wastewater reused and (2) volume of wastewater discharged to the environment** Quantitative Cubic meters (m3) CN0101-09
Number of incidents of non-compliance with water-quality permits, standards, and regulations
Quantitative Number CN0101-10
Amount of fertilizer consumption by: (1) nitrogen-based, (2) phosphate-based, and (3) potassium-based fertilizers
Quantitative Metric tons (t) CN0101-11
Amount of pesticide consumption by hazard level*** Quantitative Metric tons (t) CN0101-12
Food Safety & Health Concerns
Global Food Safety Initiative (GFSI) audit conformance: (1) major non-conformance rate and associated corrective action rate and (2) minor non-conformance rate and associated corrective action rate
Quantitative Rate CN0101-13
Percentage of agricultural products sourced from suppliers certified to a Global Food Safety Initiative (GFSI) scheme
Quantitative Percentage (%) by spend
CN0101-14
Number of recalls issued, total amount of food product recalled****
Quantitative Number, Metric tons (t)
CN0101-15
Description of strategies to manage the use of genetically modified organisms (GMOs)
Discussion & Analysis
n/a CN0101-16
* Note to CN0101-02—Disclosure should include discussion of whether the registrant’s biogenic CO2 emissions are carbon neutral. ** Note to CN0101-09—Disclosure shall include a description of the risk related to wastewater discharge and the wastewater treatment and management method(s) used. *** Note to CN0101-12—Disclosure shall include a description of any uses of WHO Class Ia and Ib pesticides. **** Note to CN0101-15—Disclosure shall include a description of notable recalls, such as those that affected a significant amount of product or those related to serious illness or fatality.
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SUSTAINABILITY ACCOUNTING METRICS | AGRICULTURAL PRODUCTS (CONTINUED)
TOPIC
ACCOUNTING METRIC
CATEGORY
UNIT OF MEASURE
CODE
Fair Labor Practices & Workforce Health & Safety
Percentage of farms and facilities certified for fair labor practices
Quantitative Percentage (%) CN0101-17
(1) Total recordable injury rate (TRIR), (2) fatality rate, and (3) near miss frequency rate (NMFR) for (a) direct employees and (b) seasonal and migrant employees
Quantitative Rate CN0101-18
Description of efforts to assess, monitor, and reduce exposure of direct, seasonal, and migrant employees to pesticides
Discussion & Analysis
n/a CN0101-19
Climate Change Impacts on Crop Yields
Amount of crop losses, percentage offset through financial mechanisms
Quantitative U.S. Dollars ($), Percentage (%)
CN0101-20
Average crop yield and five-year standard deviation per major crop type by major operating region Quantitative Metric tons (t) CN0101-21
Identification of principal crops and discussion of risks and opportunities presented by climate change
Discussion & Analysis
n/a CN0101-22
Environmental & Social Impacts of Ingredient Supply Chains
Percentage of agricultural raw materials sourced from regions with High or Extremely High Baseline Water Stress
Quantitative Percentage (%) by spend
CN0101-23
Description of management strategy for environmental and social risks arising from contract growing and commodity sourcing
Discussion & Analysis
n/a CN0101-24
Percentage of agricultural raw materials that are certified to a third-party environmental and/or social standard
Quantitative Percentage (%) by spend
CN0101-25
Management of the Legal & Regulatory Environment
Discussion of positions on the regulatory and political environment related to environmental and social factors and description of efforts to manage risks and opportunities presented
Discussion & Analysis
n/a CN0101-26
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56I N D U S T RY B R I E F | A G R I C U LT U R A L P R O D U C T S
APPENDIX IV: Analysis of SEC Disclosures | Agricultural Products
The following graph demonstrates an aggregate assessment of how representative U.S.-listed Agricultural Products companies are currently reporting on sustainability topics in their SEC annual filings.
