Social responsibility can spur unintended consequences
Food and beverage manufacturers are under increasing pressure to bring their business practices into line with the practices consumers perceive as socially responsible. This trend has already had a significant impact on the way employees are treated, raw materials are sourced and products are delivered to the marketplace. The breadth and scope of this trend extend through the entire food and beverage supply chain, but the most significant repercussion is evolving in the animal protein segment.
That is why the experiences of animal protein processors in Europe and the United States should signal other companies to be on guard in recognizing how developing socially responsible business practices has the potential of disrupting the entire supply chain.
For much of this year the European Union has had to deal with an egg shortage, which has sent prices significantly higher. The shortage stems from animal welfare regulations approved by the EU in 1999 requiring egg processors to increase the amount of living space available to laying hens. While these regulations were approved in 1999 and set for implementation on Jan. 1, 2012, exactly how much additional space was required by layers was not decided by regulators until a few years ago.
Few European egg processors were willing to invest in capital improvements necessary to comply with the new regulations until they knew exactly what would be required by regulatory authorities. Then, in the midst of the worst global recession in decades, the rules were completed, and egg processors suddenly were faced with making significant capital investments during what may only be described as difficult economic times.
Because of the new animal welfare legislation, the European Egg Processors Association estimates egg production in the EU has dropped as much as 10 percent to 15 percent. In early March, the wholesale price of eggs had doubled and reached €2.30 per kilogram. In early July, egg prices remained an estimated 60 percent higher compared to the same period this past year.
In the United States, a similar situation appears to be developing. Pork producers, those who raise hogs that go to slaughter, are under pressure to change their business practices. The Humane Society of the United States has pressured companies that sell pork products to consumers — companies such as McDonald’s Corp., Burger King Corp., Safeway, Inc., the Denny’s Corp. and others — to agree to not buy pork from companies that use gestation stalls, which are stalls breeding sows are kept in during pregnancy.
Unlike European egg producers who were under the threat of a regulatory mandate, the US companies have entered into voluntary agreements with the Humane Society of the United States and are free to develop their own timelines for the phase out.
But the National Pork Producers Council, the trade association representing those who raise hogs in the United States, sees the situation in a different light. As the association notes, nowhere in the announcements from the companies that will no longer source from companies that use gestation stalls is there discussion of the willingness of the companies to pay for the changes.
“These are very complex issues that require interaction of the complete supply chain,” according to the National Pork Producers. “Simply making an announcement without understanding the supply chain’s ability to meet the requests or the costs associated with them is simply irresponsible. Our customers need to understand that these announcements come with severe and unintended consequences.”
In the age of the Internet and social media, there is a desire to respond quickly to accusations in an effort to limit the damage that may be done to the image of a business. But such responses must be crafted with an eye toward the longer term. Otherwise, food and beverage companies may find themselves creating even greater problems throughout the supply chain.