The Call for Corporate Action NYU Stern Student Voices Vol. 8/Spring 2021 by NYU Stern School of Business

CELEBRATING 10 YEARS OF THE CALL

FOR CORPORATE ACTION

NYU STERN STUDENT VOICES

VOL. 8 / SPRING 2021

EDITED BY

PROFESSOR JEFFREY J. YOUNGER, AVERY FARM, ALEX HU, JINNY KIM, HANRAY LIU, ANVITI SURI AND ALAN XIA DESIGNED BY

FOR CORPORATE ACTION

NYU STERN STUDENT VOICES

VOL. 8 / SPRING 2021

Front and back cover photos by Sanaan Mazhar/Pexels and Arthur Brognoli/Pexels Left Photo by Krithika Kommana, NYU Stern â&#x20AC;&#x2DC;20

JESSICA FUNG AND JINNY KIM

CONTENTS Letter from the Dean

DEAN ROBERT WHITELAW

Introduction to Business and Society

PROFESSOR MATT STATLER

Turning the Tide on Coral Reef Destruction: Becoming “Coral Positive”

National Ink: A Proposal for the New York Times Company to Invest in Local Journalism

EdTech for Syria

Hospitalizing Israel: How Home-Care and Data-Driven Management Can Help Solve Overcrowding in Hospitals AIDAN KATZ

Loans, Not Life Sentences – Rethinking Financial Inclusion Through PayAs-You-Earn Schemes PRABHAV KAMOJJHALA

A Fine-Flavored Future for Cocoa Farmers

Addressing Factory Farming: How Walmart Can Bring “Great Value” to Stakeholders

Dandelion Roots Provide a Sustainable Alternative for the Rubber Industry

Blocking out Deforestation in the Amazon

Transitioning to Renewables: Shift Energy’s Acquisition of Choose Energy

Acknowledgements

KATHARINA EIBEL

SOPHIE ZHU

ISABELLA PERRIGO

ANDREW NI

DENALIA ZHI

JAEDON KHUBANI

ALEX MCCURDY

PROFESSOR JEFFREY J. YOUNGER

ALAN LIU

Photo by Zach Asato, NYU Stern ‘20 CONTENTS / 03

LETTER FROM THE DEAN ROBERT WHITELAW Dean of the Undergraduate College Edward C. Johnson 3d Professor of Entrepreneurial Finance NYU Stern School of Business

I AM PLEASED TO SHARE THE incredible student work displayed in the eighth edition of The Call for Corporate Action. This year has been wrought with many challenges: a crippling global pandemic; continued inequities across race, gender and socio-economic status; and a divisive US political climate, to name a few. But even with that backdrop, the perseverance and resilience of our students, faculty, and staff has been inspirational and should be recognized and applauded. The students who have contributed to this issue of The Call reflect that strength, and their efforts are highlighted here so that the community can take pride in the work they have invested in examining the global issues that permeate our society. In these essays, we are reminded that students unfailingly bring forth some of the most innovative solutions for mitigating the world’s most urgent problems. I invite you to explore the range of topics captured in this edition of The Call. From

04 / LETTER FROM THE DEAN

proposing a way for finance companies to dismantle predatory lending practices that plague rural farmers in the Indian state of Karnataka to suggesting a timely solution to the under-investment in Israel’s healthcare infrastructure by redefining the patient’s home as a care unit, these are some of the most salient discussions we can be having at this time. The NYU Stern Undergraduate College requires all students to participate in our unique Social Impact Curriculum, which allows them to explore issues of personal and professional ethics, corporate social responsibility, and the interconnections between business and our global society. We are so proud of these students as they propose innovative solutions that contribute to the betterment of those around them and our world as a whole. I hope you enjoy reading their inspiring work. Regards, Robert Whitelaw

INTRODUCTION TO BUSINESS AND SOCIETY

EVERY YEAR, BUSINESS AND Society serves as the first of four courses in the Social Impact Core Curriculum required of all NYU Stern undergraduate students. It invites students to think critically and creatively about the complexity of the relationship between business and other social institutions including government and the nonprofit sector, to analyze a series of global challenges including climate change, economic inequality and social justice, and finally to develop corporate strategies that create sustainable economic, social and environmental value. The group of thirty faculty who teach this course had very little sense, when we began the 2020 spring semester, of how it would be impacted by the COVID-19 pandemic. Like many of our academic colleagues across the nation and indeed the world, we found ourselves in the middle of March struggling to develop the skills required to teach remotely while struggling to balance the stressful demands of work and life. We additionally found that Business and Society took on even greater urgency and importance within the NYU Stern community. Our students in the spring of 2020 struggled right along with us, and many

of them demonstrated truly remarkable perseverance. They connected at all hours of the day and night from different time zones across the globe to pose astute questions to our esteemed guest speakers, and to engage with each other in seminar discussions of how businesses can and should pivot in response to the pandemic. They conducted research and wrote papers, including the select few included here, that use the UNâ&#x20AC;&#x2122;s Sustainable Development Goals as a framework to guide businesses toward a more sustainable and just future. In sports, sometimes a record achievement will include an asterisk to denote unusual or questionable circumstances. In this volume of The Call, these studentsâ&#x20AC;&#x2122; achievements deserve a degree of special, positive distinction for their performance under extreme duress. Please join me in celebrating not only the excellence of their writing and the brilliance of their ideas, but also the grit that they have demonstrated. They have shined through a uniquely dark time, and in that way have given us all great hope for a brighter future.

MATT STATLER Richman Family Director of Business Ethics and Social Impact

Sincerely, Matt Statler

INTRODUCTION TO BUSINESS AND SOCIETY / 05

TURNING THE TIDE

ON CORAL REEF

DESTRUCTION: BECOMING

“CORAL POSITIVE”

Saving and restoring coral reefs is a complex issue requiring collaboration between the public and private sectors. Author Katharina Eibel proposes a “Coral Positive” trademarked certification program to fund innovative solutions such as land based coral farming. If executed correctly, she believes that such a program would have the potential to reach a large audience similar to the “Carbon Neutral” movement and could effectively support coral restoration projects.

ESSAY BY

KATHARINA EIBEL

HE OCEAN IS HOME TO one of nature’s greatest wonders: vibrant, colorful coral reefs. Sometimes called the “tropical rainforests of the sea,” coral reefs serve as lucrative tourist attractions, provide habitat for thousands of biodiverse marine species harvested by the commercial fishing industry, and even save thousands of lives each year by protecting communities from storm surges. Reefs are an invaluable asset to society, contributing about $375 billion to the global economy annually.1 Yet, they are dying at alarming rates, and scientists estimate that more than 70 percent of the world’s coral reefs will disappear by 2050.2 The continued destruction of coral reefs is not only an injustice to the Earth’s natural beauty, but also a detriment to both the environment and global economy. Restoration efforts can be costly, and attempts to regrow coral reefs occur in vulnerable ocean-based nurseries, which are greatly influenced by environmental stressors such as water temperature and weather, acidification levels, and boater interference. 3 As a result of these site limitations, regrown corals often lack diversity and resilience, making such solutions unsustainable. Since coral reefs

support 25 percent of all marine species on the planet, a lack of long-term proper growth could devastate the economic security of coastal stakeholders, including fisheries and local tourism.4

NOT ENOUGH IS BEING DONE TO SAVE CORAL REEFS

The network of stakeholders that depend on coral reefs is complex, and an equally complex solution is necessary to save and restore this critical biome. A systematic combination of policies focused on the preservation of coral reefs needs to be composed of two parts: synergistic partnerships between the private and public sector that promote investment in innovative coral growing technology, and perhaps most importantly, a “Coral Positive” trademarked certification program that will set companies apart from their competitors. While several non-governmental organizations like the Coral Restoration Foundation (CRF) are dedicated to restoring and maintaining the health of coral reefs, they have not been able to make a collective, large-scale impact. The efforts of these organizations have mainly been focused on educating communities

and saving specific species of endangered coral from extinction. The CRF, for example, has successfully replanted “more than 100,000 critically endangered staghorn and elkhorn corals back into the Florida Reef Tract” since 2007 and continues to perform scientific research to prevent the loss of genetic diversity in corals.5 The efforts in monitoring and researching reefs are crucial, yet NGOs simply lack sufficient funding for larger scale global initiatives.6 A commercialized coral restoration program could help bridge this gap by harnessing the existing “reef restoration movement” that NGOs have created and expanding it to a global scale.

LAND-BASED CORAL FARMING WILL SAVE REEFS

An existing partnership between the government in the Bahamas and the coral farming startup Coral Vita is already creating a positive effect on coral reef survival with its construction of the world’s first fully commercialized landbased coral farming system. 7 This new technology allows corals to grow 50 times faster than any other restoration method.8 The pioneer land-based coral farm is about 88,000 square feet and has the potential to grow ten thousand corals per year.9,10 By combining micro fragmenting, a technique that triggers coral’s natural healing processes, with assisted evolution, which strengthens coral with genetic technology, Coral Vita is able to save a wide range of native corals while also making them more robust against water pollution and climate change. 11 These techniques, applied within the land-based farm’s controllable open-air tanks, allow corals to reform in just six to 12 months, instead of between 30 and 50 years in the wild.12 Capitalizing on efficient coral growth technology, Coral Vita’s business model sells its unique restoration method to reef-dependent customers such as resorts and marina parks, and has the potential to overcome deficits of prior solutions that have failed to scale up reef restoration efforts.13 While all existing stakeholders have an individual role to

08 / KATHARINA EIBEL

play, there is ultimately a more urgent need for a holistic and interconnected approach between public and private stakeholders to enable faster and fartherreaching change. With a need to protect its 358 milelong Barrier Reef, Florida would be an ideal location for unveiling the “Coral Positive” initiative.14 As the world’s third largest reef, Florida’s Barrier Reef is an invaluable asset to the state’s $315 billion economy, providing 71,000 jobs and contributing $1.1 billion to the tourism industry annually. 15,16,17 It also saves 18,000 lives in Florida each year by protecting people from recurring storm surges, also ensuring resiliency of coastal lines vital to the fishing industry.18 Just as reefs around the world are dying, the Florida Barrier Reef has also undergone substantial destruction by climate change and disease. A recent pathogen outbreak near Miami, for example, spread to 96,000 acres of reef within four years, destroying 35 percent of the reef’s coral population.19 These numbers keep growing, and little is being done to effectively mitigate the coral loss on a large-scale. To address this problem, a partnership between Florida’s Department of Environmental Protection and Coral Vita could establish the first commercial land-based coral farm in the United States and take a large step in making Florida’s coasts “Coral Positive,” while simultaneously creating value for all stakeholders involved.

HURRICANE-RESISTANT INFRASTRUCTURE SECURES SUSTAINABILITY

A large plot of unused land in Key Largo, an island in the Florida Keys, could be the center of such a coral farm in Florida.20 With government support, the land can be plowed and authorized for commercial use. In addition to the necessary infrastructure for the landbased farm, hurricane preparedness of the structure must also be an important factor to consider. In the Bahamas, the lack of hurricane resistant infrastructure resulted in a substantial setback in the growing progress, as Hurricane Dorian

destroyed most of Coral Vita’s tanks and delayed the project from August 2019 until January 2020.21 One company that could solve this challenge by implementing a hurricane resilient operational facility is SG Blocks, a “premier innovator and designer of some of the world’s most iconic container-based structures.” 22 While this infrastructure requires further initial investment, it will pay off in the long-run, as South Florida has been a recurring hurricane epicenter.23 In case of a severe tropical storm, the corals grown in open tanks can be safely moved and stored inside the container facility and monitored remotely until the height of the storm has passed, transforming this business strategy into not only a profitable but sustainable solution.

CERTIFICATION PROGRAMS CREATE SHARED VALUE

While a public-private partnership will take great strides toward coral restoration, such funding alone will not be enough to cover the initial costs and scaling of the project to other countries. This is where the “Coral Positive” trademark comes in: having a defined “Coral Positive” protocol would allow reef-dependent companies that are substantially offsetting their own impact of coral destruction to qualify for a certificate. Natural Capital Partners is a company that already has an established business process for creating certification programs. It could integrate this new trademark within its product mix and establish a protocol of promoting coral survival. Currently, Natural Capital Partners offers its “Certified Carbon Neutral Global Standard” to well-known companies such as Microsoft, Salesforce, and Kaiser Permanente. 24 Adding a “Coral Positive” certification standard would enforce its mission of helping its clients grow their businesses while also having positive social and environmental impacts. 25 Having this new protocol in place would allow Natural Capital Partners to ensure that its clients follow a three-step process: first, to define and measure companies’ coral footprint, or how much coral destruction they are

responsible for, second, to set an offset target for each company, and third, to assess each company’s “Coral Positive” investments in commercial landbased coral farms or other offsetting initiatives. 26 Once these steps are fulfilled, a certified company can then communicate this “Coral Positive” label to its own stakeholders.

FISHING INDUSTRY WILL SPEARHEAD PROMOTION OF NEW LABEL

The fishing industry would be the ideal target group to participate in the “Coral Positive” certification program and fund commercial land-based coral farming around the world. The fishing sector depends on healthy corals for business, as more than four thousand species of fish rely on coral reefs to survive.27 Several fish species that are a staple to many American kitchen tables, like grouper, snapper, and lobster, all depend on coral reefs for food and shelter. In Florida, the commercial and recreational fishing industries produce about $28.7 billion in sales.28 Extinction of the world’s reefs would greatly impair fishing capabilities and food security, and this trademark could motivate relevant stakeholders toward funding the proposed commercial farming initiative. By investing in the “Coral Positive” certification program and prioritizing reef survival today, fisheries will not only be able to maintain a viable supply chain essential for the success of their core business model but also position themselves as a higher quality product from the perspective of consumers. As a disruptive new program in the commoditized seafood industry, the “Coral Positive” label can help certified fisheries differentiate themselves from their competition as they increase profit margins – all while creating shared value for entire coastal communities. One of the first fisheries that could obtain this certificate is Key Largo Fisheries, as its marina is situated just opposite to the proposed coral farm in Key Largo. One of the most popular family-owned fisheries in the Keys,

“

As the world’s third largest reef, Florida’s Barrier Reef is an invaluable asset to the state’s $315 billion economy, providing 71,000 jobs and contributing $1.1 billion to the tourism industry annually. It also saves 18,000 lives in Florida each year by protecting people from reoccurring storm surges.”

CONCLUDING CONCUSSIONS: AN END TO HEAD TRAUMA IN SOCCER / 09

Key Largo Fisheries has been known for providing “sustainable seafood since 1972.”29 Qualifying for the “Coral Positive” label by sponsoring the creation of Florida’s first commercial coral farm could complement its mission statement and also set off a domino effect with other fisheries in the area. If the “Coral Positive” certificate gains enough widespread public recognition and increases profit margins, just as the “Carbon Neutral” movement has, it will pressure other fishing companies to become certified to avoid a competitive disadvantage in the market. 30 This movement would spur large-scale investments in commercial land-based coral farms, creating more shared value for stakeholders.31

corals,” establishing a coral farm in Florida has the potential to not only grow and preserve corals, but also maximize shared value within the entire Key Largo community.32 If marketed correctly, the farm can offer employment opportunities by providing guided tours, increase revenue by attracting more tourists to neighboring restaurants, dive shops, and recreational facilities, and foster food security by ensuring resiliency of coastal

BROADENING THE STAKEHOLDER SCOPE

Reconciling the business priorities of stakeholders with the environment is critical to the success of this proposal and other industries relying strongly on coral reefs, such as the tourism industry, must also get involved with the coral-positive certification and its initiatives. To align themselves with their customers’ values, coastal hotels and restaurants can declare their support for this trademark by purchasing seafood products from “Coral Positive” suppliers whenever possible. Proposing this certification program to other purpose-driven businesses can ideally extend the participation base far beyond the fishing industry thereby broadening its scope. Since the commercial farm in the Bahamas also functions as an “ecotourism attraction, where people can experience coral farming, adopt corals for restoration, and even help plant

lines necessary for fishing, ultimately furthering profitability in the entire area. These additional benefits will likely motivate local governments to regulate and, if necessary, penalize reef-dependent businesses based on the extent of their coral destruction footprint.

effective marketing initiatives. Obtaining endorsements from leading agencies and social enterprises who have a similar socio-environmental agenda, such as UNICEF and the Plastic Bank, can be one way to gain relevance for the certification program. With these risks in mind, the “Coral Positive” trademark has the potential to help turn the tide of coral destruction on a large scale by pooling the necessary financing from coastal corporations for coral growth and restoration. As outlined in this Key Largo focused case study, partnerships between Florida’s Department of Environmental Protection, NGO Coral Restoration Foundation, farming start-up Coral Vita, and building company SG Blocks will provide the necessary land, knowledge, and infrastructure for creating the first commercial land-based coral farm in Florida. Further partnerships with Natural Capital Partners will establish an official “Coral Positive” qualification protocol, providing individualized certifications for coastal businesses investing in coral offset initiatives. By building upon existing coral restoration models, this breakthrough farming system and “Coral Positive” label can be scaled commercially to coastal communities around the world and save precious coral reefs before it is too late.

POTENTIAL RISKS

The underlying success of this entire business strategy depends on gaining widespread public recognition for the “Coral Positive” label through

DISCUSSION QUESTIONS 1. How aware are you of trademarked business sustainability programs like the Carbon Neutral Movement and Rainforest Alliance? 2. What are some of the implications of coral reef destruction that would affect your everyday life?

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“Corals.” National Oceanic and Atmospheric Administration, 6 July 2017, https://oceanservice.noaa.gov/education/kits/corals/coral07_ importance.html. 2 “Florida’s Spectacular Coral Reef System.” The Nature Conservancy, www.nature.org/en-us/about-us/where-we-work/united-states/ florida/stories-in-florida/floridas-spectacular-coral-reef-system. 3 Halpern, Gator, and Sam Teicher. “Coral Vita—What We Do.” Coral Vita, www.coralvita.co/what-we-do. 4 “Coral Reefs.” World Wildlife Fund, wwf.panda.org/our_work/oceans/ coasts/coral_reefs. 5 “Coral Restoration Foundation: United States.” Coral Restoration Foundation, https://www.coralrestoration.org. 6 Bradbury, Mikaela. “How Startup Coral Vita Is Making a Business Case for Restoring Reefs.” GreenBiz, 28 Mar. 2018, www.greenbiz. com/article/how-startup-coral-vita-making-business-caserestoring-reefs. 7 Belli, Brita. “Alumni Startup Counters Coral Loss with World’s First Land-Based Coral Farm.” Yale University, 4 Jan. 2019, news.yale. edu/2019/01/04/alumni-startup-counters-coral-loss-worlds-firstland-based-coral-farm. 8 Ibid. 9 “Coral Vita Freeport Coral Farm”, Google Maps, 2 May 2019, www.google.com/maps/place/Coral Vita Freeport Coral Farm/@26.5571836,-78.5655394,383m/ data=!3m1!1e3!4m5!3m4!1s0x8926d1f41ed5d56b:0x845cc8ede5128 8eb!8m2!3d26.5576774!4d-78.5648637. 10 Belli. 11 Halpern. 12 Belli. 13 Bradbury. “How Startup Coral Vita Is Making a Business Case.” 14 “Florida’s Spectacular Coral Reef System.” The Nature Conservancy, www.nature.org/en-us/about-us/where-we-work/united-states/ florida/stories-in-florida/floridas-spectacular-coral-reef-system. 15 Duffin, Erin. “South Florida Metro Area - GDP 2018.” Statista, 18 Dec. 2019, www.statista.com/statistics/183861/gdp-of-the-south-floridametro-area. 16 “Coral Reef Conservation Program.” Florida Department of Environmental Protection, 2020, https://floridadep.gov/rcp/coral. 17 Ibid. 18 Storlazzi, Curt D., et al. “Rigorously Valuing the Role of U.S. Coral Reefs in Coastal Hazard Risk Reduction.” U.S. Geological Survey, 30 Apr. 2019, https://pubs.er.usgs.gov/publication/ofr20191027. 1

Talbot, Ret. “As Disease Ravages Coral Reefs, Scientists Scramble for Solutions.” Yale University, 10 Jan. 2019, https://e360.yale.edu/ features/as-disease-ravages-coral-reefs-scientists-scramble-forsolutions. 20 “Key Largo Fisheries Backyard Café”, Google Maps, 2 May 2019, www.google.com/maps/place/Key Largo Fisheries Backyard Cafe/@25.0855549,-80.4454749,771m/data=!3m1!1e3!4m5!3m4!1s0 x88d769ef26b58b5f:0x8cc8ce37cbb14e1f! 8m2!3d25.0861673!4d-8 0.4413044. 21 “On the Frontline of Hurricane Disaster.” United Nations Environment, 19 Nov. 2019, www.unenvironment.org/news-andstories/story/frontline-hurricane-disaster. 22 “SG Blocks.” SG Blocks, www.sgblocks.com. 23 Belt, Deb. “Strong Hurricane Season Could Hit Florida after Coronavirus Peak.” Miami Patch, 2 Apr. 2020, patch.com/ florida/miami/strong-hurricane-season-could-hit-florida-aftercoronavirus-peak. 24 “The Leading Solution for Companies to Be Carbon Neutral Certified.” Carbon Neutral, www.carbonneutral.com. 25 “Working with Clients to Combine Business Success with Positive Impact on the Environment and Society.” Natural Capital Partners, www.naturalcapitalpartners.com. 26 “The Leading Solution for Companies to Be Carbon Neutral Certified.” 27 Roth, Samantha-Jo. “‘We Do a Lot of Crying Underwater’: Researchers Battle Coral Disease with Human Drug.” Spectrum News, 27 Feb. 2020, www.mynews13.com/fl/orlando/ news/2020/02/27/researchers-try-to-slow-disease-destroyingatlantic-reef. 28 “Shallow Coral Reef Habitat.” National Oceanic and Atmospheric Administration, 21 Jan. 2020, https://www.fisheries.noaa. gov/national/habitat-conservation/shallow-coral-reefhabitat#:~:text=Many%20commercially%20important%20fish%20 species,than%20one%20billion%20people%20worldwide. 29 “About Us.” Key Largo Fisheries, keylargofisheries.com/about-us. 30 “The Leading Solution for Companies to Be Carbon Neutral Certified.” 31 “Coral Reef Biodiversity.” Coral Reef Alliance, coral.org/coralreefs-101/coral-reef-ecology/coral-reef-biodiversity. 32 Belli. Photo Credits: Francesco Ungaro/Unsplash—page 6 Nariman Mesharrafa/Unsplash—page 9 With permission from Coral Vita—page 10 19

“I have witnessed first-hand the devastating aftermath that Hurricane Irma had on the Florida Barrier Reef when I visited the Keys in November 2017. But it was not until I listened to a Coral Reef Specialist at my High School’s Environmental Action Club that I became truly intrigued by this beautiful and fascinating species bound for extinction. With a sense of urgency, I am proposing a holistic and financially sustainable approach to turn the tide on coral destruction.”

