Sustainability as a Potential Business Risk

Sustainability as a Potential Business Risk

The term “sustainability” is often heard with many businesses across all industry sectors either claiming to be sustainable or to be striving towards it. To precisely define sustainability and detail exactly how it is going to be achieved, particularly in reference to a specific business, is a much more difficult task than just claiming to be so. 

It is safe to assume however that the issue of what comprises sustainability is going to be increasingly important for agricultural businesses. Being involved in biological production systems means attaining sustainability is going to be more difficult than it would be for, say, a professional services firm located in a CBD office block.

In international agricultural markets, corporate purchasers and processors are increasingly seeking assurances that the commodities they are sourcing are produced sustainably. What comprises sustainability varies from commodity to commodity and a detailed discussion of this is beyond the scope of this article.

The commitment to sustainability is undertaken with varying levels of commitment. While some visible commitment may have an intangible benefit for some producers, competition between producers of agricultural commodities is very much a function of price. It is difficult to imagine that a producer would compromise their price competitiveness by incurring additional costs in the quest for sustainability unless there is some inducement such as a price premium or a regulatory requirement to do so.

While the quest for sustainability is something that most producers would regard as having some merit, the commitment to sustainability is viewed more in the category of the ethics and management of the firm rather than under the statutory compliance section of a given company. It is not hard to envisage however that at some time in in the future, agricultural businesses will be required to comply with state based regulatory regimes aimed at ensuring that individual commodity supply chains be sustainable.

Using an Australian example, it would not seem too far-fetched to imagine a future time where sugar cane producers and other agricultural operators on land where water runs off to the Barrier Reef will have a statutory obligation to demonstrate that no nutrients, pesticides or other chemicals come off their property.

It could also be the case that sustainability requirements are imposed by buyers/processors further up the supply chain before they are imposed by statutory authorities.  This could be via price or market access signals.

While the exact look of the future cannot be known, it is a safe bet that sustainability will be a feature of the daily management of agricultural businesses.  By extension, failure to take heed, account for or manage the process is likely to result some form of direct or indirect penalty being suffered by the business.

It would be prudent management therefore for agricultural businesses being aware of how the potential issues around sustainability affect them both at an individual business and industry level. Starting this process early is likely to produce a better outcome than resisting any change.

The likely proponents and pressure for sustainability compliance are likely to come from pressure and interest groups normally viewed by agricultural businesses as hostile to them. This further emphasises the need to understand the issues, devise mitigants and solutions and pre-empt the actions that might be taken by these various groups.

It may be by pre-empting measures eventually to be implemented by sustainability, individual businesses or supply chains may be able to command a price premium in certain markets.

ARC - the right choice.