In an unprecedented move, the Governor of California issued a state-wide mandate to cut water consumption by 25%. The drought, now in its fourth year has had a major impact on the state’s economy and in fact, the University of California-Davis estimated the drought negatively impacted the state by $2bn in 2014 and this year it is estimated at $3bn.
Unsurprisingly the drought has had a damaging effect on the state’s agriculture industry and farmers are changing the mix of crops that are traditionally grown. For example, instead of broccoli, carrots and tomatoes, farmers are replacing these crops with nut and fruit trees, which demand less water. However, some replacements cannot be made. “Cotton has gone from 1.5m acres to almost nothing. We’re cutting way back on rice. The number of dairy cows is probably going to fall by 100,000 or so,” said Dan Sumner, a professor of agricultural economics at the University of California-Davis.
These shifts and changes will have a hefty impact on the US’s food supply chain. About half of the fresh produce consumed in the country and one-third of the nation’s organic produce is grown in California.
Indeed, climate changes such as droughts are being recognized as risks to supply chains. According to Kate Gordon, editor of the report ‘From Boom to Bust, Climate Risk in the Golden State’, “The business and investment community have to incorporate climate risks into the DNA of their decision making. These risks should be evaluated when they are making capital decisions on infrastructure investments and supply chain decisions.”
In addition, the non-profit organization, Ceres, noted in a 2014 report that Midwestern agricultural communities faced a 45% increase in “extreme precipitation events between 1958 and 2011, elevating the risks of dangerous floods” and as a result an increase and volatility in corn prices has occurred.
While climate changes are recognized as supply chain risks, sustainable practices should be adopted as a means to reduce such risks. As noted previously, Californian farmers are planting crops that demand less water and Ceres notes that retailers such as Walmart have introduced a greenhouse gas-reduction initiative that requires vendors using commodity grains in their products to submit fertilizer efficiency plans. Fertilizer not absorbed by crops emits a power greenhouse gas – which Walmart identified as the top greenhouse gas hotspot in nearly half of its top 100 products.
Furthermore, Mars Inc. has partnered with the University of California-Davis to collaborate and find ways to create sustainable supply chains for such goods such as cacao, corn, peanuts, tomatoes and rice.
As more and more retailers, suppliers and farmers adopt sustainable practices, the US supply chain will change. Crops may be grown in new regions of the country while other crops will no longer be grown and instead will be imported. Meanwhile, farming techniques, warehousing and transportation requirements will change as well and logistics providers that specialize in this industry will need to monitor these changes closely in order to adapt.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)