Finding SUSTAINABLE APPROCHES
Social and environmental standards define sustainability, the latest customer and consumer issue to impact baking and snack operations. What are the baking and snack food industries doing?
BakingBusiness.com, April 1, 2008
by Laurie Gorton

Faced with soaring costs for raw materials and energy, might “sustainability” actually be the bigger challenge for bakers and snack food manufacturers? This intricate and difficult subject promises to affect the strategy, tactics, marketing positions, capital investments — and budgets! — of every food manufacturer doing business with American retailers and American consumers.

Wal-Mart’s “21st Century Leadership” policy with its emphasis on sustainability, announced in 2005, may have thrown up the biggest wake, but there’s been plenty of activity on the sustainability waterfront for many years. You can look as far back as the scientific forestry methods pioneered in Germany and France during the 17th and 18th centuries or at the conservation movement that awoke in the US during the late 19th century to find concern about man’s use, and misuse, of the world’s resources. The recycling movement of the 1960s also manifested worries about the natural world and our place in it.

What’s different about today’s sustainability effort is its pursuit of social as well as environmental standards. This facet was voiced in 1987 by the United Nation’s World Commission on Environment and Development (also known as the Brundtland Commission), when it stated, “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

From a consumer perspective, the 2007 Oscar-winning documentary “An Inconvenient Truth” brought home similar points.

All the buzz about sustainability during the past few years prompted the Grocery Manufacturers Association (GMA) to put together its first ever Sustainability Summit in Washington, DC, Jan. 17-18. The meeting addressed the food industry’s many challenges — challenges that also affect the industry’s suppliers and other stakeholders.

Matt Kistler, senior vice-president of sustainability for Wal-Mart, Bentonville, AR, told summit attendees that the supply chain holds the biggest opportunities for sustainability projects. “In some cases, it requires looking at how you do things differently,” he said. Of course, by supply chain, he was talking about not only food manufacturers providing products to grocery retailers but also the manufacturers’ own suppliers of raw materials.

Also speaking at the GMA summit, Daniel C. Esty, director of the Yale Center for Environmental Law and author of “Green to Gold,” a book for executives trying to understand and address the issue of sustainability, said of the Wal-Mart effort and its c.e.o., “Lee Scott has unleashed a green tsunami, but it is not just Wal-Mart. We are seeing investors focusing on climate issues and pushing capital into the market.”

A few weeks later in mid-March at a Food Processing Suppliers Association conference, Hendrik Eyselee, director of packaging and process technologies for Kraft Foods, Northfield, IL, observed, “Sustainability is the interconnection of environmental responsibility, social responsibility and economic responsibility.” The business model of sustainability, he continued, is to “build sustainability into front-end design and drive continuous improvement throughout the supply chain from ‘end to end.’”

DRIVING FACTORS. Environmental sustainability means different things to different groups, and the concept is washing over, and being embraced by, a multitude of industries, not just food processing. Countless opportunities exist to ride this wave of ethical consumerism, according to Todd Hale, senior vice-president of consumer and shopper insights at Nielsen Homescan and Spectra, New York, NY.

“Retailer requirements, specifically Wal-Mart, are influencers but not the primary movers [of the sustainability movement],” stated a report about sustainability commissioned by GMA and written by Deloitte, a New York-based consulting firm.

The Natural Marketing Institute, a business consulting and research firm based at Harleysville, PA, estimated that US sales of products that fit “lifestyles of health and sustainability” (LOHAS) hit $209 billion in 2005 and projected this figure to double in excess of $400 billion by 2010. It described the LOHAS consumer — one in five American adults — as passionate environmental stewards who incorporate their values into their purchase decisions.

Consumer concern about the social and environmental impact of food company practices is becoming more prevalent, according to a report published in January by Information Resources, Inc. (IRI), a Chicago, IL-based firm specializing in consumer research. When asked about their attitudes concerning organic, eco-friendly produced and packaged goods and fair treatment of employees, nearly half of the 22,000 US shoppers surveyed said they take at least one of those factors into consideration when choosing packaged food products. A further one-fifth were found to be “sustainability driven,” committing themselves to require at least two factors relating to how green, organic or ethically manufactured a product is.

The study also debunked the assumption that growing sales of organic, fair trade and green products are a youth-oriented phenomenon. “Consumers aged 55 and older are the real driving force behind this expansion,” said Andrew Salzman, IRI’s chief marketing officer. “Generally, with the time to seek out specialty items and the resources to afford premium-priced products, aging consumers are a critical target market today.” He noted, as well, that as manufacturers move to expand their offerings of sustainably produced goods, they can expect growth across all consumer groups.

