Read the following case study and answer all questions. You are encouraged to do additional research on the relevant topics.
Fonterra – Rising up to the Sustainability challenge
Fonterra is a $19.2 bn (Figure 1) dairy co-operative owned by 10,000 farmer shareholders in New Zealand. Pasture-fed dairying has a long history in New Zealand with our farmers closely connected to the natural environment and their rural communities. As New Zealand’s largest business, and the world’s largest processor and exporter of dairy products, our high-quality dairy ingredients and branded dairy products are consumed in over 100 countries around the globe. Fonterra’s farmers are at the forefront of sustainable farming (for example, low greenhouse gas emissions per litre of milk collected) but that is not enough for ourselves or our New Zealand stakeholders. New Zealanders value their natural environment highly and they expect Fonterra and our farmer shareholders to continue to strive towards the highest standards of sustainability. Fonterra aims to be a true global leader in sustainable dairy nutrition and this will require them to produce high-quality dairy nutrition within an environment that meets the expectations of New Zealand communities.
(Source: Fonterra Sustainability Report, 2017)
The Sustainability Challenge
Food is at the centre of many sustainability challenges facing the world. There is growing concern regarding global food security and nutrition with malnutrition impacting people in many ways. The global transformation required to meet these challenges will shape the future of food production.
1. Feeding a growing population
By 2050 the world’s population is projected to increase to 9.7 billion. This is expected to drive a 50 per cent increase in the demand for food.
2. Access to nutrition
Many people don’t have access to adequate nutrition. Around 792 million people are undernourished around the world.
3. Water quality and scarcity
Intensification of agriculture has contributed to declining water quality around the world, caused by run-off of nutrients. By 2030 it is projected that 40 per cent of water demand in the world won’t be met.
4. Limiting and adapting to climate change
The world’s food production systems must address emissions from agriculture. It is also likely that agricultural production will face significant disruption from changes to climates and increased variability in weather patterns.
5. Threatened biodiversity
Even with today’s agricultural practices, there is not enough additional agricultural land to meet the growing demand for food. Around the world the variety of plants, animals and micro-organisms, and the ecosystems they form, has decreased.
6. A public health crisis
The leading cause of death in most countries today is poor diets and lifestyles. About 1.9 billion adults are overweight or obese. New Zealand has the third highest prevalence rate of obesity in the OECD countries.
7. Improvements in global land productivity have slowed down
Over the past century innovation has significantly increased productivity per hectare of land. However, these gains are slowing. Productivity growth per hectare is now less than one per cent each year.
Fonterra’s Sustainable Approach
Like all major transformations, change cannot occur without clear objectives, pathways to achieve them and a collective intention to implement what is needed. Clear objectives have been set through the United Nations’ 17 Sustainable Development Goals (SDGs) adopted by member countries in 2015. These were strengthened last year with 169 targets set across the five P’s – People, Planet, Prosperity, Peace and Partnership.
Fonterra recognising the strong need for business-led action support the SDGs and are committed to playing their part in achieving them by working collaboratively to deliver change at scale.
A sustainable future for the Co-operative is part of our Fonterra’s strategy – it’s how we create long-term value for future generations. To summarise Fonterra has organised their priorities into three main pillars:
1. Nutrition – improving health and wellbeing through the products and services we deliver
We have challenged ourselves in providing healthy and responsible products. We will:
• Address public health challenges by improving the nutritional profile of our products and promoting healthy diets
• Improve access to adequate nutrition by developing affordable products tailored to specific nutritional needs of communities
• Improve the wellbeing of individuals by leading innovation in advanced dairy nutritional products to address specific health needs.
2. Environment – achieving a healthy environment for farming and society
Globally, food production systems are facing a transformational challenge to meet the demands of a growing population within environmental limits. Dairy is a rich source of many vital nutrients which will be relevant as the world shifts to more efficiently produced diets. However, the dairy industry also needs to find more efficiency in the way it operates and reduce its impact on the environment. New Zealand farmers lead the world in many aspects of sustainable dairying, with high productivity, year-round pasture grazing and lower use of supplementary feeds. However, the scale of the industry in New Zealand means that our environmental footprint is of national significance. For example, around a quarter of New Zealand’s greenhouse gas emissions are from dairy farming.
Our challenge is on improving our productivity and protecting the environment. We will:
• Improve the health and biodiversity of our land and waters by reducing the impacts of farming and manufacturing and working in partnership with others
• Lead the transition to a low-carbon future by investing in innovation and infrastructure to remove greenhouse gas emissions from our supply chain
• Meet the growing nutritional demand through improvements in productivity and minimising waste from farm to consumer.
3. Community – delivering prosperity for our farmers and wider communities.
The production of milk and dairy products touches the lives of up to a billion people, from family-run farms to international businesses. The dairy industry makes a significant contribution to regional New Zealand and to the national economy. In New Zealand and around the world our industry plays an important role in supporting rural livelihoods and community development.
