Agriculture is central to global challenges and solutions related to nutrition, the environment, and economic well-being. Sustainable agricultural practices will be pivotal to meeting the increasing demand for food as the global population grows, while addressing the need to manage natural resources, given that agriculture currently uses 70 percent of the world’s available freshwater, and in some parts of the world, is associated with deforestation, biodiversity loss and soil degradation, among other impacts. Agriculture also provides jobs for more than 1 billion people around the world, serving as a backbone of many local economies.
Given the scale and reach of our agricultural sourcing, PepsiCo can be an influential voice in global agriculture. For PepsiCo, sourcing our agricultural ingredients responsibly and sustainably is important for the continued growth of our business, to help ensure food safety, and support crop resilience for continued and localized supply. We rely on farmers around the world to provide the oranges used for our Tropicana orange juice, the oats for our Quaker products and the potatoes for our Lay’s chips, as well as dozens of other ingredients for our products.
As well as engaging farmers through our sourcing, we provide relevant expertise to help advance the ways in which farming is carried out around the world. This benefits individual farmers and the communities that rely on them, while helping protect our license to operate.
A dedicated team led by our Vice President for Sustainable Agriculture is responsible for managing our sustainable agriculture programs day to day. This team reports up to our Executive Committee through our Vice Chairman and Chief Scientific Officer, Global Research and Development. Progress is reviewed by our PepsiCo Executive Committee on an at least annual basis.
From Farm to Shelf - PepsiCo's Sustainable Agricultural Sourcing
PepsiCo sources dozens of agricultural ingredients from farmers around the world for our products, both directly and indirectly.
The primary crops that we source through a direct relationship with farmers are:
- Potatoes: Potatoes: the basis of our Lay’s potato chips and other snacks
- Unprocessed corn: for our Doritos and other snack products
- Unprocessed oats: for our Quaker products
- Oranges: for our Tropicana products
Many other agricultural ingredients are sourced indirectly from suppliers, which may involve several tiers between us and the farms where the crops are grown. Our key indirectly sourced crops include palm oil, cane sugar, wheat, and cornmeal.
Sustainable Farming Program (SFP)
At PepsiCo, our Sustainable Farming Program (formerly the Sustainable Farming Initiative) outlines criteria for what constitutes “sustainable agriculture.” This program covers key issues of social, environmental and economic performance of farms. PepsiCo teams work with farmers to assess where they are on a continuum of comprehensive sustainability and gives them a roadmap for appropriate improvements for their farm and region.
We engage with growers on farms of all sizes and types around the world in order to encourage continual improvement in sustainable farming practices, expand respect for workers' human rights, enhance growers' capabilities, and address risks.
Our program is comprised of two components:
- The Code, which lists PepsiCo’s farm-level sustainable agriculture principles and practices. The Code draws from principles of externally recognized agricultural codes, such as those published by the Rainforest Alliance, GlobalG.A.P., Bonsucro, and the Roundtable on Sustainable Palm Oil (RSPO).
- The Continuous Improvement Process, through which farmers are continually assessed and efforts are taken to drive improvement in sustainable agriculture.
Our Scheme Rules provide an implementation framework for the Sustainable Farming Program, while the SFP Fundamental Principles embody PepsiCo’s sustainable agriculture policy across the three widely recognized pillars of sustainability: Environmental, Social and Economic.
Through our program, we engage with farmers from which we source directly, and provide education on field agronomy, fertilizers, irrigation, plant protection techniques and new technologies, supporting farmers to adapt best practice to fit the crop and local circumstances. In addition, by 2025, we aim to expand SFP across 7 million acres to increase responsible agricultural practices, improve crop yields and growers’ livelihoods, and advance respect for workers’ fundamental human rights.
Engagement with farmers is the driving force behind our sustainable agriculture program. For our Performance with Purpose (PwP) 2025 agenda, we have set a series of goals with the objective of increasing the percentage of key agricultural raw materials that we sustainably source.