Agricultural Products
Greenhouse Gas Emissions
Energy & Fleet Fuel Management
Water Withdrawal
Land Use & Ecological Impacts
Food Safety & Health Concerns
Fair Labor Practices & Workforce Health & Safety
Climate Change Impacts on Crop Yields
Environmental & Social Impacts of Ingredient Supply Chains
Management of the Legal & Regulatory Environment
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
TYPE OF DISCLOSURE ON SUSTAINABILITY TOPICS
NO DISCLOSURE BOILERPLATE INDUSTRY-SPECIF IC METRICS
82%
-
96%
93%
100%
89%
85%
85%
89%
IWG Feedback*
*Percentage of IWG participants that agreed topic was likely to constitute material information for companies in the industry. (-) denotes that the issue was added after the IWG was convened.
Greenhouse Gas Emissions
Energy & Fleet Fuel Management
Water Withdrawal
Land Use & Ecological Impacts
Food Safety & Health Concerns
Fair Labor Practices & Workforce Health & Safety
Climate Change Impacts on Crop Yields
Environmental & Social Impacts of Ingredient Supply Chains
Management of the Legal & Regulatory Environment
REFERENCES
1 Koichi Fujita, “Green Revolution in India and Its Significance in Economic Development: Implications for Sub-Saharan Africa” (working paper, JICA Research Institute), accessed June 5, 2015, http://policydialogue.org/files/events/Fujita_green_rev_in_india.pdf.
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6 Author’s calculation based on data from Bloomberg Professional service, accessed on May 26, 2015, using Equity Screen (EQS) for U.S.-listed companies that generate at least 20 percent of revenue from their Agricultural Products segment and for which Agricultural Products is a primary SICS industry.
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22 USDA, Economic Research Service, Structure and Finances of U.S. Farms: Family Farm Report, 2014 edition, p. 42.
23 Author’s calculation based on data from Bloomberg Professional service, accessed on June 9, 2015, using Equity Screen (EQS) for U.S.-listed companies and those traded primarily OTC that generate at least 20 percent of revenue from their Agricultural Products segment and for which Agricultural Products is a primary SICS industry.
24 USDA, National Agricultural Statistics Service, 2012 Census of Agriculture: United States Data, table 1, “Historical Highlights: 2012 and Earlier Census Years,” May 2, 2014, accessed June 5, 2014, http://www.agcensus.usda.gov/Publications/2012/; Neville, Industry Report 11115 Corn Farming in the US; Outlaw, Industry Report 11120 Vegetable Farming in the US.
25 Linda Labao and Curtis W. Stofferhan, “The Community Effects of Industrialized Farming: Social Science Research and Challenges to Corporate Farming Laws,” Agriculture and Human Values 25, no. 2 (June 2008): 219–40.
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43 “S. 510 Food Safety Modernization Act: Healthy Local Foods Amendment—Senators Jon Tester and Kay Hagan, Questions and Answers,” World Organization of Resource Councils, accessed June 8, 2015, http://www.worc.org/userfiles/file/Local%20Foods/QA_Tester_Amendment.pdf.
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50 Martella and Grosko, eds., Central and South America Overview, pp. 365–95.
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52 USDA, “2014 Farm Bill Highlights,” March 2014, accessed July 24, 2014, http://www.usda.gov/documents/usda-2014-farm-bill-highlights.pdf.
53 Mary V. Gold, “Sustainable Agriculture: Informational Access Tools, USDA, 2009, accessed June 9, 2014, http://www.nal.usda.gov/afsic/pubs/agnic/susag.shtml.
54 U.S. EPA, “Agriculture,” chap. 6, in Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2012, accessed June 29, 2015, http://www.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2014-Main-Text.pdf.
55 “Economic Incentives,” EPA, National Center for Environmental Economics, July 25, 2014, accessed July 25, 2014, http://yosemite.epa.gov/EE%5Cepa%5Ceed.nsf/webpages/EconomicIncentives.html.
56 Gilbert E. Metcalf and John M. Reilly, “Policy Options for Controlling Greenhouse Gas Emissions: Implications for Agriculture,” Choices 23, no. 1 (2008), accessed June 29, 2015, http://www.choicesmagazine.org/2008-1/theme/2008-1-10.htm; U.N. Food and Agriculture Organization, Mitigation of Climate Change in Agriculture, “Supporting Policy and Decision Making,” July 23, 2014, accessed July 25, 2014, http://www.fao.org/climatechange/micca/70793/en.
