Greening the perishables supply chain

Dr Silvia Estrada-Flores

It is widely recognised that supply chains are formed by alliances of two or more players (e.g. growers, manufacturers, logistics providers and retailers) to deliver products. Equally recognised is the fact that the interests and strategies of supply chain players are not always aligned. This is particularly true in the case of food supply chains: the diversity of the industry and the perceived power of large retailers over the chain make any collaborative initiative difficult. High levels of communication, trust, commitment and significant organisational efforts are required for a truly collaborative approach.

The issue of collaboration in perishable supply chains has always been relevant due to their specific requirements of delivering a product, susceptible to commercialisation time and ambient temperature, within the accepted levels of quality and cost. However, collaboration in ‘fresh’ chains will become even more important in the light of climate change.

Carbon footprint of ‘fresh’ supply chains

The impact of food supply chains can be measured from production through to processing to retail, as illustrated in Figure 1. Aspects that have environmental impacts include:

• Direct energy use on-farm, during manufacturing and during cooking at the household level.

• Indirect energy use during storage and transportation.

• Greenhouse gas (GHG) emissions associated with fertiliser production, pesticide production and production of packaging.

• Potential toxic effects from the use of chemical agents.

• Use of water for farming and processing, and land use for agricultural production.

• Food and packaging wastage at each stage of the chain.

All these aspects are captured in the carbon footprint of a product, process or service. A carbon footprint is expressed as the total amount of carbon dioxide equivalents (CO2–e) and other greenhouse gases, emitted over the full life cycle of the product. Carbon labelling is simply the expression of a product’s carbon footprint in the form of a label. A carbon label (or eco-label) may have information such as grams of CO2–e, plus declarations of other GHG produced during the life cycle of the product.

Carbon footprinting requires the use of lifecycle analysis (LCA) methodology that assesses the inputs (e.g. materials and energetic resources) and outputs (e.g. methane, nitrous oxide, CO2–e), from the point of production of raw materials to the disposal of the product/service. Therefore, carbon footprinting is closely linked to the knowledge and mapping of supply chains.

Beyond the hype and scientific inaccuracy of ‘food miles’, there should be no questions in regards to the untapped potential of carbon reduction in food supply chains. Refrigerated storage and transport are activities with particular carbon savings potential.

Food transport occurs at every step of the supply chain, connecting production centres, warehouses, export destinations, retail outlets and consumers’ homes. It is estimated that food transport in Australia accounted for 5.7 megatonnes of CO2–e in 2007, excluding the use of diesel for refrigeration purposes.

A recent report by Energy Strategies Pty Ltd estimates that the Australian refrigerated transport sector is represented by a fleet of 16,418 refrigerated trucks. If we assume a conservative average of 2 litres per hour to maintain -18 ºC and an average refrigeration use rate of 6,000 hours per year (5 days per week, 50 weeks per year), a typical refrigerated truck would use about 12,000 litres of diesel per year. Therefore, the use of diesel for refrigerated transport purposes is about 0.5 megatonnes of CO2–e, bringing our previous emissions estimate for food transportation to 6.2 megatonnes of CO2–e. To add some context to this number, this amount is the equivalent of approximately 1.4 million cars circulating in Australian roads each year.

Refrigeration-related processes (e.g. cooling, freezing, air-conditioning, cold storage) are undoubtedly a large contributor to carbon emissions in food-related industries. In a recent CSIRO study, Estrada-Flores and Platt estimated that the total energy spent in the Australian food industry to keep an unbroken cold chain from farm to consumer is about 19,292 GWh/year (or 18 megatonnes of CO2–e). This indicates that the cold chain of foods (including refrigerated transport) emits the equivalent of approximately 4.3 million cars on the roads each year (or 30% of the total number of cars registered in Australia in 2006).

These results highlight the apparent contradiction of the ‘food miles’ concept: although food transport remains an important contributor to the environmental impact of food chains, the energy spent to maintain the cold chain of perishable goods amounts to three times the direct emissions of food transport. It is true that these transportation estimates do not include its contribution to traffic congestion. This particular issue requires further investigation, given the location of significant distribution hubs (e.g. the Homebush area in Sydney) and the traffic flow of delivery trucks to reach these destinations.

The role of supply chain strategies

Decreasing emissions in perishable chains is not only related to the actual infrastructure used in storage and distribution: supply chain strategists have a very important role to play in the carbon footprint of perishable products.

For example, we have the perception that lean supply chains should be ‘green’ by definition. But is that so?

Although it is reasonable to expect that lean processes, which aim to eliminate wasteful activities, should align by definition with a lower carbon footprint, a study from Venkat and Wakeland (Cleanmetrics) found that this is not necessarily true. The authors investigated the relationship between lean supply chain strategies and their effect on carbon emissions. Lean supply chains typically have lower emissions due to reduced inventory levels. However, they also require frequent replenishment at every point in the supply chain. If a lean supply chain is located entirely within a small region, then it would have low levels of inventory and short shipping distances. As distances increase along the supply chain, lean chains may be in conflict with low carbon footprints, thus leading to tradeoffs as well as additional opportunities for optimisation. This issue needs to be further explored in the case of Australia, where long transport distances are the rule rather than the exception.