KATHARINA EIBEL

CLASS OF 2023, FINANCE & MARKETING TURNING THE TIDE ON CORAL REEF DESTRUCTION: BECOMING “CORAL POSITIVE” / 11

NATIONAL INK:

A PROPOSAL FOR THE

New York Times COMPANY TO INVEST IN

LOCAL JOURNALISM

ESSAY BY

ANDREW NI

While national newspapers become increasingly profitable, Andrew Ni explores ways for journalists to share the gains with their struggling local counterparts.

OCAL NEWS IS FAILING. Across the United States, social media posts and unreliable blogs have fundamentally replaced the services that local newspapers once provided. Community journalists enable functional democracies on the municipal level – a fundamental commitment reflected through the 11th United Nations Sustainable Development Goal of “[making] cities and human settlements inclusive, safe, resilient, and sustainable.”1 However, such an operation comes at a price – one for which the public no longer wants to pay and for which the government cannot easily subsidize due to potential conflicts of interest. Local readership often cannot support a full newspaper business cycle. In contrast, national newspapers have reached economies of scale that allow them to uphold responsible journalism tenets while staying profitable. In particular, the New York Times Company (“NYT Company”) is growing faster than ever; its subscription rate reached an alltime high of seven million subscribers in 2020. 2 Key to the NYT Company’s success is its ability to leverage its scale and innovate through experimentation and diversification. The NYT Company has successfully expanded into television, online video, and podcasts and now has the opportunity to diversify into local journalism. The NYT Company should provide a platform for local newsrooms that demonstrate an ability to meet a high standard of quality. Based on readers’ locations, relevant local articles should appear prominently in the popular New York Times mobile application. Through a local journalism platform program, the NYT Company can help fulfill community journalism’s responsibilities while bringing value to the stakeholders of local news.

IRREPLACEABLE LOCAL VALUE FACES DISTINCT LOCAL FAILURE

Local journalism plays a crucial role in smaller communities. Social media, local television, and local radio stations

all heavily depend on local newspapers to conduct original research. A 2010 study in Baltimore, Maryland revealed that eight out of ten local stories presented repackaged information from other news sources. The study found that 95 percent of original research came from traditional journalism.3 By effectively managing the local news cycle, community journalists are central to the local democratic process. Local newspapers ensure that citizens receive accurate information by fact-checking and closely monitoring local politicians.4 In turn, local politicians depend on local journalism to serve as a barometer of public opinion, which politicians can use to optimize policy. 5 All the while, community newspapers foster a sense of community by reporting on shared experiences.6 By facilitating both governmental and apolitical affairs, responsible community journalism is an indispensable keystone of local society. Despite its importance, local journalism has grown unsustainable as consumers and advertisers gravitate toward a growing number of unreliable online competitors. The additional resources that traditional newspapers put into fact-checking mean they can only afford to publish weekly or monthly. As a result, traditional local newsroom staff dropped by 39 percent nationwide from 1995 to 2015.7 Meanwhile, online sources can break the news much more quickly and cost-effectively by posting claims without thorough verification. 8 For traditional newspapers, the subsequent loss of readership is especially damaging as paying advertisers find more effective channels. For instance, Facebook and Google provide advertisement targeting services that allow marketers to reach interested individuals more efficiently and at a lower price. 9 Subsequently, demand for less-effective newspaper advertisements has dropped, lowering community newspapers’ advertising income. With these newspapers losing both readers and advertisers, responsible local journalism has become too expensive to sustain.

14 / ANDREW NI

In contrast, national media groups such as the NYT Company have grown more profitable than ever by leveraging economies of scale and offering a portfolio of digital offerings. Between 2015 and 2020, the NYT Company’s digital revenue doubled from $400 million to $800 million.10 Unlike local newsrooms, the NYT Company has the resources to provide responsible online journalism at a competitive speed. Moreover, while the company’s new podcast and online video offerings may be expensive to operate by themselves, the company can cross-sell its products to existing customers.11 As a result, the NYT Company has weathered technological shifts in ways that local newsrooms have not. National publications should leverage their extensive resources to preserve local democracies and communities. With unreliable online sources dominating the local news industry, the NYT Company has a business opportunity to support local journalism by adding a community news platform to the NYT Company portfolio.

CREATING A NATIONAL-LOCAL JOURNALISM PLATFORM

Adam Brandenburger, a game theory professor at New York University, notes that effective business solutions frequently challenge underlying assumptions, contextualize solutions from separate circumstances, and combine seemingly independent products. 12 A National-Local Journalism Platform satisfies all of these attributes. Current attempts to revitalize the local journalism industry focus on altering the publication schedule and forming smallscale “local news conglomerates.”13 These solutions assume that the revival of local news depends solely on the initiatives of local newsrooms. A national-local journalism platform would challenge this assumption by providing a national solution to a local subject. The NYT Company should offer qualifying local newsrooms the ability to publish local content on the NYT Company’s lucrative mobile application.

Apple’s App Store offers a well-known example of this type of business model. By allowing small-scale software developers to focus on providing content rather than running a full software business, the App Store gives users access to more software than ever before. This business model has proven economically viable: the mobile gaming market alone was worth $67 billion in 2018, while the entire video game industry was worth just $48 billion in 2000, adjusting for inflation.14 A capital-rich media platform such as the NYT Company can make local reporting profitable by applying an App Store type mechanism toward the service of local news. A d d i t i o n a l l y, a n a t i o n a l - l o c a l journalism platform would combine two industries that report on separate topics and have different business strategies. Thus, this proposal is in-line with the entrepreneurial principles outlined by Brandenburger, which suggests the efficacy of a national-local journalism platform. To implement this plan, the NYT Company can partner with local newsrooms nationwide that demonstrate a dedication to a predetermined standard of quality. Under this plan, the NYT Company would carefully vet each participating journalist while also keeping local journalists’ limited resources in mind. Selected newsrooms would be able to publish articles straight to the New York Times mobile application, with local stories appearing alongside national ones. These local stories would either appear based on the readers’ GPS locations or where readers set their hometowns. To bolster this partnership, the NYT Company might also loan video, audio, and other broadcasting equipment to partner newsrooms for little to no fee. Moreover, the NYT Company can fund several platform-wide programs across the country. For example, partner newsrooms can invest in their longterm readership by working with school districts to publish a section authored by students. These are ways for the NYT Company to support local journalism

â&#x20AC;&#x153;

The fact remains that traditional local journalism is at risk of disappearing altogether.â&#x20AC;?

while allowing the journalists themselves to maintain their independence. The NYT Company could offer different platform plans to fit the needs of varying local newsrooms. For instance, some newspapers would benefit from retaining their physical edition, while others would be better off shutting down physical distribution entirely and instead publishing exclusively to the NYT Company’s mobile application. The NYT Company could take a varying cut of the advertising revenue depending on the selected partnership method. In return, it could provide partner newsrooms with compensation proportional to total online readership. The NYT Company would optimize total value creation by considering local newsroom differences. With Brandenburger’s principles in mind, this platform proposal aims to solve the local journalism vacuum. Unlike existing solutions, this proposal seeks to retain local journalism’s responsibilities by leveraging a demonstrably highdemand national channel, all while investing in the industry’s long-term health.

HOW A NATIONAL PLATFORM CAN BENEFIT ALL STAKEHOLDERS

The national-local partnership proposal is a prime example of a “shared value” business approach, with value created for both “consumers” and “producers” of journalism.15 Both readers and advertisers would gain from a news source that is better tailored to their needs; both local newsrooms and the NYT Company would see increased profits as a result. Readers and advertisers would benefit from the greater convenience the mobile app provides. Demand is closely linked with convenience, as noted by TerraCycle C E O To m S z a k y, w h o d e s i g n e d TerraCycle’s “Loop” reusable packaging to be as easy to return as possible. 16 By pairing local news with national headlines, readers would consume local journalism at a higher rate. This behavior supports local journalists, who, in turn, would bring value to readers by fulfilling

16 / ANDREW NI

local journalism’s political and communal responsibilities. Such a system would have the added value of allowing readers to stay connected with their hometown long after they have moved away. Likewise, this higher readership would benefit local advertisers, who would be able to market to a broader audience. The prestige of The New York Times would also provide advertisers with a “halo effect,” where readers perceive brands as more trustworthy merely due to the trustworthiness of the publication.17 By increasing local journalism’s accessibility, the national-local partnership would bring value to local journalism’s “consumer” stakeholders. At the same time, the partnership would create value for local journalists and the NYT Company. Because traditional local newsrooms often have the most drive but the fewest resources, this partnership w o u l d u n l e a s h l o c a l j o u r n a l i st s ’ potential while also increasing the NYT Company’s national market influence. With higher demand for advertisements, both community newsrooms and the NYT Company would earn increased advertising revenue. Furthermore, because marginal digital operating costs are negligible, the additional subscriber and advertising revenue would outweigh the costs of implementing this program. Consequently, both local newsrooms and the NYT Company would see increase profits. Finally, as argued by Tensie Whelan, Director of the Center for Sustainable Business at NYU Stern, sustainable business campaigns can have both marketing and economic value. 18 By demonstrating its commitment to preserving local politics and communities, the NYT Company would be able to market itself as a sustainable business, which would only further raise its profits. Indeed, the proposal’s “producer” stakeholders would also benefit both in terms of economics and in terms of public relations. Unlike purely philanthropic approaches, the national-local partnership supports local journalism and brings value to its stakeholders. This

proposal also offers long-term value and improves local journalism’s reputation in the process.

CONCLUSION

Any big-business solution to a smalltown issue is bound to garner controversy. Long-run concerns include liberal bias at The New York Times, which may influence the selection of local stories that make it to the NYT Company’s mobile application. Moreover, one may question the wisdom in increasing the NYT Company’s market power when it is already one of the nation’s most influential media groups. However, it is too early to let these issues hinder the success of the national-local plan. The fact remains that traditional local journalism is at risk of disappearing altogether. Proposals should first and foremost ensure the survival of responsible community reporting. The national-local journalism proposal is a business strategy that retains local journalism’s political and communal responsibilities while adding value to community newspapers’ stakeholders. As disreputable yet convenient online sources have taken readers away from meticulously fact-checked publications, local politics have grown less regulated while communities have grown further apart. By allowing trustworthy local newsrooms to publish on the popular New York Times mobile application, the national-local journalism proposal would return convenience and influence to local journalism. Every party – from advertisers to journalists, from readers to business owners – should expect to benefit from this shared value strategy. If the NYT Company implements this proposal, the resulting local news market will serve communities well.

DISCUSSION QUESTIONS 1. How do you interact with local news? Would displaying local stories in a mobile application increase your consumption of local news? 2. How has your community’s newspaper faired over the past two decades? 3. Do you agree that The New York Times is the optimal partner for local journalism? Why or why not?

“Goal 11: Sustainable Cities and Communities.” The Global Goals for Sustainable Development, www.globalgoals.org/11-sustainablecities-and-communities. 2 Lee, Edmund. “New York Times Hits 7 Million Subscribers as Digital Revenue Rises.” The New York Times, 5 Nov. 2020, www.nytimes. com/2020/11/05/business/media/new-york- times-q3-2020earnings-nyt.html. 3 Anderson, C W, et al. “How News Travels: A Comparative Study of Local Media Ecosystems in Leeds (UK) and Philadelphia (US).” Local Journalism, 2015, doi:10.5040/9780755695171.ch-003. 4 Williams, Andy, et al. “Filling the News Hole? UK Community News and the Crisis in Local Journalism.” Local Journalism, 2015, doi:10.5040/9780755695171.ch-009. 5 Engan, Bengt. “Perceived Relevance of and Trust in Local Media.” Local Journalism, 2015, doi:10.5040/9780755695171.ch006. 6 Nielsen, Rasmus Klein. Local Journalism: The Decline of Newspapers and the Rise of Digital Media. I.B. Tauris, 2015. 7 Hayes, Danny, and Jennifer L. Lawless. “The Decline of Local News and Its Effects: New Evidence from Longitudinal Data.” The Journal of Politics, vol. 80, no. 1, 2018, pp. 332–336, doi:10.1086/694105. 8 Kerkhoven, Marco Van, and Piet Bakker. “Hyperlocal with a Mission? Motivation, Strategy, Engagement.” Local Journalism, 2015, doi:10.5040/9780755695171.ch-008. 9 Nielsen. 1

“In my junior year of high school, I received a grant to make a documentary about New Jersey’s struggling local news environment. My research included candid interviews I had with many Editors-in- Chief, representing more than 30 newspapers. I got to see firsthand how these businesspeople struggled to balance their falling profits with their responsibility to fulfill a deep social need. The local journalism industry has only deteriorated further since I made my documentary in 2018 – many of my hometown newspapers have gone under, with their once-bustling offices sitting empty down the street. It’s gratifying to provide solutions for an industry with which I have a personal connection.”

“The New York Times Company 2019 Annual Report.” The New York Times Company, 2020. 11 Tiersky, Howard. “The New York Times Is Winning at Digital.” FROM, The Digital Transformation Agency, 7 June 2019, www.from.digital/ insights/new-york-times-is- winning-digital. 12 Brandenburger, Adam. “Great Strategy Requires Creativity.” Harvard Business Review, 19 Nov. 2019, hbr.org/2019/03/strategy-needscreativity. 13 Ni, Andrew, director. The Shepherd Sings a Song. Vimeo, 2018, vimeo. com/304658538/f9beaef0b4. 14 McAloon, Alissa. “Breaking down Nearly 50 Years of Video Game Revenue.” Gamasutra, 30 Jan. 2019, www.gamasutra.com/view/ news/335555/Breaking_down_nearly_50_years_of_video_ga me_revenue.php. 15 Porter, Michael E., and Mark R. Kramer. “Creating Shared Value.” Harvard Business Review, 2011, pp. 62–77. 16 Szaky, Tom. “Plenary.” Business and Society. 20 Apr. 2020. 17 Bruce, Jenna. “6 Advantages of Print Advertising.” Mediaspace Solutions, 23 June 2015, www.mediaspacesolutions.com/blog/6advantages-of-print-advertising. 18 Whelan, Tensie. “Plenary.” Business and Society. 6 Apr. 2020. Photo Credits: Jakayla Toney/Unsplash—page 12 cottonbro/Pexels—page 15 10

ANDREW NI

CLASS OF 2023, FINANCE

NATIONAL INK: A PROPOSAL FOR THE NEW YORK TIMES COMPANY TO INVEST IN LOCAL JOURNALISM / 17

ESSAY BY

ISABELLA PERRIGO

EDTECH FOR SYRIA

The Syrian Refugee crisis has the countryâ&#x20AC;&#x2122;s children bearing the brunt; a lack of education is reinforcing the crisis, by limiting the childrenâ&#x20AC;&#x2122;s chance to a better future. In this paper, author Isabella Perrigo explores the potential of EdTech, through an innovative learning module that does not require Wi-Fi and offers a lucrative initiative for private players.

HERE ARE CURRENTLY o v e r 3 9 0,0 0 0 S y r i a n refugee children living in Lebanon, mostly between the ages of five and 18. 1 At least 44 percent of these schoolage children are out of school, despite having settled in Lebanon after escaping the Syrian Civil War.2 This means that many Syrian refugee children have not been in a classroom for years. Lebanon’s public-school system is overwhelmed and underfunded, showing that current thinking on education initiatives is not working. It is now time to look toward new and less traditional solutions to this problem. Tabshoura is a digital learning platform consisting of content developed from the national Lebanese curriculum. 3 With an innovative, Wi-Fi independent alternative to traditional schooling, Tabshoura has the potential to provide an education for thousands of Syrian refugee children without placing more strain on the public school system.

THE IMPORTANCE OF EDUCATION

Education is at the very foundation of society. It has become a necessity for people that want to advance their position in the world. Studies show that an education, even just through secondary school, decreases crime rates by up to 26 percent and improves health.4 Another study even concluded that investing in education decreases the probability of civil war.5 Philosophers believe that an education innately causes one to become a better, more-rounded person.6 Ultimately, education provides hope for improvement in the state of the world. It gives students the opportunity to reach for something better than what they have; this is especially important for Syrian refugee children.

THE CURRENT SITUATION

Lebanon has carried the cost of the Syrian refugee students with the help of various countries and multinational organizations. The country’s creation of the “double shift system” has been

its most successful attempt to solve the issue on a national level. The double shift system consists of two shifts of students in a single day. Lebanese students attend school in the morning and early afternoon, while Syrian refugee students attend in the late afternoon or evening.7 For schools with proper funding and trained teachers, the double shift system has the potential to work; however, some schools do not have the capability to fully implement the program. Several schools that have tried to create two shifts of students were unable to provide an equal quality of education for both shifts. The Mtein School, sponsored by child refugee nonprofit TheirWorld, uses a system where Lebanese, and some Syrian students, have class in the morning for six hours.8 The afternoon shift, consisting solely of Syrian refugee students, runs for only three and a half hours. Due to the shortened time in the second shift, these Syrian refugee students are only able to learn basic math, science, and language. The students are not given the resources or assistance for filling in learning gaps, extracurriculars, or more advanced topics.9 The Lebanese government is not alone in its efforts to provide an education for these refugee students. The United Nations and the European Union co-chair an annual conference called “Supporting the Future of Syria and the Region.” In 2018, 57 countries and a variety of charitable organizations and United Nations agencies met to discuss strategies regarding the future of Syria’s people.10 In a report from the conference regarding Lebanon’s involvement with the crisis, the United Nations found that while donors are committed to supporting refugees and their host communities, only 45 percent of the necessary funding for Lebanon’s Crisis Response Plan was raised.11 Similarly, at the 2016 “Supporting the Future of Syria” conference, a group comprised mainly of the European Union, Germany, the United Kingdom, the United States, Norway, and Japan committed to a $350 million donation for Lebanese education efforts. Yet, by the end of the year, Lebanon had received

EDTECH FOR SYRIA / 19

only $253 million. 12 This $97 million funding gap has the potential to provide education for over 100,000 students. 13 A persistent lack of full funding efforts shows one of the failures in addressing this issue.

PAST EFFORTS

Non-governmental organizations have also attempted to address the issue. Hewlett-Packard partnered with the Clooney Foundation for Justice, Google, and UNICEF to provide upgrades for nine Lebanese schools in 2018.14 These upgrades included School-In-a-Box kits

“

among other Lebanese cities, were able to return to school.16 This philanthropic endeavor was a success, but its strategy is not easy to scale up to a national level. Additionally, while this solution provides relief for its chosen schools, it would be too expensive to apply to the entire public education system. These solutions are steps in the right direction, but the fact remains that metrics of educational success have seen little progress. A minimum proficiency level (MPL) is a United Nations approved international benchmark for certain classroom skills that are determined

percent of students reach their reading MPLs, and 86 percent of students in Canada reach the same benchmark. 19 This disparity shows that despite genuine efforts, the current implemented strategies have not been completely effective. Therefore, educators may need to consider a new and more creative solution.

EDUCATION TECHNOLOGY AS A SOLUTION

EdTech could be the solution. The education technology sector has developed rapidly, especially since the

…education is unique in that a chance to learn is also a chance to improve a child’s entire future.”

for every student, including HP classroom technology like laptops and teacher support programs. The School-In-ABox kit provides backpacks, notebooks, pencils, and other school supplies. In this case, the $2.25 million partnership allowed the schools to fully implement the double shift system.15 As a result, 2,800 Syrian students in Beirut and Tripoli,

based on education level (primary, lower secondary, and secondary).17 According to the United Nations, only 29 percent of lower-secondary students in Lebanon reached the set MPL in reading as of 2015. Three years later, in 2018, 32 percent of students reached their reading MPLs, an increase of only three percent.18 For comparison, in the United States, 80

outbreak of COVID-19. HolonIQ reports that $3 billion of venture capital went toward EdTech in the first quarter of 2020.20 The rise of alternative learning platforms is likely to continue, even after brick-and-mortar schools reopen. This sector of technology could provide solutions for Syrian refugee students.