From a legal and regulatory point of view, the rules that govern sustainability are voluntary. Regulations do exist in the US for air and water quality, as mandated by the Clean Air Act (1970) and the Clean Water Act (1972), and their subsequent amendments. However, fulfilling the requirements of retailers is quickly becoming a mandatory business standard, stretching far beyond US boundaries.

Mr. Scott, Wal-Mart’s president and c.e.o., in a presentation to the company’s US store managers on Jan. 23, talked about taking sustainability to a global standard. He observed,“The effort is now focused on social standards, and I believe it should be expanded to environmental standards as well. Today, I call on all major global retailers to join this effort.”

Mr. Scott went on to say Wal-Mart will continue to focus on requiring suppliers to meet specific environmental, social and quality standards; certifying and ensuring supplier compliance with social and environmental standards; and favoring and in some cases even paying more to suppliers that meet the company’s standards and share its commitment to quality and sustainability.

COMPLICATING FACTORS. Of course, there are down sides to sustainability. For one thing, concept is hard to define in exact business terms, something noted by Gene Kahn, vice-president and global sustainability officer for General Mills, Inc., Minneapolis, MN, speaking at the January GMA conference. He said when his company began trying to evaluate the impact US agriculture has on the environment — a necessary step for General Mills to compare its performance to the broader market — it found few resources available for a science-based accounting.

Return on investment tends to be slower than conventional capital investment projects. Faced with savings of pennies, compared with expenditures of thousands, companies tend to back off.

“Well-intentioned sustainability programs may lead to net negative outcomes,” noted Deloitte in its GMA report . “Thoughtful consideration and a broader life-cycle perspective are necessary to understand the full impact of sustainability initiatives.”

There’s also the questionable practice of “greenwashing” or exaggerating a product’s eco-friendliness in marketing campaigns. A New York, NY, advertising agency, Green Team Advertising, conducts “awakening audits” for its clients. Such an audit can point out potential problems, suggest solutions and examine the company’s supply chain or product line to ascertain whether it can be promoted as truly sustainable.

The tendency to brag about even modest improvements is understandable. “Grandstanding is ahead of the action,” said Joel Swisher, director of research at the Rocky Mountain Institute, a nonprofit energy research organization located at Boulder, CO, speaking to the New York Times. He added, however, that trumpeting even modest changes achieved is not a bad thing.“It is moving in the right direction,” he said.

INDUSTRY RESOURCES. Sustainability encompasses a wide range of activities (see “Sustainability’s Scope” on Page 30). Added to the environmental mantra of “reduce, reuse, recycle” are concerns about social programs such as fair trade and employee treatment, plus ethical business practices including transparency and stakeholder value.

The American Bakers Association (ABA), through its Energy and Environmental Health Committee, is evaluating its role in sustainable development for the baking industry. Describing the issue, it recently advised association members, “Sustainable development remains a high priority for the baking industry. Sustainability issues are not new; however, they have become a greater focus over the past year as there are increasing pressures from a variety of stakeholders nationally and internationally. The regulators and legislators are evaluating issues ranging from carbon emissions, water conservation, to energy efficiency. There is an increased emphasis on being a good corporate citizen while operating more efficiently.”

At the committee’s Oct. 7 meeting, Rasma Zvaners, ABA’s senior manager, government relations, briefed members on developing a sustainability program for bakers. She reported about the food industry sustainability initiative in which ABA participates. The association is specifically involved with working groups covering water and energy, climate and carbon footprint concerns.

During the group’s “Band of Bakers” March on Washington, held March 12, participants brought up the topic of ethanol not only as it related to rising commodity costs but also in light of sustainability.

The Deloitte report to GMA offered key insights. These included seizing a leadership position that enhances overall business advantage; going “green” is an outcome, not a goal unto itself; accepting that sustainability is a critical business issue that is quickly becoming mandatory; realizing that sustainable business models are fundamentally different and have far-reaching implications; being careful to avoid unintended consequences; and taking disciplined, not adhoc, approaches, with strategic alignment at the top.

GMA also released its “Environmental Sustainability Resource Guide” at the January summit. This report details the group’s s ustainability initiative and reports results of working groups involving energy and climate change, packaging and water. It lists many governmental and nongovernmental resources and provides case histories involving environmental and nd n social responsibility projects.

