Managing investor expectation, exploiting low-hanging fruit, and farmer education will be key
According to the United Nations, global population will grow to 9.7 billion in 2050, and to 11 billion by 2100. Closing the food or yield gap to feed two billion additional people will be limited by the availability of agricultural land, while the greenhouse emissions produced by agriculture must be managed for planet Earth’s long-term viability.
While this represents opportunities for profitable sustainability innovation, and in essence doing well by doing good, the business case for sustainability is not always an easy one to make.
“The balancing between being a profitable business case and sustainability management is really about managing expectations around time, and also about scaling up over a number of years to hit those targets,” explains Ho Ren Hua, CEO of Thailand-based rice and starch producer Thai Wah PLC. As an example, he points to Thai Wah’s waste-to-energy project using tapioca pulp, which is a by-product of producing tapioca starch.
“We started working on a pilot project about two and a half years ago. Things ramped up in year 3, and by year 4 it’s a profitable waste stream,” he reveals. “In sustainable innovation, the cost curve migrates over time. It plays out over a certain period of time – it cannot be too long, and it cannot be too short. So, managing expectations about investments is important.”
The business of sustainability
Ho made those remarks at the recent SMU International Advisory Council (IAC) Virtual Dialogue titled “Food Sustainability and Security”, which featured Ho and two other senior executives in the food and agriculture industry: Husodo Angkosubroto, Chairman of Gunung Sewu Group, one of the world’s largest canned pineapple companies; and Tan Sri Dato’ Lee Oi Hian, CEO of Kuala Lumpur Kepong (KLK) Berhad, one of the top four palm oil companies worldwide.
Gunung Sewu, which also operates a cattle feedlot, stumbled upon the idea of feeding oxen pineapple skin, a by-product of canning pineapples.
“The initial thought wasn’t to make money, it was a solution to pollution,” notes Angkosubroto, referring to the disposal of the pineapple skin. “Eventually it became a sustainable and profitable cattle-fattening business. Today we are the biggest cattle-fattening business in Indonesia.
“There’s been a lot of discussion lately that cattle are emitters of greenhouse gases. There is always a tradeoff. You solve one problem, but another problem appears. But overall net-net, I believe we are greener by feeding pineapple skin to the cattle.”
He adds, “It’s a low-hanging fruit but that was how we started.”
For KLK, Lee points to the company’s Roundtable on Sustainable Palm Oil (RSPO) membership and its RSPO Principles & Criterion (P&C) certification as proof of the company’s commitment to sustainability. While noting that “30 to 35 percent of palm oil production is sustainable” and that the premium for sustainable palm oil is between US$10 to US$30 a tonne, Lee acknowledges that businesses more often than not choose suppliers who quote a lower price than those with sustainability credentials.
“Having sustainability is the ticket to doing business but whether you get a premium for your product or not, it is a baseline,” he says. “You need to have sustainability, and you also need affordable pricing. But if you have good pricing but you don’t have sustainability, you will lose out to a company with the same pricing [but has sustainability credentials].”
Ho, on the other hand, points to bigger companies having the budget to commit to and support sustainable suppliers.
“It’s an imperfect solution but you might need to segment customers,” he says. “With premium customers that are much more green-conscious we try to target them but still being wary that our core business is our core business. It’s a real tension point, but segmentation is something we try to do.”
Growing more food
However, growing enough food to feed another two billion people in thirty years remains the biggest challenge. Lee, who sits on the IAC in Malaysia, cites research that says palm oil plantations could yield up to seven tonnes of palm oil per hectare, which is substantially more than the industry average of four to five tonnes. He explains that KLK is working on improving yield by looking at breeding, propagation, and recycling waste.
Angkosubroto, who is part of the IAC in Indonesia, notes the difference in yield productivity between big producers like his own company and smallholders, and believes governments could play a role in bridging the difference.
“In Lampung where we grow our pineapples, there are a lot of tapioca root farmers who sell their produce to starch factories. Their productivity yield per year is 10 tonnes per hectare. If we grew the tapioca roots, we could easily produce 40 tonnes.
“I don’t know how much the private sector can be involved. Our capacity is limited. We could try a public-private partnership. It could be a capacity building exercise. It could be a programme of externship in private companies where government officials could learn how things are done, and later on teach the farmers how to increase productivity yield.”
Ho, meanwhile, looked at the likelihood of increasing recurrence of extreme weather events such as October’s monsoon floods, and thought direct expertise sharing could be helpful.
“Helping the farmers think about building stock, helping them anticipate seasonality and harvest on time, those are the things we can do to empower a lot these farmer communities,” explains Ho, who is on the IAC in Thailand. “Extreme weather will continue to be a big feature in Southeast Asia, particularly around droughts and floods.
“We can look at the whole resilience of the ecosystem, and say, ‘As producers and responsible manufacturers, how can we work with them to plug in on certain things?’ About the floods, we helped in a simple and practical basis. We informed them about the timing of harvesting, stockpiling in certain key areas, creating hub and spoke.
“Those are the little things within the broader perspective of food security and supply chains for farmers that we can do to continuously move the needle.”
Ho Ren Hua, Husodo Angkosubroto, and Lee Oi Hian were panellists at the SMU International Advisory Council (IAC) Virtual Dialogue titled “Food Sustainability and Security” that was held on 26 October 2021 and moderated by SMU Assistant Professor of Operations Management Helen Zhou.
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