Lebanese Alternative Learning (LAL) was founded in 2013 by two education specialists at the Saint Joseph University of Beirut, and it has the goal of creating an online platform to help out-of-school children keep up with the Lebanese curriculum and help refugee students fill in their learning gaps.21 LAL offers three programs: Kindergarten, Middle School, and Plus (for students with interests in subjects beyond the curriculum) on a multilingual platform called Tabshoura. Tabshoura is free to use and follows the Lebanese curriculum in a series of lessons on math, reading, science, and standardized test preparation. LAL’s Plus program offers courses on the arts, civic awareness, and critical thinking. Additionally, courses are offered in Arabic, English, and French.22 The content within these lessons is reviewed and approved by Lebanon’s Center for Educational Research and Development (CERD). CERD, in turn, partners with the Lebanese Ministry of Education to improve education in Lebanon by being “proactive with scientific progress and technological and cultural development in the world.”23 Their partnership with LAL shows a commitment to the development of e-learning as an alternative to traditional schooling. The Tabshoura program has won several awards for approach to developing education technology. In 2017, LAL won the “Equals in Tech” award for “improving women and girls’ digital technology access, connectivity, and security.”24 It also earned a place in the 2017–2018 cohort of Qatar’s “World Innovation Summit for Education Accelerator,” an education innovation initiative that provides mentorship and resources to eight rising EdTech ventures every year.25 Tabshoura’s main draw for educators, however, is its innovative “Tabshoura-InA-Box.” This project was a partnership with Swiss startup, MoodleBox and the company that produces the Raspberry Pi.26 A Raspberry Pi is a small, low-cost computer that usually comes without a screen. Moodle is the most widely used “learning management system” (LMS)

in the world and is available without an internet connection with the use of the Raspberry Pi.27 The Tabshoura box builds upon MoodleBox’s pre-existing structure (the LMS program) to provide full access to the Tabshoura course catalog, all without Wi-Fi. This technology could be monumental for the Syrian education crisis. More than 70 percent of Syrian refugee families in Lebanon live below the poverty line, and consequently, many refugee students have no access to the internet from their homes. Even many Lebanese public schools do not have Wi-Fi. The Tabshoura box addresses these issues by taking the need for Wi-Fi completely out of the picture. All a student needs are a device with a screen and an HDMI cable. The boxes are already in use in hospitals, schools, and community centers. Their success has been recognized at a variety of EdTech conferences, like the World Summit Awards and UNESCO’s Mobile Learning Week. They have already partnered with other organizations like CERD and the Malala Fund to develop and distribute their platform to underserved communities.28 With the right partnerships, Tabshoura has the potential to expand far beyond its current reach. The implementation of a device distribution program could allow LAL to send the Tabshoura box solution home with Syrian refugee children. Access to education at home would relieve pressure on overwhelmed teachers and schools and allow refugee children to work at their own pace. They would have access to remedial lessons if needed, but also more exploratory content on the arts and science, technology, engineering, and math (STEM). Tabshoura’s program already has the lesson plans to support Lebanese public education, but would need a partner with reliable technology and the capacity to mass produce the Tabshoura-device system.

AMAZON’S POTENTIAL

Amazon expanded into the Middle East in 2017, with the acquisition of Souq. com. In 2019, Souq.com was rebranded

into Amazon.ae (the “ae” standing for Arab Emirates). The site operates primarily in the United Arab Emirates (UAE) with branches in Saudi Arabia.29 Unfortunately, Amazon has struggled to create a solid foothold in the Middle East and North Africa (MENA) – the geopolitical region to which the UAE, Saudi Arabia, and Lebanon belong. Part of Amazon’s difficulty establishing itself in MENA has to do with its lack of firstmover advantage.30 By the time Amazon committed to this expansion, a wealth of Middle Eastern sites, such as Noon. com, had already garnered success. Furthermore, business in the MENA region tends to revolve around smaller, local economies. Amazon’s lack of Middle Eastern roots makes it a less popular destination for family retailers looking to digitize their business.31 Despite Amazon’s apparent struggle, online consumerism in MENA is primed for investment. According to Bain, the regional e-commerce market will “more than triple in size to $28.5 billion by 2022.”32 PwC predicts that local retailers will be looking to digitize soon but lack the software knowledge to develop their own websites. Large sites like Amazon could benefit by increasing numbers of products on their platforms. 33 That said, Amazon lacks an advantage over its competition. Amazon will need to show that it is invested in the development of the region and its people before it can see increased business. A partnership with Tabshoura may be the perfect way to do so. As previously mentioned, the Tabshoura box requires a device in order to access the program. While the box provides all of the educational programming, it does not have a screen. Thus, students would need some sort of device to properly access Tabshoura. Many Syrian students may not have the means to purchase a laptop or tablet to take home with them. As a result, Tabshoura is unable to reach students in places without computers. Amazon’s “Fire Tablet for Kids” would work well as a solution to this issue. The tablet itself comes with access to Amazon

EDTECH FOR SYRIA / 21

FreeTime, a kid’s content program. FreeTime contains downloadable books, games, and educational content specifically geared toward children. While FreeTime’s content does need Wi-Fi, it can be downloaded to become accessible offline. It is important to note that most content on FreeTime only comes in English or Spanish.34 Arabic is the fifth most spoken language in the world, and the development of Arabic content on Amazon technology could help boost Amazon’s popularity in the Middle East. Furthermore, the introduction of modern technology to a new group of young people would boost Amazon’s pool of potential users in the future. Amazon is uniquely positioned to partner with Tabshoura on this project, not just because of its interest in the Middle Eastern retail space, but because of its previous investments in education technology. Amazon’s cloud-computing platform, AWS, has already been adapted for educational purposes through AWS Educate. According to Amazon, “AWS Educate is Amazon’s grant-based, global initiative to greatly accelerate cloudrelated learning endeavors and to power the innovative startups, corporations, governments, and research organizations of tomorrow.”35 This initiative could work with LAL, helping it learn how to use cloud-computing to develop its brand and streamline the IT process. AWS Educate

could also help students by giving LAL the opportunity to add new Tabshoura lessons covering modern technology and coding to students interested in STEM.

LOOKING TO THE FUTURE

If Amazon partnered with Tabshoura and the Lebanese government, it could exponentially increase Tabshoura’s impact. Schools without the ability to implement a double-shift system could use the distribution of a TabshouraAmazon system to better address the needs of students and teachers. The creation of assignments on Tabshoura would allow some students to stay at home, lowering the pressure for teachers in class. Moodlebox, the hardware for Tabshoura’s software, already has a learning management system in place, as Moodle is a top tier LMS. With this technology, teachers would be able to create homework assignments, calendars, and messages accessible on the Tabshoura box via download.36 The current double-shift system works by squeezing two school days into one. An improved double-shift system, for schools without the capacity for two shifts of children per day, could have students in class every other day. Syrian students could attend school on Mondays with Tabshoura lessons on Tuesdays and so on, relieving pressure on the school system. Amazon, Tabshoura, and Lebanon all stand to benefit from this partnership.

Amazon’s large-scale distribution capabilities would make supplying Tabshoura easier on a national basis, increasing the positive impact on the education crisis. Amazon would benefit from the opportunity to develop its online content in Arabic, as well as a reputational upgrade by investing in MENA’s culture and society. Most importantly, Syrian refugees living in Lebanon would gain access to a reliable and flexible education.

CONCLUSION

There is no easy fix to this problem. A lack of education is not the only problem faced by Syrian refugee children. But education is unique in that a chance to learn is also a chance to improve a child’s entire future. Through the opportunity to learn in an adaptable environment, Syrian children can truly thrive. Amazon’s interest in the region alone is enough to make this project compelling for its business and Tabshoura’s program perfectly caters to this demographic with its Tabshoura box solution. This partnership has the potential to secure an education for hundreds of thousands of underserved students. Education is incredibly important, and this proposal offers a promising opportunity to create meaningful change in the Syrian refugee community.

“I want to show that education is a worthy cause for the private sector. There are ways to reach marginalized groups of children with new technologies that can boost the learning of children all over the world.”

ISABELLA PERRIGO

CLASS OF 2023, BUSINESS & POLITICAL ECONOMY

22 / ALAN XIA

DISCUSSION QUESTIONS 1. Is the potential to do good enough of an attraction for conglomerates to make investments in lesser-explored areas? 2. How can learning be ensured at home when children are needed to contribute to housework and income?

“The Future of Syria: The Challenge of Education.” United Nations High Commissioner for Refugees, 2013, www.unhcr.org/ FutureOfSyria/the-challenge-of-education.html. 2 Karasapan, Omer, and Sajjad Shah. “Syrian Refugees and the Schooling Challenge.” Brookings, 23 Oct. 2018, www.brookings.edu/ blog/future-development/2018/10/23/syrian-refugees-and-theschooling-challenge. 3 “Tabshoura.” Tabshoura, www.tabshoura.com. 4 Lochner, Lance, and Enrico Moretti. “The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and SelfReports.” American Economic Review, 2004, www.aeaweb.org/ articles?id=10.1257%2F000282804322970751. 5 Thyne, Clayton. “ABC’s, 123’s, and the Golden Rule: The Pacifying Effect of Education on Civil War, 1980–1999.” International Studies Quarterly, vol. 50, no. 4, Dec. 2006, pp. 733-754, doi:10.1111/j.14682478.2006.00423.x. 6 Siegel, Harvey, et al. “Philosophy of Education.” Stanford Encyclopedia of Philosophy, 7 Oct. 2018, plato.stanford.edu/entries/educationphilosophy/#AreaContActi. 7 Van Esveld, Bill. Personal Interview. 1 April 2020. 8 “Documents: Field Needs Assessment for Middle School.” Lebanese Alternative Learning, 2017, lal.ngo. 9 Ibid. 10 “Supporting the Future of Syria and the Region.” Council of the European Union, 2018, www.consilium.europa.eu/media/34145/ lebanon-partnership-paper.pdf. 11 Ibid. 12 Rau, Simon. “Following the Money: Lack of Transparency in Donor Funding for Syrian Refugee Education.” Human Rights Watch, 30 Jan. 2019, www.hrw.org/report/2017/09/14/following-money/lacktransparency-donor-funding-syrian-refugee-education. 13 “Lebanon.” UNESCO Institute for Statistics, 12 Apr. 2017, uis.unesco. org/en/country/lb. 14 “HP, the Clooney Foundation for Justice, UNICEF and Google. org Shine Spotlight on Education.” Hewlett-Packard, 2018, press. ext.hp.com/us/en/press-releases/2018/hp-launched-new-filmhighlighting-results-of-education-partnership.html. 15 “Clooney Foundation for Justice.” UNICEF, 2018, www.unicefusa. org/clooney-foundation-justice. 16 “Lebanon Schools Map.” Clooney Foundation for Justice, 2018, cfj.org/ lebanon-schools-map. 17 “More Than One-Half of Children and Adolescents Are Not Learning Worldwide.” UNESCO Institute for Statistics, 2015, uis.unesco.org/ sites/default/files/documents/fs46-more-than-half-children-notlearning-en-2017.pdf. 1

“SDG Indicators.” United Nations, 2018, unstats.un.org/sdgs/ indicators/database. 19 Ibid. 20 “$3B Global EdTech Venture Capital for Q1 2020.” HolonIQ, 9 Apr. 2020, www.holoniq.com/notes/3b-global-edtech-venture-capitalfor-q1-2020. 21 “Lebanese Alternative Learning.” Lebanese Alternative Learning, 2020, lal.ngo. 22 “Tabshoura.” Tabshoura, www.tabshoura.com. 23 “About Us.” CRDP, 2020, www.crdp.org/en. 24 “Outstanding Initiatives Bringing Digital Tech Opportunities to Women in Lebanon, Afghanistan and Costa Rica Win at 2017 EQUALS in Tech Awards.” Equals, 20 Dec. 2017, www.equals.org/ single-post/2017/12/19/Outstanding-initiatives-bringing-digitaltech-opportunities-to-women-in-Lebanon-Afghanistan-and-CostaRica-win-at-2017-EQUALS-in-Tech-Awards. 25 “Tabshoura in a Box.” World Innovation Summit for Education, 2017, www.wise-qatar.org/project/tabshoura-in-a-box. 26 “Offline: The Tabshoura/Rapsberry Pi Box.” Lebanese Alternative Learning, lal.ngo/index.php/offline-the-tabshoura-box. 27 “What Is MoodleBox?” MoodleBox, 2020, moodlebox.net/en/whatis-moodlebox. 28 “Lebanese Alternative Learning.” 29 Jones, Rory. “Amazon Targets Middle East with Arabic Website.” The Wall Street Journal, 2 May 2019, www.wsj.com/articles/amazontargets-middle-east-with-arabic-website-11556725584. 30 Ibid. 31 Boxshall, Richard, et al. “Five Economic Trends to Watch in the Gulf in 2019.” PricewaterhouseCoopers, 2019, www.pwc.com/m1/en/blog/ five-economic-trends-gulf-2019.html. 32 Hudgins, Chris, and Katie Arcieri. “Amazon in the Middle East: Leveraging a Lucrative Growth Opportunity.” S&P Global Market Intelligence, 30 Sep. 2019, www.spglobal.com/marketintelligence/ en/news-insights/latest-news-headlines/53777666. 33 London, Simon. “Where next for Business in the Middle East?” McKinsey & Company, 2019, www.mckinsey.com/featured-insights/ middle-east-and-africa/where-next-for-business-in-the-middleeast. 34 “About Amazon FreeTime Unlimited on Fire Tablet.” Amazon, www. amazon.com/gp/help/customer/display.html?nodeId=201589300. 35 “AWS Educate.” Amazon Web Services, www.awseducate.com. 36 “What Is MoodleBox?” Photo Credits: Russell Watkins/Wikimedia Commons—page 18 Russell Watkins/Wikimedia Commons—page 20 18

EDTECH FOR SYRIA / 23

HOSPITALIZING ISRAEL:

Under-investment in Israel’s healthcare infrastructure creates a vicious and damaging cycle where patients experience lower quality care and healthcare workers struggle to keep up with the demand. Redefining the patient’s home as a care unit is a timely response to the overcrowding crisis.

ESSAY BY

AIDAN KATZ

HOW HOME-CARE AND DATA-DRIVEN

MANAGEMENT CAN HELP SOLVE OVERCROWDING IN HOSPITALS

H E N 6 2 -Y E A R OLD Cissy Gai began to feel feverish in December 2018, she knew that she needed to get to the emergency room: “We were there for hours and hours with all the sick people. My immune system is weak and I have to be in a sterile environment. At some point, I lay down on the floor because I felt so ill that I was incapable of sitting on the chair, and I thought to myself – now I’m going to die.”1 The health and wellbeing of the population is arguably a nation’s top priority. Yet, hospitalized patients in Israel experience low-quality care all too often as healthcare providers burn out under their workloads. The government’s lack of funding in healthcare infrastructure has resulted in repeated systemic failures like overcrowding in hospitals. However, a joint venture between health maintenance giant Maccabi and global tech industry leader IBM can diminish medicine ward overcrowding and simultaneously erode pain points from labor shortages within hospitals. Under this partnership, the private sector could provide health services while creating value for stakeholders.

TOO CLOSE FOR COMFORT

“Being hospitalized today in an internal medicine ward is on the verge of

“

something terrible. It borders on a lack of human dignity, a lack of compassion,” says Maccabi CEO Ran Saar, the man responsible for the health of two million Israelis.2 Hospital bed occupancy rates for curative care have been consistently above 90 percent from 2000 to 2018, a relatively high number compared to the OECD average at 75 percent.3,4,5 Overcapacity in some hospitals forces medical staff to place patients closer together in substandard conditions such as kitchens and even storage closets. 6 About onein-ten Israelis who receive inpatient treatment are left in hallways during their stay. 7 Consequently, patients become more exposed to contracting illnesses. Between 4,000 and 6,000 Israelis die from complications of hospital-acquired infections every year, and an additional 40,000 hospital patients are adversely affected.8 Insufficient infrastructure results in these high occupancy rates and poor hospitalization conditions. In turn, medical staff are pressured to meet unreasonable labor demands. Often left with five or six patients to manage at a time, nurses tire out, which compromises their physical and mental health.9 To put this into perspective, according to National Nurses United, an American nurses’ union, the optimal nurse-topatient ratio for specialty care units should be 1-to-4.10

Furthermore, nursing strikes are not uncommon.11 A recent strike in 2019 was part of an ongoing labor dispute. Nurses protested that inadequate staffing made it difficult to meet new accreditation standards from the Health Ministry. “Nurses say the accreditation process imposes a heavy workload – which comes at the expense of treating patients, and in many cases is nothing more than a charade.”12

PUBLIC UN-FUNDING

The condition of hospital overcrowding points to a serious lack of government funding in health infrastructure. Historically, the Israeli government spends proportionately less than other developed countries on health infrastructure. 13 A comparison of international data shows that the percentage of public funding for national health expenditure in Israel at 64 percent, is lower than average public funding in other OECD countries which is at 74 percent.14 While the Israeli government is planning to build a new hospital in Beersheba – a city in southern Israel – its approval and construction will be slow and expensive. The Jerusalem Post states: “the bureaucratic process will take at least five to seven years minimum and a decade to complete the complex… with an estimated cost of NIS $1.5 billion

From simple blood tests to MRIs…from birth to death – everything is centrally stored by the Israeli healthcare system.”

[~$440 million U.S. dollars].” 15 It is a painfully slow and expensive response to the current overcrowding problem, and further shows the disconnect between government funding and health infrastructure needs.

MACCABI HEALTH

A solution to this overarching problem could be created through a strategic corporate partnership that creates value for both patients and nurses. The solution will provide economic and social benefits more quickly and more effectively than present efforts. In practice, the nature of the plan is ambitious and complex, but the selected market players are wellpositioned to eliminate its operational ambiguities. Maccabi Health, one of the four major non-profit health maintenance organizations (HMOs) instated and funded by the Israeli government since 1995, manages health insurance plans for roughly one-fourth of the country’s population and provides a wide range of healthcare and social services through hospitals. It bolsters many of these operations through physician and practitioner contracts. Maccabi’s growth and resilience as a company are heralded by health plan innovations and investment in health research. With annual revenues upwards of $4.2 billion, the company is well-positioned

to invest in scaling its home-care service to combat the problems that stem from overcrowding.16

HOW HOMECARE CAN HELP

Home hospitalization means redirecting patients to their homes for treatment. Healthcare providers visit the patient on a frequent basis to perform the same functions of care as they would in a medicine ward. The prospect creates social value for a large swath of hospitalized patients and home-care programs already exist in most countries. Programs are tailored to the specific needs of the patient and the given region, and they have demonstrated varying degrees of success. According to the results of a model study from Johns Hopkins University, home hospitalization is more comfortable for the patient. In the home setting, higher satisfaction was reported by a majority of patients and the mean length of stay was shortened by one-third.17 Eligible candidates for home-care are those who suffer from infectious diseases such as urinary tract infections or pneumonia, chronic illnesses such as cardiac or respiratory diseases, and patients with metabolic problems who mainly need the supervision of a medical team.18 Maccabi finds that 20 percent of the 4,000 patients currently hospitalized in internal medicine wards qualify for

home-hospitalization. 19,20 According to Israeli journalist Ronny Linder, this translates to “about 60,000 people a year” who can be hospitalized at home.21 In short, the target population that is most affected by hospital overcrowding can receive support at home. Maccabi should take its small, trial-tested homehospitalization program of about 280 people and focus on scaling it to 60,000.22 T he inve stme nt from M accabi would mean significant cost savings: in-home care costs 32 percent less than hospitalization.23 Projections from an existing home-care program for COPD patients in Canada confirms Maccabi’s conservative estimates: “…if the program can reach 5,800 patients annually by 2021, it would be possible to prevent approximately 70,000 emerg enc y department visits in 400,000 hospital bed days.24 This would represent a total savings of about $688 million dollars in acute-care costs.”25

A CHALLENGE ADDRESSED: SCALABILITY

The one caveat is that the project requires scale. The program needs to transfer enough patients out of internal medicine wards so that nurses have room to cultivate an accredited and sterile environment and so that the reduction of hospitalization bill payouts incentivizes Maccabi to support the

OCEANIC PLASTIC POLLUTION SOLVED: COLLECTION, RECYCLING, REPURPOSING / 27

venture. To achieve scale, the program requires rapid patient identification and outreach and an adaptable way to create healthcare worker deployment schemes. This is where IBM can fulfill its role in the partnership.

IBM’S ROLE IN HEALTHCARE

IBM, a software industry leader, believe s t h a t c o m b i n i n g me d i ca l knowledge with technical eminence can result in better, more sustainable care. IBM can add resilience and scalability to the home-hospitalization model through various automation and machine learning platforms implemented in existing IBM platforms, making it an ideal partner for Maccabi. IBM Phytel Outreach, for example, automates the process of identifying and reaching out to patients through evidence-based communications. 26 Outreach contains and deploys 200 protocols that place calls to patients from their own physician’s practice. By creating an ideal patient profile for the program to compare and match electronic medical records, Outreach can engage the right patients to apply for home-hospitalization. A case study from IBM shows how the Loudoun Medical group used Phytel to schedule visits with its diabetic population, resulting in an additional $192,000 in revenue.27 IBM Blueworks Live is a cloud-based software that provides a dedicated environment to improve business

processes through process mapping.28 By developing clusters of patient addresses, travel time for healthcare workers can be optimized and Maccabi will benefit from greater operational efficiency. IBM Blueworks Live helped the UK National Health Service Blood and Transplant organization develop more efficient and adaptable organ allocation schemes in the UK to maximize the utility of donations.29 IBM’s professional teams can provide a management platform for Maccabi that incorporates these tools, and Israel’s centralized health database will provide a strong framework from which they can deliver. An article from Israeli newspaper Haaretz states: “The database is a resource that has been collected, documented, nurtured, and maintained with exceptional care and skill for decades. From simple blood tests to MRIs, from records of patients complaining to their family doctor about pain to results of advanced surgery, from birth to death – everything is centrally stored by the Israeli healthcare system.”30

algorithms to predict when medical staff at a given emergency department will be overworked and covertly advise Maccabi to call on support from other emergency departments. IBM’s services will help healthcare workers manage the patient population in the long-run.

