The Developing World Yanks the Supply Chain
Environmental issues in developing economies have long been of concern to Western companies, but some issues are becoming more strategic, both to companies and countries. Geeky buzzwords like "rare earths" and "conflict minerals" are finding their way into mainstream media and public discourse, and the sources of some of the most widely used agricultural commodities are being scrutinized.
"Conflict minerals" is a term that came into widespread use during 2010. It refers to minerals mined in conditions of armed conflict and human rights abuses, notably in the eastern provinces of the Democratic Republic of the Congo, or DRC, where warring factions have been embroiled in a decades-old civil war that has caused 5 million deaths and displaced millions more.
Conflict minerals include lesser-known substances -- cassiterite, coltan, tantalum, tungsten, and wolframite -- along with more common ones like tin and gold, which are essential to manufacturing a variety of consumer electronics, including mobile phones, laptops, and MP3 players. Purchasing conflict minerals, say activists, finances tribal fighting in the DRC. Armed groups are present at many mines, often affiliated with rebel groups or the Congolese National Army, both of which are said to use rape and violence to control the local population.
Tracking the use of conflict minerals by companies has been difficult, and mostly in the domain of a handful of activist groups. But in 2010, the 2,300-page financial reform bill passed by the U.S. Congress and signed into law contained a provision aimed at curbing the use of four conflict minerals: gold, tin, tungsten and tantalum. It put the burden of proof on the firms using these minerals. The new law requires American companies to submit an annual report to the Securities and Exchange Commission disclosing, starting in 2012, whether their products contain any of these four substances from the DRC or adjacent countries. If so, companies must describe what measures are being taken to trace the minerals' origin. The law goes well beyond electronics companies: It applies to any publicly traded U.S. firm that uses gold or tin in its products. It may be a challenge for public companies with deep supply chains to have visibility into the practices of suppliers that sell subcomponents and raw components that are eventually integrated into parts sold to a final manufacturer or assembler.
Conflict minerals are just the beginning. The issue of palm oil loomed large for food processors during 2010. The oil -- used increasingly in the commercial food industry due to its lower cost and the high stability of the refined product when used for frying -- is seen as a cause of substantial and often irreversible environmental damage, including deforestation, habitat loss of critically endangered species such as the orangutan and Sumatran tiger, and climate change.
Last year saw a move by big players toward sourcing sustainable palm oil. Coalitions of large companies like Nestlé and Unilever worked with activist and other groups to better define and certify palm oil harvested sustainably. General Mills committed to "sourcing palm oil in a socially and environmentally responsible manner" -- specifically, to purchase all palm oil exclusively from members of the Roundtable for Sustainable Palm Oil, a multi-stakeholder organization, by 2015. Walmart similarly committed to using 100 percent sustainably sourced palm oil for its branded products by late 2015. Meanwhile, Burger King and Nestlé, both under fire from activists, agreed to stop purchases of palm oil from unsustainable sources, while agribusiness giant Cargill agreed to initiate a review of its palm oil sources.
All of this creates opportunities as well as challenges. Consider "rare earths," a collection of 17 chemical elements in the periodic table that are used extensively in technologies such as wind turbine generators, electric vehicle motors, batteries, fuel cells, and energy-efficient lighting. Ninety-seven percent of these materials come from China -- an economic challenge (due to limited supply and global demand), an environmental one (since mining, refining, and recycling of rare earths can have major environmental consequences), and a national security one (since these materials are critical to infrastructure and transportation and China in 2010 began restricting exports of these precious materials, highlighting our dependence on them).
Viewing the challenges, Hitachi developed a new, more efficient system to recycle the rare earth magnets from discarded technology, which previously went to landfills. The Japanese manufacturer built what it says are the first machines of its kind, capable of extracting 100 magnets per hour, compared to the current method, which requires workers to manually extract magnets at a rate of about 12 per hour.
That's a solid recipe for success in a resource-constrained world.
Photo CC-licensed by Peter Kurdulija.