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Food Business and the Global Water Challenge

Exploring the Link between Food Business, Environmental Stakeholders, Farmers, and Water Resources

Bachelor Thesis 2008 63 Pages

Business economics - Business Ethics, Corporate Ethics

Excerpt

Table of Contents

Figures, Tables, and Exhibits iv

Glossary of Abbreviations v

1 Introduction

2 Linking Water, Farmers, and Context
2.1 A Precious Resource
2.2 RisingCompetition for Water
2.3 Meeting the Challenges

3 The Framework: StakeholderTheory
3.1 Changes in the Business Environment
3.2 Stakeholder Theory and Relationships

4 Linking Food Business, Environmental Stakeholders, and Farmers
4.1 Changes in the Agri-Food Chain
4.2 Linking Food Business and Environmental Stakeholders
4.3 Linking Food Business and Farmers

5 Case Study:GlobalGAP
5.1 Background and Significance
5.2 Impact on Water Management
5.3 Relationshipswith Environmental Stakeholders
5.4 RelationshipswithFarmers

6 Case Study: Nestlé
6.1 Background and Significance
6.2 Impact on Water Management
6.3 Relationshipswith Environmental Stakeholders
6.4 RelationshipswithFarmers
6.5 Collaborating in Initiatives

7 Conclusions

8 Abstract

List of References

Annex

Figures, Tables, and Exhibits

List of Figures

Figure 1: Object of investigation — Relationships

Figure 2: Exploring the link between water, farmers, and context

Figure 3: Sectoral water allocation

Figure 4: Exploitation of water basins

Figure 5: Water stress

Figure 6: Critical factors in the link between farmers and water resources

Figure 7: A two-tier stakeholder map

Figure 8: Exploring the link between food business, ESIGs, and farmers

Figure 9: The value chain becomes a 'chain of responsibility'

Figure 10: Critical factors in the link between food business, ESIGs, and farmers

Figure 11: Exploring the link between GlobalGAP, ESIGs, farmers, and water

Figure 12: GlobalGAP certified producers worldwide

Figure 13: Exploring the link between Nestlé, ESIGs, farmers, and water

Figure 14: Worldwide and Nestlé's freshwater withdrawal

Figure 15: Research findings — Critical factors

Figure 16: Tracing a batch of cereals from food manufacturer back to farmers

List of Tables

Table 1: Factors influencing water demand and supply

Table 2: GlobalGAP Compliance Criteria to water resources management

Table 3: GlobalGAP Compliance Criteria to water resources protection

List of Exhibits

Exhibit 1: Evolution of business corporations

Exhibit 2: Key principles of arranging stakeholder relationships

Exhibit 3: ESIGs' claims on water management in the agri-food value chain

Exhibit 4:Traceability and controlling throughout supply chains

Exhibit 5: Nestlé group profile

Exhibit 6: Nestlé sourcing profile

Exhibit 7: Nestlé's principles of purchasing

Glossary of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

Background. Throughout history, human progress has depended on access to clean water, as well as on the ability of societies to harness the potential of water as a productive resource. However, for a large section of humanity, these foundations are not currently in place. Today, more than 1 billion people in developing countries have inadequate access to water. Meanwhile, the global population is growing by 70 million people per year, which will further increase the demand for water and for food. Agriculture accounts for three-quarters of total freshwater use and the sector is experiencing increasing competition for water.[1] Therefore, farmers are chal­lenged to manage water in a more efficient and environmentally sustainable way. However, bad governance poses a central barrier to sound water management worldwide. Meanwhile, food business is increasingly impacting agricultural practices. On the other hand, Environmental Spe­cial-Interest Groups' (ESIGs) influence on food business is increasing and demanding the sound management of water within the agri-food supply chain. Thus, ESIGs impact farmers via food business. Hence, a better understanding of food companies' relationships with both ESIGs and farmers is needed, in order to be able to assess the impact of food business on water resources.

Research question. Against the background of the described context, open questions arise. The central research question of this paper is:

Does food business satisfy the interests of Environmental Special-Interest Groups and farmers in efficient and environmentally sustainable agricultural water management in developing countries, as well as the interests in the related arrangements of relationships?

Scope and methodology. The object of investigation is the link between food business, ESIGs, farmers, and water resources, more specifically, the respective relationships (see Fig. 1.) This re­search draws on stakeholder theory, and its applied form, the stakeholder approach, as a frame­work for explaining stakeholder relationships in food business. To provide evidence, two case studies, involving GlobalGAP and Nestlé, were conducted. Therefore, review and analysis of aca­demic literature, as well as businesses' and stakeholders' reporting was carried out.

