When Sustainability is Abused as Marketing Instrument

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Master’s Thesis

When Sustainability is Abused as

Marketing Instrument

A qualitative research to the adoption of environmental

sustainability in Dutch dairy farming

Supply Chain Management

University of Groningen, Faculty of Economics and Business

Department of Operations

22 June 2018

Author: Rutger Heida

Student Number: S3220532

Email: r.heida.4@student.rug.nl

Supervisor: Dr. K. Peters

Co-assessor: X. Tong

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Abstract

Purpose: The purpose of this paper is to investigate how the adoption of sustainability practices in the farming stage are influenced and how the adoption of eco-innovation is being stimulated by food processors within food supply chains. It aims to enlighten the possible counteract effects of power and pressures.

Design/methodology/approach: Based on an inductive case study approach, multiple semi-structured interviews have been conducted with dairy farmers and a expert. Additionally, secondary data in the manner of CSR reports, available interview transcripts and life-cycle assessments have been incorporated in the analysis. The obtained data is coded and analysed according the Gioia method. Findings: The adoption of sustainability practices in the farming stage is negatively impacted through the gap of knowledge between farmers and processors and the urge to improve the image and legitimacy of the dairy supply chain. Coercive pressure of governmental institutions could have a positive effect on the environmental sustainability performance. Contradictory, the normative pressure of consumers and society shows a negative effect.

Practical implications: Understanding what influences the environmental sustainability adoption in the farming stage could help in the attempt to improve the environmental sustainability performance of both the farming stage and its whole supply chain. It could help organisations, governmental institutions and supply chains to tackle the environmental burden in the food production sector.

Originality/value: This study adopted a supply chain perspective in addressing environmental sustainability by focusing on the relationship between farmers and their dairy food processor. This research focused on the environmental performance, rather than the financial perspective.

Keywords: Environmental sustainability, sustainability adoption, eco-innovation, pressure

Acknowledgments

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1. Introduction

The food production sector is one of the largest industries worldwide and its contribution towards greenhouse gas emissions is recognised as one of the main problems in the sector (Godfray et al., 2010). The food supply chain affects the environment negatively as it fosters climate change through the emission of greenhouse gasses, but also through for example clean water and soil pollution (Corvalan et al., 2005). On top of that, the demand of food products is increasing and will increase in the future because of an increasing global population and economic growth in countries like China, India and Brazil (Fan & Brzeska, 2010). Logically, this increasing demand will result in an increase of food production and in an increase of the environmental burden if the industry proceeds along the same lines. In order to improve the environmental sustainability and to lower the environmental burden, increasingly more research has been conducted in the field of sustainable or green supply chain management (GSCM) in the last couple of decades (Golicic & Smith, 2013; Min & Kim, 2012). Ironically, this increase in research has not lead to a reduction of the environmental harm, as we are still dealing with an increasing environmental burden globally (Whiteman, Walker, & Perego, 2013).

Most research in GSCM is still focused on the focal firm perspective, and usually focused on larger and more powerful parties in the food supply chains, such as processing firms. At the same time, the biggest environmental impact is made by parties more upstream at the agricultural stage (Notarnicola, Tassielli, Renzulli, Castellani, & Sala, 2017; Zhu, Sarkis, Lai, & Geng, 2008). In that sense, researchers need to adopt a full supply chain perspective, including all stages and parties in order to draw meaningful insights. Therefore, this thesis aims to gain an understanding of how the most harmful and least powerful food supply chain stage, the agricultural stage, is being stimulated to adopt sustainability practices and how this affects the environmental sustainability performance of the whole food supply chain.

Many large companies have policies regarding environmental sustainability, resulting in sustainability practices and initiatives. In that sense, food-processors could play an important role in the initialisation, management and success of the adoption of sustainability practices within their supply chain (Revoredo-Giha, Leat, Renwick, & Lamprinopoulou-Kranis, 2012). It is not yet clear whether sustainability initiatives really benefit the sustainability performance upstream, at the farming stage.

The purpose of this research is to explore how the agricultural stage is influenced by other more powerful actors in the food supply chain, such as food processors and retailers. This research aimed to answer the following research questions:

1. How do power and pressure affect the adoption of environmental sustainability practices in the farming stage within the food supply chain?

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Several life cycle assessments (LCA’s) show that the environmental impact in terms of greenhouse gas emissions is not equally distributed over the various food supply chain stages (Castellani, Sala, & Benini, 2017; Thoma et al., 2013). The agricultural stage is contributing to the environmental burden the most and is therefore acknowledged to be the hotspot in which most environmental benefit can be achieved through the exploitation of eco-innovation (Castellani et al., 2017). Problematic is that the most harmful farming stage is not the stage with the resources to invest in such eco-innovation. This is a consequence of the fragmented agricultural sector in which many smaller farms are operating independently of each other, causing a weak individual power and financial position towards the larger processors and retailers (European commission, 2018). Agricultural chains are therefore coordinated and influenced by a number of large retailers and food-processors which are therefore in the position to enable and improve the sustainability performance of upstream actors (Alston, Sexton, & Zhang, 1997; Schutter, 2014; Touboulic, Chicksand, & Walker, 2014).