Directly Sourced Agricultural Raw Materials
Through the SFP, we strive to sustainably source virtually all of our direct agricultural raw materials that we purchase from PepsiCo long-term growers by 2020. This goal is intended to drive change in agricultural practices at the farms from which we source. Specifically, we measure:
- Engagement with farmers in our direct agricultural raw material supply chain as part of the SFP journey; and
- Compliance to PepsiCo’s definition for sustainable sourcing, as defined by our Scheme Rules
To date, we have focused on engaging growers and bringing them into the our program through Farm Management Groups (FMGs), which are groups of farmers that show consistency across a variety of factors, including geography, crop, and farm size. PepsiCo considers an FMG engaged when the following three criteria are met:
- An initial assessment against our Principles and Practices has been completed;
- Sustainability opportunities have been identified and improvement programs developed; and
- Grower engagement in these improvement programs has been initiated
As of year-end 2017, 79 percent of the volume of the agricultural raw materials that we directly source has been supplied by FMGs engaged in our Sustainable Farming Program. The percentage of FMGs engaged is one metric by which we are measuring progress toward achieving our PwP sustainable sourcing goals.
The second metric – representing our ultimate objective – is the percentage of directly sourced agricultural raw materials that have been verified as sustainably sourced, through a third party. PepsiCo considers an FMG verified sustainable when:
- A representative sample of self-assessments demonstrate that the farmers have implemented the Fundamental Principles of the Scheme Rules; and
- A certain proportion of random samples from the self-assessment results are verified by a third party.
In 2017, we reached 24 percent of directly sourced agricultural raw materials verified as sustainably sourced.
In addition to the partnership we have with our direct farmers, we are strong believers that collaboration can be a powerful driver of change. That is why we actively participate in several organizations that foster insights and best practice sharing on agricultural practices within the global food and beverage and related industries. These include the Sustainable Agriculture Initiative (SAI) Platform, Cool Farm Alliance, and Field to Market Initiative.
Non-Directly Sourced Agricultural Raw Materials
In addition to our core agricultural raw materials that we directly source, there are a number of others that we procure through shared supply chains, such as palm oil, cane sugar, wheat and cornmeal. We seek to sustainably source our major non-direct major agricultural raw materials by 2025, and to sustainably source 100% of our cane sugar and palm oil by 2020. Because we source them indirectly, ensuring sustainable supply is a more challenging process, and will require collaboration with suppliers, and a wide range of stakeholders, including engagement with existing certification platforms. As of the end of 2017, 12 percent of major indirect agricultural raw materials have been verified as sustainably sourced.
For our 2020 goals on sustainably sourcing palm oil and cane sugar, globally recognized certification schemes exist, such as the Roundtable on Sustainable Palm Oil (RSPO) and Bonsucro for cane sugar. We have leveraged these existing, collaborative platforms to help drive positive impact in the supply chain. Where no existing platforms are available for other indirectly sourced agricultural raw materials, we may utilize a different program that has been recognized by PepsiCo’s benchmarking protocol, such as the SAI Platform or GlobalG.A.P.
We have set dedicated goals for palm oil and cane sugar, with the goal of sustainably sourcing 100 percent of each by 2020. Our strategies for sourcing ingredients are intended to improve both environmental and social outcomes, encourage collaboration, and boost security of supply.
Sustainable Cane Sugar
We seek to sustainably source 100 percent of our cane sugar by 2020. As of the end of 2017, 34 percent of the cane sugar we procure has been sustainably sourced, an increase from 16 percent in 2016. Currently, we are building our capability to meet our goal in markets where there is a low level of knowledge of sustainable farming practices and certification. Specifically, we are focusing our efforts on capacity building in Thailand, India and Mexico, which are the largest sources of the commodity for PepsiCo.
In Thailand, we have already supported an independent assessment of cane sugar producers, which included a performance review on human rights and land rights to identify potential systemic issues in the supply chain.
A first-of-its-kind summit, led by PepsiCo, was held in 2015 with suppliers and mills in Thailand, convened through Bonsucro. The aim of this summit was to better understand the sustainability challenges in the cane sugar sector and solutions required to address them. The action plan implemented by PepsiCo resulted in the first-ever Bonsucro Certification in Thailand and increased suppliers’ understanding of the pathway to sustainable production of cane sugar.
