Supply Chain Food Ethics

August 8, 2010

The food supply chain is basic for present-day food ethics. The idea of a supply chain comes from retail management. Once upon a time, not that long ago really, retailers of all kinds sourced the goods that they offered to the public from wholesalers. Wholesalers sourced from distributors, distributors from manufacturers, and manufacturers sourced from commodity brokers. The commodity brokers, in turn, got the raw commodity goods that they were selling to manufacturers by operating businesses where primary producers could sell their goods at the prevailing market rate. Primary producers, in turn, may buy inputs for the production process from various input supply firms, each of which may have wholesale suppliers themselves, and the whole thing cycles around again.

This varies from industry to industry, of course. In the oil and gas industry, big oil companies roll many of these elements together to produce a “vertically integrated” supply chain. But in food, each of these elements was distinct and each represented a transaction that was pretty much divorced from the others, at least until recently.  The primary producers are farmers and ranchers who buy inputs from seed, chemical, machinery and energy firms. The retailers at the end of the chain were grocery stores and restaurants. The rise of chain stores just about eliminated wholesalers some time ago, except in limited areas like fruits and vegetables. A few meat or dairy wholesalers and restaurant supply firms service the independent restaurant trade.

So one thing that changed this picture is the concentration and integration of food industry firms. Production of chicken broiler meat is now every bit as vertically integrated as the oil industry. Broiler companies such as Tyson own the birds right up to the point that they are sold to the grocery chain as processed chicken, though they generally contract with independent operators to raise the birds in facilities that the operator, not the integrator, owns. This is a way of shifting the capital at risk in broiler production to relatively small-scale firms.

Jane Smiley’s novel A Thousand Acres rather nicely lays out how struggling farmers are tempted to get into this kind of contract animal production (there it was hogs, I believe) as a last ditch effort to “save” a farm that his become unprofitable. They go heavily in debt to build facilities, and are totally at the mercy of the integrator for the series of contracts needed to pay them off. Since it can take well over a decade to retire such debt, and technology may well change faster than that, these highly vulnerable “little guys” are often faced with the unenviable choice between a deepening cycle of borrowing, construction and debt, on the one hand, or losing the farm to bankruptcy—the very fate they were hoping to avoid in the first place—on the other.

Large chains such as Wal-Mart and McDonalds built their success in large part by reaching much deeper into supply chains than wholesalers and distributers, the people that were selling to them. Once these chains became large enough, they had the economic power to stipulate conditions for manufacturers. In the first rounds of supply chain management, the emphasis was on price. More recently, such firms have made stipulations that sound a bit like food ethics. McDonalds has stipulated that farmers and ranchers follow production practices that respect animal welfare and that curtail rainforest destruction. Wal Mart set a standard for the amount of energy a television sold in its stores could consume as a way to reduce carbon emissions.

But the other thing that has changed this picture is consumer tastes. In the old days, consumers were pretty much buying food based on price and on material characteristics that could be ascertained by inspecting the product itself. A given consumer might rely on a brand or label, but a testing organization (such as Consumers Union or the Food Safety Inspection Service) could determine traits such as microbial contamination or moisture content by examining the food item itself. The shift came when consumers started to care about things like “fairly traded” “locally grown” or “organic”. There is no test that can be performed on a coffee bean that will tell you whether the farmers who grew it got a fair return for their labor. However, retailers who have become adept at reaching back into a supply chain to reduce carbon emissions or improve animal welfare can just as easily do so to promote fair trade or locally grown.

There is some debate in the food ethics crowd as to how we should feel about these trends. Some are buoyed by the new responsiveness to ethically oriented actions. Others see it as just another extension and growth of corporate power, a trend that they presume will come to naught sooner or later. What do you think?

Paul B. Thompson is the W.K. Kellogg Professor of Agricultural, Food and Community Ethics at Michigan State University

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