34th Annual Campden Lecture

Transcript

Ladies and gentlemen, it's a huge honour and privilege to be with you here today, to talk to you about a subject which is incredibly close to my heart, but also fundamentally important to the future of our businesses. The title of the lecture seems somewhat overwhelming, so I would like to think of this, and for you to listen to this, as less of a lecture and more of a story - a story of challenge, a story of adversity but, ultimately, one of collaboration.

And I think it is very apt when I think of the people in this room together, and the very essence of Campden itself, that we should talk about the need for collaboration on issues that are incredibly important to us and, some would say and argue, difficult to achieve and deliver.

As you all know, global agriculture and our land resources face significant challenges over the coming decades: With the world population set to reach 8 billion by 2025, and 9 billion by 2050, we know we will have to double global food production.

And yet, at the same time, we need to reduce agriculture's impact on the environment - dealing with the unpredictable effects of climate change, like floods and drought.

We also need to manage the impact of economic growth in the developing world, with new markets and increased demand from a burgeoning middle class wanting an arguably more wasteful Western diet. The evidence is stark, we are consuming resources and polluting the planet at a level forty per cent higher than the earth can renew or absorb. We need to do more to move towards One Planet Living and away from becoming a planet living beyond its capacity.

Together, these issues comprise what I would describe as the biggest challenge that our generation will face - sustainability.

Now, to some, sustainability has become a buzz word, a cliché. And yet, for me, sustainability isn't central to my business because it's a marketing claim, or because it meets the ethical requirements of my customers. Sustainability is absolutely critical to the economic future of our businesses. It's sustainability in its literal sense - the opportunity to continue to prosper in an uncertain and more challenging future.

Implications for Mars

So, where does that leave us as business leaders? I believe that the businesses that will succeed in the new world order are those whose values demonstrate the mutual relationships between business and their stakeholders. It is only through a genuine recognition, that we are all part of a wider, highly complex infrastructure linking businesses, communities, and the environment together, that we can consistently work to create wealth and prosperity, beyond our factory walls.

Coincidentally it is the 80th anniversary of Mars in Slough. I would like to think that one of the reasons we have been so successful for so long is that our approach to business is genuinely rooted in creating a mutuality of benefits amongst all of our stakeholders.

In fact, one of five principles states that:

"A Mutual benefit is a shared benefit; and a shared benefit will endure"

Without doubt, life in the next 80 years is going to be a lot tougher. And, as I've mentioned, becoming truly sustainable is the biggest challenge our industry has ever faced. However, I believe that, approached in the right way, the food industry, which has shaped history in the past, can do so again. In the 1950s, it was the food industry that developed processed food to make family meals more varied and exciting and it revolutionised packaging to make life more convenient and easier for busy mums. In the 1960s, industry increased investment in R&D, developing new ingredients to create lower-cost food options for cash-strapped families.

And in the 1970s, we developed a better understanding of the relationship between nutrition and health and the food industry, which allowed us to respond to the health lobby with increasing numbers of healthier product lines.

All of these developments delivered mutual benefits for the food industry as well as its customers. Building on this heritage, I am confident that we can shape the course of history again.

Companies and industries are approaching this in many different ways. Some, like Marks & Spencer, have chosen to create a compelling business strategy that recognises the complexity of the sustainability challenge - by having 100's of different commitments. Through transparency and rigour, Marks & Spencer is moving the needle. Only last week it announced it had achieved "carbon neutral" status, the first major retailer to do so. Other businesses have chosen to focus on specific issues - Unilever, whose palm oil commitments and leadership go back many years, has once again raised the bar by creating a roadmap to fully traceable, sustainable palm oil by 2020. It is Unilever, I would argue, and not necessarily campaign groups or governments, that has become the driving force behind change to make the commodity of palm oil a more sustainable one.

At Mars, we have decided we need to become 'sustainable in a generation' - put simply, we absolutely buy the science of climate change. We know that we need to operate differently to today. Humanity is causing this issue, and it will be human ingenuity that needs to solve it. So we are committed to achieving zero fossil fuel energy use and zero greenhouse gas emissions from our operations by 2040. That's absolute numbers, and it's not about off-setting or buying renewable energy - we actually need to do different things in different ways. The technology may not exist today - but we have faith we can achieve this, working with other people, companies and industries.

