By Beth Jenkins and Piya Baptista, Business Fights Poverty and the CSR Initiative at the Harvard Kennedy School
Business Fights Poverty is full of examples of companies taking action to grow their businesses in ways that expand economic opportunity, enhance access to “social” services like healthcare, energy, education, water and sanitation, and nutrition, and conserve shared natural resources.
The key question is how to move these examples from the cutting edge to the mainstream.
We recently tackled this question in the specific domain of sugar production. Before we started, we had very little sense exactly how complex the global sugar sector was. Sugar can be produced from two distinct raw materials, sugarcane and sugar beet, which can be grown on small family farms and massive industrial plantations. Sugar can be used for such dramatically different purposes as food and fuel. More than 100 million tons are consumed annually, with concerns about the impact on human health. Sugar production supports as many as 100 million livelihoods—and yet many of these people remain in poverty. Environmental issues to be managed range from intensive water use to greenhouse gas emissions. Sugar is also one of the most highly regulated agricultural commodities in the world, subject to measures such as guaranteed minimum producer prices, import quotas, export subsidies, and limits on the production of alternative sweeteners. Partly as a result, the sector is highly fragmented, with more than 1,600 enterprises operating more than 2,500 mills and refineries in more than 100 countries.
These complex dynamics affect the incentives and disincentives of growers, mills, refiners, traders, and buyers to adopt more sustainable production and procurement practices. Historical levels of investment, agricultural input prices, mill capacity utilization, degree of vertical integration, and government intervention all affect production costs, market prices, and margins, and by extension the resources available for change within the system. These factors vary significantly from country to country and even company to company.
While there are many pioneering efforts, at the present time, incentives are not sufficiently strong or aligned across the value chain to enable more sustainable production and procurement at scale.
In contrast with coffee, sugar is difficult to differentiate in the marketplace. Demand for sustainably produced sugar is still very nascent, and for the most part, it does not come with a willingness to pay higher prices. Evidence of the enhanced productivity or cost savings associated with more sustainable production is just beginning to emerge. Avoidance of risk seems like a long-term proposition for all but the biggest brand names. And the costs and competitive implications of change feel prohibitive for many companies that produce and procure sugar.
In our report, we identify six building blocks necessary to align the incentives of growers, mills, refiners, traders, and buyers in favor of greater sustainability at scale:
The report summarizes the progress a wide variety of stakeholders have made in putting these building blocks in place, as well as the challenges that remain and the key questions that must be answered in order to accelerate change in the sugar sector. We are early in the game of understanding what will drive change in practices and outcomes at scale—and we hope this report helps catalyze dialogue, experimentation, and exchange of insight about what is, and isn’t, bringing us closer to that goal. SABMiller and The Coca-Cola Company, two major sugar buyers, the International Finance Corporation, which has financed a number of sugar mills, and the Sustainable Food Lab , which advises companies at various points in the value chain, contribute their perspectives in this week’s blog series.
We are also conscious that the sugar sector is not the only one to struggle with the challenge of incentivizing and enabling business action at scale. We are looking forward to applying the building block approach to understand what is necessary and what leading companies, governments, donors, and civil society organizations can do to unleash the full potential of the private sector to help drive sustainable development in other commodities, industries, and issue areas in the future.
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