Since August 2017, we have been working in partnership with Nestlé in Thailand in an effort to reach our goal of sustainable, responsible sourcing of sugar. The program aims to reach more than 300,000 smallholder farmers, helping to increase their understanding of the need for sustainable and responsible cane sugar practices. Most of the participating farmers were unaware of Bonsucro production standards before the program started. There are three phases to the project:
- Phase 1: Create a continuous improvement system for sustainable agriculture, stakeholder mapping, and inclusion of farmers to help them develop and support the program;
- Phase 2: Knowledge transfer from trainers to smallholder farmers for sustainable and responsible impact, and farm assessments measuring farmer performance against core sustainability criteria; and
- Phase 3: Continuous improvement of the program, creation of an effective feedback loop, and the development of a roadmap for farmers to attain Bonsucro certification.
The first group of farmers has been identified, and a web-app platform was deployed in December 2017 for the initial training.
In India, we continued our engagement with the Bonsucro End User Accelerator Group. This group is made up of PepsiCo and other peer companies, with the aim of catalyzing collaboration to drive sustainable cane sugar at scale. In 2017, all of our sugar cane suppliers in India underwent a gap assessment against Bonsucro standards. The results of this diagnostic will be used to develop impact programs that address both environmental and social issues in our supply base and expand collaboration.
In Mexico, we work with stakeholders, including other companies, state and municipal governments, civil society, unions and producer associations, to address social and environmental issues associated with cane sugar cultivation. During 2017, we funded a third party gap assessment at the mill and farm level to identify and address gaps and develop an engagement model for the inclusion of smallholder farmers.
For our work capacity building efforts in Thailand, India and Mexico, PepsiCo was recognized by Bonsucro in 2016 with a Buyer Award for “Supporting Transformational Change.”
Because of the scrutiny that we believe palm oil and certain other raw materials are under, and the complexity of our supply chain, we have developed a Grievance Mechanism for third parties to raise potential environmental and social concerns regarding agricultural commodities in our supply chain.
The Grievance Mechanism, which was launched in July 2017, is complementary to our existing Speak Up Process.
The Grievance Mechanism is open to anyone who has a concern that PepsiCo’s policies and expectations related to our agricultural supply chain are not being met. Each complaint will go through the following process:
- Step 1: Receiving the complaint
- The complaint is received, logged in the mechanism and acknowledged to the complainant (where appropriate).
- Step 2: Is the complaint in scope?
- The complaint is reviewed to establish that it is in scope: does it apply to PepsiCo’s supply chain and to our policies and commitments? If the complaint is out of scope, it will be closed. If it is in scope, the process will continue to Step 3.
- Step 3: Investigating the complaint
- If the complaint is about a direct supplier, PepsiCo will lead the investigation into the grievance, utilizing expertise from our Sustainable Sourcing Program.
- If the complaint is about a supplier that does not directly supply PepsiCo, we will use our relationships with our direct suppliers that source from the company to develop the appropriate investigative steps where they are are not already being undertaken.
- Step 4: Taking action
- If actions or remediation are needed these will be agreed with the supplier and communicated to the complainant (where appropriate).
- Step 5: Monitoring and implementation
- PepsiCo will work with the direct supplier or through them to confirm that the agreed actions and remediation are completed and the case will then be closed.
An internal PepsiCo resource will oversee the process, and a grievance working group including representatives from our procurement, human rights, sustainable agriculture and public policy teams will advise regarding any substantive decisions during the process, including actions to be taken if suppliers refuse to engage with the issues raised in the complaint or do not complete the agreed steps. A Grievance Committee, comprising senior management from the departments represented at the working group level, will meet quarterly to review individual cases and the operation of the grievance mechanism, including the implementation of our policies.
In every case, we look to engage suppliers first and promote corrective actions that solve problems and build capability for sustainable palm oil and other agricultural commodities. In cases where engagement does not lead to progress, we will consider all appropriate steps including significant action where deemed necessary.
Our grievance mechanism provides further detail.
Key Agriculture Policies
Our policies related to agriculture articulate the specific standards that we expect ourselves, our growers, and our suppliers to meet: