Ocean Spray Environmental Risk Management Crasins

1
Ocean Spray Environmental Risk
ManagementCrasins

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• Environmental Risk Management (ESM 286)
• Winter 2008

2
Risks

• Human health risk (the deal breaker)
• Risk of bringing the whole industry down (1
  Billion crop)
• Continuously changing environmental regulation
• Federal restrictions on pesticide licenses
• Water quality restrictions related to
  reauthorization of the Clean Water Act
• Availability of wetlands for cranberry
  cultivation
• Current stock of wetlands expected to be used in
  few years
• Uncertainty of additional wetlands becoming
  available
• Relationship with growers
• Relationship with cranberry grower industry
  associations

3
Framework for risk evaluation

• These risks are analyzed from the perspective
  that Ocean Spray has an effective system of
  environmental governance and management
• System exceeds regulation
• One small problem can lead to industry wide
  problems
• Relationships with environmental organizations
  were surprisingly challenging given their
  proactive position
• e.g. disagreement on wetland banking
• Setting aside acreage in return for developing
  acreage
• Consequently, Ocean Spray did not court
  environmental organizations
• Do you agree?

4
Case Analysis Overview

• The growers Co-op has developed a careful and
  effective system of environmental governance and
  management.
• Is this the proper strategy?
• It does not mitigate risk to Ocean Spray of non
  co-op growers
• Is this enough given the wetland capacity issue?
• Ocean Spray has limited impact over operations
  (growers)

5
Environmental agreement with grower/owners

• Diverse set of growers
• Diverse on their education, size and concern for
  the environment
• The agreement called for
• Following practices, rules and regulations which
  protect the environment
• Significant consequences for lack of compliance
• Ocean Spray was trying to develop systems and
  practices beyond the law
• Necessary for growers to cooperate voluntarily
• Industry solution rather than a firm by firm
  solution
• In Freeport and DuPont we were looking at firm
  level solutions
• Ocean Spray coop has significant power
• 85 of cranberry growers are in coop
• Does industry self regulation substitute for
  governmental regulation?

6
Initiatives that exceed regulation

• Pesticide usage
• Water management
• Environmental auditing

7
Free Rider Dilemma

• The trick is to get compliance despite the
  obvious benefits to the free riders
• All growers even those not complying should
  benefit

8
Pesticide risk assessment matrix

• For the range of chemicals used by the growers
  develop
• Pesticide risk ranking
• Risk benefit ratios
• Risk criteria weighted according to risk to Ocean
  Spray
• Fresh fruit residue
• Processed fruit residue
• Government and science
• Environmental impacts
• Public perception
• Calculate a risk factor for each chemical
• Calculate a risk benefit ratio for each chemical
• See Exhibit 10

9
Case Questions

• How does concern about the environment affect the
  economics of Ocean Sprays business?

10
Case Questions

• Evaluate the environmental management practices
  of Ocean Spray. In particular, do you think that
  Ocean Sprays managers should (a) try to assert
  more control over the practices of the growers,
  or (b) get more directly involved in the public
  debate over reauthorizing the Clean Water Act?

11
Case Questions

• Are there opportunities or institutional
  arrangements that will allow for the expansion of
  cranberry bogs in wetlands? Should there be?

12
Case Questions

• Can Ocean Sprays environmental program be a
  competitive advantage for the organization?

13
Case comparison of environmental risk management
strategy

• Where is Ocean Spray on the continuum from
  avoidant to proactive regarding environmental
  issues?
• Compare to the Freeport and DuPonts
  environmental risk management strategy
• Consider the following dimensions
• Stakeholder concentration or dispersion
• Characteristics of the products
• Political marketplace
• Economic marketplace
• Environmental strategy

14
Lesson learned

• It is advantageous to stay ahead of
• the line of regulation
• reasonable environmental group concerns
• Strategy
• Stay ahead of the curve so concerns fly under the
  radar

15
Lessons Learned

• A problem with one of the suppliers (growers) can
  be perceived to be a problem with the entire crop
• Perception is the key here because we are dealing
  in a consumer market with human health risk
• Can the environmental risk of the grower be
  separated from that of Ocean Spray?
• It does not matter if the grower is in the
  cooperative
• How does this supplier situation differ from
  typical supplier situations?

16
Lessons Learned

• Economic and environmental risk is mitigated
  through product diversification
• Cranberries are a very seasonal product
• Product diversification spread sales throughout
  the year
• If product is highly seasonal and there is a
  human health scare during that season the entire
  year is negatively impacted

17
Epilogue

• http//www.entrepreneur.com/tradejournals/article/
  168858116.html
• The Cranberry Industry and Ocean Spray
  Cooperative Lessons in Cooperative Governance
• http//www.aae.wisc.edu/fsrg/publications/Monograp
  hs/19cranberryjan06.pdf