Brainstorm Green

Transcript: General Mills CEO Kendall Powell at Brainstorm Green

April 30, 2013: 3:55 PM ET

General Mills CEO Kendall Powell joined Fortune's Marc Gunther on stage at the Fortune Brainstorm Green conference to discuss why sustainably growing and managing the global food supply is important.

Kendall Powell

Kendall Powell

Below is an unedited transcript. The audio began after the conversation was in progress.

MARC GUNTHER:  (In progress) -- value creation.  I wonder who made that up, but maybe you can tell us --

KENDALL POWELL:  Not me.

MARC GUNTHER:  You made it up, okay.

KENDALL POWELL:  No.  (Laughter.)

MARC GUNTHER:  What it means and give me an example of the idea in practice, because it sounds like what he was doing was holistic value creation.

KENDALL POWELL:  So he was -- I mean, just if I can back up a little bit, what triggered his sharing of this technology was he was an amazing guy.  He was a congressman.  He was a governor of Wisconsin.  He was a general in the Civil War, and also a very clever businessman who acquired the water rights along the Mississippi River where Minneapolis is right now after the war, and built these enormous flour mills.  And they were the largest in the world at the time, and created the milling industry, and a lot of wealth created.  Pillsbury built their mills there.  The company that became Cargill was established in that area.

But what they didn't know about was the dust that was created in these huge milling operations, and what happened was that there was an absolutely cataclysmic explosion of one of these mills in the 1870s and many people were killed.

And so Cadwallader Washburn, a very principled guy, started an orphanage, took care of all of the families, and did develop this filtering technology which he then shared with all of the milling companies in the region, which was I think incredibly progressive for the time, and is a legacy that we try to live up to at General Mills through our giving, our engagement with our communities, the way our employees volunteer.  There are many ways that we try to show that today.

So when we talk about holistic value creation, I think we're thinking about what we can do along the entire supply chain to benefit everybody who's involved, both for economic benefits, for sustainability benefits.

I'll give you a couple of examples, Marc.  We've grown vegetables for many, many years, almost 50 years in the Irapuato region of Central Mexico, and it's why we're able to enjoy vegetables in the U.S. year-round.  There's a perpetual growing season there.  And we've been working with the same farmers for many, many years.

But one of the things that we've been doing, ways we've been supporting those farmers over the last five years is giving them interest-free loans so that they can install drip irrigation in their fields.  And they're growing broccoli and carrots and this sort of thing, which cuts water use, which is critical in that part of the world, increases their yield, increases their income, helps us manage our costs and ultimately helps consumers.  But that's something where we're I think starting at the very beginning of the value chain and seeing it pass all the way through.

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We are also working in that region.  So that's something that we directly control.

We're also working in that part of the world with all the other growers and suppliers in that valley to see if we can come together.  We're actually doing this with the Nature Conservancy to see if we can figure out ways to sustainability manage the water that's being drawn from that important aquifer.

So it starts with us but we've tried to have some leadership and build it outwards to everyone in the valley.

MARC GUNTHER:  So I saw you released your social responsibility report this morning.  Obviously I didn't read the 90 plus pages between then and now.  But I see most of your footprint is in that downstream part of the business, two-thirds of your greenhouse gases, 99 percent of the water use.

So my question is, we've heard about Walmart and their index where they're trying to measure suppliers against one another and lift everybody up and reward their buyers based on sustainability metrics.  Are you doing anything similar with your supply chain?  Are you trying to basically push the people who sell you your commodities to do better?

KENDALL POWELL:  We are, Marc.  And, you know, we're seeing sort of signals go all the way through our value chain.  As you point out, 99 percent of the greenhouse gas and three-quarters of the water, I mean, there's a big load that is upstream in the agricultural part of our supply chain.

So Walmart has a sustainability index I think you're all familiar with by now that we have been a part of from its inception, but we in turn with our hundred largest suppliers here in the U.S. and our largest suppliers in Europe are giving them similar metrics that first of all we'd like to understand what they're doing, their water use, their greenhouse gas, energy involved in transportation, all of these various metrics.  So we're telling them we want to know what you're doing.  We're doing the same thing, by the way, for our own internal use and for our partners.  But we want to have information on your metrics, and then we want to work with you to figure out what we can do together to improve on those metrics.

MARC GUNTHER:  And this is new, Ken?  In other words, this is information you wouldn't have had five years ago.

KENDALL POWELL:  We would not have had this five years ago.  So these are things that we've started over the last several years.

MARC GUNTHER:  And are you going to set targets for them or are you going to encourage your buyers of commodities to factor these things into their buying decisions?  Are you going to share best practices?

KENDALL POWELL:  We'll share best practice.  We'll encourage them.  We set our own internal targets.  So within our four walls -- and we've got 45 production sites across the U.S., for instance -- we're very focused on reducing packaging waste, reducing our water use, reducing energy use.  And so we've set targets for all of these various metrics, which are very public.  They're part of the report that you looked at last night.  On some we're ahead of our goals, on some we're behind, but I think the key thing is we're showing what our goals are and the progress that we're making.  And we're going to encourage our upstream suppliers for similar transparency.

MARC GUNTHER:  So have you set -- will there be rewards, in effect, for those who are most efficient, most productive, use less land, use less water, and emit less in the agricultural world?  Will they in some way become preferred suppliers, be paid extra, longer term relationships?  I mean, how are you going to sort of manage the supply chain?

KENDALL POWELL:  Over time I think there will be a preference for those who can make progress in these areas.

But, you know, one point I'd like to make, we find that within our own four walls there's a tremendous sustainability benefit to setting these kinds of goals and for focusing the organization on really making progress on these things:  reducing water, reducing waste.

