Coca-Cola: Sugar water and climate change

Coke’s legendary supply chain under threat

Coca-Cola is one of the world’s most recognized brands. It’s staggering supply chain reaches every country on earth except North Korea and Cuba (and this might soon change)[1]. It is studied at the best business schools and emulated by top corporations and international aid organizations. But what is it, really? Steve Jobs would say it’s just sugar water in a bottle[2].

This article examines how climate change affects this company through three components that make up its signature product: sugar, water, and bottles.

 

Sugar

As you probably know, Coca-Cola in some countries uses high fructose corn syrup in place of sugar. This key ingredient is under serious risk from climate change. Legislation incentivizing ethanol production, such as the Renewable Fuel Standard in the U.S. (2005 and 2007), has created substantial demand for ethanol’s primary input: corn. As gas prices rise, demand for ethanol will increase, causing corn prices to follow[3][4]. This will squeeze Coca-Cola’s profit margin and will put upward pressure on price of beverages, potentially reducing demand.

Corn and sugar are both vulnerable to pressures on agriculture created by climate change. Indeed, half of the company’s spending on products and packaging is on agriculture[5]. Threats include non-sustainable farming practices, droughts, desertification, changing weather patterns, and water scarcity[6][7].

In response to these threats, Coca-Cola has implemented several sustainability programs. It has set the goal of sourcing 100% of its corn and sugar from farms that have completed the seven stages of its Sustainable Agriculture Guiding Principles certification. It is currently at 15-20%. This certification focusses on among other things, management of resources like water and energy, conservation of ecosystems, and protection of soil. It has also diversified its source to protect against supply volatility[8][9].

 

Water

Water supply scarcity is a major concern for Coca-Cola management as climate change progresses. It can affect agricultural production as well as quality and safety of the end product. Beyond the direct effects to the product, Coca-Cola can be threatened by social attitudes towards the company’s enormous water consumption. For example, in India, community uproar led to Coca-Cola closing down one of its plants, blaming the company for depleted groundwater in the area[10].

In response to this challenge, Coca-Cola has established the goal of replenishing 100% of the water it uses in local communities by 2020. In 2015, it reached 94%. It accomplishes this through increased efficiency, treatment and release of wastewater, and partnerships with international aid organizations. The replenishment is independently verified for accuracy and soundness[11].

 

Bottles

Plastic bottles and aluminum cans rely heavily on fossil fuels for production. As the costs of these inputs rise from scarcity or carbon regulation, Coca-Cola’s margin will be under pressure. Further, the company continues to face social and political pressure regarding its packaging for the immense greenhouse gases emitted to produce them as well as the majority that end up in landfills[12]. As jurisdictions introduce new regulations, Coca-Cola will need to make new expenditures to comply. Further, if taxes or bottle deposits are introduced or increased, this could have a negative effect on demand.

Coca-Cola has established programs attacking this problem on three fronts. First, it has created recycling programs in various countries. Second, it has introduced cleanup programs to recover littered packaging. Third, it has introduced a slightly less harmful plastic bottle made partially from plants[13].

 

Recommendations

Coca-Cola has taken several large scale steps to protect itself as climate change continues to worsen. It is beginning to address the need for sustainable agriculture and water sources. It should continue to raise the standards for sustainability. One problem is that the public does not know what these standards are. It should be transparent about the details of its sustainability principles for accountability and improvement. This would establish Coca-Cola as a leader in sustainability and will pressure competitors to catch up.

The company’s programs around packaging do not go far enough. Its stated goal is “to recover or recycle the equivalent of 75% of the bottles and cans we introduce into developed markets by 2020”. It has a relatively narrow focus on developed markets, which already have strong infrastructure for recycling.

As the market leader, Coca-Cola should introduce a global recycling program rather than the current hodge-podge of local partnerships and centers. Consumer tastes are shifting more and more against disposable cans and bottles because they often end up in landfills[14].  A near 100% recycling and recovery rate would assuage these concerns, partly.