Because packaging offers such aaa visible benchmark of sustainability ty ty for many consumers, much effort rt rt has gone into this area. Among theee many reports offering guidance iss the Scientific Status Summary on packaging and source reduction issued in April 2007 by the Institute of Food Technologists. EARLY ADOPTER. Seeing the needs of its customers, consumers and trading partners, Flowers Foods, Inc., Thomasville, GA, established sustainability as a companywide initiative and described its strategy to stakeholders in 2006. It said, “Flowers Foods recognizes that without a healthy environment, our company cannot be successful.” The company set out its initiative to include recycling and reduction of resources, together with fuel and energy consumption. It also vowed to seek innovations to reduce the use of nonrenewable resources and to further integrate sustainability into the company’s core processes. Supplier initiatives, workforce education and participation in community efforts were also noted.

As of March, much has been accomplished, yet a great deal remains to be done, according to Dale Mediate, Flowers Foods’ director of sustainability. “The biggest c hallenge so far has been to collect the benchmarking data an d do so ac curately,” he said, noting that priority is being given to water and energy.
Flowers F Foods’ initiative, however, is already paying benefits. “And sometimes in ways you don’t expect,” Mr. Mediate added.

As an example, he cited 4 million gal in water savings at the company’s five Atlanta-area bakeries. The region is in drought, and Georgia’s governor asked businesses to cut water usage by at least 10%. “This made us look at what was really using water in the bakeries. One answer was the clean-in-place (CIP) system on the cream yeast tanks.”

The company went to its yeast supplier for ideas and now works with more concentrated yeast. “This means not only fewer tank cleanings but also fewer deliveries,” Mr. Mediate said. “What’s especially beneficial are the new solutions that have come out of our sustainability efforts.”

Because sustainability looks at the entire life cycle of products, including internal consumables such as ingredient packaging that don’t reach end users, companies must often work up and down their supply chains. Just as Flowers Foods went to its yeast supplier, it also worked with the recycling companies to get them to accept additional types of ingredient packaging. While fiber drums with metal rims have been hard to pass along, the recycling of kraft bags has been a “huge success,” in Mr. Mediate’s words.

Are other bakers spending money on sustainability projects? Oh, yes!, according to results of Baking & Snack’s 2008 capital expenditures survey published in the February issue. While a mere 7% of respondents cited sustainability as influential in the past two years, the response jumped to 10% when looking at it as an influence this year. The main reason was a growing mandate by customers for sustainability practices. And nearly 88% of all respondents cited formal sustainability plans already in place or in advanced stages of development. The survey also found that 75% of respondent companies recycle process materials, 54% pre-treat wastewater and 85% either use or are investigating use of alternative energy.

COMMITTED TO GREEN. No single food processor has taken the cause of conservation further than Kettle Foods, Inc., producer of Kettle brand snacks. “It’s in the DNA of our brand,” said Tim Fallon, president and general manager, North America, Kettle Foods, Salem, OR.

Well-known for its environmental stance, the company took an even more aggressive approach to building and operating its new potato chip plant at Beloit, WI. Kettle Foods chose to follow Leadership in Energy and Environmental Design (LEED) principles developed by the US Green Building Council. The result was the first food processing facility to earn Gold LEED certified status.

During construction, 35% of building materials were harvested, manufactured or extracted within 500 miles of the plant. Fourteen percent of building materials had recycled content, and more than 75% of the construction waste materials were recycled, thus reducing landfill waste. All paints, sealants and coatings meet Green Seal standards, ensuring healthy indoor air quality. Wind turbines generate electricity to help offset part of the plant’s needs.

Day-to-day operations are equally as green. The plant filters and reuses 1.65 million gal of water annually used to wash potatoes. It diverts 120,000 gal of this filtered “graywater” to the facility’s restrooms. Everything from paper, cans and glass to fluorescent bulbs, cardboard and scrap metal are recycled throughout the facility at designated recycling stations. And five of the site’s 12 acres are being restored to native prairie. Many of the green aspects to the plant involve employee relations, and that includes the break room with its spectacular hill-top view of the lush valleys around the plant.

In Salem, the company’s headquarters operates one of the largest solar arrays in the country. Wind power and wetlands restoration represent other important sustainability initiatives taken on by the company. The company also has its waste cooking oil from Salem and Beloit processed into biodiesel, which fuels three company-owned Volkswagen Beetles.

Because of its efforts to improve the environmental health of its 7-acre site in Oregon, Kettle Foods earned Salmon-Safe certification in 2006, only the second corporate campus to achieve this award. That year as well, the company started purchasing wind energy credits to offset 100% of its electricity use in the US.

GETTING SPECIFIC. An environmental sustainability initiative may cover a gamut of endeavors. It may be as simple as altering the shape of the noodles used to make Hamburger Helper so they fit better in the box and reduce the package size, as General Mills has done, or it could, as Kraft Foods has done, involve developing technology to trap and reuse wasted energy from the ovens that bake Oreo cookies.