There are also economic benefits to a company like General Mills (GIS), and particularly as we do live in an era we think of sustained high inflation for inputs.  So we just think that because of global economic development and population growth costs are going to go up year-in and year-out.  It's very important for us to be extremely efficient, find the waste in our supply chain, and get it out of the system.  And there's not perfect overlap but there's significant overlap between that work to sort of offset inflation and a lot of what we do in the sustainability area.

MARC GUNTHER:  You know, we've all heard the statistics about rising demand for food, energy and water, which one would think would be a good thing for a food company.  But I guess we need to think about how you're going to continue to meet the growing demands.  What's your level of concern about pressures on water, land, energy, all the inputs that go into agriculture, and what timeframe do you think we're going to start to see some of those effects?

KENDALL POWELL:  Yeah, so I am confident that we will be able to -- you know, that the demand will be met, and the food that we need and the food inputs that we need to grow will be available.

But I would also say that we need to think very seriously and make wise decisions on policy and what we're going to do over the next 20 or 30 years.  And I'm sure you've heard some of these statistics over the course of this meeting, but we know by 2040 that there will be almost 3 billion more people on the planet, but it's not just the demographics of that growth.  We know that -- I mean, I hope that global economic development continues, and we think that there will be more and more people really entering the middle class over that period of time.  And that means not just demographic pressure on food resources but people will want to improve their diets as well.

As a food company we know that one of the first things that consumers do when they start to enter that middle class around the world, whether it's China or India or Brazil, you look at all these markets, one of the very first things they do is they improve their diet. They buy more food, they buy more protein, they buy better food.  So it's sort of a compounding effect.

So we know that that demand is coming, and we know we're going to need to increase yields.  We know that we're going to have to develop improved agricultural infrastructure around the world, whether it's roads, whether it's better post-harvest management so there's less waste.  And I think we're going to need technology.  We're going to need higher yielding grains and this sort of thing in order to meet demand.

So while I think we'll do it, I'm confident we'll do it, we do have to be wise and think hard about the policies and the way we approach this.

MARC GUNTHER:  So you mentioned technology and yields, which leads to the question of GMOs.  We talked about it a little bit last night.  General Mills spent I think about a million dollars in part of the successful campaign to defeat mandatory GMO labeling in California.  So obviously you think GMOs are part of the solution, not part of the problem.  Do you want to say why?

And let me throw one other factor in there, the fact that Whole Foods, which is an important distributor, retailer of yours, because your brands include Muir Glenn and Cascadian Farms and Cheerios are in Whole Foods, is now on their own pushing for labeling, and 20 states are pushing for labeling.

So how are you going to navigate this and what's your point of view on the role of GMOs?

KENDALL POWELL:  Well, you know, first of all, we believe they're safe, and everything that we see and read and understand is that they are safe.  And if they weren't, we wouldn't use them.

But there are so many organizations that have looked at these over the past 20 years, and I think you'd be familiar with the World Health Organization and EPA and the USDA and Health Canada.  So they're safe.

We think that there's an environmental benefit there.  We think there's going to be a yield, an important yield benefit over time that we're going to need.

So we do think that they're very much a part of the solution, and we need to keep that on the table as we think about the food that we need over the next 20 or 30 years.

MARC GUNTHER:  But doesn't labeling kind of create a stigma around them that then can lead to policies that aren't going to be good in terms of meeting the growing demand for food?

KENDALL POWELL:  So this gets into for us how should we be using that label that we're all used to seeing on our food products.  And consumers tell us, and I think they're right, that they want to know about the ingredients, they want to know the nutrition information of that product, they want to know if there's a safety thing, if there's peanuts in there or something like that.  They need to know these things.  But we should restrict the use of that label for this important information, and limit it to that.  If we broaden it to other things that could be anything, I mean it could be anything, causes that we have, things that we believe in, we'll need to add pages to the label, and we simply don't think we should do that.

And we especially don't think we should do it on a state by state basis, which was the concern that the industry had, for instance, in California.  We worry if we start to have one rule here and another rule elsewhere.  The industry starts to have to chop up its supply chain and different things to different places, which simply is going to add cost for consumers for products that we believe are completely safe.

MARC GUNTHER:  I want to take a question from the audience, but have you pushed back at Whole Foods at all, because they're in a sense going to ask for their own set of labels now?

KENDALL POWELL:  Well, for Whole Foods, who are an important partner of ours and a great retailer, and we sell primarily organic products in Whole Foods -- and, of course, if a product is organic, it doesn't contain GMOs, and that's a great way for consumers who have that interest, they can make that choice.  So there is I think that opportunity for companies like General Mills to offer choice, which we increasingly do through, as you said, our organic brands, whether it's Muir Glenn or Cascadian Farms, Larabara, Food Should Taste Good.  So these are products that consumers, if they're interested in that, would know that those products do not contain GMOs.

MARC GUNTHER:  So they're all GMO free?

KENDALL POWELL:  Right.

MARC GUNTHER:  It's not a problem for you at this point that label, the retailer label?

KENDALL POWELL:  The organic label is not an issue.

MARC GUNTHER:  No, no, and I'm saying the Whole Foods asking for labels is not a problem then?

KENDALL POWELL:  So I think had requiring a label on all products that contained GMOs, products which contained GMOs, which would be virtually every product in the grocery store, I think is not justified by the safety, because of the safety of the ingredients.

MARC GUNTHER:  Okay.

I can't believe the time went by.  I apologize.  I had hoped to get a couple of questions in from the audience.  I feel like we kind of scratched the surface here.  But we're going to move right along.  Please join me in thanking Ken Powell.

KENDALL POWELL:  Thanks a lot.  (Applause.)

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