21 May 2019
Confronting the Future of Climate Change in the Midwest
Two HBS-led panels focus on how a changing environment impacts agribusiness—and what it means for 2050Re: Charles, Chuck Baron (MBA 2013); Heidi Grossman (MBA 2017); William Tynan (MBA 2016); Forest Reinhardt; Jose AlvarezTopics:
New weather patterns brought on by climate change will require updated farming practices, effective water management, and innovative pest and disease management in the Midwest and around the globe. Increasingly, the business community is stepping up to address the challenges—and opportunities—posed by climate change by managing resources more efficiently, pursuing new strategies in the wake of climate change, and bringing climate-ready products to market. On May 15, over 100 Harvard Business School alumni and local and regional leaders from industries and government gathered in the Federal Reserve Bank of Chicago’s imposing building to discuss with thought leaders and entrepreneurs the impacts of climate change on the agricultural sector of the American Midwest.
“Climate change forces us to confront the relationships between the human institutions that we have created and the natural world on which they ultimately depend,” said HBS professor Forest Reinhardt (MBA 1987), who moderated a panel focused on the impact of climate change as part of two panels at the event titled “Confronting Climate Change: Opportunities and Risks for Midwest Agribusiness.” (Later, HBS professor José Alvarez moderated a panel that offered solutions from the perspective of the alumni business community and industries addressing climate change on the ground.)
Part of a global series of events produced by the HBS Business & Environment Initiative (BEI) and hosted locally by the HBS Club of Chicago and the Federal Reserve Bank of Chicago, the event focused on the risks and opportunities of the upcoming decades and what climate change means for agribusiness. Panelists and moderators spoke frankly about tackling present-day challenges—and pursuing solutions—specific to food production and water availability in the Midwest and beyond.
A shift in food production and water predictability
On a regional level, an increase of warmer weather and the availability of fresh water from the Great Lakes has some debating the benefits, David Oppedahl, the senior business economist at the Federal Reserve Bank of Chicago, told the audience. For instance, an extended growing season or double cropping for farmers may be possible with a focus on precision farming. “In some ways, it seems like the Midwest may benefit ... but at the same time there are a number of negatives,” he noted.
But many in the industry are just beginning to understand the impact on farmers, pointed out Bluford Putnam, CME Group’s chief economist and managing director. The warming of oceans is already leading to greater rainfall, in some places making it difficult for farmers to get seeds in the ground this spring. Less predictable rain patterns due to a shift in El Niño patterns will also contribute to flooding and soil erosion, making soybean production—consumed by both hogs and chickens—more difficult. “There will be a little less drought, but potentially a lot more flooding,” he said.
Even wide-ranging global implications can have local consequences, said panelist Alesha Black, the managing director of the Global Food and Agriculture Program at the Chicago Council on Global Affairs. The first panel spent some time discussing with alumni and other audience members the relationship between climate change and water availability, and the need to create effective institutions to manage water scarcity and price water accordingly. While rainfall in the Midwest and elsewhere appears to be increasing, water scarcity in China and Sub-Saharan Africa is already becoming a major global problem. Meanwhile, pests and disease are likely to multiply. If the Midwest is able to maintain its high standards for agriculture, it has an opportunity to supply the needs of growing populations in other parts of the world. The U.S. “needs a long strategy” around agriculture, Black added.
A spotlight on market solutions
Despite predictions, some in the business community are optimistic. In a second panel, Professor Alvarez moderated a discussion that focused on the current snapshot of how the business community is dealing with the demands of climate change, while implementing existing solutions.
Some of the largest businesses in the region, including meat processor OSI Group are finally rethinking their approach to sustainability by starting at the farming level and are no longer “agnostic” when it comes to climate change, said Nicole Johnson-Hoffman, chief sustainability officer at OSI Group, which is a global supplier of food to the world's biggest foodservice brands, supply restaurants, and other customers in over 50 countries. While the company is not moving away from beef products, the focus is on reducing their impact on the environment by revamping their supply chain. “We’re engaging directly with producers and farmers and giving them an equal voice in the process,” Johnson-Hoffman said.
Heidi Gilbertson (MBA 2017),an associate brand manager at MillerCoors, discussed a new effort by the company to conserve water by setting up “showcase barley farms” to partner with more than 700 farmers working with the company to better understand water conservation. MillerCoors is working to improve water conservation at the supplier level, as more than 90 percent of water used to produce beer is in the agriculture supply chain. The company is also decreasing water usage at its breweries. On average it takes seven barrels of water to produce a barrel of beer; MillerCoors has gotten that down to 3.5 with plans to reduce to 2.8. “At a high level, we’re addressing water use in our breweries, but also taking a step back [to address water] at the farming level,” said Gilbertson. These days, some breweries use as little as three barrels of water to produce one barrel of beer, compared to seven barrels as the industry average.
Seeking financial viability
As farming meets big data, there’s even more opportunity for sustainable change. Thanks to Charles Baron (MBA 2013), cofounder of the Farmers Business Network, farmers can now access over 30 million acres of data to better understand everything from seed selection to matching soil types. Within the network, implementing more sustainable practices is also becoming easier, he added. “It really just comes down to how do you make the economics as simple as possible at the farm level,” Baron told the audience.
But challenges remain. For example, many of the most innovative capabilities—such as natural wetlands that can treat water waste—require “concessionary or impact investment” that is still in the its infancy, points out Will Tynan (MBA 2016), cofounder of Chicago-based Lotic Labs, a data platform for more efficient water markets. “Those costs have to be borne by investors who have to take certain kinds of risks and think about risks in a different way,” he adds. There is also a role for government in creating more efficient water markets, Tynan adds. With water exchanges already in place in some areas, “you are [starting] to see it more on a local level,” he says.
The event concluded with some directions for change. Panelists talked about the need to prioritize action at the local level rather than waiting for government intervention at the national, regional or state levels. Increased consumer concern about climate change is also putting pressure on brands and retailers, which will continue to drive change throughout the food supply chain. Impact investors and activists are providing motivation for accelerated change in the sector, as well. Putting a price on carbon was also mentioned as a key element in motivating changes that would have a meaningful impact for agribusiness and society, overall.