Toward a circular economy in food
The
French food and water company Danone has a history of environmental awareness.
In this interview with McKinsey partner Clarisse Magnin, CEO Emmanuel Faber
discusses his commitment to resource efficiency.
McKinsey: What inspired Danone’s
current thinking?
Emmanuel Faber: Three things. My own
upbringing and convictions, the culture and history of Danone, and the
overwhelming case for change.
I grew up in the Alps, where the
beauty of the natural cycles seeded in me the underlying importance of
something that we as managers can often lose sight of—namely, that life is more
than ideas, mathematical models, and software. I later spent three years in
Asia, including Indonesia and China, where I saw firsthand how fast resources
were being depleted in emerging markets.
Danone’s commitment to tackling
these problems is not new, so it was always fitting that I should join such a
company. More than 40 years ago, in Marseille, Antoine Riboud, our founding CEO,
made a speech in which he pointed out that we only have one Earth, that it’s
our responsibility to look after it, and that as a business we would pursue a
dual economic and social agenda.
Last, the world is changing. Cheap,
low-quality calories have dominated the industrial-food business for nearly 100
years, but we are reaching the end of this era. Consumer tastes and behavior
are evolving, and as part of this evolution consumers expect us to act
differently
McKinsey: Can you say more about these
changes?
Emmanuel Faber: Supply chains are
increasingly global, which means there are systemic risks that we don’t see.
While we’ve been able to improve food security in many regions, this has also
led to other issues, such as declining soil fertility and threats to the
biodiversity of our planet. At the same time, we cannot continue to reduce the
costs of agricultural production. The volatility of input prices is much
greater than it used to be, and food inflation is rising. The price of milk,
our major raw material, was near an all-time low in 2009 but has gone up three
times since and 18 months ago almost hit an all-time high.
On top of that, we need to address
the needs of a growing population, new regulatory requirements in the area of
public health, and the increasing impact of diseases such as obesity and
diabetes. Some companies are turning to big data management and ERP1to meet these challenges. But I
believe this is the wrong approach. We need a comprehensive response to tackle
growing resource scarcity, which both drives the efficient use of those
resources through the supply chain and brings healthy food to as many people as
possible. Danone’s approach rests on what we call consumption ecosystems,
taking into account every stage in the life of products, from the production of
raw material to the “second life” of packaging.
McKinsey: What does that mean in
practice for the way you make products and source materials?
Emmanuel Faber: To embed the principles of
the circular economy in our operations, we have started managing our three key
resources—water, milk, and plastic—as cycles rather than as conventional linear
supply chains.
One example of this is what we are
doing in yogurt. To make Greek yogurt, you use a “strained” technology with a
membrane, extracting a lot of acid whey. Instead of just seeing this acid whey
as an effluent, we are testing technology solutions in five or six countries
and working with different partners to find ways to use whey as a resource. We
are already using whey protein, for instance, in our Early Life Nutrition
business, and we will soon be able to use it for animal feed, fertilizers, and
energy. What we’re doing is turning something that is a challenge today into
something that will have value tomorrow.
Under a new partnership with
Veolia, a global waste-management company, we are working together on building
a circular economy around water and packaging waste, testing new ideas and
investigating new technology. One project, for example, aims to optimize
recycling techniques so we can build plants with zero liquid discharge.
McKinsey: What are you doing with
plastic waste?
Emmanuel Faber: At the moment, nearly 30
percent of our total packaging comes from recycled materials, and as much as 80
percent in the case of cartons, but we continue to make progress. For plastics,
the endgame could be the creation of a net-positive cycle in partnership with
other large companies, which would mean recycling more plastics than we put on
the market in the first place.
Plastics are interesting because
they highlight an important challenge of a circular economy, namely managing
the “hierarchy of degradation.” If, say, we allow virgin PET2to go into landfills, its
reusability potential ends up being low. But if we save it in a closed-loop
system, it will continue to be of food-grade quality, good enough to reuse in
food packaging. This means it stays at a high level in the hierarchy of
degradation. Our ambition is to create a second life for all the plastic
packaging we put on the market, so that we move toward 100 percent recycling in
this respect. Part of the plan is also to launch a 100 percent biosourced second-generation
plastic.
McKinsey: What changes have you made to
Danone’s organization to reflect the new ways of working?
Emmanuel Faber: We have created a position in
the executive committee in charge of our Strategic Resources Cycles unit. This
person oversees separate internal units for the milk cycle, the water cycle,
and the plastic cycle. This organizational change has already started to
transform the way we work, because it is cross-divisional and cross-functional.
We have also created a Milk
Technology Center that reports to the Milk Cycle Organization—part of the
Strategic Resources Cycles unit—not to R&D or to the dairy business, as it
might under a conventional structure. The aim here is to achieve a step change
in our ability to maximize the value of milk and limit the waste from milk
production.
McKinsey: How do you change Danone’s
culture to embrace circular-economy thinking?
Emmanuel Faber: Danone has circular-economy
principles in its DNA, and people join Danone because of its unique culture and
heritage. We do, however, need to continue to create the conditions for new
generations to embrace our founding principles of business success and social
progress.
The time horizon is critical. You
won’t start anything if you only think of the next three months; it’s got to be
something for the next 30 years. At the same time, you need breakthrough
objectives. We would never have made as much progress with our CO2 reduction
program in 2008 if we had just gone for a 2 percent reduction per year rather
than 30 percent over five years, which we set ourselves. We actually achieved
42 percent.
If you know at the outset how you
are going to achieve an objective, you’re not aiming high enough to get the
organization to start working differently. You have to come up with an
objective which is aspirational—something that is too far away to know how it
will be reached. That was our intent when we announced, in December last year,
that we would target zero net carbon emissions on our full scope of
responsibility by 2050.
You also need an investment-payback
period that is longer than it is in today’s traditional model—five years
instead of three; seven years instead of five. For our CO2 reduction program,
we created a special green CapEx category with this in mind. Some bets may have
no payback at all. It’s about getting a balance between the short, the medium,
and the long term.
Incentives are also an important
part of the culture because they really show that the leadership team means
what it says. A few years ago, the annual incentive program for the 1,500 top
managers at Danone encompassed the CO2 reduction objective, to the point where,
broadly speaking, the yearly bonus attached to CO2 reduction was equivalent to
the yearly bonus attached to profit generation. This is just one example of how
we’re using incentives to embed our vision across the business.
On top of this, and in order to
foster change with Danone’s 100,000 employees, the company launched a manifesto
to underpin the way we intend to deliver on our mission. This manifesto aims at
deepening and enriching Danone’s mission, to bring it to the next level of
impact, through a series of initiatives across the company and outside it. For
instance, a dedicated internal website has been created where people can post
ideas and thoughts related to the manifesto and contribute to Danone’s journey.
To support and coordinate the establishment of the manifesto across Danone’s
teams and local communities worldwide, the role of chief manifesto catalyst has
been created to maximize the potential of this process and catalyze bottom-up
innovation.
McKinsey: How do you think this
approach will ultimately benefit Danone, as well as society and the
environment?
Emmanuel Faber: Consumers are interested in
what is at work in the products they eat, how these products were produced and
delivered, and what is their effect on the body. I believe there is a ladder of
brand equity in food. There is a lot attached to the values and culture.
Ultimately, the brand should be the link with the consumer and tell the story.
No comments:
Post a Comment