57 Bloomberg Professional service, accessed on April 14, 2015, using the BICS <GO> command. The data represent global revenues of companies listed on global exchanges and traded over the counter from the Agricultural Products industry, using Level 4 of the Bloomberg Industry Classification System.
58 From an internal analysis of the SEC filings of companies in the Agricultural Products industry.
59 “Summary of California’s Cap and Trade Program,” Center for Climate and Energy Solutions, accessed May 20, 2015, http://www.c2es.org/us-states-regions/action/california/cap-trade-regulation.
60 U.S. EPA, “Agriculture,” Inventory of U.S. Greenhouse Gas Emissions and Sinks.
61 U.S. EPA, Office of Atmospheric Programs, Climate Change Division, Global Anthropogenic Non-CO2 Greenhouse Gas Emissions.
62 Ibid.; Kari Hamerschlag, “California’s Climate Change Policy Leaves Agriculture in the Dust: Major Missed Opportunities for Synergies in Climate Change Mitigation and Adaptation,” Environmental Working Group, September 2009, accessed June 29, 2015, http://www.ewg.org/research/california%E2%80%99s-climate-change-policy-leaves-agriculture-dust.
63 U.S. EPA, “Agriculture,” Inventory of U.S. Greenhouse Gas Emissions and Sinks, p. 4.
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64 U.S. Department of State, U.S. Climate Action Report, 2010: Fifth National Communication of the United States of America under the United Nations Framework Convention on Climate Change, p. 31.
65 U.S. EPA, Office of Atmospheric Programs, Climate Change Division, Global Anthropogenic Non-CO2 Greenhouse Gas Emissions.
66 John Horowitz and Jessica Gottlieb, “The Role of Agriculture in Reducing Greenhouse Gas Emissions,” Economic Brief no. 15, USDA, Economic Research Service, September 2010.
67 Ibid.
68 “Deforestation,” World Wildlife Fund Global, accessed May 8, 2015, http://wwf.panda.org/about_our_earth/deforestation.
69 “Archer Daniels Midland Palm Oil 2011,” Ceres, 2014, accessed June 17, 2014, http://www.ceres.org/investor-network/resolutions/archer-daniels-midland-palm-oil-2011.
70 “Climate Change,” USDA, April 23, 2014, accessed June 10, 2014, http://www.ers.usda.gov/topics/natural-resources-environment/climate-change/background.aspx#.U5eZa_ldV8E.
71 Organization of Economic Co-operation and Development, Sustainable Management of Water Resources in Agriculture, 2010, accessed June 10, 2014, http://www.oecd.org/agriculture/44921825.pdf.
72 Food and Agricultural Organization, U.N. Development Programme, and U.N. Environmental Programme, U.N. Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries, Framework Document, June 20, 2008, accessed July 25, 2014, http://www.un-redd.org/Portals/15/documents/publications/UN-REDD_FrameworkDocument.pdf.
73 “Fourth Carbon Budget Review: Technical Report,” Committee on Climate Change, p. 116, accessed June 5, 2015, http://www.theccc.org.uk/wp-content/uploads/2013/12/1785b-CCC_TechRep_Singles_Chap6_1.pdf.
74 John J. Sheehan et al., “Scenarios for Low Carbon Corn Production,” Colorado State University and Colorado State University, March 2014, accessed June 11, 2015, http://soilcrop.agsci.colostate.edu/scenarios-for-low-carbon-corn-production.
75 “Economics of Biofuels,” U.S. EPA, accessed June 5, 2015, http://yosemite.epa.gov/EE\epa\eed.nsf/webpages/Biofuels.html.
76 “Commission Sets Up System for Certifying Sustainable Biofuels,” European Commission, June 10, 2010, accessed June 5, 2015, http://europa.eu/rapid/press-release_MEMO-10-247_en.htm?locale=en.