Figure 1: Object of investigation — Relationships

Abbildung in dieser Leseprobe nicht enthalten

Source: Author's illustration.

Course of investigation. In order to contribute to the central research question, sub-questions are explored. The course of investigation is as follows: Chapter 2 embeds the research question in the relevant context and relationships; it reviews the link between farmers and water re­sources. The question explored is; what are the criticalfactors in agricultural watermanagement and governance, so as to cope with water challenges? Chapter 3 introduces stakeholder theory, as a framework for better understanding business relationships. After a review of macro changes in the business environment, the following question is examined; what key principles does stakeholder theory provide for arranging business relationships? Subsequently, Chapter 4 trans­fers the stakeholder approach and its key principles to the relationships between food business, ESIGs and farmers. Following a review of current changes in the agri-food value chain, the inves­tigated question is; what critical factors does the stakeholder approach identify in arranging rela­tionships with ESIGs and farmers in food business? Drawing on the identified critical factors, Chapter 5 conducts a case study on GlobalGAP, an agricultural certification scheme and Chapter 6 undertakes a case study of the food company Nestlé. The conclusions in Chapter 7 then at­tempt to contribute to the central research question. Finally, Chapter 8 provides an abstract of the course of research and overall findings.

2 Linking Water, Farmers, and Context

Today, 1.1 billion people in developing countries have inadequate access to water. As global population is growing by 70 million people per year, demand for water and for food will in­crease. While agriculture already claims 80 percent of total freshwater use and is experiencing increasing competition for water, this poses questions about the challenges attached to the link between water resources, farmers, and the overall context.

Fig. 2 provides orientation on the chapter's placement within the overall object of investigation.

Figure 2: Exploringthe link between water, farmers, and context

illustration not visible in this excerpt

Source: Author's illustration.

At the beginning, Chapter 2.1 will provide a brief review of water's relevance for humanity. Chapter 2.1 will then explore the link between water resources and farmers, as well as embed­ding them into a wider context. Finally, Chapter 2.3 attempts to answer the question, what are the critical factors in agricultural water management and governance so as to cope with water challenges?

2.1 A Precious Resource

In order to understand the significance of water for today's world, this chapter will conduct a brief review of water's many values, its availability and the devastating effects of water scarcity.

Water's multiple values. The challenges related to water management can only be under­stood within the context of the multiple values attached to water in today's world. — "By means of water we give life to everything," the Koran says.[2] This simple teaching captures a deeper wis­dom. People need water as surely as they need oxygen; without it life could not exist. But water gives life in a far broader sense as well. People need clean water to maintain their health and dignity. Water also sustains ecological systems and is an input into the production systems that maintain livelihoods.[3] Beyond the vital necessity, access to clean water is among the most po­werful drivers for human development. It extends opportunity and helps establish a virtuous cycle of improving health and rising wealth.[4]

Water distribution and availability. Water is indeed a precious resource:

„Only 2.5% of the world's water is not salty, and two-thirds of this is locked in ice caps and glaciers. The remainder is subject to the continuous hydrological cycle ... Some 20% lies in areas too remote ... and three-guarters of the rest comes at the wrong time and place, as monsoons and floods ... Humans ac­tually utilize less than 0.08 of 1% of the total water on the planet."[5]

Additionally, tremendous inequality in access to clean water at the household level affects a large portion of humanity. Today, one in five people living in the developing world - some 1.1 billion people in all - have inadequate access to clean water.[6]

Scarcity means devastation. 'Not having access' to water is a polite euphemism for a form of deprivation that undermines human dignity, destroys opportunity and threatens life. Multiplier effects are widespread. To name a few depressing figures; the annual death of some 1.8 million children; close to half of all people in developing countries suffering from a health problem; mil­lions of women spending several hours a day collecting water; the loss of 443 million school days each year; life cycles of disadvantage affecting millions of people and leading to poverty in adulthood; and massive economic waste.[7]

Water has many vital values for humanity. Not having access essentially means devastation.

2.2 Rising Competition for Water

As water is such a precious resource, access is highly competitive. While the global population continues to grow, agriculture - the major user of water - is faced with complex challenges. This chapter explores the link between water resources and farmers. Following a review of water's role in food production, an examination of future demand, supply and competition is conducted.

