Walmart's 'Green Wheat' Drive May Transform American Farming

Wheat Farming WalmartBy Michael Hirtzer

Walmart has long used its commercial might to forge a global supply chain with ruthless efficiency. Now it has a new target: U.S. wheat fields.

As part of efforts to reduce its carbon footprint and burnish its image as an environmentally responsible company, the huge retailer is sending senior employees into the fields for the first time ever, looking for ways to help farmers reduce their use of carbon-intensive fertilizers or improve logistics.

"We don't have a lot of visibility in the supply chain, so we started in the field," says Robert Kaplan, a sustainability manager at the Bentonville, Ark.-based firm. "I hadn't seen a wheat field before and I wanted to find out how we go from a green crop in the fields to flour on our shelves."

This May, Kaplan and a colleague were the first Walmart (WMT) employees ever to attend the annual crop tour across the No. 1 winter wheat state Kansas, a rite of passage for traders, analysts, academics and buyers for the past 55 years.

The aim is simple: use Walmart's commercial muscle to get its Great Value-branded flour and wheat products from field to shelf more efficiently, using less carbon.

In the process, however, Walmart may end up initiating transformative changes in the way U.S. farmers grow wheat, lowering costs and improving yields for a crop that has failed to keep pace with the dramatic improvements in sustainability of other commodities such as corn and cotton.

There are some relatively easy wins: convincing more farmers to abandon the practice of plowing their fields after each harvest, and using satellite imagery to optimize fertilizer use.

But the challenge is substantial. Wheat is already one of the least-intensive crops in terms of nitrogen fertilizer, using half as much as corn to produce and acre of grain.

"Wheat is relatively low input. There are not a lot of corners that can be cut," says Jason Kelley, a wheat and corn extension agronomist at the University of Arkansas.

Lagging Efficiency

In the last three decades, better farming practices, such as reducing tillage, have resulted in a 15% drop in greenhouse gas emissions in each bushel of wheat grown in the United States, according to a soon-to-be-released study by Field to Market, an alliance of national farm groups and more than 40 companies including Cargill and Kellogg's (K) (but not Walmart) that are seeking to enhance sustainability.

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But those gains pale in comparison to other major crops. The amount of water needed to irrigate cotton fields has dropped by 30%, according to the study; soil erosion in corn farming has declined by 67% since 1980.

As it continues to buy more and more wheat to support its in-house brand, Walmart believes it can use its muscle to bring changes to the agricultural landscape by getting farmers to adopt more progressive techniques and labeling the flour they sell as a sustainable product.

In 2010, Walmart's store brands had a 4.4% share of the $14.35 billion U.S. packaged and industrial bread market, up from a 3.7% market share in 2006, according to research firm Euromonitor International.

About 40% of U.S. wheat is used for food. Walmart declined to specify how much wheat it buys directly or through its suppliers.

Tim Robinson, the company's senior buyer of baking commodities, joined Kaplan on the trip.

He said that, while it is still in the fact-finding phase of its wheat work, Walmart is likely to promote "precision farming" which uses satellite-guided planting to improve yields and no-till methods which proponents say reduce soil erosion and maintain land quality.

Roughly 75% of wheat farmers in Arkansas plow, or till, their fields, says Kelley. Abandoning that practice could require them to rotate crops regularly and take greater care in planting to avoid stunting plant growth.

"Wheat is one of the later adopters to no-till or zero-till," said Stewart Ramsey, a senior economist at analytics firm IHS who works with Field to Market.

New Inefficiencies

If anyone can drive efficiency into the generations-old practices of U.S. farmers, it's Walmart.

"Having world class logistics and distribution is the core of their business and what they've increasingly been doing is looking to apply those capabilities across the broader supply chain, going further upstream into production and processing," says Stewart Samuel, a senior analyst at global food and research firm IGD.

The company has embarked on an effort to eliminate 20 million tons of greenhouse gas emissions from its global supply chain by the end of 2015, the equivalent of taking nearly 4 million cars off the road for a year. It declined to say how much of the company's total emissions that represented.

Last year, the company installed more efficient lighting in its stores in the United States and Mexico and also delivered more goods even as its truck fleet drove fewer miles.

Ideas Sprout

May's crop tour has already yielded new ideas.