As the research questions suggest, there is a focus on the adoption of eco-innovation at the agricultural suppliers of food processors. Mylan, Geels, Gee, Mcmeekin, and Foster (2015) investigated eco-innovation in agricultural production in the United Kingdom by testing a conceptual framework related to the stimulation of eco-innovation throughout the milk, beef and bread supply chains. In this research the stimulating role of powerful retailers has been of main focus, and therefore lacks in the supply chain perspective and in focus on the most harmful farming stage. In general, we see that most sustainability literature still has a focal company focus in (Montabon, Pagell, & Wu, 2016a). This focal firm focus is contrary to the concept of eco-innovation, which argues for a life-cycle perception related to a supply chain focus (Kemp et al., 2007). Research related to eco-innovation still lacks specific focus from both survey and in-depth case studies (Díaz-García, González-Moreno, & Sáez-Martínez, 2015).

This research contributes to the literature as it broadens the focal firm perspective by looking at both the food processors and its agricultural suppliers. It therefore zoomed in on the most harmful stage of the food supply chain in order to identify the influences and pressures exerted on the adoption of environmental sustainability practices. As this study is based on the sustainability performance in terms of greenhouse gas emissions and not on the financial benefit, it will give insight in what kind of pressures and power influences, either positive or negative, the adoption of sustainability practices without a clear economic return.

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2. Theoretical Background

This section discusses and explains the different concepts related to the research and research questions. First, literature related to sustainable supply chain management, the life-cycle assessment methodology and eco-innovation is reviewed. Secondly, theoretical concepts related to barriers and enablers of sustainability practices and the role of power, dependency and pressures associated to organisational relationships are discussed.

2.1 Sustainability in supply chain management (SSCM)

In order to have an understanding of sustainability development in general, many research refer to the most recognised and original definition of sustainability: “Sustainable development is development that meets the need of the present without compromising the ability of future generations to meet their own needs” (Brundtland, 1987: 43). However, more recent studies denote shortcomings in this definition as it would be too simplistic, vague and more inspirational than practical (Seuring & Müller, 2008; Sneddon, Howarth, & Norgaard, 2006).

The majority of SSCM studies focus on sustainability actions in relation to large organisations, as large companies are mostly affected by external pressures (Zhu et al., 2008). A common adopted view of SSCM is the triple bottom line, introduced by Carter and Rogers (2008). It suggests that sustainability consists of the interaction between three components: environmental, social and economic performance. Because of this triple bottom line, many literature in sustainability is very often focused on the underlying question, “Does it pay to be green?”, which implies that sustainability initiatives should lead to a win-win situation for both the environmental and financial performance (Ambec & Lanoie, 2008). This perspective of the triple bottom line is being recognised as the instrumental logic, in which the economic dimension is being favoured above the environmental and social dimension. Organisations following the instrumental logic prefer the economic perspective in decision-making, emerging to a focus in which sustainable initiatives and investments should lead to a financial benefit (Golicic & Smith, 2013). This is in contrast with the more recently developed ecologically dominant logic (Montabon, Pagell, & Wu, 2016). In this ecologically dominant view, a priority shift has been made. The environmental benefits would be chosen above the economic benefits and should therefore benefit sustainability better than the instrumental logic (Golicic & Smith, 2013).

2.1.1 Life-cycle assessment methodology

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product (Lundie & Peters, 2005). LCA’s address sustainability in measuring the environmental impact based on its functional unit, which in food supply chains are expressed in kilograms produced products (de Vries & de Boer, 2010). Most LCA research focuses on the greenhouse gas emission and energy use (Notarnicola et al., 2012). Next to that other categories, such as land use, global warming, eutrophication and ozone formation are addressed in LCA studies (de Vries & de Boer, 2010).

2.1.2 Eco-innovation

In general, innovation relates to change by achieving positive results through economic improvement (Ekins, 2010). The drawback of investing in innovations is that the economic aspect of the investment usually has a significantly higher priority compared to the environmental and social dimensions (Gao, Xu, Ruan, & Lu, 2017). Contradictory to this economical perspective is that investing in eco-innovation, the environmental objectives are preferred above the economic benefits (Kemp et al., 2007).