Water for food. During the second half of the 20th century, the global food system responded to a two-fold increase in the world's population by more than doubling food production. Mean­while, developing countries were able to increase per capita food availability by 30 percent. Irri­gation development played a decisive role in rising agricultural productivity — with a consequent increase in the quantity of water utilized for this purpose.[8] Today, irrigated agriculture accounts for more than 80 percent of total freshwater use in developing countries (see Fig. 3).[9] Irrigation is crucial in agriculture; it helps to double or even triple yields.[10] And producing food takes large amounts of water — from 2,000 to 5,000 liters per person per day.[11] Agriculture is often accused of inefficient, wasteful water use. This in turn is due to the prevalence of poor water-use effi­ciency in irrigation, estimated at 38 percent in developing countries.[12]

Figure 3: Sectoral water allocation

Abbildung in dieser Leseprobe nicht enthalten

Note: Regarding developing countries. Source: UNDP (2006), p. 138.

Increasing demand. Looking ahead, population growth, rising incomes, increasing food de­mand, rapid urbanization, changing dietary patterns, and industrial development will all increase the demand for water.[13] Every year, the global population grows by 70 million people, and is ex­pected to reach 8.1 billion by 2030. Almost all of the population increase will take place in low- income countries.[14] Consequently, food production will have to be roughly two-thirds higher in 2030 than it was in 2000, which will also mean increased demand for irrigation.[15] In the mean­time, non-irrigation water use is projected to be twice as high in 2025 than it was in 1995. How­ever, demand will increase for what is essentially a fixed supply of water; new sources are in­creasingly expensive and ecologically damaging to exploit.[16]

Pressure on supply. Furthermore, both naturally occurring conditions and human impacts are asserting strong pressure on water resources. Climate change will increase water stress in large areas of the developing world by modifying precipitation patterns.[17] The construction of dams, deforestation, increasing areas of farmland, urbanization, pollution and so on, all influence the quantities and quality of available freshwater.[18] Unadapted agricultural intensification can lead to the breakdown of a natural ecosystem's resilience. Widespread effects of poor agricultural water management include; pollution and depletion of surface water, as well as groundwater (see Fig. 4); salinization; erosion; and ultimately, the destruction of entire ecosystems.[19]

Figure 4: Exploitation of water basins

Abbildung in dieser Leseprobe nicht enthalten

Note: Figures express human water use divided by minimum recharge level. Source: UNDP (2006), p. 140. Tab. 1 recapitulates key factors influencing water demand and supply in developing countries.

Sources: UNDP (2006), pp. 162, 173 et seqq.; UNESCO (2006), pp. 44, 115, 245, 251; author's illustration.

Intensifying competition. Agriculture, the major user of freshwater and provider of food for a growing population, will be a focal point for future adjustment pressures.[20] As urban and indus­trial users increase their demands for water, agriculture is likely to lose out.[21] In most cases, the sector simply shows the lowest economic return on water use.[22] Throughout the developing world competition over water is intensifying at an alarming rate, with violence becoming increa­singly common.[23] Serageldin (n.d.) warned in 1995 that,"the wars of the next century will be fought over water - unless we change our approach to managing this precious and vital resource."[24]

Change is needed. Agriculture faces complex challenges; raising water efficiency, that is pro­ducing more food of better quality, while using less water per unit of output; ensuring environ­mental sustainability; while simultaneously providing rural people with livelihood opportuni­ties.[25] Current and imminent water stress (see Fig. 5) and the pressing need to renegotiate inter­sectoral allocations are forcing changes in the way water is managed in agriculture.

2.3 Meeting the Challenges

Due to the complex issues agriculture is confronted with, an integrated approach to meeting the challenges will be needed. This chapter introduces such an approach. Furthermore, the question is explored, what are the criticalfactors in agricultural governance to implement the approach?

An integrated approach. The various concerns about water are interdependent. Within fast changing contexts, a holistic and flexi­ble approach is essential.[26] As a major user of water, agriculture must play a central role. It is widely agreed that an integrated ap­proach to water resources management must be guided by the core principles of efficiency, environmental sustainability, and so­cial equity. Simultaneously, the approach must be sufficiently flexi­ble to fit into different local contexts.[27]

Bad governance. While the technology and know-how needed to adopt the proposed integrated approach is readily available,[28] go­vernance issues form the central barrier to sound agricultural wa­ter management worldwide. Often, water scarcity is caused by in­stitutions and legal frameworks that encourage overuse in agricul­ture through subsidies and that simultaneously disadvantage the poor.[29] The dysfunctions of irrigation schemes can be traced back to a lack of stakeholder involvement.[30]

