Smuckers – Agricultural Supply Chain (2017)
Outcome: Successfully withdrawn following a commitment from the J.M. Smucker Company to expand its discussion of how its agricultural products are affected by climate change and how it is working to mitigate these impacts.
Resolved: Shareholders request The J.M. Smucker Company (SJM) issue a report, at reasonable cost, in a reasonable time, and omitting proprietary information, describing its current and potential initiatives to (1) identify the risks that climate change poses to production of the agricultural raw materials it regards as the most significant based on annual spend and (2) assess and reduce the carbon footprint of its products throughout their life cycle, including agricultural production stages.
SJM is a global food company dependent on agricultural raw materials. Based on annual spend, its most significant raw materials include green coffee, grains, peanuts, and edible oils (SJM 2016 10-K). However, production of these materials is threatened by climate change. The USDA asserts “Climate change poses unprecedented challenges to U.S. agriculture because of the sensitivity of agricultural productivity and costs to changing climate conditions.”
Extensive research suggests climate change will increase incidence of extreme heat, severe drought, heavy precipitation, and prevalence of pests and diseases; these conditions can detrimentally impact crop yields, increase costs, and disrupt SJM’s supply chain and production.
For instance, drought in Brazil in 2014 drove Arabica coffee futures up globally as much as 90%. Despite SJM’s efforts to minimize the impacts of price volatility (e.g. purchasing futures and sourcing from multiple suppliers), this drought reportedly caused SJM to increase coffee prices an average of 9%, illustrating that SJM’s supply chain is susceptible to extreme weather events. Summarily, the International Coffee Organization states “Changing climatic conditions and rising global temperatures pose one of the most significant threats to world coffee production.”
Paradoxically, the very production of SJM’s agricultural raw materials contributes to climate change – agriculture contributes approximately 13% of global greenhouse gas (GHG) emissions – compounding the likelihood that SJM’s supply chain will continue to be negatively impacted.
Moreover, SJM appears to be aware that its supply chain emissions are significant; it conducted one estimation showing the GHG emissions from the agricultural production of its peanuts were actually greater than all of the Company’s direct (Scope 1) GHG emissions. Beyond this solitary initiative, SJM has not disclosed whether it conducts product carbon footprint assessments or articulated plans to reduce life cycle GHG emissions.
General Mills, Unilever, Nestle, Kellogg’s, and Danone have all established time-bound, quantitative targets to reduce their value chain GHG emissions. General Mills states: “Changes in climate not only affect global food security but also impact General Mills’ raw material supply. This influences our ability to deliver quality, finished products to our consumers and ultimately value to our shareholders.” In addition to shielding their supply chains from climate change impacts, these proactive companies stand to benefit from evolving consumer expectations for responsibly produced products.
Proponents believe a report discussing SJM’s supply chain risks and strategies to reduce SJM’s products’ carbon footprints would allow SJM to enhance supply chain stability, meet consumer’s evolving expectations, and benefit the Company and its shareholders.