An Analysis of Coordination Mechanisms to Address Drought and Heatwave Climate Risks in the Beer Industry - A Heineken Case Study

Abstract

Amidst the burgeoning challenges of climate change, certain sectors, like the beer industry, find themselves at the forefront due to their dependence on climate-sensitive agricultural inputs. The changing climatic conditions not only influence the flavor profile but also the beer's accessibility, by affecting the quality and yield of essential ingredients such as barley and hops. This research delves into the beer industry's supply chains, which span regions increasingly vulnerable to climatic disruptions, thereby subjecting companies to notable physical risks like water shortages, crop failures, and transportation hindrances.

The pertinence of this study extends beyond the beer industry, revealing broader implications for various business sectors. As supply chains of numerous sectors traverse climate-sensitive zones, they're endangered by hazards like droughts and heatwaves. A prominent challenge exacerbating these threats is poor coordination, evidenced by inconsistent communication, delayed responses to disruptions, supply chain opaqueness, and misaligned adaptive strategies.

To address the overarching research question on effective coordination measures that the beer supply chain can adopt to mitigate vulnerabilities and bolster climate resilience, the study integrates both primary and secondary data. Primary data is sourced through semi-structured interviews, capturing insights from within the beer industry, while secondary data is derived from academic and industry repositories. The combined data offers a comprehensive perspective on the existing challenges and potential solutions for the beer supply chain.

A deep dive into the industry's supply chain relationships elucidates the inherent complexities, informing subsequent analyses on viable coordination mechanisms to combat climate vulnerabilities. Heineken, an industry stalwart, plays a crucial role in this exploration, with the Institutional Analysis and Development (IAD) framework assisting in structuring the problem analysis. This framework is invaluable in scrutinizing institutional setups and their resultant impacts, while Heineken's strategic initiatives are evaluated using action situation analysis.

One of the central themes emerging from the findings is the potential applicability of Elinor Ostrom's design principles. Originally conceived for effective common-pool resource management, these principles, emphasizing clear demarcation, rule-local condition congruence, and responsible governance, could be instrumental for the beer industry. They present a well-structured approach for devising coordination mechanisms, crucial in confronting collective environmental challenges.

In summation, this research underscores the imperative for the beer industry, and by extension, other sectors, to consider Ostrom's principles. Their adoption could pave the way for resilient and sustainable supply chains, proficient in circumventing climate-induced risks. Such proactive measures are not merely pivotal for sustaining business operations but paramount in ushering an era of sustainable, climate-resilient business practices.