77 Robert Wisner, “Corn Balance Sheet,” Iowa State University Ag Decision Maker, April 13, 2015, p. 1, accessed June 8, 2015, https://www.extension.iastate.edu/agdm/crops/outlook/cornbalancesheet.pdf.
78 Ibid.
79 Pacific Ethanol Inc., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed March 31, 2014), p. 4.
80 Jinxia Wang et al., “China’s Water-Energy Nexus: Greenhouse-Gas Emissions from Groundwater Use for Agriculture,” Environmental Research Letters 7, no. 1, March 14, 2012, accessed June 29, 2015, http://iopscience.iop.org/1748-9326/7/1/014035/article.
81 U.S. Department of State, U.S. Climate Action Report 2010, Fifth National Communication of the United States of America under the United Nations Framework Convention on Climate Change, p. 31.
82 Metcalf and Reilly, “Policy Options for Controlling Greenhouse Gas Emissions.”
83 “The Impacts of the American Clean Energy and Security Act of 2009 on U.S. Agriculture,” USDA, December 18, 2009, p. 28, accessed June 5, 2015, http://www.usda.gov/oce/newsroom/archives/releases/2009files/ImpactsofHR2454.pdf.
84 Climate Action Reserve, “New Agriculture Offset Protocol Expands Opportunities for Farmers to Participate in the Carbon Market,” June 28, 2012, accessed June 5, 2015, http://www.climateactionreserve.org/blog/2012/06/28/new-agriculture-offset-protocol-expands-opportunities-for-farmers-to-participate-in-the-carbon-market.
85 “Potential New Compliance Offset Protocol Rice Cultivation Projects,” California Environmental Protection Agency Air Resources Board, December 2, 2014, accessed June 5, 2015, http://www.arb.ca.gov/cc/capandtrade/protocols/riceprotocol.htm; Robert Parkhurst, “California takes giant step toward approving first crop-based carbon standards,” Environmental Defense Fund, December 18, 2014, accessed
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June 22, 2015, http://blogs.edf.org/growingreturns/2014/12/18/california-takes-giant-step-toward-approving-first-crop-based-carbon-standards/.
86 Roger Claassen and Mitch Morehart, “Agriculture Land Tenure and Carbon Offsets,” USDA, Economic Research Service, Economic Brief no. 14, September 2009.
87 Hamerschlag, “California’s Climate Change Policy Leaves Agriculture in the Dust.”
88 U.N. Framework Convention on Climate Change, “Reduction of N2O emissions from Use of Nitrogen Use Efficient (NUE) Seeds That Require Less Fertilizer Application,” November 23, 2012, accessed July 25, 2014, http://cdm.unfccc.int/filestorage/k/a/CDM_AMSUBMZB9DC6JS34K8QQ261WRQUTG0IOO.pdf/EB70_repan26_AMS-III.BF_ver01.0.pdf?t=UjV8bjlhN2IwfDDopMy9Mn_5sLIvN1r5Kind.
89 “Investor CDP 2014 Information Request: Cargill,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/02/2802/Investor%20CDP%202014/Pages/DisclosureView.aspx.
90 Author’s calculation based on the data from Bloomberg Professional service, accessed April 14, 2015, using the BICS <GO> command. The data represent global revenues of companies listed on global exchanges and traded over-the-counter from the Agricultural Products industry, using Level 4 of the Bloomberg Industry Classification System.
91 Christina Galitsky, Ernst Worrell, and Michael Ruth, “Energy Efficiency Improvement and Cost Saving Opportunities for the Corn Wet Milling Industry,” Lawrence Berkeley National Laboratory, July 2003, http://www.energystar.gov/ia/business/industry/LBNL-52307.pdf.
92 Author’s calculations based on data from the U.S. EPA’s GHG Reporting Program Data Sets from “Summary GHG Data 2013 (as of August 18, 2014) (XLS),” http://www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html.
93 “Investor CDP 2014 Information Request: Archer Daniels Midland,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/12/912/Investor%20CDP%202014/Pages/DisclosureView.aspx.
94 “Investor CDP 2014 Information Request: Cargill,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/02/2802/Investor%20CDP%202014/Pages/DisclosureView.aspx; “Investor CDP 2014 Information Request: Bunge,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/07/2407/Investor%20CDP%202014/Pages/DisclosureView.aspx.
95 Center for Climate and Energy Solutions, “Summary of California’s Cap and Trade Program,” accessed May 20, 2015, http://www.c2es.org/us-states-regions/action/california/cap-trade-regulation.
96 Author’s calculation based on data from “Annual Survey of Manufactures: General Statistics—Statistics for Industry Groups and Industries, 2011,” U.S. Census Bureau, released December 17, 2013.
97 Adecoagro Ltd., FY2014 Form 20-F for the Period Ending December 31, 2014 (filed April 30, 2015).
98 “Corporate Responsibility Report 2013,” Associated British Foods.
99 Bunge Ltd., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed February 28, 2014), p. 20.
100 Author’s calculation based on data from “Annual Survey of Manufactures.”
101 Bloomberg New Energy Outlook Dataset, Wholesale Power and Fuel Prices, February 5, 2015. Forecasts are tied to the trajectories predicted in the EIA’s 2014 Annual Energy Outlook, http://www.eia.gov/forecasts/aeo.
102 “Investor CDP 2014 Information Request: Cargill,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/02/2802/Investor%20CDP%202014/Pages/DisclosureView.aspx; “Investor CDP 2014 Information Request: Bunge,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/07/2407/Investor%20CDP%202014/Pages/DisclosureView.aspx; “Investor CDP 2014 Information Request: Archer Daniels Midland,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/12/912/Investor%20CDP%202014/Pages/DisclosureView.aspx.
103 Jeff Gwirtz, “Electrical Energy Savings in Flour Milling: Energy-Efficient Motors, Automated Controls and Reducing Consumption during Times of Peak Energy Use Are Just a Few of the Steps That Can Be Taken,” World-Grain.com, September 1, 2008, accessed May 14, 2015, http://www.world-grain.com/Departments/Milling%20Operations/2008/9/Electrical%20energy%20savings%20in%20flour%20milling.aspx?p=1.
104 Tuncay Lamci, “Energy Saving in Flour Milling,” Grain and Feed Milling Technology, April 27, 2012, accessed June 29, 2015, https://gfmtfeatures.wordpress.com/2012/04/27/energy-saving-in-flour-milling.
105 “Water and Process Solutions for the Corn Milling Industry,” GE Power and Water, Water and Process Technologies.
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106 Adecoagro, FY2014 Form 20-F for the Period Ending December 31, 2014 (filed April 30, 2015).
107 Bunge Ltd., FY2014 Form 10-K for the Period Ending December 31, 2014 (filed March 2, 2015).
108 ADM, FY2014 Form 10-K for the Period Ending December 31, 2014 (filed February 20, 2015).
109 Sustainable Shipping Initiatives, “Member Case Study: Bunge,” accessed June 11, 2015, http://ssi2040.org/wp-content/uploads/2013/09/bunge.pdf; Andrew Benjamin, “Bunge: Introduction to Ag Freight,” presentation at IAOM, Manila, 2012, accessed June 11, 2015, http://iaom.info/content/wp-content/uploads/01bunge12.pdf.
110 “Investor CDP 2014 Information Request: Cargill,” CDP, 2015, accessed May 13, 2015, https://www.cdp.net/sites/2014/02/2802/Investor%20CDP%202014/Pages/DisclosureView.aspx.
111 “Investing to Improve the Fuel Efficiency, Emissions Profile of Our Transportation Network,” ADM, 2014 Corporate Responsibility Report, Advances and Innovations, Transportation, accessed May 13, 2015, http://www.adm.com/en-us/responsibility/2014crreport/advancesandinnovations/pages/transportation.aspx.
112 Sustainable Shipping Initiatives, “Member Case Study: Bunge.”
113 “SmartDrive Fuel Efficiency Study: Commercial Transportation,” SmartDrive, 2011, accessed October 18, 2013, http://www.smartdrive.net/documents/smartdrive-trucking-fuel-study_2011.pdf.