A SUSTAINABLE OUTLOOK ON HEALTH SYSTEM MANAGEMENT

“Israel’s healthcare system has been paperless for about 20 years. And while its hospitals are not all on the same EHR system, those systems do all talk to each other.”31 A home hospitalization model led by IBM’s data-driven methods will bring value to patients and medical staff affected by hospital overcrowding while saving Maccabi Health hundreds of millions of dollars. By capturing value through technical innovation and sharing it between patients, providers, and corporations, technology will lead the way to a more sustainable healthcare system in Israel and set a global example to follow.

BEYOND THE BIG DATA: DISTANT BENEFITS OF IBM’S SUPPORT

Machine learning tools can best manage emergency department functions for home care across hospitals in Israel. This is because management software gives Maccabi the future capability to proactively respond to capacity bloating and understaffing in its own system. IBM can nurture the system’s

“I enjoyed writing this proposal because of the topic. Besides my religious connection to the state of Israel, my sister felt the issues with the healthcare system firsthand when she had to undergo emergency surgery during a family vacation. I appreciate that Stern gave me the opportunity to challenge myself.”

AIDAN KATZ

CLASS OF 2023, FINANCE & ACCOUNTING 28 / AIDAN KATZ

DISCUSSION QUESTIONS 1. What was your last hospitalization experience like? 2. How long did you spend in the waiting room? 3. Would you be willing to provide a copy of your health data to a database? What would it take for you to say “yes?”

Linder, Ronny. “Home Hospitalization May Be Solution to Israel’s Increasingly Crowded Hospitals.” Haaretz, 22 Mar. 2019, www. haaretz.com/israel-news/.premium-home-hospitalization-may-besolution-to-israel-s-increasingly-crowded-hospitals-1.7045047. 2 Ibid. 3 The Organisation for Economic Co-operation and Development (OECD) sets international standards for 37 member countries on a number of different of topics, one of which is health statistics. 4 Chernichovsky, Dov, and Roi Kfir. “The State of the Acute Care Hospitalization System in Israel.” Taub Center, Dec. 2019, taubcenter.org.il/wp-content/files_mf/ thestateoftheacutecarehospitalizationsystemeng.pdf. 5 “Health Care Resources: Hospital Beds,” Organisation for Economic Co-operation and Development, 18 Dec. 2020, stats.oecd.org/index. aspx?queryid=30183. 6 Linder. 7 “1 In 10 Patients in Israeli Hospitals Left in Hallways, Survey Finds.” The Times of Israel, 12 Feb. 2019, www.timesofisrael.com/1-in-10patients-in-israeli-hospitals-left-in-hallways-survey-finds. 8 Halon, Eytan. “Thousands of Israelis Die Every Year from HospitalAcquired Infections.” The Jerusalem Post, 22 Apr. 2019, www. jpost.com/israel-news/health-ministry-report-reveals-rate-ofinfections-in-israeli-hospitals-587472. 9 Margit, Maya. “Understaffed and Underpaid: Israeli Nurses Prepare to Strike.” The Jerusalem Post, 15 July 2020, https://www.jpost.com/ israel-news/understaffed-and-underpaid-israeli-nurses-prepareto-strike-635084. 10 “RN-to-Patient Staffing Ratios.” National Nurses United, 31 Mar. 2020, www.nationalnursesunited.org/ratios. 11 Halon, Eytan. “Nurses Strike Ends, Sides to Return to Negotiating Table.” The Jerusalem Post, 25 July 2019, www.jpost.com/IsraelNews/Nurses-strike-enters-second-day-labor-court-considersinjunction-596659. 12 Efrati, Ido. “Israel’s Nurses Go on Nationwide Strike Over Labor Shortages.” Haaretz, https://www.haaretz.com/israel-news/. premium-israel-s-nurses-go-on-nationwide-strike-over-laborshortages-1.7565148. 13 Rosen, Bruce, and Ruth Waitzberg. “International Health Care System Profiles.” The Commonwealth Fund, international. commonwealthfund.org/countries/israel. 1

Halon, Eytan. “Israeli Healthcare Expenditure Rises, Remains Below OECD Average.” The Jerusalem Post, 19 Aug. 2019, www.jpost.com/ health-science/israeli-healthcare-expenditure-rises-remainsbelow-oecd-average-598982. 15 “Largest Hospital in Israel to Be Built in Beersheba, if Approved.” The Jerusalem Post, 2 Dec. 2019, www.jpost.com/israel-news/largesthospital-in-israel-to-be-built-in-beersheba-if-approved-609609. 16 “Macabi Healthcare Services (HMO) Company Profile: Tel Aviv-Jaffa, Israel.” Dun & Bradstreet, www.dnb.com/businessdirectory/company-profiles.maccabi_healthcare_services_(hmo). e78de33673d54176ef8831bfe72497f1.html. 17 Feldman, Zeev, et al. “Home Hospitalization Worldwide and In Israel.” Israel Medical Association, Israel Medical Association Journal, Aug. 2019, www.ima.org.il/FilesUploadPublic/ IMAJ/0/378/189330.pdf. 18 Linder. 19 About 60,000 people who are currently hospitalized can be treated at home instead. 20 Linder. 21 Ibid. 22 Ibid. 23 Klein, Sarah. “‘Hospital at Home’ Programs Improve Outcomes, Lower Costs but Face Resistance From Providers and Payers.” The Commonwealth Fund, www.commonwealthfund.org/publications/ newsletter-article/hospital-home-programs-improve-outcomeslower-costs-face-resistance. 24 INSPIRED is a home-care program in Canada for patients with latestage chronic obstructive pulmonary disease (COPD). 25 Feldman. 26 “IBM Phytel Outreach - Details.” IBM, www.ibm.com/products/ phytel-outreach/details. 27 Ibid. 28 “Blueworks Live - Overview.” IBM, www.ibm.com/products/ blueworkslive. 29 “UK National Health Service Blood and Transplant.” IBM, www.ibm. com/case-studies/nhsbt-uk. 30 Linder, Ronny. “Israel Aims to Be Digital-Medical Power, but First Must Iron Out Privacy Issues.” Haaretz, 27 Jan. 2020, www.haaretz. com/israel-news/.premium-israel-aims-to-be-digital-medicalpower-but-first-must-iron-out-privacy-issues-1.8447414. 31 Ibid. Photo Credits: Pixabay/Pexels—page 24 Ibrahim Boran/Unsplash—page 26 14

HOSPITALIZING ISRAEL: HOW HOME-CARE AND DATA-DRIVEN MANAGEMENT CAN HELP SOLVE OVERCROWDING IN HOSPITALS / 29

LOANS, NOT

LIFE SENTENCES â&#x20AC;&#x201C; RETHINKING FINANCIAL INCLUSION THROUGH PAY-AS-YOU-EARN SCHEMES

ESSAY BY

PRABHAV KAMOJJHALA

Author Prabhav Kamojjhala offers a way for finance companies to dismantle predatory lending practices that plague rural farmers in the Indian state of Karnataka.

HE STORY OF THE INFORMAL LENDER

In 2018, the state of Karnataka had the highest rate of farmer suicide in India.1 The farmer suicide crisis has been a persistent issue in the state with over 3,700 cases reported from 2016 to 2019.2 One of the main drivers behind this crisis has been debt. Stuck in a complex web of failing crops, volatile incomes and dwindling natural resources, farmers in Karnataka have become victims of circumstance.3,4 A growing demand for produce has led farmers to invest more in pumps and irrigation systems to ensure stable production. These investments, however, have necessitated a cycle of borrowing and set a foundation for the farmer suicide crisis. The financial insecurity of the average loan-seeking Indian farmer is what allows informal lenders to thrive. Local banks lack know-your-customer (KYC) processes designed to verify the identity, suitability, and risk level of borrowers. Further, physical proximity often makes informal lenders an appealing source of credit for cash-strapped farmers. The caveat? Informal loans often come with hefty interest rates and lengthy servicing schedules, straining farm incomes and making the already dire issue of crop failure significantly worse. While one may argue for yield enhancing environmental solutions to address farmer suicide in the long term, improved financial inclusion can help mitigate this issue in the interim.

IDENTIFYING A SOLUTION

Microcredit typically involves creating loans on preferential terms to enable the rural poor to emerge from poverty through entrepreneurship. This way of thinking has had mixed results in South India as microfinance companies have charged unrealistically high interest rates – effectively nipping these programs in the bud.5 Moreover, the a priori assumption of an innate entrepreneurial drive among farmers has been naïve at best.6 An effective solution needs to be stakeholder-focused to truly drive

inclusion. Formal lenders need to tap into the sea of demand held by informal lenders. This, however, can only be achieved with a market-based and stakeholder-oriented system of incentives. The answer lies in farmerfriendly loans. Mahindra Finance appears to be an ideal candidate to pioneer this idea. As one of India’s largest Non-Banking Financial Companies (NBFCs), Mahindra Finance has a presence in over 85 percent of all districts in the country – a testament to the firm’s reach.7 In rural India, Mahindra Finance has traditionally provided financial products for the purchase of capital such as tractors.8 This background yields the perfect opportunity for Mahindra to address the failings of traditional finance through new pay-asyou-earn capital loans. As the name suggests, pay-as-youearn loans (PAYE) are paid back as the borrower earns income. While these loans are appealing in theory, their success is rooted in their implementation. To penetrate rural markets, these loans must draw farmers away from informal moneylenders. For that reason, any PAYE scheme must match the convenience and cost of borrowing from a moneylender to encourage switching. Moreover, relationship building is essential to gaining new clients and subverting the social influence commanded by informal lending. Satisfying these criteria is essential for Mahindra to make headway in serving this large, targeted clientele. The main difference between formal loans and their informal counterparts is the process involved. While formal loans require more documentation, they have fixed periods and clearly stated debt servicing terms. Informal loans do not require documents and are instantly available, but the interest collection and servicing process is often exploitative. Mahindra’s existing formal loan programs provide a useful lens into its ability to execute this plan. For personal loans, Mahindra requires KYC documents, income proofs, and a guarantor, among other documents.9 Moreover, this service

is available exclusively to Mahindra customers – clearly a risk-averse lending system. By contrast, PAYE loans would have more lenient eligibility and document requirements. In addition, farmers would not need to mortgage their land or offer collateral, which makes PAYE loans far more accessible.10 These PAYE loans would mitigate farmer suicides by changing the lenderborrower relationship imbalance that is characteristic of rural finance. Loans can be repaid from a set percentage of the income earned from harvests. Such a scaled system would relieve the stress of fixed repayments during poor harvests and/or low prices. The flexible nature of these payments would empower farmers to pay back loans based on their capability.

SHARED VALUE – THE BUSINESS CASE FOR ENTRY

From Mahindra’s standpoint, this system has two primary benefits. The first is the ability to cater to a larger addressable and serviceable market. By offering preferential credit to farmers, Mahindra can capture a large share of the market from moneylenders. Mahindra will also supplant the moneylender as a community partner, which presents it with the most valuable asset a financial institution can have: trust. Is there a large enough market for Mahindra to monetize? In Karnataka, there are six million small and marginal farmers.11 Moreover, as two in three of the nation’s poorest take out informal loans, approximately 4 million farmers in Karnataka stand to benefit from PAYE loans.12,13 This solution has worked elsewhere. For example, MicroInsure’s insurance products in Africa have made great strides in serving low-income groups across the region. 14 Similarly, the One Acre Fund’s capital-based loans offer flexible repayment terms and supplied most of the organization’s revenue requirements. 15,16 Mahindra stands to benefit from approximately four million new borrowers by entering the market.

COMBATTING DEFAULT RISK

Simply identifying a market is insufficient. How can a steady stream of future cash flows be guaranteed? This system needs to generate revenue for Mahindra. The average amount of debt held by a farmer in Karnataka is Rs 45,000.17,18 The average income for Indian farmers is just Rs 77,000.19 How can issued loans be repaid? Central to any lending business is an assessment of how likely a client is to pay back their loans. While the idea of uplifting farmers is a noble thought, there is a reason it has not happened yet: default risk. In a country where the nonbanking financial sector is wrought with bad loans and non-performing assets, the financial argument against “risky” credit is strong.20 One study found agricultural loans to have some of the highest rates of non-repayment. 21 Accordingly, any form of pay-as-you-earn scheme needs to employ some risk-mitigation mechanism to ensure returns to Mahindra. To mitigate this risk, the root cause must be addressed: poor fiscal discipline. In a more lenient lending environment, there is a significant risk of moral hazard, which sees borrowers incur more risk when insulated from the consequences of default. For example, the agricultural loan default rate in some states shot up to 50 percent ahead of a major loan waiver scheme in 2017. 22 Moreover, farmers default more on loans with lower default penalties. 23 Such actions are not malicious; they are merely focused on short-term benefits. Given farmers’ minimal financial strength, they have a clear incentive to default, which poses a risk to Mahindra. To ensure better repayment levels, banks can issue targeted loans with lower interest rates for activities they believe will reduce the risk involved in production. This could be through loans with specific terms. Loans for investments in sustainable practices that reduce resource dependency like precision agriculture or drip irrigation can have better terms. Loans for income shocks can be replaced with accessible

REINVENTING WHOLESOME / 33

“

…approximately 4 million farmers in Karnataka stand to benefit from pay-as-you-earn loans.”

insurance plans or be contingent on farmers reforming their production practices.

BENEFITS TO FARMERS

Fa r m e r s a l s o n e e d t o r e c e i v e benefits from the lending scheme to produce “shared value.” 24 Rather than disincentivizing defaults, Mahindra could try to incentivize repayment. Regular debt servicing can be incentivized through decreasing interest rates.25 As borrowers make their payments on time, they should face lower interest rates. This would reduce the expense borne by the farmer, and the positive reward system would help build a relationship between the lender and the borrower – thereby adding a counterweight to the lender-borrower relationship of rural moneylenders. The other side of this coin is to disincentivize defaults. Mahindra can put into place a reform-based system of penalization to reduce risk. If a farmer

defaults on a payment despite preferable terms (including adjustable payment rates), Mahindra can step in and demand changes to the farmer’s practices to ensure enough future finances for repayment. This penalty can work as a sliding scale: the greater a farmer’s default risk, the greater the penalty levied. The final penalty could be repossessing the capital provided to the farmer and cutting all lines of credit.

CHALLENGES & CONCLUSION

There are challenges to such measures. While the scheme’s emphasis on incentives is meant to drive long-term change, it can also be gamed by Mahindra due to the power it has over lenders. Farmers’ lack of education makes them susceptible to exploitation through such sophisticated financial products. This risk of exploitation is especially important given the effect that supply shocks like COVID-19 might have on rural

agriculture. In Karnataka, COVID-19 shut down all non-essential activity. For rural farmers, this crippled the supply chain they depend on to get crops to market, leaving them with rotting produce and no income. 26 In times of such supply shocks, both lenders and borrowers face systemic risk. Given the lender’s ability to determine terms of repayment, there is a clear need for safeguards to ensure that Mahindra’s process does not devolve into that of a predatory informal lender. A pay-as-you-earn scheme needs to address a key dilemma: how does M a hindra g ive fa rme rs a l adder, not a noose? In its pursuit of value preservation, Mahindra risks resembling the exploitative lenders it would replace. The key lies not in generating profits but in emphasizing inclusion and development.

34 / PRABHAV KAMOJJHALA

Padmanabhan, Vishnu, and Pooja Dantewadia. “The Geography of Farmer Suicides.” Livemint, 15 Jan. 2020, www.livemint.com/news/ india/the-geography-of-farmer-suicides-11579108457012.html. 2 Kumar, Chethan. “Farmer Suicides Decline by 45% in Karnataka: Bengaluru News.” The Times of India, 1 June 2019, www. timesofindia.indiatimes.com/city/bengaluru/farmer-suicidesdecline-by-45-in-karnataka/articleshow/69604411.cms 3 Kulkarni, Vishwanath. “Low Prices, Delayed Procurement, Bumper Crop Put Karnataka’s Groundnut Farmers in a Spot.” The Hindu BusinessLine, 27 Jan. 2018, www.thehindubusinessline.com/ economy/agri-business/low-prices-delayed-procurement-bumpercrop-put-karnatakas-groundnut-farmers-in-a-spot/article9994109. ece. 4 “The Struggling Farmer Who Planned His Own Funeral.” BBC, 21 Jan. 2019, www.bbc.com/news/world-asia-india-46644440. 5 Biswas, Soutik. “India’s Micro-Finance Suicide Epidemic.” BBC, 16 Dec. 2010, www.bbc.com/news/world-south-asia-11997571. 6 Guérin, Isabelle, D’Espallier, Bert and Venkatasubramanian, G. “Why Does Microfinance Fail in South-India?” CEB Working Paper, 2013, https://www.researchgate.net/publication/258513422_Why_does_ microfinance_fail_in_rural_south-India. 7 Iyer, Ramesh. “Financial Inclusion in India Is Soaring. Here’s What Must Happen Next.” World Economic Forum, 14 Jan. 2019, www. weforum.org/agenda/2019/01/financial-inclusion-in-india-issoaring-heres-what-must-happen-next. 8 “Easy Tractor Loan and Agriculture Equipment Finance in India.” Mahindra Finance, www.mahindrafinance.com/loans/tractor-loan. 9 “Personal Loan.” Mahindra Finance, www.mahindrafinance.com/ loans/personal-loan. 10 “Easy Tractor Loan.” 11 Calculated based of statistics from the previously cited source. 12 Azad, Rohit, and Dipa Sinha. “The Jan-Dhan Yojana, Four Years Later.” The Hindu, 29 May 2018, www.thehindu.com/opinion/oped/the-jan-dhan-yojana-four-years-later/article24017333.ece. 13 ⅔ = Proportion of informal loans, six million = poorest farmers, SAM = (⅔) × 6 = 4 million 14 “Better Business Better World, The Report of the Business & Sustainable Development Commission.” Business and Sustainable Development Commission, Jan. 2017, report.businesscommission. org/ uploads/BetterBiz-BetterWorld_170215_012417.pdf. 1

“How We Grow.” One Acre Fund, www.oneacrefund.org/what-we-do/ how-we-grow. 16 Kempis, Michelle. Personal Interview. 28 April 2020. 17 Approximately $650 to 700 depending on exchange rate fluctuations. 18 “Agricultural Credit Sector.” Sahakara Sindhu, Department of Cooperation, Government of Karnataka, https://sahakara.kar.gov. in/agriculturecredit.html. 19 Mathew, Joe C. “Farmers Protest: Average Farmer Indebted with Rs 47,000; Average Annual Income Just Rs 77,112.” Business Today, 30 Nov. 2018, www.businesstoday.in/buzztop/buzztop-feature/ farmers-protest-average-farmer-indebted-with-rs-47000-averageannual-income-just-rs-77112/story/296070.html. 20 “NBFC Crisis Poses More Bad Loan Risks for Banks: Moody’s.” 13 Dec. 2019, Economic Times, https://economictimes.indiatimes. com/markets/stocks/news/nbfc-crisis-poses-more-bad-loan-risksfor-banks-moodys/articleshow/72520496.cms?from=mdr 21 Gupta, Aarti, and Tanika Chakraborty. Loan Repayment Behaviour of Farmers: Analysing Indian Households. Indian Institute of Technology, Kanpur, home.iitk.ac.in/~tanika/files/research/ BorrowingBehaviorAT.pdf. 22 Keohane, David. “I’m Shocked, Shocked… Indian Farm Loan Waiver Edition.” FT Alphaville, Financial Times, https://ftalphaville. ft.com/2017/06/13/2190038/im-shocked-shocked-indian-farmloan-waiver-edition/. 23 Gupta. 24 Szaky, Tom. “Plenary Session Week 12 - Addressing Social and Environmental Challenges through the Circular Economy,” Business and Society. Virtual (Zoom), New York. April 20. 2020. Lecture. 25 Kempis. 26 Singh, Annapurna. “COVID-19 Outbreak: Rural India Stares at a Larger Crisis.” Deccan Herald, 6 Apr. 2020, www.deccanherald. com/business/covid-19-outbreak-rural-india-stares-at-a-largercrisis-821866.html. Photo Credits: cottonbro/Pexels—page 30 Mister Fotofreak/Pexels—page 32 Mister Fotofreak/Pexels—page 33 Ayaneshu Bhardwaj/Unsplash—page 34 15

“With a sufficient risk appetite, the solution proposed in the paper would truly create a system where lending ceases to be predatory and can help genuinely boost growth and incomes. It’s an issue that quite literally places itself at Indian dinner tables every day. It was strange to think about how these seemingly incremental changes could actually go a significant way in reducing existing inequities.”

PRABHAV KAMOJJHALA

CLASS OF 2023, BUSINESS & POLITICAL ECONOMY LOANS, NOT LIFE SENTENCES – RETHINKING FINANCIAL INCLUSION THROUGH PAY-AS-YOU-EARN SCHEMES / 35

A FINE-FLAVORED FUTURE FOR COCOA FARMERS

ESSAY BY

DENALIA ZHI

For decades, Cocoa farmers have been getting the very raw end of a sweet deal. Cocoa farmers in West Africa subsist on meager earnings, rarely getting a fair return on their hard work. Author Denalia Zhi explores the potential of private initiatives and how an increased production of fine-flavored cocoa can be the saving grace of West-African farmers.

