Reducing costs and broadening markets are vital to economic growth. Unfortunately, this is not obvious to everyone. Consider the World Wildlife Fund for Nature. It bills itself as one of the biggest conservation groups in the world. And with annual revenue of around $400 million, it is.
As chief executive officers continue to see red ink spread and unemployment rise, the WWF is pushing a Market Transformation Initiative, which would further exacerbate business costs based on spurious pretenses.
Its objective involves pressuring leading retailers and consumer goods producers such as Coca-Cola, Cargill, Wal-Mart and Proctor & Gamble to comply with WWF’s onerous environmental standards when sourcing raw materials.
The group’s problem, however, lies primarily with consumers, not industry. When given the choice, most consumers aren’t willing to pay more for a product simply because it’s “green.” And ingredients for most of those goods are more expensive.
Environmental writer Joel Makower explained earlier this year, “no environmentally preferable car, carpet, cleaner, cosmetic, clothing, coffee, credit card or cell phone has captured more than 2 percent of its respective market. In most cases, sales of green products represent well under 1 percent of any given category.”
The WWF solution is to get consumer goods manufacturers and retailers to dictate product availability and source only raw materials that it deems “sustainable” — a move that should raise red flags among anti-trust authorities charged with limiting unjust restrictions on competition.
In particular, the group is targeting commodities such as palm oil, soy, cotton, sugarcane, timber, pulp and paper,and seafood.
When developing the strategy, WWF Senior Vice President of Markets Jason Clay noted: “One hundred companies control 25 percent of the trade of all 15 of the most significant commodities on the planet.”
The group estimates that a quarter slice of trade affects a much larger degree of production, up to 50 percent. As such, the organization’s tactics could have a profound and potentially deleterious effect on global trade.
Environmental nongovernmental organizations such as the WWF are employing a sophisticated “good cop/bad cop” tactic to pressure companies into the fold.
Nestle experienced it early this year. The WWF wanted the food company, the largest in the world, to only use palm oil that meets the NGO’s preferred environmental standard. Palm oil is a key ingredient in many of the corporation’s products, such as PowerBar and Coffee-mate.
When Nestle didn’t cave to the demands, Greenpeace began a devastating social media attack on its newly refurbished KitKat candy brand, falsely blaming the company and the palm oil industry for endangering orangutans.
Nestle folded and has now committed only to source oil from limited and more costly sources.
Unilever, which manufactures products ranging from Dove soaps to Ben & Jerry’s ice cream, was an early subscriber to WWF standards. However, this move seems to conflict with its shareholders’ interests.
The company’s CEO, Paul Polman, points out that 55 percent of the corporation’s sales are now in emerging markets, regions such as Asia, Africa and Latin America.
Developing economies represent the future of the consumer products industry; yet, in order to succeed in markets with highly price-sensitive consumers, companies need to be able to keep their cost structures thin.
Will the more expensive, WWF-endorsed products appeal to consumers in Sao Paulo, Mumbai, Chongqing or Mexico City? Not Likely. And those consumers are the ones who will deliver the profits and returns shareholders expect.
Meanwhile, in mature markets, executives should be wary of subscribing to initiatives that will dictate market terms to suppliers and limit availability of products to consumers. WWF may want that, but anti-trust regulators will not.
Alan Oxley is former chairman of the General Agreement on Trade and Tariff (GATT, the predecessor of the World Trade Organization) and current chairman of pro-development NGO World Growth.
