Industry Insights · 13min read
The Business Case for Ethical Procurement in the Food Industry
Find out how your business’s bottom line can benefit from ethical sourcing in troubled times.
Could it be the right time for your business to raise its ethical procurement game? Ethical procurement practices are increasingly lucrative in the food industry, where consumers have proved willing to pay extra for brands that promise better quality, fairness and sustainability.
And in troubled times, there are practical reasons for ethical sourcing, too. Ethical and transparent procurement can make your supply chains more robust and help you avoid reputational hazards.
Read on to discover how to do ethical procurement, how the war in Ukraine is affecting procurement practices and how good ethics and strong supply lines can develop hand-in-hand.
What is ethical procurement?
Ethical procurement is an essential part of a company’s corporate social responsibility (CSR) strategy. It is not enough to have good employment practices, buy green energy or support the community around your business, if you are sourcing ingredients from suppliers who do none of these things.
In fact, your CSR should start with ethical procurement, especially if you source a lot of materials from the developing world. It is here where the worst practices are likely to occur and where standards are hardest to monitor and maintain.
Ethical procurement looks at both the social and the environmental impacts of a product’s journey to shelf. The food business has a huge impact on the environment, perhaps the biggest impact of any industry, accounting for a quarter of all greenhouse gas emissions and 73% of the world’s deforestation. Agriculture also sees some of the worst abuses of employees, with underpaid farmers and labourers, and even slavery. To give just one example, it is estimated that 70% of global child labour is in the agricultural sector.
Your ethical procurement practices should also be comprehensive. This means not just transparency on one part of your supply chain or just those suppliers who provide your ingredients, but thorough auditing of all those who supply your ingredients, processing, packaging and logistics.
How to do ethical procurement
Do you have a direct relationship with farmers who grow your ingredients? Many food businesses don’t. Instead, they rely on third parties to help them track the sources and standards of their supplies. That’s why on ecological, welfare and humanitarian issues, the first step to raising standards is greater transparency.
Luckily this is starting to get easier with new technologies and traceability systems appearing on the market. Many of these make use of blockchain technology to trace every transaction in the journey from farm to fork. This could, for example, include the salary of a farm labourer, paid electronically and recorded on a shared ledger.
Companies like Provenance and Seedtrace are helping brands not just to achieve greater transparency, but also to tell the story of their ethical procurement better. In an increasingly aware market, a transparent narrative about ethical sourcing can be a big selling point.
Accreditation is also an important motivation for food brands and provides guidance on standards in ethical procurement. Organisations like the Rainforest Alliance and Fairtrade International have a raft of ethical procurement criteria that need to be met in order to achieve their accreditation. You can find out more about this in our guide to certification for food manufacturers.
The business case for ethical procurement
According to Ethisphere, companies with strong ethical practices “outperform [other companies], are better places to work, and make a positive impact on their communities.”
There are lots of good reasons why food companies need to bake ethics into their procurement models to survive and thrive:
Ethical procurement: a brand essential
Ethical procurement is no longer so much of a brand differentiator as a brand essential. Consumers are increasingly concerned about animal welfare, regionality and a raft of other ethical issues when purchasing food products. This trend is only likely to increase with millennials especially likely to care about social and environmental issues when choosing a brand to purchase from or work for.
A Neilsen survey reported that 55% of global consumers are willing to pay more for products that are ethically sourced. Ethics can also be important for attracting and retaining employees.
Ethical procurement: good for your bottom line
Often the steps needed to bring greater ethical oversight into your business practices bring financial benefits too. For example, better data and transparency serve both ethical and money goals well.
The potential of enhanced data collection and analysis in agriculture is being explored by many innovative companies. Microsoft’s Azure FarmBeats is collating data on a wide range of factors (eg: weather data, satellite data, farm sensors) to help food businesses realise efficiencies in farm and supply chain management. Also, as previously mentioned, many innovative platforms are using blockchain technology to enhance oversight on supply chain transactions.
Ethical procurement: future-proofing your business
Ethical procurement can go hand in hand with more sustainable and robust supply chains.
Localisation and diversification of supply chains is a good example. This has been an important strategy for survival in recent years. Recent disruptions have shown that procurement chains need to be less vulnerable to supplies from any one place or any one firm. This has benefits for the environment, for smaller traders and potentially for better transparency if suppliers are closer to home.
Uncertainty and competition for resources are also encouraging some companies to bring more parts of the supply chain in-house. For example, by taking on the growing and processing of their own ingredients (vertical integration), or by owning their own fleet of trucks or ships.
Greater control of the supply chain is a natural reaction to the disruption of recent years, as well as an opportunity to ensure higher ethical and quality standards.
Ethical procurement: managing reputation risks
Due diligence on your supply chain ensures you won’t be hit by reputational scandals if malpractice is uncovered in one of the businesses you work with. The Chartered Institute of Procurement and Supply recommends a zero-tolerance approach to serious breaches of basic standards in terms of corruption and slavery. Again, thorough monitoring and control of your supply chain protects your business.
Case Study: The impact of the war in Ukraine. What this means for the food business and how it affects ethical procurement.
The war in Ukraine has reignited global supply chain concerns just at the time the world was hoping normal service was about to resume, post-pandemic. It presents huge challenges as well as some opportunities for the food industry.
Ukraine and Russia are two of the largest exporters of food in the world and the conflict between them has had a drastic impact on global food supplies. Sanctions and economic instability are making supplies from Russia very uncertain. In Ukraine, much produce is unable to leave the country and there are concerns that production capacity has also suffered badly. Already global wheat prices have soared 54% this year and the worst could be yet to come.
It will be interesting to see how this crisis will affect the ethics of food. In the short term, a squeeze on supply is likely to make companies less choosy about where their ingredients come from, and the cost of living crisis could have the same influence on end consumers. On the other hand, higher food prices mean more money for the people working in the food industry and could lead to more investment in sustainable sourcing.
We’ve already touched upon some of these trends with food businesses more likely to store more in the coming years (to mitigate against sudden disruptions or price hikes), to seek greater efficiencies in the supply chain, and to bring more logistics in-house. In effect, some companies are setting up parallel supply chains, so they are less dependent on one supplier or one country.
Only time will tell how drastically the war will affect food supplies, but scarcity of any magnitude is likely to be a driver for greater knowledge, greater diversity, and greater control over supply chains, as well as higher prices. This could and should have positive effects on the ethics of supply in the food business long-term.
Imagery: (1) Amit Ranjan via unsplash.com and (2) Quange Nguyen (3) Kostiantyn Stupak & (4) Tima Miroshnichenko via pexels.com