“

ARK CHOCOLATE IS not the only bitter product of the cocoa industry. Cocoa farmers across the major producing regions of West Africa have long played a critical role in the global supply chain – yet they are undervalued. In Côte d’Ivoire, the world’s leading exporter of commodity beans, 75 percent of cocoa farmers subsist on less than $1.27 per day.1 Historically, the fragmentation of the cocoa value chain and the low price of commodity cocoa has prevented Ivorian farmers from earning a living wage. Cocoa farmer poverty has led to pressing social and environmental problems in the country. According to the U.S. Department of Labor, nearly 1.6 million children work in the Ivorian cocoa sector and engage in some of the “worst forms of child labor.” Further, 70 percent of the country’s deforestation can be attributed to illegal cocoa farming in national parks.2 These unsustainable practices jeopardize the long-term viability of the entire region. The resurgence of the fine-flavor cocoa market presents an opportunity for change within the industry. Fine flavor cocoa refers to cocoa beans of

38 / DENALIA ZHI

exceptional quality, which bring specific flavors and aroma to fine chocolate. 3 With the support of key actors along the supply chain, the cocoa processor Barry Callebaut can introduce the cultivation of this premium crop among Ivorian farmers. Ultimately, the establishment of a fine-flavor producing sector in Côte d’Ivoire could generate shared value for all stakeholders involved.

market.7 Bulk cocoa production is fueled by the demand for beans from major chocolate companies on the basis of quantity rather than quality.8 Due to the low returns on commodity cocoa, many Ivorian smallholders lack the financial means to adjust to market price volatility. In 2016 and 2017, a bumper crop caused prices to drop by 36 percent, pushing these farmers deeper into poverty.9

COMMODITY COCOA YIELDS LOW RETURNS

I N D U LG E N C E C O M E S W I T H H I G H EXTERNAL COSTS

Little of chocolate’s value is captured near the source of the beans. Most mainstream companies, such as Mars, Nestlé, and Mondelez, operate around the wealthy consumer markets of Europe and North America.4 Consequently, cocoa farmers in remote regions of Côte d’Ivoire must rely on traders to transport their beans to the port cities of Abidjan and San Pedro.5 With supply chains heavily controlled by middlemen, only about six percent of the revenue from each finished chocolate product reaches the Ivorian farmers.6 Ninety percent of the world’s cocoa farmers grow an “unexceptional but high-yielding variety” of bean, known as Forastero, for the commodity cocoa

The impoverishment of Ivorian farmers has created an “epidemic of child labor” on cocoa farms. 10 Children no older than seven are employed by their parents, or smuggled into Côte d’Ivoire from neighboring countries, to perform high-risk tasks that often result in injury. In this way, the cocoa industry has compromised the health, education, and prosperity of a significant portion of the region’s youth. Additionally, the poverty of cocoa farmers has disincentivized capable adults from remaining in the sector, leaving the industry with an ageing work force.11 Many cocoa trees are ageing as well. Without adequate income to invest in the rejuvenation of their trees, desperate

farmers are expanding into protected areas. 12 The resulting destruction of diverse rainforests has released enormous amounts of carbon into the atmosphere.13 With the intensification of climate change, 90 percent of Côte d’Ivoire’s cocoa growing region is projected to become less suitable for crop cultivation within the next forty years. Thus, the decreasing productivity of both cocoa trees and the farming population points to a shortage of cocoa in the future.

A FINE -FLAVORE D ST RATE GY TO CREATE SHARED-VALUE

Increasingly, the industry recognizes that its long-term profitability is tied to the welfare of cocoa farmers. Major chocolate companies have responded by launching programs to support smallholders, such as Mars’ Cocoa for Generations initiative which has provided personalized agricultural training to over 74,000 farmers. 14 However, these well-meaning efforts continue to ignore the root of the problem: the price of commodity cocoa remains too low. To alleviate cocoa farmer poverty, the cocoa processor Barry Callebaut should consider a two-pronged proposal involving (1) the distribution of fineflavor seedlings to farmers and (2) a collaboration with the traders known as pisteurs to affect change on a broad scale. In time, this approach will promote the creation of economic value among all participants.

BARRY CALLEBAUT AS A KEY PLAYER

As the world’s largest processor of cocoa beans, Barry Callebaut is in an ideal position to lead this fine-flavored movement. Four of its facilities are situated in Côte d’Ivoire, meaning that the company has a strong base of operations in the region.15 Moreover, Barry Callebaut has demonstrated its commitment to a sustainable industry through the launch of its Forever Chocolate initiative, which seeks to lift 500,000 cocoa farmers out of poverty by 2025.16 As part of this program, the company has geographically mapped

87,160 Ivorian cocoa farms, providing a vast network of farmers within which it can start to implement a fine-flavored value chain. Barry Callebaut has also expressed a desire to “be more innovative and test new approaches” in order to achieve its sustainability goals, suggesting that it would be willing to adopt this proposal.17

DISTRIBUTING SEEDLINGS TO RAISE FARMER INCOMES

In its 2019 “Forever Chocolate Progress Report,” Barry Callebaut reported distributing “over 1.8 million cocoa seedlings” to boost productivity. However, this approach fails to recognize that an increased supply of commodity beans in an already saturated market will drive prices down and— as has happened in the past— will hurt rather than help farmers. Instead, the company should restructure its distribution program to issue fine-flavor varieties, which are yet to be grown at scale in West Africa.18 Increasingly, demand in Europe and North America has shifted toward the “more exotic flavours” of fine cocoa varieties such as Criollo and Trinitario.19 This changing preference is a response to the broader societal trend around sustainable and ethically-sourced products. Fine-flavor beans represent only 6 percent of global cocoa production, but the strict regulations used to ensure their quality has led the chocolate sector to view them with high regard.20 By capitalizing on this preference, fineflavor farmers can sell their crop for three to four times the price of bulk cocoa, allowing them to enjoy a better standard of living than their commodity-growing counterparts.21 With a rising number of premium and specialty chocolate producers, the market is experiencing a shortage of fineflavor beans.22 Barry Callebaut can fill this gap by encouraging the growth of such varieties among farmers in Côte d’Ivoire. This move would both strengthen the company’s position in this niche market and the farmers’ abilities to support their families.

Côte d’Ivoire possesses a promising climate for the cultivation of these beans, since it is located within the same tropical zone as the primary fine-flavor producing countries of Latin America. An extensive study conducted by the Cocoa Research Institute has identified several types of fine flavor beans suited for growth in Ghana, its neighboring country, suggesting that there are also varieties that will succeed in Côte d’Ivoire. 23 Barry Callebaut can utilize its existing partnership with the Wageningen University and Research (WUR), an agricultural research institute that has been evaluating the impact of its Forever Chocolate program, to select the proper fine-flavor seedlings to be planted.24 As an educational organization that is actively seeking in-the-field opportunities, WUR would likely embrace this additional chance for collaboration with the company. Barry Callebaut can repurpose its Tiassalé nursery, located in south-central Côte d’Ivoire, to propagate the chosen cocoa varieties. 25 With a capacity for over 300,000 seedlings and an on-site “showcase farm” for the demonstration of proper management techniques, this nursery can provide several hundred farmers with not only a more profitable variety of cocoa but also valuable training to ensure the survival of the new trees. To foster a smooth transition from commodity to fine-flavor cocoa, farmers can adopt a process known as underplanting, where they place seedlings under the shade of ageing trees.26 When the young trees begin to produce pods, the old ones can be replaced with other crops that will improve soil fertility and help to diversify farmers’ incomes.27 Ultimately, the premium generated by the fine-flavor beans would allow farmers to invest in more sustainable agricultural practices and enhance their yields without further deforestation. In return, Barry Callebaut would have access to a greater supply of fine-flavor cocoa beans to meet the growing consumer demand for specialty and premium chocolate products.

A FINE-FLAVORED FUTURE FOR COCOA FARMERS / 39

MOBILIZING PISTEURS TO REACH MORE FARMERS

Pisteurs are the traders who directly interact with farmers, transporting cocoa from local drying spots and villages to collecting hubs in specific regions of the country.28 In order to create the degree of change needed within the industry, Barry Callebaut should mobilize pisteurs as a distribution task force. Since pisteurs hang on a similarly low rung of the global supply chain, they stand to benefit from the cultivation of a higher-priced crop. Biolands, Barry Callebaut’s farm services organization which runs its cocoa nurseries, has previously mobilized community members in Tanzania to distribute seedlings to farmers in remote areas of that country.29 The organization can train pisteurs in Côte d’Ivoire at its Tiassalé nursery, supplying them with fine-flavor seedlings and valuable agricultural knowledge. These traders can then distribute the resources among their network of farmers, gaining an additional source of income from participation in the program. Because the majority of the pisteurs are unorganized, and thus difficult to locate, Barry Callebaut can adopt a bottom-up approach, reaching out to farmers already within its database for initial contact information.30 Since each pisteur works with between 20 and 30 other farmers, and individual farmers might sell to various pisteurs, Barry Callebaut will gradually be able to trace the network

of middlemen throughout the region.31 After pisteurs have been recruited, the company can monitor their progress by sending members of its Biolands team to accompany them on early farm visits and periodic visits thereafter. This move will allow the company to assess the reliability of individual traders and to form relationships of trust along the supply chain. To ensure a return on investment, Barry Callebaut should require an exclusive agreement, in which farmers sell their crop to the company for a set amount based on the global market price. This arrangement assures participants that they receive a fair income and grants the cocoa processor a strategic hold on the fine-flavor sector in Côte d’Ivoire. Subsequently, Barry Callebaut can add every farmer and pisteur who commits to its initiative to its existing database. The company would benefit from this move by increasing the traceability of its cocoa, which aligns with its goal of establishing a transparent supply chain by 2025.32

THE CHALLENGE OF GAINING FARMER COOPERATION

An inherent challenge with this proposal would be to convince smallholders to transition to fine-flavor cocoa, since they are financially averse to ventures that have no guarantee of return. Fine-flavor plants have a higher susceptibility to pests and disease than commodity cocoa, which could lead to

poor harvests if farmers are not diligent in caring for the plants. 33 Thus, Barry Callebaut’s partnership with WUR is crucial to identifying the types of fineflavor seedlings that are most likely to thrive in Côte d’Ivoire. Training sessions that are formatted in a manner so as to be easily understood and communicated by farmers will promote good agricultural practices and lessen the risk of crop failure. Furthermore, Barry Callebaut might replicate its nursery system so that more farmers can witness trial runs of fine flavor seedlings and gauge the benefits of the project for themselves. Through these demonstrations, farmers can be persuaded of the positive impact that fine-flavor cocoa will have on their lives.

A SWEET OUTLOOK FOR THE COCOA INDUSTRY

The establishment of a fine-flavor sector in Côte d’Ivoire would bring a high-value crop to the region and grant farmers greater economic mobility. In the long run, more farmers will be able to afford schooling for their children and the rate of child labor will decrease. This proposal will also promote the restoration of forest cover as farmers invest in better management techniques. By integrating the concept of shared value into its business model, Barry Callebaut can create a more sustainable supply chain and protect the future of the cocoa industry for all.

“The cocoa bean— though small— has a huge socioeconomic impact…Large chocolate companies pledged to eradicate cocoa farmer poverty nearly two decades ago, yet the issue persists in cocoa growing regions across West Africa. This shortcoming stems from their myopic approach, which addresses only one part of the supply chain when the issue involves its entirety.”

DENALIA ZHI

CLASS OF 2023, MARKETING & DATA SCIENCE 40 / DENALIA ZHI

DISCUSSION QUESTIONS 1. What are some strategies to get farmers higher returns on producing the high yielding bean, Forastero? 2. How can Barry Callebaut distribute fine-flavor cocoa seedlings without incentivizing growers towards deforestation? 3. What must happen for sustainable cocoa farming to be the norm?

“Cocoa Farmer Income: The Household Income of Cocoa Farmers in Côte D’Ivoire.” Fairtrade Deutschland, Apr. 2018, www.fairtradedeutschland.de/fileadmin/DE/01_was_ist_fairtrade/05_wirkung/ studien/study_true_cost_cocoa_farmer_income_2018.pdf. 2 “Bittersweet: Chocolate’s Impact on the Environment.” World Wildlife Fund, 2017, www.worldwildlife.org/magazine/issues/spring-2017/ articles/bittersweet-chocolate-s-impact-on-the-environment. 3 “The European Market Potential for Specialty Cocoa.” Center for the Promotion of Imports, 4 Feb. 2020, www.cbi.eu/marketinformation/cocoa-cocoa-products/specialty-cocoa/marketpotential/. 4 Pilling, David. “The African Farmers Taking on Big Chocolate.” Financial Times, 16 Dec. 2019, www.ft.com/content/648bd0441ab3-11ea-97df-cc63de1d73f4. 5 Aboa, Ange. “Factbox - Ivorian Cocoa from Plantation to Port.” Reuters, 19 Jan. 2011, uk.reuters.com/article/uk-ivorycoastcocoa-factbox/factbox-ivorian-cocoa-from-plantation-to-portidUKTRE70I3N120110119. 6 Higonnet, Etelle, et al. “Chocolate’s Dark Secret.” Mighty Earth, Sep. 2011, www.mightyearth.org/wpcontent/uploads/2017/09/ chocolates_dark_secret_english_web.pdf. 7 Garnsworthy, Al. “The Different Varieties of Cocoa Beans: Criollo, Trinitario & Forastero.” The Chocolate Society, 23 Oct. 2010, www. chocolate.co.uk/blogs/news/the-different-varieties-of-cocoabeans-criollo-trinitario-and-forastero. 8 “The European Market Potential for Specialty Cocoa.” 9 Higonnet. 10 Whoriskey, Peter. “Hershey, Nestle and Mars Won’t Promise Their Chocolate Is Free of Child Labor.” The Washington Post, 5 June 2019, www.washingtonpost.com/graphics/2019/business/hersheynestle-mars-chocolate-child-labor-west-africa/. 11 Wexler, Alexandra. “Cocoa Cartel Stirs Up Global Chocolate Market.” The Wall Street Journal, 5 Jan. 2020, www.wsj.com/ articles/new-cocoa-cartel-could-overhaul-global-chocolateindustry-11578261601. 12 Higonnet. 13 Scott, Michon. “Climate & Chocolate.” National Oceanic and Atmospheric Administration, 10 Feb. 2016, www.climate.gov/newsfeatures/climate-and/climate-chocolate. 14 “Cocoa for Generations 2019 Report.” Mars Inc., 2019, https:// gateway.mars.com/m/2660cbcf7b34b93b/original/Mars-2020Cocoa-for-Generations-Report.pdf 15 Terazono, Emiko. “Welcome to the World of Big Chocolate.” Financial Times, 18 Dec. 2014, www.ft.com/content/80e196cc-8538-11e4ab4e-00144feabdc0. 16 “Forever Chocolate Progress Report.” Barry Callebaut, 2019, www. barry-callebaut.com/sites/default/files/2019-11/Forever%20 Chocolate%20Progress%20report%20201819.pdf. 1

“Helping Barry Callebaut Master Bold Sustainability Ambitions with Evaluation of Pilots in Five Countries.” Wageningen University and Research, www.wur.nl/en/testimonial/Helping-Barry-Callebautmaster-bold-sustainability-ambitions-with-evaluation-of-pilots-infive-countries-1.htm. 18 Nieburg, Oliver. “Premium Chocolate ‘Leg up’: How to Win Fine Flavor Cocoa Status.” ConfectioneryNews.com, 10 May 2016, www. confectionerynews.com/Article/2016/05/10/Everything-you-needto-know-about-fine-flavor-cocoa. 19 Voora, Vivek, et al. “Global Market Report: Cocoa.” International Institute for Sustainable Development, 2019, www.iisd.org/sites/ default/files/publications/ssi-global-market-report-cocoa.pdf 20 “The European Market Potential for Specialty Cocoa.” 21 Daniels, Stephanie, et al. “Reaching High-Value Markets: Fine Flavor Cocoa in Ghana.” International Institute for Environment and Development, 2012, www.cocoaconnect.org/sites/default/files/ publication/Fine%20flavor%20cocoa%20in%20Ghana.pdf. 22 “Fine or Flavour Cocoa.” International Cocoa Organization, 13 May 2019, www.icco.org/about-cocoa/fine-or-flavour-cocoa.html. 23 Daniels. 24 “Helping Barry Callebaut Master Bold Sustainability Ambitions.” 25 Prins, Christiaan. “Improving Cocoa Farmer Productivity through Farm Services.” Barry Callebaut, 7 Dec. 2017, www.barry-callebaut. com/en/group/media/news-stories/improving-cocoa-farmerproductivity-through-farm-services. 26 “Learning as We Grow: Putting CocoaAction into Practice.” World Cocoa Foundation, 2016, www.worldcocoafoundation.org/wpcontent/uploads/2016-CocoaActionReport-English_WEB_10-30. pdf. 27 Parrish, Jeffrey, et al. “Cacao as Crop and Conservation Tool.” Smithsonian, nationalzoo.si.edu/SCBI/MigratoryBirds/Research/ Cacao/parrish.cfm. 28 “Sustainable Management of Nestlé’s Cocoa Supply Chain in the Ivory Coast.” Fair Labor Association, June 2012, digitalcommons.ilr. cornell.edu/cgi/viewcontent.cgi?article=2740&context=globaldocs. 29 “Reaching Farmers – How Joyce Iponja Is Helping to Empower Cocoa Growers in Tanzania.” Barry Callebaut, 29 May 2017, www.barrycallebaut.com/en/group/media/news-stories/reaching-farmershow-joyce-iponja-helping-empower-cocoa-growers-tanzania. 30 “Cocoa & Forests Initiative Progress Report.” Barry Callebaut, 2019, www.barry-callebaut.com/sites/default/files/2020-04/CFI%20 Progress%20Report_Barry%20Callebaut.pdf. 31 “Sustainable Management of Nestlé’s Cocoa Supply Chain.” 32 “Forever Chocolate Progress Report.” 33 “Sustainable Management of Nestlé’s Cocoa Supply Chain.” Photo Credits: Alexandre Brondino/Unsplash—page 36 Pixabay/Pexels—page 38 17

A FINE-FLAVORED FUTURE FOR COCOA FARMERS / 41

ADDRESSING FACTORY FARMING: HOW WALMART CAN BRING “GREAT VALUE” TO STAKEHOLDERS

ESSAY BY

SOPHIE ZHU

Factory farming has been a staple part of the meat industry since the 1960s and has caused a myriad of health and safety risks as well as ethical concerns regarding the treatment of workers and livestock. Nevertheless, 99 percent of meat in the U.S. still comes from factory farms, and past attempts to combat the factory farming industry have been shut down due to market and policy failure. However, grocery retailers such as Walmart have a unique opportunity to challenge factory farms by cutting off their products from lines of distribution and supporting smaller farms and businesses instead.

“

THE FOOD SUPPLY CHAIN is breaking,” warned John H. Tyson, chairman of the board at Tyson Foods during the midst of the COVID -19 pandemic. 1 In Waterloo, Iowa, home to Tyson’s largest pork plant, health officials linked 90 percent of the county’s COVID -19 cases to the Tyson facility. 2 Wendy’s, a customer of Tyson’s, experienced beef shortages in 18 percent of its locations.3 The COVID -19 pandemic has brought the negative externalities of industrial meat production into the limelight and proven that factory farming poses health and financial risks for a wide range of stakeholders. As one of the final stages in the meat supply chain, grocery retailers may be in a unique position to provide a solution to the wide array of problems caused by factory farming.4 While market and policy failure have hindered previous solutions, Walmart, as the largest grocery retailer in the United States, has an opportunity to disrupt the meat industry and address stakeholders’ concerns by supporting smaller farms with more sustainable practices.

STAKEHOLDERS FACE HEALTH AND FINANCIAL RISKS

Factory farming entails an intensive livestock production cycle, specifically targeting the maximization of profit and minimization of cost. This often results in appalling conditions for livestock and workers and creates a myriad of health and safety risks. Factory farming remains one of the largest issues hindering progress of the United Nations Sustainable Development Goals, ranging from “good health and well-being” to “decent work and economic growth.”5 Improper waste management at factory farms, for example, contaminates the water of 2,000,000 Americans living near affected waterways. 6 Excessive antibiotics and hormones make their way to consumers’ dinner plates, leading to antibiotic resistance and an increased risk for cancer.7 Livestock at factory farms live in crowded conditions, creating the perfect breeding ground for zoonotic diseases. Ammonia and hydrogen sulfide in the air cause farm workers to suffer chronic respiratory problems, sometimes with fatal consequences. 8 During the COVID-19 pandemic, rural counties with

factory farms in Missouri faced a nearly 80 percent higher infection rate from COVID-19 than the state’s major cities.9 The health consequences of factory farming disproportionately affect marginalized groups. Most workers at factory farms come from the working class or immigrant groups. 10 These workers, who settle into the communities surrounding factory farms, find themselves using contaminated water and breathing polluted air even outside of work.11 Despite these negative externalities, governing bodies have been unable to contain these factory farms due to their strong market power.

MARKET POWER SOLUTIONS DIFFICULT

MAKES

Approximately 99 percent of meat in the U.S. comes from factory farms, and a few major corporations control the majority of this meat. 12 Just four companies – Tyson, Cargill, JBS, and Smithfield – dominate 82 percent of the beef industry. 13 These verticallyintegrated meat processors are able to essentially dictate the price of meat by concentrating the market, disrupting

communities, and making it impossible for smaller farms to compete.14 The concentration of the meat industry in the hands of a few large corporations prevents consumer choice from acting as a viable solution to factory farming. From grocery stores to restaurants, the wide reach of these major companies makes boycotting factory farming “virtually impossible.”15 In fact, during the Great Recession, the demand for meat fell as consumers cut back on consumption, and small farmers struggled to stay afloat.16 Yet, at the same time, the top four meat packers were actually able to increase their profit margins, highlighting the market failure present in the meat industry.17 The oligopoly in the meat industry also prevents more sustainable farming methods from becoming feasible alternative sources of meat. Free-range meat requires additional land and water.18 Many organic farmers find themselves unable to afford an organic certification, even if they meet all the standards for organic meat. 19 These additional cost burdens, along with competitive pricing by the major meat processors, make alternative meat production operations impossible for most small farmers. While sales of plant-based meat grew 11 percent in 2019, plant-based meat still only accounts for 2 percent of retail-packaged meat sales.20 An alignment of interests between the government and meat industry has prevented the government from effectively resolving the negative externalities of factory farming. In recent years, the “barnyard lobby” has convinced legislators in 30 states to propose legislation preventing cultured meat from being labeled as “meat,” further strengthening factory farms’ grasp on the market.21 As Sarah Sorscher from the Center for Science in the Public Interest emphasizes, such legislation intends to deter competition from cultured and plant-based meat companies. 22 Agricultural certainty programs, which exempt factory farms from the Clean

44 / SOPHIE ZHU

Water Act, also enable factory farming to continue with little regulation.23 Past attempts to shut down factory farms have clearly yielded few results. However, many of these attempts at solutions have targeted and attacked the production phase of the supply chain. In an increasingly interconnected society, it may be time to focus efforts on the distribution phase of the supply chain instead to knock factory farms off their pedestal.

WALMART CREATES OPPORTUNITY THROUGH COMPETITION

The major meat processors’ dependence on Walmart for distribution, and therefore revenue, provides Walmart with the unique ability to resolve the negative externalities caused by factory farming. Cargill and Tyson make up a significant portion of the meat sold at Walmart.24 Tyson, in particular, identifies Walmart as one of its “largest customers,” with nearly 17 percent of its revenue in 2019 generated from Walmart. 25 No other customer of Tyson made up over 10 percent of the company’s 2019 sales.26 In its 10-K, Tyson states that a loss of sales to Walmart could have “a material impact” on its operations.27 The reliance of Tyson’s sales on Walmart puts Walmart in a unique position to influence Tyson and its peers’ operations. Beyond selling other companies’ products, like those of Tyson and Cargill, Walmart has its own private-label brands. Its biggest private brand, Great Value, contributed to over $27 billion of the company’s sales in its fiscal 2020 year.28 This brand covers a broad range of products, including grocery items, with a focus on low prices.29 By switching away from the likes of Tyson and Cargill to sell meat under its own Great Value brand, Walmart can address the oligopoly in the meat industry while creating value for itself. Walmart has already demonstrated an interest in taking greater control over its supply chain. In April of 2019, Walmart announced that it would stop sourcing Angus beef from Tyson. Instead, it would

create its own supply chain of hormonefree Angus beef in collaboration with regional farmers. According to Scott Neal, Senior Vice President of Walmart’s meat division, this move intends to improve supply chain transparency and make a “premium” product, Angus beef, more affordable.30 Evidently, Walmart has demonstrated not only the potential but the desire to tackle the oligopoly of the meat industry by outsourcing meat production to smaller, more sustainable farms rather than solely relying on factory farms.

STRENGTHENING SMALLER FARMS GENERATES VALUE

Wa l m a r t a l s o h a s e x i s t i n g sustainability goals related to the meat industry, which can be employed as a standard when selecting smaller farms for collaboration. As part of its meat product supply chain initiatives, Walmart lists factors such as “responsible antibiotic use” and “better practices in manure management.”31 Walmart should identify small- and medium-sized farms whose practices align with these sustainability initiatives when expanding its supply chain beyond Angus beef to other proteins. By specifically sourcing from smaller farms with more sustainable meat production methods, such as antibioticand hormone-free meat, Walmart will provide smaller farms with a competitive edge over factory farms in bargaining for more reasonable prices. Farmers like Jess Peterson, executive vice president of the U.S. Cattleman’s Association, welcome Walmart’s transition into the meat industry as a means of adding competition to an otherwise concentrated industry.32 Michael Porter and Mark Kramer of Harvard Business School highlight how Walmart’s collaboration with local farmers can help those local suppliers increase their profits, hire more people, and pay better wages, creating shared value for both themselves and their surrounding communities.33 Collaborating with farms that have alternative meat production practices

serves as a divestment from factory farming and a financial incentive to improve sustainability. Farms with safer production methods like free-range and organic meat, which had previously faced insufficient resources and funds, would financially benefit from business with Walmart. Additionally, farms that cannot afford organic certifications would still have unofficial antibiotic-free and hormone-free “certifications” by virtue of Walmart’s sustainability-oriented supplier selection process. For farms that fail to meet Walmart’s

Sustained collaboration with farms practicing alternative meat production methods could also lead to a decrease in the number of factory farms. As Tyson states, if Walmart replaces the Tyson products on its shelves with Walmart’s own Great Value products, both volume growth and promotional spending for these meat processors would decrease.36 Consequently, fewer consumers will see advertisements encouraging them to consume meat from factory farms. Data analytics company Clutch found that 90 percent of consumers

providing consumers with a greater selection of healthier options would result in financial upsides as well as an improvement in brand reputation and image. With Walmart supporting smaller farmers, more meat from smaller farms can make its way to storefronts under Walmart’s Great Value label. Control of its supply chain allows Walmart to provide consumers with greater transparency regarding the origins of this meat.38 The 140 million U.S. customers Walmart serves each week would, under the Great Value brand, have the option to buy healthier

“

…grocery retailers may be in a unique position to provide a solution to the wide array of problems caused by factory farming and the meat industry.”

sustainability standards, the opportunity to do business with Walmart acts as a monetary incentive to improve their sustainability practices. The major meat companies would need to meet Walmart’s sustainability standards to stay in business with Walmart. For Tyson, Walmart accounted for the most sales in all its segments. 34 Without the nearly 17 percent of revenue contributed by Walmart, Tyson would have to improve its farming practices to prevent “material impact” on its operations.35

name advertisements as influencing their purchasing decisions. 37 Fewer ads for factory farmed meat could lead consumers to decrease their purchases of such meats. In turn, this would reduce health risks for consumers and draw financial capital away from the factory farming industry. With fewer products sold and lower volume growth, companies that depend on factory farming may shut some of their farms. The switch to private-label meat creates value for Walmart as well, since

meat while financially supporting smaller farmers instead of factory farms.39 By creating its own meat supply chain, Walmart can create financial benefits for both itself and its customers. From Milton Friedman’s stockholder perspective, taking control of its supply chain allows Walmart to fulfill its social responsibility to “increase its profits.”40 Under its private brand, Walmart can exert greater control over the processing, storage, and delivery of meat, eliminating costs associated with excess inventory.41

ADDRESSING FACTORY FARMING: HOW WALMART CAN BRING “GREAT VALUE” TO STAKEHOLDERS / 45

According to CB Insights, nationally branded goods give grocers profit margins in the “low single digits.”42 In contrast, “margin on self-sourced products can be as much as 25% to 30% higher.”43 These cost savings benefit not only Walmart’s stockholders, but also other stakeholders, such as consumers, who can consequently buy quality meat at a lower price.44,45

UNRESOLVED STAKEHOLDER CONCERNS

While working with small farms allows Walmart to address consumer safety and support small businesses, Walmart’s current sustainability initiatives fail to take farm workers’ interests into account. The company lacks any goals under the “working conditions” section of its sustainability initiatives.46 In selecting farms for collaboration, Walmart should add worker safety to its sustainability criteria to address work hazards that fall along racial and socioeconomic lines.

Doing so would reward farms with proper working conditions while incentivizing other farms to improve their workers’ well-being for the sake of doing business with Walmart. Walmart’s entry into the meat industry also fails to directly address the compromised interests of government stakeholders. However, while producing private-label meat requires no political action, Walmart has the fortitude to influence the government should it wish to do so. In 2019, Walmart spent $6.3 million on lobbying, in comparison to the entire meat industry’s $4.6 million.47,48 And, in recent years, Walmart has entered the political conversation surrounding sustainability. Following the United States’ withdrawal from the Paris Climate Agreement, Walmart’s executive vice president Kathleen McLaughlin came out with an opinion piece in The New York Times asserting the company’s

commitment to addressing climate change.49 By collaborating with sustainable small farmers to create its own meat supply chain under the Great Value brand, Walmart can address the negative externalities of factory farming that have previously remained unresolved due to market and policy failure. A Walmart brand of sustainably sourced meat creates shared value for consumers, small farmers, and the company itself by eliminating the health and financial risks associated with factory farming. Although employee and government stakeholders may not benefit directly from such a solution, the company has the means to address these stakeholders’ concerns. By taking advantage of the major meat processors’ dependence on Walmart for revenue, Walmart can incentivize sustainable meat production and fix the “breaking” meat supply chain.

DISCUSSION QUESTIONS 1. Depending on the success of Walmart’s implementation, do you think its competitors in the grocery retail market (Target, Kroger, etc.) will begin follow in Walmart’s footsteps? 2. How do you think factory farms and the large organizations that dominate the meat industry will respond? 3. Depending on the success of Walmart’s implementation, do you think other markets that rely on Walmart’s supply chain will begin to alter their operations to be more in line with Walmart’s sustainability standards, in fear of a potential removal of their products from Walmart stores?

“When the issue of factory farming is discussed, the focus is often on animal welfare or diet, while little attention is given to just how much individuals are being harmed by factory farming unbeknownst to themselves. Even as someone who has been interested in this social issue for many years, I myself was still surprised to discover through my research just how widespread the harmful effects of factory farming were. I saw this paper as the perfect opportunity to examine factory farming from a business perspective, rather than a political one, and prove that addressing this issue and generating stakeholder value do not have to be mutually exclusive.”

SOPHIE ZHU

CLASS OF 2023, ECONOMETRICS & FINANCE

42 / WYMAN 46 SOPHIE ZHU LI

Telford, Taylor, et al. “Trump Orders Meat Plants to Stay Open in Pandemic.” The Washington Post, 29 Apr. 2020, www. washingtonpost.com/business/2020/04/28/trump-meat-plantsdpa. 2 Sullivan, Becky, and Maureen Pao. “Tyson’s Largest Pork Plant Reopens as Tests Show Surge in Coronavirus Cases.” NPR, 8 May 2020, www.npr.org/sections/coronavirus-liveupdates/2020/05/08/852843796/tysons-largest-pork-plantreopens-as-tests-show-surge-in-coronavirus-cases. 3 Root, Al. “Where’s the Beef? Some Wendy’s Stores Run Out. Costco Limits Purchases.” Barron’s, 5 May 2020, www.barrons.com/ articles/meat-shortage-coronavirus-hits-customers-at-costco-andwendys-51588699733. 4 Andrews, Colman. “Kroger, Publix and Hy-Vee Produce on List of Best Grocery Store Chains in Every State.” USA Today, 16 Dec. 2019, www.usatoday.com/story/money/2019/12/16/costco-kroger-thebest-grocery-store-chain-in-every-state/40802197. 5 “Sustainable Development Goals.” United Nations, sustainabledevelopment.un.org/sdgs. 6 Wang, Jackie, et al. “Farming Activity Contaminates Water Despite Best Practices.” The Center for Public Integrity, 16 Aug. 2017, publicintegrity.org/environment/farming-activity-contaminateswater-despite-best-practices. 7 Kravitz, Melissa. “Organic Meat Vs. Non-Organic Meat: What Does Paying More Really Buy You?” Mic, 1 Mar. 2017, www.mic.com/ articles/168052/organic-meat-vs-non-organic-meat-what-doespaying-more-really-buy-you. 8 “Factory Farm Workers.” Food Empowerment Project, foodispower. org/human-labor-slavery/factory-farm-workers. 9 Crichton, Maddie. “Several Meat Plants Close after COVID-19 Outbreaks, Some Fear Potential Food Shortages.” Rogue Rocket, 23 Apr. 2020, roguerocket.com/2020/04/23/meat-plants-close. 10 “Factory Farm Workers.” 11 McGreal, Chris. “How America’s Food Giants Swallowed the Family Farms.” The Guardian, 9 Mar. 2019, www.theguardian.com/ environment/2019/mar/09/american-food-giants-swallow-thefamily-farms-iowa. 12 Allan, James. Factory Farming: Assessing Investment Risks. 2016. FAIRR, cdn.fairr.org/2019/01/09115647/FAIRR_Report_Factory_ Farming_Assessing_Investment_Risks.pdf. 13 Abrams, Lindsay. “How the Meat Industry Killed the Free Market.” Salon, 15 Mar. 2014, www.salon.com/2014/03/15/how_the_meat_ industry_killed_the_free_market. 14 Ibid. 15 Ibid. 16 Ibid. 17 Ibid. 18 Matsumoto, Nancy. “Is Grass-Fed Beef Really Better for the Planet? Here’s the Science.” NPR, https://www.npr.org/sections/ thesalt/2019/08/13/746576239/is-grass-fed-beef-really-better-forthe-planet-heres-the-science. 19 Kravitz. 20 “Plant-Based Market Overview.” The Good Food Institute, www.gfi. org/marketresearch. 21 Corbyn, Zoe. “Out of the Lab and into Your Frying Pan: The Advance of Cultured Meat.” The Guardian, 19 Jan. 2020, www.theguardian. com/food/2020/jan/19/cultured-meat-on-its-way-to-a-table-nearyou-cultivated-cells-farming-society-ethics. 22 Popper, Nathaniel. “You Call That Meat? Not So Fast, Cattle Ranchers Say.” The New York Times, 9 Feb. 2019, www.nytimes. com/2019/02/09/technology/meat-veggie-burgers-lab-produced. html. 1

“The Facts about the Clean Water Rule and Agriculture.” Environmental Protection Agency, 12 June 2015, blog.epa. gov/2015/06/12/clean-water-rule-and-agriculture. 24 Bloch, Sam. “Walmart Opened a Meatpacking Plant. What Does It Mean for the Beef Industry?” The Counter, 10 Jan. 2020, thecounter. org/walmart-new-angus-beef-plant-thomasville-georgia. 25 Tyson Foods, Inc (2019). Form 10-K. 26 Ibid. 27 Ibid. 28 Ochwat, Dan. “Walmart’s Great Value Brand Earns More than $27 Billion Annually.” Store Brands, 18 Feb. 2020, storebrands.com/ walmarts-great-value-brand-earns-more-27-billion-annually. 29 “Walmart’s Revamped Great Value Brand Delivers Affordable, Quality Choices When Consumers Need Them Most.” Walmart, 16 Mar. 2009, corporate.walmart.com/newsroom/2009/03/15/walmartsrevamped-great-value-brand-delivers-affordable-quality-choiceswhen-consumers-need-them-most. 30 Neal, Scott. “Why Walmart Is Entering the Beef Industry.” Walmart, 24 Apr. 2019, corporate.walmart.com/newsroom/2019/04/24/whywalmart-is-entering-the-beef-industry. 31 “2019 Environmental, Social, and Governance Report.” Walmart, 2019, corporate.walmart.com/media-library/ document/2019-environmental-social-governance-report/_ proxyDocument?id=0000016c-20b5-d46a-afff-f5bdafd30000. 32 Bloch. 33 Porter, Michael E., and Mark R. Kramer. “Creating Shared Value.” Harvard Business Review, digital ed., Jan.-Feb. 2011, pp. 62-77. 34 Tyson Foods, Inc. Form 10-K. 35 Ibid. 36 Ibid. 37 Herhold, Kristen. “How Consumers View Advertising: 2017 Survey.” Clutch, 7 Dec. 2017, clutch.co/agencies/resources/how-consumersview-advertising-survey-2017. 38 Neal. 39 Byrum, J.D. “The Grocery List: Why 140 Million Americans Choose Walmart.” Walmart, 3 Oct. 2016, corporate.walmart.com/ newsroom/business/20161003/the-grocery-list-why-140-millionamericans-choose-walmart. 40 Friedman, Milton. “The Social Responsibility of Business Is to Increase Its Profits.” The New York Times, digital ed., 13 Sept. 1970. 41 Brumley, James. “Walmart Takes Its Private-Label Grocery Efforts to the Next Level.” The Motley Fool, 22. Jan. 2020, https://www.fool. com/investing/2020/01/22/walmart-takes-private-label-groceriesnext-level.aspx. 42 Ibid. 43 Ibid. 44 Freeman, R. Edward. Managing for Stakeholders. Jan. 2007 45 Brumley. 46 “2019 Environmental, Social, and Governance Report 47 “Client Profile: Walmart Inc.” OpenSecrets Center for Responsive Politics, www.opensecrets.org/federal-lobbying/clients/ summary?cycle=2019&id=D000000367. 48 “Meat Processing & Products.” OpenSecret Center for Responsive Politics, www.opensecrets.org/industries/lobbying. php?ind=G2300. 49 McLaughlin, Kathleen, and Andrew Steer. “Why Walmart and Other Companies Are Sticking with the Paris Climate Deal.” The New York Times, 6 Nov. 2019, www.nytimes.com/2019/11/06/opinion/climatechange-walmart-paris.html. Photo Credits: Jo-Anne McArthur/Unsplash—page 42 Benchapple/Wikimedia Commons—page 45 23

ADDRESSING FACTORY FARMING: HOW WALMART CAN BRING “GREAT VALUE” TO STAKEHOLDERS / 47

DANDELION

ROOTS PROVIDE A

SUSTAINABLE

ALTERNATIVE FOR THE

RUBBER INDUSTRY

ESSAY BY

ALEX MCCURDY

South American Leaf Blight, a lethal rubbertree-seeking disease, is the foremost suspect in the uncertain future of the rubber industry. Corporations, including automotive and airline companies requiring natural rubber for tires, must find ways to secure their own supply of natural rubber to maintain a sustainable future, and new research shows dandelion roots can provide a solution.

VER 100 YEARS AGO, IN 1918, the Ford Corporation invested the equivalent of $280 million into its own natural rubber plantation in Brazil. Why did an automotive company invest so much money into a natural rubber plantation consisting of a few thousand trees? Because Brazil, in the early 1900s, produced around 90 percent of the world’s supply for natural rubber.1 Realizing the importance of securing its own supply for manufacturing rubber tires, Ford believed that it had made a robust investment decision. It turns out, however, that in 1918, the first major outbreak of a disease known as the South American Leaf Blight eradicated nearly 90 percent of Brazil’s rubber supply within a month – including Ford’s investment. Today, Brazil controls just 0.001 percent of the natural rubber market. With the scare of leaf blight prominent in South America, more than 95 percent of the world’s natural rubber production has shifted to Southeast Asia, primarily in Vietnam, Thailand, Laos, Myanmar, China, and Cambodia. Hevea Brasiliensis, also known as the Brazilian Rubber Tree, is manually tapped by farmers, similar to the way that maple syrup is extracted from maple trees. It takes a rubber tree one year to produce enough natural rubber to manufacture one car tire. 2 Once the natural rubber latex is tapped, the material is sent to factories mostly in Southeast Asia and mixed with other chemicals, molded into blocks, vulcanized,3 and then sold.4

W H Y I S D E M A N D F O R N AT U R A L RUBBER SO HIGH?

Natural rubber produced from rubber trees has properties that alternative sources, like synthetic rubber, cannot satisfy. Natural rubber consists of long isoprene polymer chains that make the rubber extremely resistant to tears, heavy force, temperature changes, and elements such as snow, ice, water, and dirt.5 Natural rubber is a crucial resource for automotive and airline companies as it is used in “high-performance tires for

50 / ALEX MCCURDY

race cars, buses, and aircraft thanks to its strength and heat resistance.”6 According to Adele Peters writing for Fast Company, “tires on planes, for instance, typically use 100 percent natural rubber […] because synthetic rubber [cannot] survive the extreme change in temperature on landing.”7 A shortage of natural rubber would deprive the transportation, travel, and trade industries of an essential

Once prominent in South America, leaf blight wiped out natural rubber plantations five times between 1911 and 1986 and three more times in Mesoamerica in 1941 and 1942.9 These eight separate instances of leaf blight over the last century exemplify how contractible and intractable this disease is. Researchers have concluded that, “the disease is still restricted to its continent of

resource, and potentially halt the flow of the global economy.

origin, but its potential to be distributed around the world rises with every transcontinental airline connection that directly links tropical regions.”10 While there are currently no direct flights between South America and Asia, the burden of containing the disease escalates as globalization connects continents and increases opportunities for disease to spread.

SOUTH AMERICAN LEAF BLIGHT IS CONTAGIOUS

Leaf Blight is caused by the ascomycete Microcyclus ulei, a fungus that erupts inside rubber trees and spreads rapidly between the trees due to their monoclonal, or genetically identical, makeup.8

WHAT HAPPENS WHEN LEAF BLIGHT REACHES SOUTHEAST ASIA?

The world’s natural rubber supply is in danger. In the past twenty years, researchers located traces of leaf blight in Thailand and India, which indicates a high likelihood for infection in Southeast Asia. In order to reduce the risk of an economic collapse, corporations must

either fund research to find a cure for leaf blight or invest in alternative methods of rubber manufacturing.