In their search for cost-reduction, supermarkets are always looking for opportunities to make their transport networks more efficient, by moving goods in larger quantities and optimising their delivery schedules. This has led to a decrease in the number of distribution centres around the country, which is what good supply chain practices dictate to decrease inventory costs. However, as mentioned above, this strategy also needs to be considered in the light of carbon footprints.

We may need to look at examples such as Unilever (Europe divisions), where pressures to improve margins, reduce costs and environmental concerns led to a radical reorganisation of their warehousing and distribution strategies. Some key initiatives included the abolition of product category-based logistics, the development of systems for total visibility of transport operations through improved IT systems, and the consolidation of transport loads and warehouses. These changes have led to a 7% reduction in costs at the end of 2007. By 2010, it is expected that cost savings will reach 15% and a 10-20% reduction in carbon emissions, thus proving that both financial and environmental benefits are achievable with carefully crafted supply chain strategies.

The role of innovation

For economies that largely depend in agricultural exports, such as Australia and New Zealand, it will become critical to demonstrate that the Asia-Pacific food supply chains are aligned with good environmental practices. It is unlikely that ‘food miles’ in its present form will be used as a trade barrier, but it may become a significant consumer driver for selecting food purchases.

Environmental innovation has been highlighted in the Garnaut review as a mechanism to adapt to climate change. The development of new technologies for energy production, new manufacturing techniques and new product lines that align with good environmental practices will be needed in many sectors, including the food industry. To ensure a successful introduction of environmental innovations to the market, additional measures to increase the market receptiveness will be required.

In Europe, Forward Commitment Procurement (FCP) has been highlighted as a model capable of accelerating the commercialisation of environmental innovation. In an FCP model, a public sector organisation commits to purchase a pre-defined quantity of a product/ technology, currently under development but not yet available as a commercial offering. The commitment is for a future date and is based on a specified product performance being achieved. When the product has been developed meeting this performance specification within the agreed timeframes and framework, the organisation purchases the product at a specified volume and cost, at levels that encourage supplier investment to ensure economies of scale. The private sector would react by freeing investment to search for innovations that respond to those specifications. Once the product/service has entered the market, normal market conditions will determine competition and price.

Although in an FCP framework a government department acts as an early adopter, there is a growing interest of private investors in the environmental innovation market. Globally, the development of ‘green’ technologies attracted an estimated US$3 billion venture capital last year. Eighty four percent of the capital originated from the US. The areas that have attracted more attention from investors are solar energy, transportation and biofuels. Potentially, insurance companies could contribute to offset R&D costs.

Some specific innovative technologies and practices that have application to the perishables supply chains are:

• Refrigerated trucks using hybrid diesel electric technology can be powered by either an on-board diesel generator or a shore power grid connection. Although the technology has been proven in Europe and the US, there has been little traction in Australia. Some of the reasons are the higher initial costs and the lack of an energy supply infrastructure to run these units on standby power for a significant portion of their operation time.

• In packaging technologies, the development of biodegradable films and boxes has also been investigated. Some examples include the use of corn-derived polylactic acid and edible milk protein skins, among others.

• The reduction of fuel consumption of transport systems (specifically ships and road transport) is also a subject of research. In Australia, a company has developed a two-cycle orbital combustion process (OCP) engine, which is 50% lighter, takes up 70% less space, and consumes 30% less fuel than a four stroke engine. The power source is suitable for motorcars, inboard and outboard marine engines.

• Demand-side measures encourage electricity consumers to have much greater participation on how and when they consume electricity. Innovative applications of these include the use of intelligent controllers that decrease energy consumption during peak demand and increase consumption during low demand time. For example, CSIRO is currently developing smart controllers that optimise the energy consumption of electrical loads in cold stores. These strategies include heuristics to control the cold store temperature, decreasing electricity consumption while keeping the product quality and safety intact.

• The use of multimodal transportation in Europe has been highlighted as an immediate measure to decrease the emissions of food transportation. For example, road transport of produce from Italy to Stockholm produces twice the emissions than transportation by rail. To facilitate rail transportation, containers that can be easily transferred from one mode of transport to another can be used.

 

Dr Silvia Estrada-Flores is principal consultant of Food Chain Intelligence, a consultancy business that provides advice in the practical aspects of the supply chain of perishable foods, from gate to plate. Silvia currently publishes a newsletter entitled ‘Chain of Thought’, accessible at www.food-chain.com.au.

*Excerpt from MHD Supply Chain Solutions, May/June 2008 (pp.54-7)

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