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Economics of Land Degradation A global initiative for sustainable land management Economics of Land Degradation A global initiative for sustainable land management 1ST ELD BUSINESS PAPER: OPPORTUNITY LOST: THE EXPOSURE OF BUSINESS TO LAND DEGRADATION RISK AND THE OPPORTUNITIES INHERENT IN SUSTAINABLE LAND MANAGEMENT 2 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management CONTENTS 1. INTRODUCTION: BUSINESS AND LAND DEGRADATION 2. ON DECISION-MAKING 3. INDUSTRIAL SECTOR CASES 4. CONCLUSIONS 3 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management How are companies connected to land degradation? Land degradation touches companies insofar as their inputs are linked to land their outputs are connected to land on the markets their production processes have links to land their decision-making process includes land degradation as a consideration their goals translate to a link to land degradation 4 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management RESOURCE EFFICIENCY DIAMOND Land Degradation links Social Capital Food biomass Land Plantation: Non-food biomass & Water & Energy & Social capital Non-food biomass 5 7/17/2015 Metals Water Energy Mining: Metals & Water & Social capital Economics of Land Degradation A global initiative for sustainable land management ON DECISION-MAKING STATUS QUO: LAND DEGRADATION IN DECISION-MAKING TOOLS USED Current business Fully normal asset management Time horizon longer than usual Often, land not seen as ”core business” – supplier’s problem Time horizon often shorter than land dictates Direct land contact in value chain Fully normal investment calculus Time horizon longer than usual Land mostly treated as image risk Raw material prices and secure supply chain key Distant from land in value chain 6 7/17/2015 New investment Economics of Land Degradation A global initiative for sustainable land management DRIVERS FOR BUSINESS – RISKS AND OPPORTUNITIES Reduced productivity 7 Decreasing raw material availability 7/17/2015 Political instability and related social phenomena Regulatory and legal risks Operations improvement New market opportunities Brand and image goodwill Economics of Land Degradation A global initiative for sustainable land management INITIAL RANKING High risk Medium risk Low risk 8 7/17/2015 • • • • • • Basic resources (e.g. forestry, papers, metals) Construction and materials Food and beverage Industrial goods and services (e.g. transportation, packaging) Leisure and travel (e.g. airlines, hotels, restaurants) Personal and household goods (e.g. consumer electronics, tobacco, clothing, footwear) • Utilities (water, electricity) • • • • • • • • • • • • Chemicals Health care (e.g. equipment, services, pharmaceuticals) Insurance Oil and gas Real estate Retail Automobiles and parts Banks Equity/Non-Equity Investment Instruments Financial services Media Technology (e.g. software and computer services, technology hardware and equipment) • Telecommunications Economics of Land Degradation A global initiative for sustainable land management BUSINESS MODELS: CASE MAP Service building Newmont Whistler Blackcomb Ecuador tree people Land degradation cases Ensuring operating environment Edia Alqueva Michelin Holcim/Ambuja Securing supply chain Coca-Cola L‘Oréal/BASF Indonesia Palm Oil Fibria 9 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management Project Unnati: Coca-Cola India and Jain Irrigation Systems Year 2011- ongoing Type of risk Opportunity cost: new market Business and profitability risk: raw material availability Industry area for which the risk is relevant: India Food and beverage Case description Despite India contributing 55 % of the world's mango production, the productivity is one of the lowest in the world. Farming is important for several communities but improper land management and soil erosion cause problems. Project Unnati is engaging mango farmers in the state of Andhra Pradesh to adopt ultra-high-density plantation practices leveraging drip irrigation which improve the yields with 100% in a sustainable manner. Key features common for other Businesses Partner up with e.g. leading technology providers to support initiatives together. 10 7/17/2015 Location of operation Economics of Land Degradation A global initiative for sustainable land management Project Unnati: Coca-Cola India and Jain Irrigation Systems Larger yields for the mango farmers and faster start of production. Opportunities Coca-Cola India: opportunities to ensure raw material availability in a growing market Opportunities for the irrigation system provider and mango pulp supplier, Jain Irrigation Systems, to sell irrigation systems and ensure raw material for processing Financial relevance 100 % The companies invest 1.5 Million € (0.75 Million each) in the development of the concept and in educating about 50,000 farmers Of the mango pulp needed for CocaCola India drink Maaza is sourced from Chittoor region Farmers invest around 1050€ / acre in cultivation and irrigation systems 60 % 11 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management Project Unnati: Coca-Cola India and Jain Irrigation Systems Coca-Cola Money Money Mango pulp Educational organisation Jain Irrigation Systems Information Money Drip irrigation system Money Mango 12 7/17/2015 Farmer Economics of Land Degradation A global initiative for sustainable land management Development of Argan oil sourcing: L’Oréal, BASF