Sustainability of supply chains

We've also gone this far to help compensate for the bigger challenge - making our own supply chain more sustainable. If we were to focus only on our own operations ourselves, we would, for example, only tackle 10% of our carbon emissions. And that's simply not good enough. So we must all look more closely at the sustainability of our supply chain. Globally we have set out to sustainably source all our main raw materials - and in Mars Chocolate, our efforts are centred on our core ingredient, cocoa.

Many of you will know, cocoa is a fundamentally important crop to the chocolate industry - we can't make our products without it. But few of our customers know where cocoa comes from, or its fragility as a crop. Forgive me for those of you who know this already but for those who don't, cocoa grows in Africa, Asia, Central America, South America - but only within 20 degrees of the equator, so a very small area. Some 70 per cent of cocoa comes from West Africa, with Côte d'Ivoire the world's largest cocoa producer. It grows more than a third of the world's supply but has also recently struggled with its own challenges caused by civil unrest. Cocoa contributes significantly to the Ivorian economy. It represents about 15% of GDP, and about 40% of exports. It supports more than six million people. However, despite its global scale and local significance, the Ivorian cocoa sector is under severe pressure due to persistent poverty and political conflicts. And, unlike rice or wheat, cocoa is an orphan crop. This means that it is regionally important but it receives little attention from research networks, despite its significance. Yields have not increased at the same rate as other crops, incomes are low, and poor farmers have limited access to new tools and knowledge. As a result, the next generation sees less and less reason to farm.

Now, there are clearly many interconnected issues at play but we all know that if the farmers at the start of our supply chain are in trouble then, ultimately, so is the whole industry.

Despite the cocoa industry employing more people than any other industry in the world, there is a world shortage. The global cocoa sector may suffer a 1 million metric ton shortfall by 2020 because of the increasing economic and environmental pressures on cocoa farms. It's just not sustainable.

Ageing trees, combined with exhausted soils, have already caused a steady decline in the amount of cocoa many farmers are able to produce. We are talking here about smallholding farmers, and untreated pests and diseases, as well as a lack of good agricultural practices, have resulted in a worsened situation. The growing taste for chocolate in Asia, particularly China, means an area the size of the Ivory Coast needs to be brought into cocoa cultivation. Either prices must rise, obviously, or the industry may be forced to adapt best loved recipes with substitute fillings.

As an illustration of the impact investment in research and crop development can have, over the last 30 years we have seen just a 16% increase in tonnes per hectare of cocoa, now this is versus corn production which has nearly doubled. The need for investment becomes even clearer when you look at the theoretical yield, in other words the potential crop output in near perfect conditions, which for cocoa stands at 5.6%, versus corn which is at 60%.

In addition to the lack of investment reducing yields, cocoa is an incredibly fragile crop, as we saw in the 1990s when the devastating Witches' Broom Disease practically wiped out Brazil's crop. Prior to the disease taking hold, Brazil was the second largest cocoa producer, but afterwards its output was decimated and dropped from 380,000 tonnes per annum to 90,000 tonnes. Now, Brazil is now a net importer of cocoa. Even in areas that have not had to contend with Witches' Broom, yields and quality will continue to decline unless the global industry recognises the mutual benefits of working together. Unless we do so, we have no hope of creating a sustainable cocoa industry within the next several decades. And it is not just in scientific and agricultural terms, we also need to do more to address the issues of human capital, not least of all child labour that permeates the developing world. Sustainability is about so much more than environment challenges, as important as they are.

Living on the poverty line, being a cocoa farmer, is no easy life. Producing just enough to survive, the world's five million small holding cocoa farmers are unable to make significant investments in their businesses in order to break this cycle. It's therefore no wonder the global sector suffers from fluctuating supply, when we have discontented farmers, variable quality and increasingly negative consumer perceptions.

So, it's a bleak situation and you are sitting there quite rightly thinking what is the industry doing? I firmly believe that many sustainability issues (including this) are precompetitive. Together with the other key players in the cocoa industry, we are collectively committed to helping to build a vibrant, sustainable industry from the farmer to the factory.

To do this I believe that there are four priorities:

1. Investing in science

Firstly, we need to invest more in science to improve cocoa varieties, increase yields, improve resistance to pests and diseases, and increase water and energy use.