For the long term, Coca-Cola should create a prize challenge to design the next generation, 100% biodegradable water bottle. Its size warrants this investment. It would be excellent publicity, as well. (790 words)

 

[1] http://www.bbc.com/news/magazine-19550067

[2] http://www.telegraph.co.uk/technology/2015/12/11/john-sculley-steve-jobs-was-misrepresented-in-popular-culture/

[3] http://www.bls.gov/opub/btn/volume-5/pdf/what-happened-to-ethanol-producer-prices-after-passage-of-the-renewable-fuel-standard.pdf

[4] https://www.epa.gov/sites/production/files/2014-12/documents/impacts_of_ethanol_policy_on_corn_prices.pdf

[5] http://www.coca-colacompany.com/stories/our-approach

[6] http://web.unep.org/geo/sites/unep.org.geo/files/documents/geo5_for_business.pdf

[7] http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2015-annual-report-on-form-10-k.pdf

[8] http://www.coca-colacompany.com/sustainable-agriculture

[9] http://assets.coca-colacompany.com/bb/28/0d592b834e9d8fd9afcccb1829b6/sustainable-agricultural-guiding-principles.pdf

[10] http://www.wsj.com/articles/coca-cola-closes-plant-in-india-1455122537

[11] http://www.coca-colacompany.com/press-center/press-releases/coca-cola-on-track-to-meet-100-water-replenishment-goal

[12] http://www.huffingtonpost.com/norm-schriever/post_5218_b_3613577.html

[13] http://www.coca-colacompany.com/stories/our-progress-what-were-doing-and-how-were-doing-it

[14] http://www.nytimes.com/2012/06/21/business/more-consumers-choosing-reusable-glass-bottles.html

9 thoughts on “Coca-Cola: Sugar water and climate change

  1. Your recommendation that Coke be more transparent about its recycling and sustainability goals seems particularly interesting given the conversation we have been having in class in the last couple of weeks about sustainability and customer perception. In the Nike and IKEA cases, we concluded that greater messaging around sustainability goals would actually hurt consumer demand, who would assume that sustainability comes with a “compromise” in price or quality. The Coke case strikes me as slightly different because Coke is producing a commodity product. I don’t think that messaging around sustainability could affect quality perception, because as long as Coke tastes the same there’s no other real change in quality that people could detect. However, if biodegradeable bottles raise the price at all, I would expect demand to be very elastic as consumers can very easily switch to Pepsi. As long as Coke can manage the costs of sustainability initiatives, then, it should gain an edge over competitors by heavily advertising its sustainability work.

  2. I agree that Coke could enhance its brand by being more transparent about its sustainability issues. Furthermore, Coke has the power to lead the forefront in terms of innovating away from pure sugar. Stevia, for example, is known to provide economic benefits given its high concentration of “sweetness.” Steve is 200-350 times sweeter than sugar, enabling farmers to use only 1/5 of the land needed to provide the same level of sweetness in sugar. Consequently, less water and energy would need to be consumed.

    http://www.svetia.us/stevias-environmental-advantages/

    1. That’s a great idea as long as Coke can protect its signature taste. Alternatively, it could introduce a complementary “Coke Stevia’ product.

  3. In your section about Coca Cola’s water sustainability challenges, I thought you could have also mentioned that Coke has begun losing business due to climate change sensitivities. In India for example, it lost an operating license during 2004 because of a water shortage [1]. This context would have helped explain Coke’s need to adapt to climate change to protect its bottom line.

