This industry includes food and beverage technology, manufacturing, processing, marketing, packaging, distribution and points of service, such as restaurants and bars. The value of U.S. food and beverage manufacturing plants accounts for 13% of all shipments from the U.S. (USDA 2010). While this is an industry that is closely tied to the agricultural industry, they are two distinct industries that are operated and regulated quite differently.
Physical Exposure Risk. The Food and Beverage industry is extremely sensitive to physical climatic changes. A scarcity of water could disrupt product manufacturing because it is typically required as a coolant for plants and as a primary ingredient for food and beverage products. Limited water availability will also adversely affect crop yields and raise the prices for critical raw material in the food and beverage industry. Extreme weather events will also be damaging to crop yields and manufacturing plants and infrastructure. Furthermore, scarce fresh water and warmer temperatures could increase the likelihood of food contamination and therefore costs associated with ensuring compliance with food and safety regulations (Krechowicz, Venugopal et al. 2010).
Policy and Regulatory Risk. Unless large emitters of greenhouse gases, few food and beverage businesses are likely to find themselves directly subject to climate change related regulation. The EPA’s Mandatory Greenhouse Gas Reporting Rule is intended to only cover the largest meat and poultry, fruit, vegetable and juice processing facilities. The EPA is expecting that only 100 food and beverage facilities, out of 5,700 nationally, will be subject to the GHG Reporting Rule (Environmental Protection Agency 2010). Motivation to initiate sustainability measures in the food and beverage industry has stemmed primarily from the physical effects of climate change and less because of the threat of regulation (Holmes 2011). However, climate change policies are having indirect effects on some products. For instance, subsidies supporting corn for biofuel have convinced barley farmers to switch their crop to corn, and this is leaving the beer industry in the lurch (Gugoff 2007).
Reputational Risk. In 2006, The Carbon Trust began use of the “Carbon Reduction Label” for food and beverage products that lower their emissions by 20% within 2 years of certification. While the label is widely used in England, there is currently no study as to whether products bearing the label are doing better relative to their competition (Tait, Miller et al. 2011). A study conducted by McKinsey asked consumers what types of actions they would be willing to take in order to stop climate change. 44% were willing to purchase locally produced-products. The study also asked, “What should food and beverage companies do to make you more inclined to choose their products over others?” 34% said “reduce waste and pollution in manufacturing,” 13% said “develop more environmentally friendly products,” and 22% said take “aggressive action to reduce energy consumption and help prevent climate change” (Bonini, Hintz et al. 2008).
Competitive Risk. Taking action on climate change is providing a competitive edge for some food and beverage companies. For example, McDonald’s scores suppliers on energy, waste, water and air pollutants, and wants to partner with the meat and dairy suppliers who can demonstrate improvement (Holmes 2011). Pepsico is also trying to improve the sustainability of its supply chain in the event climate change restricts the availability of water and agricultural products such as sugar cane, corn, rice, potatoes, etc (PEPSICO 2009). As a result, Pepsico will be better positioned relative to its competitors should there be significant climatic changes.