RESEARCHERS ARE DESPERATELY SEARCHING FOR A CURE TO PREVENT LEAF BLIGHT

As the threat of leaf blight spreading to Southeast Asia looms on the horizon, countries are fast tracking research of disease prevention methods. Researchers working in Brazil found that “the most

efficient method of control is to use resistant productive clones, but clones with both a sufficiently high resistance and good [rubber latex] production have been difficult to find so far.”11 Additionally, the trees that are most resistant to the disease tend to produce little to no rubber latex, so “researchers are attempting to identify those combinations of diseaseresistant crowns with high-producing

stems that reveal the lowest depression of [rubber] latex production.”12 Research has suggested that injection of magnesium and plant growth regulator ethephon into low-producing rubber trees with the disease-resistant clones can help increase latex production, but no conclusive results have been found. Theoretically, if researchers find enough trees with disease-resistant clones producing a high amount of rubber latex, those trees can be used to border rubber plantations and

“guard” the less-resistant interior trees from infection. In order to protect against risk as researchers continue to develop a cure, corporations must look to invest in alternative sources for natural rubber.

CORPORATIONS ARE ALREADY CREATING SUSTAINABLE ALTERNATIVES FOR NATURAL RUBBER SUPPLY

Corporations are already investing in more responsible methods of natural rubber production. Continental Corporation, a tire manufacturer in Germany worth $50 billion US, relies heavily on natural rubber. Looking into alternatives to traditional rubber sourcing, Continental invested $2 billion to open a new research laboratory in Anklam, a town 100 miles north of Berlin.13 Researchers from Continental plan to produce an entire plantation’s worth of natural rubber using dandelion roots. The use of dandelion roots is promising to the future of the rubber industry. Carla Recker, also known as Mrs. Dandelion, is the head researcher at Continental. Recker leads a study on extracting natural rubber from dandelion roots. She claims that “dandelions are able to be grown annually in moderate climates and in soil that [is] not even suited for cultivation.”14 Recker warns that the future of natural rubber supply from rubber plantations is unpredictable: “the future of natural rubber is essential for us because the demand is still growing, and that’s the reason why we have to secure our own supply.”15 Researchers and corporations worldwide are starting to take notice of Recker’s study.

OHIO STATE RESEARCH TEAM E X PA N D S O N C O N T I N E N T A L ’ S LEADING EXAMPLE TO PRODUCE DANDELION RUBBER ON A COMMERCIAL SCALE

In March 2019, an Ohio State research team harvested rubber latex from dandelion roots using hydroponic farms consisting of millions of dandelions. Katrina Cornish, a professor at The Ohio

DANDELION ROOTS PROVIDE A SUSTAINABLE ALTERNATIVE FOR THE RUBBER INDUSTRY / 51

State University, envisions companies becoming self-sustainable in their natural rubber supplies within the next ten years.16 Cornish is concerned with the future of natural rubber supply should leaf blight affect the Southeast Asia region and she hopes that companies large and small will follow Ohio State’s example. In light of the constantly increasing demand for natural rubber and fear of leaf blight affecting rubber trees in Southeast Asia, Ohio State published its research and created PENRA, the Program for Excellence in Natural Rubber Alternatives, to “integrate and accelerate the incubation, demonstration, market entry, and growth of a domestic natural rubber industry.” 17 Today, the program sees major tire companies like Bridgestone collaborating with one another to provide a sustainable rubber alternative using dandelion farms. In a company statement, Bridgestone detailed its continued dedication toward “sustainable alternatives for the natural rubber needed to manufacture tires and other high-quality rubber products, and [it is] excited about this potentially gamechanging discovery with the Russian Dandelion.”18 These companies, despite the high costs, are following the research and testing done by those at Continental, Bridgestone, and Ohio State to create a sustainable future in the natural rubber industry through PENRA.

COMBATTING HIGH COSTS ASSOCIATED WITH SECURING PERSONAL SUPPLY

While the research and testing are promising, creating indoor greenhouses “for the cultivation and exhibition of plants under controlled conditions” and

labs to harvest the rubber, presents a difficult and costly task.19 Recker states that, “thousands of [dandelions]…need to be cultivated, harvested, and then their rubber extracted through a complicated process involving both human and machine.” 20 Most corporations do not have billions of dollars to spend on these efforts like Continental did, so small corporations looking for investments in a sustainable personal supply must look elsewhere. Both government tax incentives and loans from major banks focusing on long-term sustainability may provide solutions. Corporations can trade tax credits to other corporations in order to gain capital to invest in their solutions. Another way companies can combat the high costs of reaching a sustainable rubber supply source is to look for loans from banks focusing on long-term sustainability and economic growth. In recent years, large investment banks have made a monumental effort t o p r o m ot e s u st a i n a b l e b u s i n e s s practices and create inclusive economic growth, specifically through non-profit associations. Business roundtable is a non-profit association consisting of CEOs of major US companies promoting the importance of providing economic benefits to all: investing in the long-term well-being of employees, protecting the environment, and promoting corporate sustainability. Jamie Dimon, CEO of JPMorgan Chase, is the current chairman of Business Roundtable and is actively leading America’s biggest investment bank in a sustainable direction. Business Roundtable aims to invest “nearly $147 billion annually in research and development” that can be used to fund corporations searching for investments

in sustainable natural rubber sourcing methods. 21 By partnering with banks promoting sustainable business practice, corporations in the natural rubber industry may be able to obtain affordable loans for their sustainability efforts.

SUSTAINABILITY STRENGTHENS THE ECONOMY

According to Larry Fink of BlackRock, corporate sustainability is the key ingredient for reducing future market risk and ensuring constant economic growth.22 Fink uses the 30-year mortgage as an example: “what will happen to the 30-year mortgage—a key building block of finance—if lenders can’t estimate the impact of climate risk over such a long timeline?” 23 Companies that do not invest in sustainable business practices put future industry returns at risk. The same principle applies to the importance of creating sustainable supply sources in the natural rubber industry. If corporations do not invest in protections against leaf blight, which threatens 95 percent of the world’s natural rubber supply, then industries that rely on natural rubber like travel, transportation, and trade are at risk. Businesses that invest in sustainability support solutions such as Carla Recker’s dandelion root research which has high upfront costs. When you eventually see “Taraxacum” tires on the market, then you will know that Recker’s research has successfully achieved its first step.

DISCUSSION QUESTIONS 1. What are some reasons (other than leaf blight) for companies to pursue alternative rubber sources? 2. Can you think of other materials that are critical to the US economy? Do we have alternatives if we lose access to those materials?

52 / ALEX MCCURDY

“

…the disease is still restricted to its continent of origin, but its potential to be distributed around the world rises with every transcontinental airline connection that directly links tropical regions.”

Lieberei, Reinhard. “South American Leaf Blight of the Rubber Tree (Hevea spp.): New Steps in Plant Domestication using Physiological Features and Molecular Markers.” Annals of Botany, Nov. 2007, www.ncbi.nlm.nih.gov/pmc/articles/PMC2759241. 2 Reich, Holly. “From the Tree to the Tire.” New York Daily News, 24 Dec. 2007, www.nydailynews.com/autos/tree-tire-article-1.272392 3 A heating process. 4 Henneberry, Brittany. “All About Natural Rubber—Properties, Applications and Uses.” ThomasNet, www.thomasnet.com/articles/ plastics-rubber/all-about-natural-rubber-properties-applicationsand-uses. 5 Ibid. 6 Ibid. 7 Peters, Adele. “Indoor Farms Full of Dandelions Could Be Our Future Source of Rubber.” Fast Company, 22 Mar. 2019, www.fastcompany. com/90322892/indoor-farms-full-of-dandelions-could-be-ourfuture-source-of-rubber. 8 Lieberei. 9 Ibid. 10 Ibid. 11 Evans, Harry. “Pseudocercospora Ulei (South American Leaf Blight of Rubber (SALB)).” Center for Agriculture and Bioscience International, 31 Jul. 2019, www.cabi.org/isc/ datasheet/33893#topreventionAndControl. 1

Ibid. “Continental Opens ‘Taraxagum Lab Anklam’ Research Laboratory for Dandelion Rubber.” Continental, 6 Dec. 2018, www.continentaltruck.com/truck/company/newsroom/122018-dandelion. 14 Ibid. 15 “The Rubber Episode.” This Giant Beast That Is the Global Economy, Episode 3. Amazon, 22 Feb. 2019. 16 Peters. 17 “The PENRA Story.” The Ohio State University, u.osu.edu/penra. 18 “Bridgestone Finds Russian Dandelion May Be a Sustainable Source of Natural Rubber.” Bridgestone, 17 May 2012, www.bridgestone. com/corporate/news/2012051701.html. 19 “The Rubber Episode.” 20 Ibid. 21 “Business Roundtable.” Business Roundtable, 2020, www. businessroundtable.org. 22 “Larry Fink’s Letter to CEOs.” BlackRock, 2020, www.blackrock.com/ corporate/investor-relations/larry-fink-ceo-letter. 23 Ibid. Photo Credits: Jane/Unsplash—page 48 With permission from Dr. Carla Recker—page 50 Michał Ludwiczak/Pexels—page 53 12 13

“The most surprising part of my research was discovering the amount of research and innovation that has been put into discovering solutions for alternative natural rubber production. This confirmed that my topic and research was valuable.”

ALEX MCCURDY

CLASS OF 2023, FINANCE & DATA SCIENCE DANDELION ROOTS PROVIDE A SUSTAINABLE ALTERNATIVE FOR THE RUBBER INDUSTRY / 53

BLOCKING OUT DEFORESTATION

IN THE AMAZON

ESSAY BY

JAEDON KHUBANI

Author Jaedon Khubani offers a unique take on saving the Amazon Rainforest. Acknowledging the challenges of corruption, he argues that blockchain technology can provide a reasonable solution to protecting rightful ownership of land in the Amazon and protect its fair use.

HE WORLD’S LARGEST and most biodiverse rainforest is at risk to be destroyed beyond repair within the next 50 years. 1 One fifth of the Amazon Rainforest has been deforested since measurements started being recorded in the 1970s. In Brazil’s Amazon, around 80 percent of the deforestation that occurs is illegal, yet attempts for effective oversight have been unsuccessful.2,3 The destruction of the Amazon affects Brazil, its people, and the global climate, and is exacerbated by government corruption and lack of oversight related to land ownership and use. The Brazilian government should partner with Microsoft and Medici Land Governance to end this illegal deforestation. This partnership will create shared value by using blockchain technology to save and further protect the Amazon for years to come.

THE PROBLEM IN BRAZIL

When Jair Bolsonaro became the President of Brazil in January 2019, he made it clear that he intended to use the Amazon to Brazil’s economic advantage.4 Bolsonaro’s administration has encouraged farmers to burn down the Amazon to clear lands for cattle. In the past year alone, deforestation in the Amazon has increased by 92 percent.5 Brazil is the world’s largest exporter of beef, so more land for cattle would lead to short-term economic gains. What has resulted is one of the most reckless and unsustainable environmental catastrophes caused by humans. Even with the land cleared for cattle grazing, studies show that only 62 percent of the land cleared for cattle grazing is actually fully utilized.6 Without clear mitigating strategies to

“

…a single piece of land in the Amazon can have up to four land titles with no proof of who the rightful owner is.”

this pressing socio-environmental issue, all evidence suggests that the Brazilian government will continue to encourage the destruction of the Amazon until there are economic incentives to protect it. Clearing land for cattle may actually hurt Brazil’s economy in the long term. By 2040, most protein will not come from animals. Instead, experts forecast that 60 percent of meat in consumers’ everyday diets will be replaced by plantbased protein.7 The production of beef is also incredibly wasteful— 36,000 calories of feed will produce only one thousand calories of beef. In the process, 430 gallons of water and 1,500 square feet of land are needed, and ten kilograms of greenhouse gas emissions are generated.8 Approximately, 75 percent of all greenhouse gases emitted by the livestock farming industry are attributed to cattle.9 Brazil’s short-term economic incentive to clear the Amazon for cattle grazing not only directs resources to an unsustainable and declining industry, but also aggravates a feedback loop of greenhouse gas emissions that worsens climate change. The government’s reluctance to confront illegal activity has intensified deforestation. Experts estimate that 80 percent of all logging that occurs in the Amazon is illegal.10 When farmers in the Amazon need more land, they simply clear more trees on property they do not own, and illegal activity goes unregulated.11 More concerningly, government officials are known to sell fake land titles to farmers and land grabbers, which enables them to illegally cut down trees without repercussion—a single piece of land in the Amazon can have up to four land titles without proof of the rightful owner. Despite all the challenges with illegal deforestation occurring in Brazil, 80 percent, or 350 million hectares of forest remain.12 Around 200 million hectares are designated as protected areas; however, widespread illegal logging still occurs on both public and private lands. The Amazon must be better protected before it is damaged beyond repair; the

environmental and economic effects it has on the rest of the world are incomparable.

WHY WE NEED TO PROTECT THE AMAZON

The Amazon rainforest plays a significant role in the climate of not only Brazil and South America, but the rest of the world. The rainforest produces six percent of the world’s oxygen and absorbs about five percent of the carbon dioxide emitted annually. 13 When the trees in the Amazon are burned or cut down, the carbon dioxide that was stored in those trees is released directly into the atmosphere. In addition to absorbing carbon dioxide, the Amazon produces nearly half of its own rain, and the loss of even a fraction of the forest could lead to a dry-out.14 In spite of these risks, Brazilian farmers continue to deforest the Amazon under the administration of Jair Bolsonaro, which turns a blind eye to these unsustainable and illegal practices. In doing so, farmers are responsible for both damaging not just the water supply they need to sustain their own farms, but the entire global climate. The detrimental effects of deforestation are felt acutely by the most vulnerable stakeholders in society who rely on the Amazon to survive. Approximately four hundred indigenous groups call the Amazon their home.15 The destruction of the rainforest would lead to the forced relocation of these indigenous groups and a personal attack on their culture. These indigenous peoples rely on the Amazon for basic needs of survival and have lived there for hundreds of years. The destruction of native land constitutes a social injustice to indigenous people in Brazil and strips them of their freedom to coexist peacefully with the rest of Brazilian society. Another critical stakeholder to consider is the poor who live in coastal areas constantly subject to hurricane and floods. Rainforests like the Amazon reduce the risk of natural disasters, because on a global level, forests significantly mitigate climate change.16 Climate change contributes to rising sea levels and poor air quality. Impoverished

people who do not have the resources to adapt to these global conditions would be harmed by these consequences more than others. Biodiversity is one of the most valuable natural features of the Amazon, and it is also one of the most valuable in terms of Brazil’s economy. A large number of plant species, or species diversity, means that a greater variety of crops can be produced, and makes the ecosystem as a whole more resilient to ecological stressors like drought and disease. This diversity is important, because it allows the economy to hedge itself against market shifts or changing demand in certain agricultural products. As more people become educated on the importance of forests and biodiversity, protecting Brazil’s rainforest through purchase on the open market could become desirable to many investors and activists. The so-called “sale of the Amazon” on the open market has the potential to generate billions in revenue.17 Scientists who study the Amazon’s biodiversity will play a significant role in estimating the value of the rainforest.

BUILDING ON PAST SOLUTIONS

Many solutions have been brought up to preserve the Amazon, but none have been successful under Brazil’s new government. One proposed solution to prevent deforestation involved the use of improved agricultural practices which reduce the need for the further clearing of land. This solution may be appropriate for piecemeal development in the short-term, but preservation of the Amazon requires a large, structural shift in attitudes and initiatives to create lasting change. An additional solution might be the application of blockchain technology to track every hectare of the rainforest. This proposal is promising because of the accountability that blockchain technology brings. I suggest that we incorporate both of these ideas to find a way to incentivize the Brazilian government to support a program that takes advantage of blockchain as a tool for land use oversight.

BLOCKING OUT DEFORESTATION IN THE AMAZON / 57

APPLYING TECHNOLOGY

BLOCKCHAIN

Brazil lacks a centralized system that keeps track of land ownership. Instead, about 3,400 private agents, known as cartorios, register land to interested buyers. The cartorios have little oversight and often have incentive to sell as much land as possible, sometimes even selling the same plot of land to more than one person. 18 A flawed land registry like Brazil’s would be ideal for a single ledger blockchain system. With blockchain technology, each hectare of the rainforest would be securely encoded with a unique identifier for protection and tracking.19 Anyone with an internet connection would have access to the database, so land ownership can be proven, and there would be less room for confusion or dispute. Blockchain technology would also make it difficult for government officials to sell illegal land titles because each change to the land registry would need to be verified using the blockchain system. To implement a blockchain land registry in the Amazon, a company that is involved with blockchain technology and dedicated to protecting the environment would create shared value in a blockchainbacked land ownership system.

HOW MICROSOFT COULD LEAD THE CHARGE

Microsoft would be an optimal stakeholder in this proposal for two reasons: first, the company is determined to go carbon negative by 2030, and second, the company already owns a fully functioning blockchain system.20 By sponsoring this initiative, Microsoft could factor the carbon absorbed by the land saved from deforestation into the company’s carbon footprint. The carbon absorbed by the Amazon is substantial, and Microsoft could achieve its goal of going carbon negative. Medici Land Governance (MLG) already harnesses blockchain and other technologies to create low-cost land titling in areas like Zambia and Rwanda. 21 A partnership between Microsoft and MLG would streamline the land titling process and

58 / JAEDON KHUBANI

allow Microsoft to put the ownership data in its own blockchain system.

BUYING THE AMAZON

With blockchain technology, Brazil’s land registry would be accessible to anyone who has access to the internet. T h e B r a z i l i a n g ove r n m e n t c o u l d authorize protected areas of the Amazon to people all around the world using the blockchain land titling system sponsored by Microsoft and MLG. Investors and activists that purchase these protected areas would be able to view Brazil’s land registry in real-time and see satellite images of the “piece” of the Amazon that they own for the purposes of preservation and protection. The process would work similarly to how people can virtually adopt an exotic animal; they pay for the protection and care of the animal with their donation. However, when people purchase land in the Amazon, they would have to pay taxes on the land. In exchange, buyers receive the novelty of having a listing on the blockchain land registry that proves their ownership and near real-time satellite imagery that allows them to view and monitor their plot of land. People who want to protect the Amazon could access the blockchain land registry from anywhere in the world and purchase a piece of land for protection at any time. Such a scheme would allow Brazil to monetize protecting one of its most precious natural resources.

P R E PA R I N G F O R P O T E N T I A L RISKS

The use of blockchain technology to end illegal deforestation in the Amazon is a plausible solution. However, there is concern about what would happen to the average Brazilian farmer. Most farmers in the Amazon use a plot of land until the pasture goes bad, then they cut deeper into the Amazon to get new land. As many Brazilian farmers reason, “Land without documentation is nobody’s land, so people take advantage of it to clear forests for pastures.”22 However, in areas where issues of land ownership have been resolved, many farmers have increased

production without expanding deeper into the forest. Outside of the Amazon, production is increasing on shrinking pastures, and new technology will continue to make farming more efficient on a decreasing amount of land. If farms and ranches had legal boundaries and owners, authorities armed with satellite images and a digital registry could better pinpoint and police rainforest incursions. 23 In order for Microsoft and MLG to develop the blockchain system, an official land registry must be backed by the Brazilian government. Parties that violate the terms of the land ownership program and illegally deforest land that they do not own must face the consequences. It is up to how well the Brazilian government can enforce the program for it to be successful.

A BETTER FUTURE FOR THE AMAZON

A blockchain land titling system implemented in Brazil’s Amazon rainforest benefits all stakeholders involved. Current grazing practices are simply unsustainable, and studies show that farmers are clearing more land than they actually need for their cattle. Farmers do not need to cut down more of the Amazon; they need legal boundaries and to be more efficient on the land they have. These two goals are no longer out of reach. With new technology, they can be effectively implemented with a partnership between Microsoft and MLG. In turn, Microsoft benefits from sponsoring the program with a pathway to achieving its goal to become carbon negative. Working in tandem with MLG’s extensive blockchain experience, both companies can receive proceeds from investors and activists purchasing land grants. Indigenous people that have lived in the Amazon for hundreds of years would no longer have to deal with illegal loggers and farmers invading their lands. Most importantly, the preservation of the Amazon would mitigate current trends toward climate change and help save the planet from irreversible damage.

DISCUSSION QUESTIONS 1. Would you be a customer of a land titling program that allows you to purchase a plot of land in the Amazon Rainforest for the purpose of protecting it?