As one farmer told Robinson and Kaplan about how he used manure from nearby cattle feedlots to fertilize his fields, they wondered about the feasibility of hauling manure from U.S. poultry producers -- predominately in the mid-South -- to farmers elsewhere in that region or to the Corn Belt.

"We're an expert in transportation. What if we could find empty trucks going from one place to another that will help farmers get something they need?" Robinson said.

Tanner Ehmke, who grows wheat in western Kansas and met with Walmart during the tour, said: "From the farmer's perspective that is a great idea. Manure is a fantastic fertilizer."

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Walmart's 'Green Wheat' Drive May Transform American Farming

Nucor (NUE)  A company in a cyclical industry like the steel-making business could certainly be excused for paring down its workforce during tough times. During the Great Recession, Nucor's revenues were cut in half -- and yet the company didn't lay off a single worker.

Following a plan instituted by his predecessor, F. Kenneth Iverson, CEO Dan DiMicco has the company carry out a "pain-sharing" program when business is slow. Executives are the first to take pay cuts -- and they can be steep. After that, hours are reduced. That can hurt, but in the end, everyone keeps their jobs.

Whole Foods (WFM)  Sure, it's great that this grocer is encouraging Americans to eat smarter, but that alone isn't enough reason to celebrate it. The presence of Whole Foods has encouraged the proliferation of organic foods, which are unquestionably better for the environment. The company's color-coded seafood sustainability index encourages customers to consume responsibly, and it has taken huge steps to encourage sustainable farming in Costa Rica.

But it doesn't end there: Whole Foods also has an admirable approach to salaries. Co-CEO and founder John Mackey gets a $1 salary and took home just $78,000 in 2011 in accrued vacation time; no executive is allowed to earn more than 19 times the average worker's total pay.

Berkshire Hathaway (BRK-B)  Warren Buffett's baby makes it on to the list for how it's run: with an uber-long-term horizon and the utmost respect for shareholders. Arguably the greatest investor the world has ever seen, Buffett has also set the standard for transparency when it comes to communicating with the financial community.

Case in point: the David Sokol fiasco of early 2011. Sokol, one of Buffett's top charges, convinced Berkshire that Lubrizol -- a chemicals company -- was worthy of acquisition. The problem: Sokol held a substantial amount of Lubrizol shares that stood to appreciate upon the acquisition, and he didn't disclose the holding.

Sokol left the company around the time this information became known. Buffett was quick to give a full account of the situation, baring all for outsiders to see -- including his later bewilderment with Sokol's behavior.

Starbucks (SBUX)  Sure, it's easy to see this coffee king as a symbol of all that's wrong with corporate America. Satirical newspaper The Onion once joked that the stores were so ubiquitous, a new Starbucks was being opened in the restroom of an existing Starbucks.

All jokes aside, the company has been a model employer and partner with suppliers. Any employee who works just 20 hours per week is given health-care coverage. During the economic downturn, the company spent more money on this benefit annually than it did on all the coffee it bought. Starbucks has spearheaded the move for fair-trade coffee as well. It is the world's largest purchaser of fair-trade coffee, and it often pays above market value to its producers in developing countries.

And this past year, CEO Howard Schultz launched a drive to kick-start American job growth. In the program dubbed "Create Jobs for USA," the company collects donations from customers. All of the donations are poured into a fund that facilitates micro-loans to spur small-business job growth.

Costco (COST)  Competitor Walmart (WMT) has been in the headlines a lot lately. Whether it's for bribing officials in Mexico or not allowing employees to form unions, there seems to be a dark cloud hanging over the company. So why doesn't Costco get any bad press when the majority of its employees don't have union representation either?

It's actually quite simple: The company believes in its employees, and it backs that up with its actions. Employees are paid an average of $17 per hour and have generous health-care and retirement benefits -- two things Walmart employees certainly can't claim.

And customers are huge beneficiaries as well. Costco has razor-thin margins -- which means nearly every penny of savings Costco can squeeze out using its size and efficiency is passed on to customers. The company's profits, in fact, are almost entirely accounted for in membership dues -- not sales. The approach has worked out well for shareholders, too; including dividends, Costco shares have returned 131% over the past decade, doubling what the larger market has offered up and quintupling Walmart returns.

"The question is whether it would pencil out, costwise," Tanner said.

He's not the only one asking that question.

"Hopefully, sustainable flour becomes an everyday business practice," said Robinson as the tour paused in Wichita, Kan. "We can't do this if it costs more."

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