    [1] http://www.nytimes.com/2014/01/24/science/earth/threat-to-bottom-line-spurs-action-on-climate.html?_r=0

  4. Great Post! Coke is taking a step in the right direction! Water supply is an interesting topic considering soda products are “sugar water in a bottle” as Steve Jobs said in your post. It’s interesting to note that Coke seems to be behind Pepsi when it comes to water programming. In 2012, Coke partnered with Deka Research & Development Corporation as they pledged to provide millions of liters of clean drinking water to areas of Africa and Latin America by the end of 2013 [1]. However, in March of 2013 Pepsi announced that it had achieved a similar goal already! It had delivered safe drinking water to 3 million people in rural areas and now wanted to deliver an additional 3 million by 2015 [1]. Do you think these past events affect Coke’s public persona and sales in developing countries for both all brands under the Coke umbrella? What should Coke do in the future to ensure it’s a market leader in all arenas? How does Coke ensure market share in India if they were forced to shut down a plant there for all of its umbrella products?

    [1] Jessica Lyons Hardcastle, “Coke, WaterAid Extend African Water PipelinesBy,” Environmental Leader, April 29, 2013, http://www.environmentalleader.com/2013/04/29/coke-wateraid-extend-african-water-pipelines/#ixzz4PHwekRZL, accessed November 2016.

  5. This post was interesting to read – I was especially surprised by the role corn plays in the production of Coke (and, consequently, the emission of green house gases). The only thing I am not sure about is your recommendation that Coke should aim for a 100% recycling rate.

    I’m borrowing from FRC a little here, but I believe that goals need to be attainable, and also need to be reasonably within the control of the individual or company in focus. I agree Coke could do a better job establishing itself as a leader in sustainability, and could effectively use marketing campaigns to increase the number of bottles recycled. Your other recommendation, pushing for fully biodegradable bottles, seems more attainable and measurable. I like your idea of partly crowd-sourcing this effort in order to not only solicit creative ideas but also to further market Coke as a sustainable company.

  6. I really appreciate your post here – as a beverage giant and globally-recognized company, I find it extremely important for Coca-Cola to be pushing climate protection initiatives for two reasons. Firstly, the company’s sustainability initiatives will have a real impact on the environment; but also, and equally as importantly, the changes and initiatives it identifies in order to combat the upcoming potential effects of climate change are seen by many (both within the beverage industry and otherwise), and the fact that Coca-Cola is making several commitments to slowing or reversing these trends makes a big impression on its worldwide audience.

    One very interesting and somewhat surprising fact I discovered is that historically, Coca-Cola’s refrigeration has been its largest source of carbon emissions. In an attempt to drastically reduce its carbon footprint, the company has started moving to hydrofluorocarbon-free refrigeration equipment, which instead utilizes carbon dioxide as the refrigerant. As the article below suggests, “eliminating HFCs in the commercial refrigeration industry would be equivalent to eliminating the annual greenhouse gas emissions of Germany or Japan.” This somewhat shocking statistic just makes me wonder – since Coca-Cola is so clearly committed to reducing the negative impact of climate change, do you think there is a way for the company to get involved in trying to convince other companies to move away from HFC equipment as well?

    http://www.greenpeace.org/usa/news/coca-cola-commits-to-climate-f/

  7. Very interesting article on the Coca-Cola triumvirate of water, sugar, and plastic/glass. I also enjoyed your analysis of whether or not Coke goes far enough in its efforts to improve its sustainability and environmental impact in these three areas. Your highlighting of transparency and crowdsourced innovation is both timely and relevant. Many MNCs are increasingly reliant on externally developed technologies and are de-emphasizing traditional R&D spend, especially in industries like manufacturing and energy, and it seems like Coke would do well to follow suit, but only if it properly incentives innovators who could help it meet its goals.

  8. Great write up! As I read many other posts for consumer product companies, I realize they all face a similar issue in that a big part of their impact on climate change is indirect, as a result of their supply chain. In this case, sugar is one of those key ingredients that is affected at an upstream step in the supply chain. Most companies have found ways of assisting their supply chain partners in order to find more sustainable ways of managing resources, both with the intent of coping with direct effects of climate change but also for mitigating them by adopting sustainable practices. It would be great if Coca Cola could expand its efforts by creating parternerships with other consumer product companies that depend on the same raw materials to share best practices and find ways to scale up the impact of such inititives; just as AB InBev has done.

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