Gohd, Chelsea. “The Amazon is Approaching a Point of No Return— But It’s Not Too Late.” World Economic Forum, https://www. weforum.org/agenda/2018/02/the-amazon-might-be-past-thepoint-of-being-saved. 2 “Logging in the Amazon.” World Wildlife Fund, wwf.panda.org/ knowledge_hub/where_we_work/amazon/amazon_threats/other_ threats/logging_amazon. 3 Trevisani, Paulo, and Juan Forero. “Squatters Cut Down the Rainforest. Brazil Wants to Give Them the Land.” The Wall Street Journal, 31 Jan. 2020, www.wsj.com/articles/brazil-tries-novel-fixfor-amazon-deforestation-legalize-squatters-11580486956?mod=se archresults&page=1&pos=1. 4 Woodward, Aylin. “Brazil’s New President Has Started Taking Steps Towards Damaging the ‘Lungs of the Planet.’” Business Insider, 5 Feb. 2019, www.businessinsider.com/bolsonaro-plan-to-developamazon-rainforest-2019-1. 5 Sandy, Matt. “Why Is the Amazon Rain Forest Disappearing?” Time, 2019, time.com/amazon-rainforest-disappearing. 6 “Land Use and Agriculture in the Amazon.” Yale University Global Forest Atlas, globalforestatlas.yale.edu/amazon/land-use. 7 Jacobsen, Rowan. “This Is the Beginning of the End of the Beef Industry.” Outside Online, 31 July 2019, www.outsideonline. com/2399736/impossible-foods-beyond-meat-alt-meat. 8 Ibid. 9 “How Much Greenhouse Gases Do Cattle Emit? New Study Provides Answers.” Research Program on Climate Change, Agriculture, and Food Security, 30 Jan. 2014, ccafs.cgiar.org/es/blog/how-muchgreenhouse-gas-do-cattle-emit-new-study-provides-answers#. XopactNKjzI. 10 “Logging in the Amazon.” 11 Trevisani. 12 Butler, Rhett A. “Calculating Deforestation in the Amazon.” Mongabay, 4 Feb.2020, rainforests.mongabay.com/amazon/ deforestation_calculations.html. 1

Leman, Jennifer. “4 Reasons Why We Desperately Need the Amazon Rainforest.” Popular Mechanics, 5 Sep. 2019, www. popularmechanics.com/science/environment/a28910396/amazonrainforest-importance. 14 Pimentel, Mauro. “How Amazon Forest Loss May Affect Waterand Climate-Far Away.” National Geographic, 3 Sept. 2019, www. nationalgeographic.com/environment/2018/11/how-cutting-theamazon-forest-could-affect-weather/#close. 15 “Amazon Tribes.” Survival International, https://www. survivalinternational.org/about/amazontribes. 16 “Forests: Sustainable Development Knowledge Platform.” United Nations, sustainabledevelopment.un.org/topics/forests. 17 Butler. 18 Mendes, Karla. “Can Blockchain Save the Amazon in CorruptionMired Brazil?” Reuters, 25 Jan. 2018, https://www.reuters.com/ article/us-brazil-property-blockchain/can-blockchain-save-theamazon-in-corruption-mired-brazil-idUSKBN1FE113. 19 “Keeping It Clean: Can Blockchain Change the Nature of Land Registry in Developing Countries?” World Bank, blogs.worldbank. org/developmenttalk/keeping-it-clean-can-blockchain-changenature-land-registry-developing-countries. 20 “Microsoft Will Be Carbon Negative by 2030.” Microsoft, 28 Jan. 2020, blogs.microsoft.com/blog/2020/01/16/microsoft-will-becarbon-negative-by-2030. 21 “Medici Land Governance Projects.” Medici Land Governance, www. mediciland.com/projects. 22 Trevisani. 23 Ibid. Photo Credits: Conscious Design/Unsplash—page 54 Andrés Medina/Unsplash—page 56 13

“This past year I saw in the news that the Amazon was being destroyed at record rates. I knew that I wanted to write my paper about saving the Amazon, and it just so happened that I was reading about blockchain technology at the time. After learning that the biggest threat the Amazon faced was illegal deforestation, I saw an opportunity to incorporate a blockchain land registry to help save the Amazon.”

JAEDON KHUBANI

CLASS OF 2023, MARKETING & ENTREPRENEURSHIP

BLOCKING OUT DEFORESTATION IN THE AMAZON / 59

TRANSITIONING TO

RENEWABLES: SHIFT ENERGYâ&#x20AC;&#x2122;S ACQUISITION OF CHOOSE ENERGY

“

THE TIME IS PAST WHEN humanity thought it could selfishly draw on exhaustible resources. We know now the world is not a commodity.” 1 This quote by François Hollande, former president of France, brings to light the problem of climate change that has gradually worsened around the globe. The continual use of fossil fuels has led to the degradation of the environment, particularly in the United States. This is illustrated by total U.S. energy market data, where less than four percent of all energy usage comes from renewable sources of energy, while 80 percent is provided from fossil fuels.2 With the United States still the third-largest user of coal-fired power, there remains a long and complex process transitioning away from the fossil fuel industry.3

THE CASE FOR RENEWABLES

In light of the COVID -19 pandemic, countries around the globe, especially the United States, have put climate change initiatives on the backburner; the slowdown of economic activity has delivered significant losses. As national governments seek to rebuild and jumpstart their economies, renewable energy can be a potential driver of both economic a n d e nv i r o n m e n t a l r e c ove r y. T h e International Renewable Energy Agency concluded that green energy sources can not only help meet global climate emission targets by reducing “the energy industry’s carbon dioxide emissions by 70 percent by 2050,” but can also spur “global GDP gains

of almost $100 trillion between now and 2050.”4 As the coronavirus continues to spread in Europe and the United States, many countries have already deferred to renewable energy systems. In Europe, for example, coal-based power generation has “fallen by over 25 percent across the European Union and United Kingdom in the first three months of 2020.” 5 Renewables in European countries now generate around 46 percent of total energy consumption during COVID -19, with a significant drop in carbon dioxide intensity and energy demand overall.6 Low electricity prices from successful implementation of total renewable energy, combined with renewables-friendly policy measures make transitioning to renewable energy sources an effective avenue to curb the growing effects of climate change.7

ENTER SHIFT ENERGY AND CHOOSE ENERGY

The increasing importance of sustainability in the United States has brought more awareness of energy efficiency and the need to reduce carbon emissions. The company Shift Energy has seized this market opportunity by providing energy management solutions for commercial clients, including hospitals, airports, and office buildings. Shift Energy is known for its energy optimization software (EOS), which utilizes machine learning to gather realtime operational data from building

ESSAY BY In his essay, author Alan Liu calls for Shift Energy to acquire Choose, a company that helps promote renewable energy options, to help accelerate the transition to renewables in the United States.

ALAN LIU

systems (factors include weather, time of day, pricing of electricity, occupancy, and event schedules). The EOS constantly monitors and analyzes the data, providing valuable information for companies and facility managers to reduce energy consumption. Shift’s mission is to minimize energy usage worldwide through EOS.8 Another company, Choose Energy, operates in the same energy efficiency market, but provides a digital platform for mainly residential users. The company’s mission statement is to “empower energy consumers by providing educational guides, clear information, and easy-touse tools to demystify the energy industry and connect customers with great energy plans at affordable rates.”9 Choose utilizes a sleek, readily accessible consumerfacing website that allows users to view and compare different energy plans, providers, and rates all without charge. The website serves as a digital marketplace, where customers can find renewable energy providers to maximize energy efficiency and minimize electricity bills. With the transition to renewable energy sources becoming increasingly viable and affordable to many users, a potential strategy to create shared value for these two companies is Shift’s full and complete acquisition of Choose. This merger between Shift and Choose Energy can diversify and broaden Shift’s reach into the renewable energy market by expanding its base to residential and commercial customers.

THE CASE FOR AN ACQUISITION WHY SHIFT SHOULD ACQUIRE CHOOSE

There are several reasons that make Choose an ideal acquisition candidate for Shift. For one, Shift, an operating subsidiary of the Mariner Group, generates significantly more revenue at around $34 million, whereas Choose brings in around $8 million. Shift has around 200 employees and Choose has about 30 employees. 10 This means that Shift has the appropriate size and

potential resources to acquire Choose Energy. The Mariner Group also specializes in information technology and big data applications, including the Internet of things, cloud, analytics, and worldwide technology consulting services. This makes Choose an ideal acquisition target as it also provides tech-based services in the sustainability industry, with significant value-adds such as a widespread residential client base, sophisticated software services, existing digital infrastructure, and business partnerships with major energy providers in the United States.11 Choose’s retail energy choice platform separates itself from other competitors because of its lower overhead costs. Its tech-based services require no inventory costs, distribution costs, or capital expenditures, and it needs no physical property to operate. Choose also has significantly lower customer acquisition costs, as many users can utilize the digital platform at once, with high growth capacity to expand its client base in the residential and commercial sectors. Traditional retail energy companies rely on door-to-door, telemarketing and multilevel marketing networks that require a lot of time and resources to acquire new clients.12 The COVID-19 pandemic has accelerated the importance of techbased retail providers such as Choose and their online and digital channels as more customers rely on and become more familiar with using technology.

A DEEPER DIVE INTO THE POTENTIAL SYNERGIES

The merger between Choose and Shift has synergetic benefits that capture a greater value for both firms after the transaction is made. Leveraging Choose’s business partnerships with renewable energy providers, Shift can expand its energy service options by optimizing its energy service software and entering the renewables energy market. Shift can also generate significantly more revenue by acquiring Choose’s existing residential client base and providing

renewable energy sources to its existing commercial clients. By integrating the company’s additional resources and retail energy choice platform, Shift can offer more environmentally friendly energy options to its commercial clients, including corporations, hospitals, and large facilities. Shift can ultimately provide its energy efficiency services to a more extensive client network composed of both residential and commercial customers in the long term. Shift also benefits from the “modern and millennial” branding created by Choose. Choose’s image is sleek and modern, which allows Choose to attract a user demographic of younger and more environmentally conscious millennials who also need to cut energy bills. On the other hand, Shift primarily appeals to large corporations and facilities with its high-quality EOS. The company can significantly improve its brand recognition by integrating Choose’s marketing staff and resources. By adopting Choose’s modern aesthetic, the company will not only retain and grow its residential client base, but also appeal to younger and more innovative companies in the commercial sector such as startups and smaller businesses. The new brand building strategy that Shift adopts can “help buyers resonate and identify with companies,” which in turn will attract more users to the company’s EOS.13 The acquisition of Choose will also play a big role in improving the sustainability branding of many commercial customers. As the importance of environmental protection and climate change awareness increases, more and more companies are seeking to become more ecofriendly. A study on corporate social responsibility in 2017 revealed that “88 percent [of customers] will be more loyal to a company that supports social or environmental issues, and 87 percent would buy a product with a social and environmental benefit if given the opportunity.”14 B y i n c o r p o r a t i n g C h o o s e ’s partnerships with renewable energy providers, Shift can enhance its image

and corporate reputation and attract more commercial clients. Shift can tap into the growing space of companies that want to market themselves with a more environmentally friendly image. Current market dynamics are placing an even greater emphasis on environmental, social, and corporate governance goals, as “total sustainability investments across sectors and industry types actually exceed some of the fastest growing sustainability markets…total sustainable investments now top $30 trillion – up 68 percent since 2014 and tenfold since 2004.”15 Shift’s merger with Choose can streamline access to more renewable energy sources with a growing number of environmentallyconscious companies.

A PUSH FOR RENEWABLES

The transition to clean energy providers will still be a long and lengthy process. Further development requires “constructive and practical options for governments to get out of the fossil fuel economy.”16 Many countries have already taken significant steps to transition away from fossil fuels, but complete dependence on renewable energy involves investing in cleaner and greener industrial activity at the expense of fossil fuel-dependent peers.17 The conversion process requires piecemeal governmental reform, and companies must be well positioned for the long-term transition to renewables. Although this acquisition is relatively small and not an immediate solution to eliminating fossil fuels, it is a step in the right direction for other companies to transition to renewable energy sources. Specifically, Shift’s emphasis on green energy through Choose’s acquisition may be a profitable long-term investment that positions the companies for an ecofriendly future.

THE POTENTIAL RISKS THE PRICE TAG

The acquisition of Choose also has potential disadvantages that should be addressed. To start, there are a variety of fees that the two parties will have to pay for the deal to be completed successfully.

TRANSITIONING TO RENEWABLES: SHIFT ENERGY’S ACQUISITION OF CHOOSE ENERGY / 63

“

As national governments seek to rebuild and jumpstart their economies, renewable energy can be a potential driver of both economic and environmental recovery.”

The acquisition of Choose may involve the advisory services of investment banks, law firms, and accounting firms. Choose was recently valued at approximately $100 million in 2017 by Red Ventures, a digital advertising company. 18 The transaction fee for investment banking firms varies based on the deal size, but with an acquisition target of $100 million, the mergers and acquisitions (M&A) fee alone would likely be around 4 percent of the total transaction, which would amount to about $4 million.19 The transaction will result in significant legal and accounting fees as well. With these hefty acquisition fees, Shift will have to spend significant resources, time, and staff to decide if the transaction is worth the outcome. In addition, many deals require concrete data to support the transactions, and the rationale behind this acquisition may be difficult to justify substantively. The synergies generated from acquiring Choose are mostly intangible and lack statistics to support the concrete benefits of the deal. Although there are pieces of research that observe the growth of sustainability branding for companies, there is no evidence that clearly quantifies the number of eco-conscious companies

in the United States. The transaction may make sense logically on paper but might translate differently in the real world.

IMPLEMENTATION RISKS

There are inevitably going to be some differences in how the digital services that Choose and Shift provide are structured. As such, the process of reintegrating Choose’s retail energy choice platform for residential customers to Shift’s EOS for commercial users may require substantial investments in time and resources to execute properly. The software engineering teams of both companies could potentially struggle with this process, as they have not encountered such a transformation in the past. Choose and Shift have not had any relevant experience in merging with or acquiring other companies. Choose has historically relied on funding rounds as a strategy to raise additional capital for shareholders. The company’s only funding round was a Series C round of approximately $14.2 million in 2015. 20 However, Choose’s digital platform remained largely the same and its user base was still mainly residential and located in suburban areas. Accordingly, the proposed acquisition deal is different

DISCUSSION QUESTIONS 1. What form of alternative energy appeals most to you and why? 2. What, if anything, have you done to consume less energy in your life?

64 / ALAN LIU

from Choose’s funding round strategy; it is a more innovative solution where both companies access a larger client base of residential and commercial customers. If implemented effectively, there is the potential to provide greater access to renewable energy sources for clients, as well as the opportunity to scale up the business operations of both companies and aid the shift toward green energy.

A STEP FORWARD FOR CLEAN ENERGY

Climate change is a complex issue that is exacerbated by continual reliance on the fossil fuel industry. The proposed solution of Shift acquiring Choose has potential advantages and disadvantages, but it is a worthwhile attempt to accelerate the transition to renewables in the United States. The transaction provides eco-conscious companies greater access to clean sources of energy, which can create shared value for an entire range of stakeholders. With a majority of the U.S. energy market composed of fossil fuels, the path to an eco-friendly future is possible with a gradual shift toward renewable energy sources.

Santiago, José. “15 Quotes on Climate Change by World Leaders.” World Economic Forum, 27 Nov. 2015, www.weforum.org/ agenda/2015/11/15-quotes-on-climate-change-by-world-leaders. 2 DeSilver, Drew. “Renewable Energy Is Growing Fast in the U.S., but Fossil Fuels Still Dominate.” Pew Research Center, 15 Jan. 2020, www.pewresearch.org/fact-tank/2020/01/15/renewable-energy-isgrowing-fast-in-the-u-s-but-fossil-fuels-still-dominate. 3 Ferguson, Michael. “How Can We Transition to Renewable Energy?” Royal Institution of Chartered Surveyors, 20 Nov. 2019, www. rics.org/north-america/news-insight/future-of-surveying/ sustainability/transition-to-renewable-energy. 4 Ambrose, Jillian. “Green Energy Could Drive COVID-19 Recovery with $100tn Boost.” The Guardian, 20 Apr. 2020, www.theguardian. com/environment/2020/apr/20/green-energy-could-drive-covid19-recovery-international-renewable-energy-agency. 5 Keating, Dave. “Renewable Energy Way Up During COVID-19 Shutdowns.” Forbes, 17 Apr. 2020, www.forbes.com/sites/ davekeating/2020/04/17/renewable- energy-way-up-duringcovid19-shutdowns. 6 “Renewables Are Now Contributing 46% in E.U. and U.K. Energy Mix.” Clean Future, 19 Apr. 2020, www.cleanfuture.co.in/2020/04/20/ renewables-contributing-more. 7 Ferguson. 8 “About Us.” Shift Energy, shiftenergy.com/about-us. 9 Griffith, Erin. “Red Ventures Acquires Choose Energy.” Fortune, 26 June 2017, fortune.com/2017/06/26/red-ventures-choose-energy. 10 “Mariner Partners.” ZoomInfo, www.zoominfo.com/c/marinerpartners-inc/38113020. 1

“Renewables Are Now Contributing 46% in E.U.” “About Us.” 13 Rhodes, Danielle. “Brand Building Strategies to Attract Customers.” Impulse Creative, 2019, www.impulsecreative.com/blog/brandbuilding-strategies-to-attract-customers. 14 Butler, Adam. “Council Post: Do Customers Really Care About Your Environmental Impact?” Forbes, 21 Nov. 2018, www.forbes.com/ sites/forbesnycouncil/2018/11/21/do-customers-really-care-aboutyour-environmental-impact/#18ed89bb240d. 15 Quintos, Karen. “Why Sustainability Isn’t Just for Green Companies.” World Economic Forum, 2020, www.weforum.org/agenda/2020/01/ sustainability-green-companies-business-partnership. 16 Watt, Robert, and Åsa Persson. “Key Issues for a Sustainable COVID-19 Recovery.” Stockholm Environmental Institute, 5 Apr. 2020, www.sei.org/perspectives/sustainable-covid-19-recovery. 17 Butler. 18 Griffith. 19 Gravel, Michael. “M&A Advisor Fees.” iMergeAdvisors, 2 Apr. 2020, www.imergeadvisors.com/maadvisor-fees. 20 “Choose Energy.” Crunchbase, www.crunchbase.com/organization/ choose-energy. Photo Credits: Andreas Gücklhorn/Unsplash—page 60 U.S. Energy Information/Pew Research Center—page 62 Pixabay/Pexels—page 64 11

“It was very rewarding to research an area I was interested in. My paper shows the potential developments in the environmental sustainability space. The companies I was looking at were growing very fast, which is why I decided to write about them.”

ALAN LIU

CLASS OF 2023, FINANCE & DATA SCIENCE TRANSITIONING TO RENEWABLES: SHIFT ENERGY’S ACQUISITION OF CHOOSE ENERGY / 65

THE CALL FOR CORPORATE ACTION

TOP, LEFT TO RIGHT: Avery Farm, Jessica Fung, Alex Hu MIDDLE, LEFT TO RIGHT: Jinny Kim, Professor Jeffrey J. Younger, Hanray Liu BOTTOM, LEFT TO RIGHT: Alan Xia, Anviti Suri

Avery Farm senior editor

Alex Hu senior editor

Jinny Kim senior editor

Hanray Liu senior editor

Anviti Suri senior editor

Alan Xia senior editor

Jessica Fung design editor

66 / ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

FIRST PUBLISHED IN 2011, WE are celebrating 10 years of The Call. Congratulations to our published authors and a warm thank you to the contributors to this eighth edition of The Call. Thank you for your hard work and dedication. We collected over 600 student essays from Business and Society 2020, and these student writers are the ultimate inspiration for this magazine. We hope that current and future writers are moved by the high caliber of the prose and challenging ideas included here. We selected the winning essays based on a number of criteria. We sought compelling content, fluid composition, and evidence of critical thinking. We looked for specific “calls for corporate action” that were realistic, creative, passionate, and unique. Ultimately, we wanted to present a mix of current student thinking across a complementary collection of topics. And finally, to demonstrate the complexity of societal connections, we looked for interesting insights into the interrelations between business, society, and government. This publication was written, assembled, and edited by NYU students - most notably by our lead student editor, Avery Farm, and his fellow readers and editors, Alan Xia, Alex Hu, Anviti Suri, Jinny Kim, and Hanray Liu – all past contributors to The Call. We received additional reading and selection help from Whitney Dankworth, Dharaa Rathi, Fernando Sayeg, Randall Zuccalmaglio, and Ricardo Aguiar – also past student authors of the magazine. Thank you, one and all. We could not have completed this publication without our talented art designer Jessica Fung and graphic artist, Jinny Kim (yes, again). Their beautiful work is on every page.

Thank you to NYU Stern Undergraduate Dean Robert Whitelaw for his supportive opening letter and to Professor Matt Statler for his introduction to the current Business and Society course. Thank you also to the dedicated instructors who facilitate the weekly discussions, critical thinking, and writing sessions that make up Business and Society. Their instruction is evident within all these essays. Without their dedication, this publication would not have been possible. Thanks are due to all teachers from 2020: Amaya Rivera, April Gu, Aya Tanaka, Barbara Holt, Bob DiYanni, Bruce Meyerson, Carol Newell, Claudia Caruana, Ellen Pluta, Irv Schenkler, JanaLee Cherneski, Jessy Hsieh, Kate Brideau, Keith Meatto, Larry Menna, Maria Patterson, Mark Brennan, Matt Statler, Oghene Oyiborhoro, Rachel Kowal, Reima Shakeir, Robb Shoaf, Robert Wosnitzer, Shelly London, Tim Gilman, Tim Glencross, and Vivian Giang. Finally, for all their support and guidance, I would like to separately thank Batia Wiesenfeld, the Andre J. L. Koo Professor of Management and Director of the Business and Society Program; Susan Stehlik, Director of the Management Communication Program; Matt Statler, Richman Family Director of Business Ethics and Social Impact Programming; Mara van Loggerenberg, Associate Director of Social Impact Programming; Administrative Aides Meghan Moore and Kristina Zheng; and of course, Mrs. Janeece Lewis, Senior Administrator of the Management Communication Program. Thank you, one and all.

JEFFREY J. YOUNGER Faculty Editor, The Call and Clinical Associate Professor Management Communication

Warmly, Jeffrey J. Younger

ACKNOWLEDGEMENTS / 67

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