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Sustainability trends and the family business

By Sara (Hessenflow) Harper

Editor’s note: Greg Wolf’s colleague Sara (Hessenflow) Harper shares her expertise on sustainability in the Growing Success column this week.

If you’ve been to the grocery store recently, you may have seen all sorts of claims about “natural foods” or food products that tout their environmental and animal welfare attributes (cage free eggs, hormone-free meats). This is indeed what many people think of when they hear the term “sustainability” with regard to food and agriculture. But really, sustainability is just a fancy, and perhaps more consumer-friendly way of talking about risk management—something family businesses know quite a bit about.

As family businesses, farmers have to manage not only risks regarding costs and opportunities but also the risks of injuring family relationships. Nothing can threaten the long-term sustainability of a business quicker than a breach of trust. The same is true for the larger food supply chain to which family farm businesses sell. Just like family businesses, food companies and retailers need to effectively manage both the physical risks to their supply chain as well as the trust relationships they have with consumers who buy from them. Increasingly, they are turning to you, their partners in producing food, to provide more data that can help them manage all these risks.

What my Kennedy and Coe colleague who usually writes this column, Greg Wolf, stated in a 2009 family business management seminar is even more true today: “Agricultural producers face a variety of risks including business climate, financial, integrity and reputation, regulatory risk, strategic positioning, and weather.”

These same risks have grown for the companies that family businesses sell their agricultural products to—and that is in itself, a whole new kind of risk to be managed. Just look at the increased challenge that drought is having on the entire food supply chain. Add to that a generational shift in consumer trust and thinking about the ethics of certain agricultural practices and technologies—which, unlike the previous urban versus rural divide, affects all parts of the country. Now layer on top of all this the emerging middle classes of China, India and other countries who are finally able to afford to add meat to their diet in record numbers. These trends affect everyone in the food and agricultural supply chain, but they are felt first and foremost by the parts of that chain that are closest to the consumer.

What I hear from food companies and retailers all the time is that one of their main concerns regarding staying profitable and in business throughout the coming decades is managing a higher level of volatility across a greater number of topics while maintaining the trust of an increasingly suspicious consumer. The next generation of consumers is here and their habits are very different. By 2017, Progressive Grocer reports that the so-called millennial generation (people born between 1982-2004) will be spending more money than baby boomers. That is just three short years away. These are consumers who have grown up with little connection to real farms and who are used to having a lot of information about anything they want—in the palm of their smartphone-holding hand. Faced with this fact, food companies want to be the ones communicating information about their products to consumers.

Food retailers and processors must manage their risk regarding both natural resource constraints and changing consumer preferences—or they will not sustain their business. Since you can’t manage what you don’t measure, in the near term this means gathering a lot more data about how their supply chains operate on a wider set of topics than were deemed relevant in the past.

To preserve long-term profitability and pass down the family business to the next generation, risk must be managed effectively—and attacked with strategic planning, diversification and hedging. This is at the core of what it means to be a long-lasting, sustainable business. Assessing and addressing sustainability risk is an incredibly important part of preserving family business profitability for generations to come. This is part of why Kennedy and Coe created a whole new division within the firm, Vela Environmental: to help clients understand, manage and position themselves favorably in the face of these emerging risks.

The take-away from all of this for family business—whether in agriculture or another industry—is that there are new market forces that must be addressed, and data collection will be a key part of that task. Just as food retailers and companies must come to terms with this fact, so too must individual producers. One of the best ways to do this is by taking stock of where your farm or ranch is on issues that the people you sell to—or want to sell to, now have to care about. By doing so, you can create a baseline for your family business that both identifies the areas that will emerge as new risks and opportunities as well as begin to capture the kind of data your customers will increasingly need to manage their risk and keep trust with the end consumer.

Editor’s note: Sara (Hessenflow) Harper is the director of Sustainability and Supply-Chain Solutions for Vela Environmental, a division of Kennedy and Coe, LLC (www.kcoe.com). Harper works to help clients of the firm navigate the complex issue of sustainability in ways that reduce risk and increase profitability. She is based in the firm’s Washington, D.C., office and can be reached at sharper@kcoe.com.

Date: 2/3/2013

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