and Yamana Year 2008 – 2010 Type of risk Opportunity cost: brand image, reduced value of land Business and profitability risk: raw material availability Morocco Industry area for which the risk is relevant: Personal and household goods Case description The Argan tree is endemic to southern Morocco, largely found on the Souss plain bordering the Sahara desert. It acts as a natural barrier against the advance of the desert, preventing erosion and protecting water resources. A program for the sustainable sourcing of Argan oil was set up to build a long term relationship with the farmers, and to ensure the traceability and quality of the raw material. The program also sought to ensure long time production through reducing desertification and soil erosion. Key features common for other Businesses Partnering along the value chain to ensure raw material availability and sustainability 13 7/17/2015 Location of operation Economics of Land Degradation A global initiative for sustainable land management Development of Argan oil sourcing: L’Oréal, BASF and Yamana Opportunities Ensuring raw material availability with improved yields and increase wellbeing of local people resulting to increased attractiveness of the local livelihood Financial relevance Argan cultivation produces products and income for 3 million people The Argan forest ecosystem only covers 2% of Morocco and the forest is declining by 1% per year 2% Argan oil is one of the rarest oils due to its small and very specific growing areas Ensuring long term production possibilities in the area 90 % 14 7/17/2015 The Argan forest is the major source of income for 6% of the rural population and it makes up 90% of the economy in the areas of native Argan stands. Economics of Land Degradation A global initiative for sustainable land management DEVELOPMENT OF ARGAN OIL SOURCING: L’ORÉAL, BASF AND YAMANA L’oréal Information Information Money Argan oil products BASF Money Yamana (local nongovernmental organization) Information Argan oil Money 15 7/17/2015 Local people Economics of Land Degradation A global initiative for sustainable land management Year On-going EDIA - Alqueva Multipurpose Project Portugal Type of risk Opportunity cost: new market, increased value of land Industry area for which the risk is relevant: Utilities (travel and leisure, agriculture) Case description Alentejo is one of the most underdeveloped regions in Portugal and it has severe desertification problems. In the Alqueva Multipurpose Project, managed by EDIA and including several partners, a dam was built with the goal of fighting desertification, ensuring water supply to people and industries in the region, developing tourism and producing electricity. Location of operation 2.6 mill€ Is the total estimated investment of the project Key features common for other Businesses Opportunities Financial relevance Sustainable land management to combat land degradation and enter new markets. Acceptability of new investment Improvement of local livelyhoods e.g. acriculture, tourism 16 7/17/2015 The investment up to 2010 has been approx. 1.8 million € and the total project is expected to cost 2.6 million €. Both the state and community funds contribute to the investments. EDIA has been a manager of the project, but has no own investments in the project. 50% From the invesment was received from EU funds 350 GW/h/y Is the total electricity capacity of the hydroelectric plant of the Alqueva dam Economics of Land Degradation A global initiative for sustainable land management Alqueva Multipurpose Project - EDIA State Community funds Investments EDIA 17 7/17/2015 Project management Alqueva multipurpose project E.g. water, energy Local environment, people and industries Economics of Land Degradation A global initiative for sustainable land management CONCLUSIONS 18 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management STATUS QUO: LAND DEGRADATION IN DECISION-MAKING Direct contact with land Food and beverage, leisure and travel Directly linked to land Vulnerable to consumer opinion (often selling to urban population) Core motive: Brand and image, productivity Basic resources (forestry, metals) Linked either directly or in perception to land Land prime resource in thinking Core motive: Secure supply chain Industrial goods and services, utilities, construction and materials Vulnerable to supply chain demands Rarely feels connected to land Core motive: Being secure supplier Personal and household goods Vulnerable to consumer opinion Dependent on other operators in the chain Core motive: Brand and image 19 7/17/2015 Far from consumer Close to consumer Far from land in value chain Economics of Land Degradation A global initiative for sustainable land management A CONCEPT IN NEED OF A CREATOR… … AND A BESTSELLER A new methodology that fully integrates land degradation into business-as-usual decision making is needed A new methodology (Balanced Scorecard, Business Reengineering) benefits greatly from having a business book bestseller associated with it: suddenly, it is a ”must have” methodology A likely concept candidate is one that considers the changes and transitions ongoing in value chains and creates a new value chain management concept 20 7/17/2015 Economics of Land Degradation A global initiative for sustainable land management Thank you! More info available at: ELD Secretariat Mark Schauer E-Mail: [email protected] www.eld-initiative.org T + 49 228 24934-400 21 7/17/2015