Sustainable agricultural partnerships
Diageo’s brands have always been closely connected with agriculture. In the 1800s, Arthur Guinness, the son of the brewery’s founder, served in the Farming Society of Ireland. As our operating environment continues to change and grow, these partnerships are becoming even more important, helping us secure the resources we need while supporting farmers throughout our supply chain.
Food and water security is under threat from rising populations, changing weather patterns and unsustainable farming practices. Approximately 13% of our procurement spend, excluding utilities, is on materials from farms and forests. Our focus on sustainable agriculture is an imperative both to secure access to the materials and to help contribute to the communities we rely on.
Our vision is to generate long-term business value for Diageo, using locally and sustainably sourced raw materials which meet our quality standards, and which have a positive impact on the communities and environment in which we operate. Key to our success is our ability to partner with local farmers to help them improve their yields and promote sustainable farming practices.
Our agricultural footprint
We source agricultural products such as cereals, sugar, cream and grapes from about 150 first-tier suppliers, with whom we have direct relationships, and many thousands of second- and third-tier suppliers, with whom we have indirect relationships. These suppliers range from large agri-businesses to smallholder farmers.
Diageo’s oldest brands originate in Europe, and this region has historically been the place where we have sourced most of our materials. Our first sustainable agriculture project was with dairy farmers in Ireland, home of Baileys. Read more in our case study.
As our second largest source of production, Africa is becoming increasingly important in terms of supporting sustainable agriculture and is one of the poorest and most water-stressed regions in the world. Our work with African farmers on sustainable agriculture is critical to ensure a continuing supply of raw materials, while contributing to local economies, communities and environments. We therefore continued to place particular attention in this region.
Reflecting our commitment to Africa, we are one of the signatories of the New Alliance for Food Security and Nutrition, which was endorsed by the African Union, the World Economic Forum and the G8 at the latest G8 Summit in May 2012. Through this, we are pledging commitment to growth and transformation in Africa through participation in local agriculture and food production.
In Africa, we currently source over 50% of our raw materials locally, which approximates to about 180,000 tonnes a year. This provides a sustainable source of income for thousands of small-scale farmers in seven countries, much needed investment in agricultural economies and further fuels local supply chains. It also provides Diageo with a secure and sustainable source of raw materials, thereby reducing our exposure to increasingly unpredictable changes in availability, and to potentially volatile global commodity markets – true shared value.
Our global priorities
While local priorities may differ slightly, we have identified four global agricultural ingredients through which we can make a significant contribution towards supporting local production. In identifying these materials, we assessed the size and nature of our spend and the risks and opportunities involved. As our business grows, these priority raw materials could change.
- Barley (37% of total raw material volume): one of our largest ingredients by spend and volume, we use barley in a number of brands including Guinness and Johnnie Walker. We mainly source our barley from Scotland, Ireland and Kenya, where it is processed locally.
- Sorghum (5% of total raw material volume, but 25% of volume in Africa): an ingredient in many of our African beer brands, we source sorghum mainly from Nigeria, Ghana and Tanzania. As a drought-tolerant crop, sorghum offers opportunities for supporting the local market while securing a sustainable supply for our products in water-stressed regions.
- Sugar (7% of total raw material volume): we use sugar in a wide range of brands, including Baileys and Smirnoff Ice, and source it from the main sugar growing areas of the world including Europe, Brazil and Australia.
- Cream (1% of total raw material volume): the single largest ingredient for Baileys, we have a very strong cream supply base in Ireland. We acted as a catalyst working in partnership with our supplier to establish a best practice approach to sustainable cream production. Read more in our case study.
When it works, a sustainable approach to agricultural sourcing changes lives, communities, business models and impacts. While we have been working closely with farmers across the world for many years, our approach has historically varied depending on the needs of our particular partners.
Last year we aimed to formalise our approach by launching a set of Sustainable Agriculture Guidelines, piloting them in Ireland with a focus on cream – the key raw material in Baileys. Together with our principal cream supplier, we formed an advisory committee, meeting regularly to address issues around quality assurance, animal health and welfare, carbon, biodiversity, water, and health and safety, with a view to carrying out audits on 4,300 farms. From this pilot programme, we have succeeded in integrating a number of lessons into our general approach. The largest was the need to take time to build relationships with suppliers and work in partnership on developing the programme, which allows the supplier eventually to take ownership.
This year, we increased our commitment to sustainable agriculture with the appointment of a sustainable agriculture director for our global beer and Africa supply chain. We are working towards further developing our partnerships with farming communities, government and NGOs to fuel growth through sustainable cultivation of crops such as barley, sorghum and cassava.
This new phase of work has been conducted primarily in Africa, building on past initiatives, and is focused on strengthening existing or building new scalable partnerships that promote commercially and environmentally sustainable practices while supporting local livelihoods. The approach includes a hybrid strategy to work with medium to large agribusinesses which then connect with local smallholder farmers to grow and supply similar crops, sharing best practice, knowledge and resources.
Developing local agricultural economies
In Kenya we have worked for many generations with commercial barley farmers who supply grain to our malting facility. Diageo works with these farmers to improve yields and develop scalable agribusiness models, linking larger farmers with smallholder communities. More recently we have worked with local financial services companies to provide our farmer community with basic insurance against loss of income due to drought. Provision of credit facilities through banks has also enabled farmers to set up bank accounts and save money, to pay for school fees.
In Europe we have worked for many years with our cereal suppliers, who manage and source wheat, barley and malt for us. These partnerships see us working with both farmer groups and government bodies to improve crop quality. Farmers have benefited from better yields and crop management, which has supported the sustainability of cereals in the United Kingdom and Ireland. This year we met with Irish government officials to discuss our support for the Irish farming industry. Aside from revenue from cereal sales, our industry supports jobs, education and research for many small farmers across Scotland and Ireland.
Promoting crops that are less water-intensive
We are working with farmers in Nigeria, Cameroon, Ghana, Kenya and Tanzania to develop a local sorghum supply chain. Sorghum requires less water to grow and needs less water in the brewing process. But there are also other important benefits. Sorghum is known to improve soil quality, which combined with training and technical assistance improves the capacity of small-scale farmers.
In Nigeria, Cameroon and Ghana we invested in the local sorghum supply chain providing smallholders with access to better seeds, hands-on training and advice and support in storage and transport infrastructure. This has also helped to insulate us from unexpected increases in commodity prices and has reduced the overall price of raw materials.
In partnership with the government of Tanzania, we initiated a pilot project aimed at developing and implementing a scalable sorghum value chain project in Morogoro. If this pilot is successful, the project will aim to help provide and sustain economic opportunities for local farmers as well as promote the sharing of environmentally sustainable sorghum cultivation and post-harvest practices. We hope to achieve this through training, financial support and providing physical infrastructure. Success of the project would lead to a $2 million (£1.266 million) plan to increase cultivation to 20,000 tonnes of sorghum by 2016. The project is closely linked with the Southern Agricultural Corridor of Tanzania, a priority area for development for the Tanzanian government.