In developing countries, dairy cows provide a daily source of food and cash, unlike other crops or meat. Cows also generate manure, which is valuable as a fertiliser, fuel and construction material, offering other sources of income. Farm animals are also a popular asset among rural women, and often provide the first stepping-stone for rural women to start creating a better place for themselves in their communities.
Our challenge is to improve the long-term wellbeing of our farmers and communities. We will:
• Support healthy sustainable livelihoods for our farmers by returning the most value from every drop of milk by driving volume to higher value
• Provide positive livelihoods for our people by developing a diverse, skilled and agile workforce and promoting a healthy and safe working environment
• Invest in the future of our communities by sharing what we do best and building farming capability in key emerging dairy markets.
Sustainable Dairy Farming
The natural nutritional value of milk and the ability to produce high quality, safe products starts on the farm. This means caring for the environment, and caring for the health and wellbeing of dairy cows. We have a long-standing sustainable dairying programme, which took a world-leading position in 2004 when it introduced independent assessments for every farm each year. In 2017, we launched the Tiaki Sustainable Dairying Programme. Tiaki means to look after, to guard, to care for, keep and nurture. To accompany the name, we have crafted a whakataukī (proverb): ‘Tiakina te whenua i tēnei rā, kia whai oranga tangata mō ngā rā e heke mai nei’. It means ‘Caring for the land today, so that the land cares for us tomorrow.’ This gets to the heart of what we are striving to do when it comes to our land and natural resources. Global Positioning System (GPS) mapping technology is used to map the land used for dairy farming. Another example of new technology is Agrigate, an online tool jointly developed by Farm Source, Fonterra’s farmer-facing business unit, and the New Zealand Livestock Improvement Corporation. This tool aggregates data from across a farmer’s business into a single view, providing an online dashboard to enable smarter and faster decisions. The dashboard provides insights into the interactions between different aspects of the farming system, including weather conditions, animal health, milk production, pasture cover, fertiliser use and financials.
Sustainable operations means taking care to preserve every drop of natural goodness from the milk we collect. It means operating efficiently, minimising our manufacturing sites’ energy use and emissions and investing in new technologies and equipment to meet our long-term climate change ambitions. The majority of our manufacturing activity is in New Zealand and Australia, representing more than 95 per cent of our processing by raw milk supply.
Our manufacturing sites are subject to regular internal and third party audits. We are a member of Sedex. Regular independent audits of site performance against the Sedex Member Ethical Trade Audit (SMETA) standard for labour practices, environment, health and safety, and business practices are used to demonstrate our performance to our customers. Other third-party audits are part of independent certification of site Environmental Management Systems (EMS) to international standards, such as ISO14001. We recognise that independent environmental certification is not in place at all of our sites. This is particularly true outside New Zealand and Australia. We are working towards achieving certification to ISO14001:2015 or equivalent across our global manufacturing footprint. As of the end of FY17, more than 60 per cent of our sites had achieved such certification.
Energy and Emissions
Our existing efficiency-based targets committed us to reductions in Green House Gases (GHGs) emissions for each unit of production. For our global manufacturing and milk collection operations our target is an absolute emissions reduction of 30 per cent by 2030 against a FY15 baseline, and net zero by 2050 by transitioning to cleaner sources of energy.
Raw milk from our supplying farmers is our largest input material. To maximise the nutritional value we deliver to our customers and consumers, we focus on minimising food loss across our supply chain. This also helps us deliver the maximum return to our supplying farmers and minimise our impact on the environment. In our manufacturing operations our food safety and quality standards aim to deliver products right-first-time and our processing steps seek to capture by-products that were previously considered waste, such as whey, and make them into new valuable products.
CASE STUDY Lichfield: Investing in new technologies
The new 30 tonne-an hour dryer is fuelled by natural gas. It is Fonterra’s most efficient milk dryer to date. The dryer is capable of processing 4.4 million litres of milk each day, making it the largest milk powder dryer in the world alongside the dryer at Fonterra’s site at Darfield in Canterbury, New Zealand. The site expansion also included investment in a new biological wastewater treatment plant. This uses natural processes to reduce the nutrient levels in wastewater. This brings the site up to the leading industry standards we have committed to bringing all sites in line with by 2026.
Packaging is a vital element of delivering safe and quality nutrition to our customers and consumers. The primary job of our packaging is to protect the nutritional value of the natural and perishable product contained within. The sustainability of our source materials is another consideration. We seek to use renewably sourced input materials such as fiber from sustainable forests. Our Fonterra Milk for Schools milk uses a 200ml Tetra Pak package, manufactured from sources certified by the Forestry Stewardship Council (FSC).
As a result of food safety impacts, we have found there are limited opportunities to use recycled materials in our product packaging but it is an area we continue to consider carefully.