114 JPMorgan Global Equity Research, “Watching Water: A Guide to Evaluating Corporate Risks in a Thirsty World,” March 31, 2008, accessed June 19, 2014, http://pdf.wri.org/jpmorgan_watching_water.pdf.
115 “Water Law: An Overview,” National Agricultural Law Center, accessed June 12, 2015, http://nationalaglawcenter.org/overview/water-law.
116 “Irrigation Water Withdrawals for the Nation, 2005,” U.S. Geological Society, March 17, 2014, accessed June 11, 2014, http://water.usgs.gov/edu/wuir.html.
117 U.S. Food and Agriculture Organization, “The Post-2015 Development Agenda and the Millennium Development Goals: Water,” accessed May 15, 2015, http://www.fao.org/post-2015-mdg/14-themes/water/en.
118 U.N., “Facts and Figures,” World Water Development Report 4, 2012.
119 Barbara Pomfret, “Water Scarcity and Food and Drink Production,” Bloomberg L.P., January 21, 2014.
120 U.N. Food and Agriculture Organization, “Global Agriculture Towards 2050,” High-Level Expert Forum, October 12–13, 2009, accessed July 24, 2014, http://www.fao.org/fileadmin/templates/wsfs/docs/Issues_papers/HLEF2050_Global_Agriculture.pdf.
121 Sophie Wenzlau, “To Combat Scarcity, Increase Water-Use Efficiency in Agriculture,” Worldwatch, March 1, 2013, accessed July 25, 2014, http://www.worldwatch.org/combat-scarcity-increase-water-use-efficiency-agriculture-0.
122 Millennium Ecosystem Assessment, Ecosystems and Human Well-Being: Synthesis (Washington, D.C.: Island Press, 2005), p. 67, accessed June 29, 2015, http://www.millenniumassessment.org/documents/document.356.aspx.pdf.
123 Tom Randall, “California’s New Era of Heat Destroys All Previous Records,” Bloomberg, April 10, 2015, accessed May 18, 2015, http://www.bloomberg.com/news/articles/2015-04-10/california-s-new-era-of-heat-destroys-all-previous-records.
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125 Randall, “California’s New Era of Heat Destroys All Previous Records.”
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128 Pomfret, “Water Scarcity and Food and Drink Production.”
129 Ceres, Water and Climate Risks Facing U.S. Maize Production, June 2014, p. 8, accessed June 29, 2015, http://www.ceres.org/resources/reports/water-and-climate-risks-facing-u.s.-corn-production-how-companies-and-investors-can-cultivate-sustainability/view.
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130 Eliza Roberts and Brooke Barton, Feeding Ourselves Thirsty: How the Food Sector Is Managing Global Water Risks, Ceres, May 2015, accessed June 8, 2015, http://www.ceres.org/issues/water/agriculture/water-risks-food-sector/food-water-risks.
131 “Water,” Bunge Citizenship, Environmental Responsibility, 2014, accessed June 29, 2015, http://www.bunge.com/citizenship/enviro_water.html.
132 Chiquita Brands Inc., 2009–2012 Corporate Responsibility Report, p. 34, accessed June 29, 2015, http://www.chiquita.com/getattachment/4dedce2f-c4ac-4183-9e14-c87a6202e511/2012-Corporate-Responsibility-Report.aspx.
133 ADM, FY2013 Form 10-K for the Period Ending December 31, 2013 (filed February 26, 2014), p. 12.
134 Agria Corporation, FY2014 Form 20-F for the Period Ending June 30, 2014 (filed October 23, 2014).
135 Bunge, 2013 Carbon Disclosure Project Water Response.
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137 Chiquita Brands Inc., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed March 4, 2014), p. 7.
