Jason Clay heads up WWF-US’ work on global markets and trends related to food. He launched WWF’s global work on agriculture, aquaculture, and market transformation for food and soft commodities companies. I spoke to him by phone from Washington DC.
The WWF seems to be an organization that looks for solutions to problems rather than just naming and shaming. Is that a fair assessment?
Naming and shaming is also very broad brush; you can name and shame a lot of people who aren’t actually the problem. If you want to find solutions you have to build coalitions, working quietly and more behind-the-scenes. This is WWF’s strategy. To solve most global problems, everyone should be part of the solution. At least that makes change happen faster.
WWF is a science-based organization. We base our programs on science and research. For us, it is “Get informed, and then get involved.”
WWF has been involved in setting up a number of sustainability certification programs such as the Round Table of Responsible Soy and the Round Table of Sustainable Palm Oil.
The fundamental question is, “Why do we have certification bodies?” The answer is “Because governments aren’t doing their job to protect the planet for future generations.”
Certification is not the best option, but right now it’s the one we have. Can it be better? Sure.
But you once said that the certification agencies are about certifying the top 10 percent, while it’s really the bottom 25 percent that is causing most of the damage and needs the most help.
Unfortunately we are often quite willing to let the perfect get in the way of the good. But once producers start seeing that better practices achieve better results they begin to ask how they can implement them too.
But, at the end of the day the biggest environmental impacts come from the bottom 25 percent. That’s where we need governments. The poorest performing producers either need to improve, or get out. Only governments can make that happen.
What is the role of traders, if any, in this?
Most people don’t understand that commodity traders are very efficient at what they do. The problem is that we’re asking traders to do more than the commodity trading system was designed to do. Commodity trading allowed buyers to purchase a product that is interchangeable with any other ton of the same product. If you buy number two yellow corn, you receive number two yellow corn.
From about 1860 to the 1970s, commodities were defined by physical properties, weights, moisture content, foreign matter, broken pieces, and other physically verified attributes.
Since the 1970s, however, people have begun to ask commodity traders to address such issues as labour conditions (e.g. minimum wages; child labour) and environmental impacts (e.g. pesticides, deforestation, soil health, etc). Buyers are asking traders to verify specific traits that pose reputational risks to retailers and brands that are more inclusive than weights and measures and physical properties.
What are the challenges traders face to make these changes happen?
Trading companies are trying to find ways to put such verification systems in place, but they have two problems. First, they need buyers to commit to more than one off purchases. Depending on the commodity, they need multi-year commitments.
If a trader puts systems in place to verify how a product is produced, it costs money. They need multi-year contracts to offset those costs. Otherwise, the trader could be stuck with this initial cost. If traders could get a five-year contract from a company to buy more sustainable palm oil, soy or whatever, they could amortize their one-off costs over that five-year period.
A trading company may make 1.5 to 3 percent on a single trade. If the verification cost is 1 percent, then on a 1.5 percent margin you’ve already lost more that half of your profit. But if the initial cost can be amortized over five years it gets down to a point where it is negligible. But for that to happen the downstream buyers have to put the money where their mouth is, but most have not done that. That is the issue that traders are facing.
So we have two issues to address. One: how do we turn retailer and brand commitments into actual purchases? Two: how do we get traders to work together without risk of collusion?
From a sustainability point of view we need companies to work together. Companies have to work together to solve sustainability issues. This is not about price fixing. It’s about internalizing environmental externalities into prices.
We have to work together to manage the planet. We can’t manage it one producer, one trader, one retailer, one brand or one government at a time.
You mentioned externalities. Although consumers say they will pay for externalities, they don’t. What could be done there?
If all commodities were produced more sustainably, consumers wouldn’t have a choice. Changing the definition of a commodity could help. Number two yellow corn could also be more sustainable. It is not clear that the price would go up, especially if producer prices for less sustainable products declined because they cost society more. We need to get the price signals right—today sustainable products cost more, but unsustainable products cost society far more. But ultimately, the consumer is the polluter. And the principle is that the polluter pays.
When you see what’s happening, how we’re living at 1.3 or 1.5 planets per year, do you get pessimistic?
Sure, but we only have one planet, and we have to address sustainability issues one way or another. My main motivator is my children’s future, but also the future of all other living things on the planet. This is literally about life on earth.
Thank you Jason for your time.
This is an extract of an interview with Jason, which I will publish in full in my upcoming book, “Out of the Shadows: The New Merchants of Grain”
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