Cases of Environmental non-compliance
Over the past three years our most significant fine was in 2015 for $192,000 related to the discharge of buttermilk in a South Taranaki treatment pond. In 2015 we were also fined $174,150 for discharging wastewater from our Edgecumbe plant into Bay of Plenty waterways. The Bay of Plenty Regional Council prosecuted Fonterra over four failures of our whey irrigation system and two overflows of wastewater in September 2014 and April 2015.
Food Safety and Quality
Our Food Safety and Quality System ensures that, wherever we are located in the world, we have a clear, consistent framework to deliver safe, quality products and services. Our Food Safety and Quality System is subject to regular scrutiny from third-party audits by regulators, key account customers and certification bodies. We are working towards a target of having all our global manufacturing facilities independently certified to the benchmark quality standards by 2019. Through our active participation in organisations such as the International Dairy Federation (IDF) and International Organization for Standardization (ISO), we continue to contribute to the international harmonisation of standards and guidelines and help develop international test methods for milk and milk products.
Employee engagement and Human Rights
Employee engagement is a measure of Fonterra’s performance as an organisation and as an employer. An engaged workforce is central to our success and effectiveness. We measure our engagement performance through Fonterra’s employee ‘MySay’ survey. We also measure our performance using the McKinsey organisational health improvement (OHI) system.
Historically, our approach to human rights has prioritised the rights and protections of our employees around the world. In 2014 we adopted ISO26000. This guidance standard for a socially responsible organisation has widened our focus, providing an emphasis on due diligence to consider our broader impacts on human rights. We are applying the United Nations Guiding Principles on Business and Human Rights.
Health, Safety and Wellbeing
The Fonterra Group Health and Safety Policy sets out our global requirements for responsible operation in relation to employee safety. Our Safe Home System standards are aligned as a minimum with AS/NZS 4801:2001 (Occupational Health and Safety Management Systems).
Accountability for sustainability rests with the Fonterra Board, our CEO, and the Fonterra Management Team (FMT). Regular performance updates are provided at this governance level. Accountability for individual elements of sustainability performance cascades through the organisation and is integrated into individuals’ Key Performance Indicators (KPIs) where relevant.
Strong healthy local environments and communities are the foundation for sustainable, profitable dairy farming. That’s why, what we call the “Sustainable Co-operative” is one of our three strategic priorities – alongside Strong V3 (Volume, Value and Velocity) and Innovative Co-operative. Our Sustainable Co-operative commitment is to support our farmers by investing significantly in the development of new technology and solutions for water quality and on-farm emissions – without impacting production. We are also committed to reducing the environmental footprint of our processing operations and transitioning to renewable energy as options become viable.
(Source: Adapted from Sustainability Report, 2017 of Fonterra Co-operative Group Limited, New Zealand)
• This is a question/answer format assignment, you are required to read and make sure that you understand the question before you start answering.
• You will need to do additional research to do justice to your assignment.
• In this assignment you should use 2500 to 3000 words to answer all the questions (excluding preliminary pages and references).
Section Description Marks
(LO1+LO2) Provide a brief background of Fonterra.
Include the key points or information about the organisation below:
• History and Type of Ownership (2 marks)
• Financials (2 marks)
• Vision and Mission (2 marks)
• Products/services (2 marks)
• Core Values (2 marks)
2. Sustainability Challenge
(LO1) a) Research and discuss at least five challenges faced by Fonterra related to quality and performance that led them to adopt sustainability in their operations.
(5 challenges x 1 marks each =5 marks)
b) Briefly explain any two Quality Management Systems (such as ISO 9001) adopted by Fonterra. Identify and discuss the issues and challenges Fonterra may face during implementation of each of the Quality Management Systems.
(2 marks for brief explanation and 2 systems issues and challenges x 5 marks each =12 marks total)
c) Analyse and discuss at least four ways in which sustainability initiatives taken by Fonterra will help them to overcome issues and challenges discussed in Q 2 (a) and (b.
(4 ways x 2 marks each =8 marks) 25
(LO2) a) Identify and explain at least five initiatives taken by Fonterra to continuously improve their dairy operations.
(5 initiatives x 2 mark each = 10 marks)
b) Recommend the use of any five of the following tools of continuous improvement and discuss the methods and techniques used to apply these tools to Fonterra.
• Just In Time
• PDCA Cycle
• Value Stream Mapping
• 5S Analysis
• 5 Whys
• Any other tools
(5 tools x 3 mark each = 15 marks) 25
(LO1 + LO2) Summarise your essay and identify the 3 most important points or 3 key ideas.
• Concise summary with at least THREE points or ideas identified (5 marks)
(LO1 + LO2) a) Include in-text citations of data or ideas in your paper, and at least 3 academic sources, with correct APA 6 citation format.
• Complete in-text citation (2.5 marks)
• Correct APA references from academic sources
(2.5 marks) 5