138 Adecoagro, FY2014 Form 20-F for the Period Ending December 31, 2014 (filed April 30, 2015), p. 79.
139 Roberts and Barton, “Feeding Ourselves Thirsty.”
140 Ibid.
141 Edwin D. Ongley, “Introduction to Agricultural Water Pollution,” chap. 1 in Control of Water Pollution from Agriculture (U.N. Food and Agriculture Association, 1996), accessed June 12, 2014, http://www.fao.org/docrep/w2598e/w2598e04.htm#agricultural impacts on water quality;“Environmental Quality Overview,” USDAm 2014, accessed June 13, 2014, http://www.ers.usda.gov/topics/natural-resources-environment/environmental-quality.aspx#.U5uAvPldWSo.
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145 Ibid.
146 “What Are Pesticides?” European Crop Protection Association, 2014, accessed June 12, 2014, http://www.ecpa.eu/page/what-are-pesticides; “World Development Indicators: Agricultural Inputs,” World Bank, 2014, accessed June 4, 2014, http://wdi.worldbank.org/table/3.2.
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148 Millennium Ecosystem Assessment, Ecosystems and Human Well-Being: Synthesis (Washington, D.C.: Island Press, 2005), p. 67, accessed June 29, 2015, http://www.millenniumassessment.org/documents/document.356.aspx.pdf.
149 Ibid.
150 Ibid., p. 2.
151 U.N., “Facts and Figures,” World Water Development Report 4, 2012.
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153 International Agency for Research on Cancer, World Health Organization, “IARC Monographs Volume 112: Evaluation of Five Organophosphate Insecticides and Herbicides,” March 20, 2015, accessed June 29, 2015, http://www.iarc.fr/en/media-centre/iarcnews/pdf/MonographVolume112.pdf.
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156 Anescu and Goedhart, “EU Pesticide Band and the Potential Impact on the Chemicals Industry.”
157 U.N. Food and Agriculture Organization, “Potential Environmental Impacts of the Supply of Concentrate Feed Commodities,” accessed May 15, 2015, http://www.fao.org/wairdocs/lead/x6123e/x6123e06.htm.
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159 Anderson Inc., FY2014 Form 10-K for the Period Ending December 31, 2014 (filed March 2, 2015), p. 8.
160 Fresh Del Monte, FY2014 Form 10-K for the Period Ending December 26, 2014 (filed February 18, 2015), p. 17.
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175 Millennium Ecosystem Assessment, Ecosystems and Human Well-Being: Synthesis (Washington, D.C.: Island Press, 2005), p. 22, accessed June 29, 2015, http://www.millenniumassessment.org/documents/document.356.aspx.pdf.
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179 “Corporate Responsibility: Advancing Agricultural Practices,” Del Monte.
180 Adecoagro, FY2013 Form 20-F for the Period Ending December 31, 2013 (filed April 30, 2014), p. 75.
181 Bunge Ltd., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed February 28, 2014), Section 1A, p. 11.
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188 Bunge Ltd., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed February 28, 2014), Section 1A, p. 20.
189 Fresh Del Monte, FY2014 Form 10-K for the Period Ending December 26, 2014 (filed Feb. 18, 2015), p. 11.
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203 Adecoagro, FY2014 Form 10-K for the Period Ending December 31, 2014 (filed April 30, 2015), p. 3.
204 Ingredion Inc., FY2013 Form 10-K for the Period Ending December 31, 2013 (filed February 24, 2014), Section 1A, p. 16.
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206 Ibid.
207 Adecoagro, FY2013 Form 20-F for the Period Ending December 31, 2013 (filed April 30, 2014), p. 16.
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264 Adecoagro, FY2013 Form 20-F for the Period Ending December 31, 2013 (filed April 30, 2014), p. 9.
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286 Ibid.; Ranjeetha Pakiam, Eko Listiyorini, and Michelle Yun, “Wilmar to Cut Off Palm Suppliers Caught Burning in Indonesia,” Bloomberg, June 30, 2013, accessed June 29, 2015, http://www.bloomberg.com/news/articles/2013-06-30/wilmar-to-cut-off-palm-oil-suppliers-caught-burning-in-indonesia.
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306 Faber, Rundqvist, and Male, “Plowed Under.”
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