We have a Centre for Cocoa Science in Brazil, which has been operating for over 30 years. Today, the Centre is a hub for world-class science and collaboration and leads our work on cocoa breeding, agroforestry systems, biodiversity-rich environments and land rehabilitation. We hope that the Centre's results will enable social change, economic stability and environmental stewardship for the benefit of cocoa farmers throughout the world. To help boost the social and economic well-being of the local cocoa growing community, the Centre also runs a school for farmers and children from the surrounding districts.

Meanwhile, our collaboration that began in 2010, with IBM and the United States Department of Agriculture, has resulted in Mars releasing the sequencing of the cocoa genome so scientists worldwide can use it to develop more resilient cocoa crops. By putting the genome work out into the public domain, we have ensured that the pace of development is maintained with scientists all over the world accessing and using this work - there are no patents to slow this down.

2. Working with farmers

The second priority is to work with farmers. As an industry, we need to help and work more closely with them to help implement more sustainable practices. The sheer number of farmers and lack of infrastructure in some countries make this difficult but we are making progress.

Mars, for example, has worked with international donor agencies, governments and others to establish Cocoa Development Centres in cocoa-growing regions in Asia. These centres provide farmers with the tools, techniques and training to cultivate high-quality yields, and to establish Village Cocoa Clinics – local nurseries that facilitate the commercial distribution of cocoa plants, providing an additional source of income. Based on our success in Asia, we are expanding this initiative through the Côte d'Ivoire. Our goal is to set up 25 Cocoa Development Centres that will reach 50,000 farmers across the country. We will then work with industry partners to create an additional 50 Centres to reach 100,000 more farmers and more. With better planting material, training in good agricultural practice and access to fertilizers, farmers can triple their yields in 3-5 years. Anecdotally, Mars-supported farm rehabilitations have been shown to raise farmer income from under $700 in annual profit to over $3500.

3. Collaboration

I have talked a lot about what we are doing as Mars Chocolate - but our competitors have also responded to the challenges. We know that progress will only come through partnership and collaboration with governments, NGOs, competitors, farmers' groups and the scientific community, to amplify the impact of our collective efforts.

4. Certification

And finally there's certification. Its importance has grown considerably in the last decade yet it still only covers six per cent of cocoa farmers worldwide. The three principal certification organisations, of Fairtrade, Rain Forest Alliance and UTZ, have all grown in importance and impact and provide the framework in which companies can improve the way they work with suppliers, with the aim of boosting their productivity and incomes. Each of these has its strengths - at Mars we work with all three to ensure that we have the strongest possible programme.

We have committed to sourcing only certified cocoa by 2020 and, last month, we announced that we have met our 2011 goal of achieving 10 per cent. In 2012 we will exceed our original target of 20 per cent, making us the largest user of certified cocoa in the world.

We have a goal and are moving in the right direction, and we are making incremental progress. The needle is now moving in the right direction. But by 2020 we need this virtuous circle to happen a million times for a million farmers so that each can grow an additional metric tonne from their existing land. I use cocoa as an example of how great commitment, strong partnerships and a lot of hard work from across all of the industry - origin governments, NGOs, processors, trade and chocolate manufacturers - are needed when tackling the long term future of our crops.

Sustainability at home

In addition to building a sustainable supply chain, from farmer to factory, we need to continue, as an industry, to improve our sustainability at home. I know from my previous roles as chairman of the Sustainability Committee of the FDF the tremendous progress the UK is making. We are committed to reducing our carbon emissions by 35% by 2020; zero food and packaging waste to landfill by 2015; cutting water use by 20% by 2020; and embedding better environmental standards in our transport practices.

Where we can, individual companies can go faster. For example, a number of companies, including Mars, have already stopped sending waste to landfill. Many companies are embedding environmental standards in their transport contracts as they fall for renewal, reducing emissions through warehouse reorganisation, consolidating deliveries, and introducing double-decker lorries and fewer inter-depot transfers. Packaging can be more of a challenge. Unfortunately, broken chocolate doesn't sell well! Our packaging has to be designed to protect our products while in transit from factory to store, so that they reach the consumer in the best possible condition. But we need to balance the fragility of chocolate products against our environmental impact. This is why we are committed to reducing packaging weights by 10%, designing our packaging to be 100% recyclable or recoverable, and increasing the level of recycled content in our packaging by 10%, all by 2015.