The General Mills effort reduced the box size by 20% and also created a cardboard shipping case with a window, which means 25% less material is needed. When measured against Wal-Mart’s packaging scorecard, this means annual savings of 890,000 lb of paper fiber, a cut in greenhouse emissions by 11% and elimination of 500 trucks from the road each year.

Kraft, on a companywide basis during 2001-06, reduced energy consumption by 22.8%, water consumption by 32.4% and waste generation by 14%, earning the company international recognition by awards of excellence and responsibility.

Trash recycling was the focus of a program in Chicago, where Schulze & Burch Biscuit Co. collaborated with 11 other companies and two city departments. By late 2007, the Chicago Waste to Profit Network had diverted a total of 4,400 tons of waste away from landfill dumping and into projects involving alternative fuels, composting and anaerobic digestion, according to Schulze & Burch’s Jim McBride, who was selected as group spokesman. Because of this program, the bakery predicted it will reduce its trash by one-half by the end of 2008.

The reduction of packaging waste is an important element in sustainability. Discussing capital investment plans for the coming year, Dave Watson, vicepresident of Pepperidge Farm, Norwalk, CT, described the company’s interest in packaging changes, looking at thinner gauge films, for example, and trying to use less corrugated cases. “We’re looking at returnable, reusable cases. This issue serves both cost savings and sustainability,” he said.

Kellogg Company, Battle Creek, MI, reported that it has eliminated more than 3 million lb of plastic packaging through liner reductions in 2006, and more than 4 million lb of packaging was eliminated by taking out the cardboard backing on Kellogg’s Special K bars. The company is one of the largest users of recycled paperboard, using such materials for most of its products since 1906.

In 2006, Kellogg joined the Climate Leaders program of the Environmental Protection Agency, a voluntary government-industry partnership designed to measure and reduce greenhouse gas emissions. The projects at Kellogg involve energy use by its manufacturing locations and its transportation fleet. Modifications to the steam system at the Battle Creek plant, for example, saved enough natural gas to reduce greenhouse gas emissions by 1,300 tons. Its fleet vehicles are now controlled to automatically shut down after five minutes of idle time, and case size changes for several cereal products have eliminated 585 truck trips, accounting for 8 million truck miles, according to company estimates. “Net zero” describes the challenge Frito-Lay, Inc., Plano, TX, has set for itself. By this, the company means to create environmentally friendly snack foods through a strategy of water and energy conservation. The snack plant at Casa Grande, AZ, is first in line. Here, the company plans to install high-tech filters to recycle most of the wash water used on potatoes and corn and convert the leftover sludge into methane to power the plant’s boilers. It also intends to build at least 50 acres of solar concentrators behind the facility to generate solar power. A biomass generator to burn agricultural waste is also planned. When the retrofit of Casa Grande is complete in 2010, the plant will have reduced electricity and water consumption by 90% and natural gas use by 80%, with greenhouse emissions cut by 50 to 75%.

On the roof of Frito-Lay’s Phoenix, AZ, distribution center, the company’s largest, more than 1,000 photovoltaic solar cells produce roughly 350,000 killowatt-hours of electricity. The power goes directly to supply the center, meeting a portion of the facility’s daytime energy needs. Similar systems run at six other distribution centers in California and Arizona, and Frito-Lay operates a Gold LEED-certified distribution center in New York, opened in 2005.

In November 2007, Grupo Bimbo, based at Mexico City and parent company of Bimbo Bakeries USA, launched its Comprometidos con el Medio Ambiente (Committed with the Environment) program with a ceremony honoring its Azcapotzalco plant, which just achieved its Industria Limpia (Clean Industry) certificate granted by the Mexican government. Twenty of Grupo Bimbo’s plants have achieved this status already, and the company said its goal for 2008 is to certify all of its plants under this program. Environmental management actions at Grupo Bimbo involve energy savings, control of air polluting emissions, water savings, comprehensive waste management and entrepreneurial social responsibility related to the protection of the environment.

CARBON WORLD. With implementation of its packaging scorecard on Feb. 1, Wal-Mart upped the ante on sustainability. The rating system allows the retailer’s suppliers to measure their progress toward developing sustainable packaging initiatives. It uses metrics covering greenhouse gas emissions, product-to-package ratios, space utilization, innovation, the amount of renewable energy used and the distance packaging materials are transported.

This rating system won’t be the only way customers and consumers measure sustainability of the goods they purchase. Sustainability involves a unique confluence of interests from consumers, governmental and nongovernmental agencies, businesses and their suppliers and the media to the scientific community. Each expects serious attention to its goals. Delivering against those expectations will be the job of all.