Stakeholder-inclusive governance. Decisions on water alloca­tions must be made at various scales, recognizing not only demands, but water's many values as well.[31] Alongside improved farming practices, better governance is the key to implementing a more efficient, socially equitable and environmentally sustainable approach to water manage­ment in agriculture. While improving institutions and legal frameworks is crucial, governance must increasingly embrace all concerned stakeholders — in civil society as well as in the public and private sector.[32]

Food business' role. However, the decisions governing food production are increasingly beyond the control of farmers and even countries. Specifications for agricultural export products are being defined by private sector firms far away from the fields. Today, only a few multina­tional food processors and retailers play an increasing role in determining how food is produced, traded and sold worldwide. These developments can be regarded as a form of governance of the global agri-food system.[33] Hence, it could be argued, that globally operating food companies are increasingly dominating the multi-stakeholder-driven approach to governance. Food business has a central impact on addressing water management in agriculture.

The way forward. The challenges are tremendous. As UNDP (2006) states:

"Faced with ... mounting pressure on the world's freshwater resources, the 21st century water governance challenge may prove to be among the most daunting faced in human history."[34] *

However, the world today has the technology, the finance and the human capacity to meet the pressing challenges.[35] Farmers around the world are deeply affected by economic factors that are beyond their control. They must be encouraged and enabled to satisfy the diverse demands they face.[36] While the principle of social equity in agricultural water management is recognized as crucial for development, this paper focuses on the emerging critical factors of efficiency and environmental sustainability. Governance, guided by the principle of stakeholder inclusiveness, forms the key to implementing an integrated approach to water management (see Fig. 6).

Figure 6: Critical factors in the link between farmers and water resources

Abbildung in dieser Leseprobe nicht enthalten

Source: Author's illustration.

Food business plays a central role in addressing this issue. As companies increase their control over the agri-food system, a framework is needed to better understand business relationships with the other stakeholders of water issues.

3 The Framework: StakeholderTheory

The increasing impact of multinational companies on the global agri-food system is symptomatic of the changes that take place in today's business environment. Chapter 3.1 elaborates how these changes affect business relationships. Recognizing a firm's responsibility to a wide range of stakeholders, stakeholder theory could offer a framework to better understand these relation­ships. Chapter 3.2 therefore explores the question, what key principles does stakeholder theory provide for arranging changing business relationships?

3.1 Changes in the Business Environment

From the globalization of markets to the developments in information technology, the very na­ture of the modern corporation and its business environment have changed tremendously in re­cent decades. This chapter begins with a brief review of the evolution of business corporations (see Exh. 1) and the dominant shareholder approach. Subsequently, it is examined, how macro changes in the business environment affect a firm's relationships.

Exhibit 1: Evolution of business corporations

The modern business corporation emerged during the 20th century as one of the most influential innovations in human history. Somewhere in the past, firms were relatively simple, and 'doing business' consisted of buying raw ma­terials from suppliers, converting it to products, and selling it to customers. For the most part owner-entrepreneurs worked along with family members. Socio-economic factors required larger amounts of capital. Ownership and management of the firm became separated as capital was raised from banks and stockholders. And, to be successful, managers had to simultaneously sa­tisfy owners, employees, suppliers, and customers. As businesses grew, ma­nagerialism, hierarchy and stability evolved together.

Source: Freeman et al. (2007), pp. 21 et seq.

Shareholder approach. During the past thirty years, the managerial model has put sharehold­ers at the center of the firm as the most important group to whom managers have responsibility. This mindset copes with the increasing complexity of the business world by focusing on creating value for shareholders. The shareholder approach is inherently resistant to change, in that it proposes that change should occur only when shareholders are unhappy. The interests of cus­tomers and employees are often traded off (falsely, usually) with the interests of shareholders. Remarkably, many of the recent, major business scandals at Enron, WorldCom, and others, are due, in part, to the reliance on increasing shareholder value. The world is changing, such that the stability and predictability required by the shareholder approach can no longer be assured.[37]

Macro changes. There are at least three macro changes that have evolved in recent years, which make business more complex and uncertain. First, the liberalization of political institutions and markets has resulted in the opening of once-closed societies and the globalization of busi­ness. Therefore, organizations must be able to work effectively in a multitude of settings. Second, there is an increasing public awareness of the impact that business has on the environ­ment and society at large.[38] More than USD 2,700 billion has been invested specifically in com­panies that meet corresponding criteria.[39]

[...]


[1] Cp. UNDP (2006): Human Development Report 2006: Beyond scarcity - Power, poverty and the global water crisis. United Nations Development Programme, USA. New York, USA: Palgrave Macmillan. Retr. Jan. 21, 2008, http://hdr.undp.org/en/media/hdr06-complete.pdf; pp. let seqq.

[2] The Koran (n.d.): Book of The Prophets. 21:30.

[3] Cp. UNDP (2006), p. 2.

[4] Cp. UNDP (2006), p. 5.

[5] Serageldin, I. (1999): Looking Ahead: Water, Life and the Environment in the Twenty-first Century. In: WaterRe- sources Development, Vol. 15, Nos. 1/2; p. 18.

[6] Cp. UNDP (2006), p. 77.

[7] Cp. UNDP (2006), pp. 5 et seq.

[8] Cp. UNESCO (2006): The United Nations World Water Development Report 2: Water, a shared responsibility. United Nations Educational, Scientific and Cultural Organization, France. New York, USA: Berghahn Books. Retr. Feb. 3, 2008, http://unesdoc.unesco.org/images/0014/001454/145405E.pdf; pp. 245 et seqq.

[9] Cp. UNDP (2006), p. 14.

[10] Cp. UNESCO (2006), p. 270.

[11] Cp. UNESCO (2006), p. 247. Note: Depending on diet and efficiency of local production systems.

[12] Cp. UNESCO (2006), p. 255. Also cp. Serageldin (1999), pp. 18 et seq.

[13] Cp. UNDP (2006), pp. 173 et seq.

[14] Cp. UNESCO (2006), p. 8.

[15] Cp. UNESCO (2006), pp. 244 et seq.

[16] Cp. UNDP (2006), pp. 173 et seqq.

[17] Cp. UNDP (2007): Human Development Report 2007/2008: Fighting climate change - Human solidarity in a di­vided world. United Nations Development Programme, USA. New York, USA: Palgrave Macmillan. Retr. Jan. 22, 2008, http://hdr.undp.org/en/media/hdr_20072008_en_complete.pdf; pp. 94 et seq.

[18] Cp. UNESCO (2006), p. 115.

[19] Cp. UNESCO (2006), pp. 262 et seqq.

[20] Cp. UNDP (2006), p. 173.

[21] Cp. UNDP (2006), p. 17.

[22] Cp. UNESCO (2006), pp. 254 et seq.

[23] Cp. UNDP (2006), pp. 17, 178.

[24] Serageldin, I. (n.d.): Water. Ismail Serageldin, Egypt, n.d. Retr. Mar. 1, 2008, http://www.serageldin.org/water .htm. Serageldin is Director, Library of Alexandria; he was Vice-President, World Bank and Chairman, World Commission on Water. Transboundary waters also have cooperation potential; cp. UNESCO (2006), p. 394.

[25] Cp. UNESCO (2006), p. 271.

[26] Cp. UNESCO (2006), p. 526.

[27] Cp. UNESCO (2006), p. 520.

[28] For a long list of techniques and methods, cp. UNDP (2006), pp. 195 et seqq; UNESCO (2006), pp. 255 et seqq.

[29] Cp. UNDP (2006), p. 2 etseq.

[30] Cp. UNESCO (2006), p. 258.

[31] Cp. UNESCO (2006), p. 337.

[32] Cp. UNESCO (2006), p. 520.

[33] Cp. Fulponi, L. (2006): Private voluntary standards in the food system: The perspective of major food retailers in OECDcountries. In: Food Policy, Vol. 31, Issue 1; pp. 1 etseqq.

[34] Cp. UNDP (2006), pp. 20 et seq. A more optimistic view is presented by Lomborg, B. (2002): Apocalypse No! Wie sich die menschlichen Lebensgrundlagen wirklich entwickeln. Lüneburg: zu Klampen; pp. 179 et seqq.

[35] Cp. UNDP (2006), pp. 28 et seqq.

[36] Cp. UNESCO (2006), p. 271.

[37] Cp. Freeman, R. E. et al. (2007): Managing for Stakeholders: Survival, Reputation, and Success. The Business Roundtable Institute for Corporate Ethics Series in Ethics and Leadership. New Haven, USA; London, UK: Yale University Press; pp. 22 et seqq.

[38] Cp. Freeman et al. (2007), pp. 26 et seqq.

[39] Regarding 2007 and USA only. Cp. Social Investment Forum (2008): 2007 Report on Socially Responsible Investing Trends in the United States: Executive Summary. Social Investment Forum, USA, Mar. 5, 2008. Retr. Mar. 3, 2008, http://www.socialinvest.org/pdf/SRI_Trends_ExecSummary_2007.pdf; p. ii.

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Title: Food Business and the Global Water Challenge