Table 2.1 Eco-innovation definitions by category

Perspective Definition Source

Environmentally oriented

“Eco-innovation is any form of innovation aiming at significant and demonstrable progress towards the goal of sustainable development, through reducing impacts on the environment or achieving a more efficient and responsible use of natural resources, including energy”

European Commission

Life cycle oriented

“Eco-innovation is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resources use (including energy use) compared to relevant alternatives”

MEI research project

(Kemp et al., 2007: 7)

“innovations with an emphasis on sustainable development, resulting in lifelong cycle commitment to reduce environmental risks, pollution, and other negative impacts of resource use, compared to existing alternatives”

(Arundel & Kemp, 2009)

Economically oriented

“environmental innovation means changes that benefit the environment in some way but can only be judged on the basis on improved economic and environmental performance.”

(Ekins, 2010: 269)

“eco-innovation is a change in economic activities that improves both the economic performance and the environmental performance of society”

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The concept of eco-innovation or environmental innovation in literature is emerging, and so the number of articles related to eco-innovation is rising since 2010 (Díaz-García et al., 2015). Therefore, different definitions of eco-innovation can be found in literature. Table 2.1 shows several definitions with different perspectives.

A very common acknowledged interpretation of eco-innovation is the of the MEI European framework 6 research project, who based their definition of eco-innovation on the definition of the ECODRIVE project of Huppes et al. (2008) by the following: “Eco-innovation is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resources use (including energy use) compared to relevant alternatives”(Kemp et al., 2007: 7).

The life-cycle perspective of the MEI- project is in line with the argument that organisational sustainability can only be fully achieved if sustainability issues are addressed at a supply chain level (Paulraj, 2011). Innovations with an emphasis on sustainable development should result in a lifelong-cycle commitment in order to reduce environmental risks, pollution, and other negative impacts (Arundel & Kemp, 2009). In addition, Kemp et al. (2007) argue that eco-innovations are related to the products’ environmental life-cycle and need to be seen as a distributed process throughout the whole supply chain.

For agricultural farmers there are several different reasons to not adopt eco-innovations. Fujisaka (1994) distinguished four reasons. First, eco-innovations are not considered if it relates to problems farmers do not encounter as a problem. Secondly, they think that farmer practice is equal or better than the innovation itself. Thirdly, they believe that the innovation does not work and lastly that the innovation would be too costly or that it has a too long pay-back period. In addition, a lack of knowledge negatively affect this decision making in relation to eco-innovation (Fujisaka, 1994; Long, Blok, & Coninx, 2016).

2.2 Barriers and enablers of sustainability adoption

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A lack in sustainability knowledge is proven to be a barrier in the adoption of sustainability (Long et al., 2016). A lack of knowledge transfer and cooperation within supply chains reinforces logically the lack of sustainability and therefore the adoption of sustainability (Vachon, 2007). Next to this knowledge argument, the higher the investment cost of a certain sustainability practice and the higher the uncertainty about the return on the investment, the less interesting it is to adopt the practice in the firm (Cai et al., 2008). Wilhelm, Blome, Bhakoo and Paulraj (2016) confirmed that the limited resource availability of a firm’s first-tier supplier causes a barrier in the adoption of sustainability practices. The first-tier suppliers are mostly limited in their resources due to the price pressures in buyer-supplier relationships, which is generally a result of an imbalanced relationship (Kumar & Rahman, 2015). In addition, most companies expect that sustainability increases cost and therefore lowers their profitability (Fortes, 2009). Sustainability is therefore assumed to have a negative effect on the profitability of an organisation.

The sustainability adoption at a certain firm could be enabled through different parties, such as the government, focal firms, and NGO’s (Seuring & Müller, 2008). For that, firms and government could use incentives to enable supply chain partners to commit to sustainability practices.

Lastly, governmental stimuli could fasten the adoption of sustainability (Kumar & Rahman, 2015). Next to that, the role of the government is important in stimulating innovation and to improve the competitiveness by regulatory stimuli (Wognum et al., 2011). Also, governmental stimuli could create environmental awareness. According to Meixell & Luoma (2015), awareness is the first step towards the adoption and implementation of sustainability practices and enables knowledge transfer in order to increase sustainability knowledge of other supply chain actors.

2.3 Organisational theories explaining external pressures

As introduced earlier, the instrumental logic explains the economical reason why firms would adopt to certain sustainability practices or eco-innovations. Though, the economic incentive or economic goal is not always the reason to adopt to sustainability (Glover, Champion, Daniels, & Dainty, 2014). Other rationale, explained by different organisational theories could have an influence in this decision. Those organisational theories are often related to power, dependency and pressures (Sarkis et al., 2011). Here, we discuss the most fundamental organisational theories to gain understanding how an organisation’s environment affects the organisation and why sustainability practices therefore are adopted without a clear economic return.

2.3.1 The institutional theory

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policies could be due to three kind of isomorphic drivers, which are coercive, normative and mimetic (DiMaggio & Powell, 1983; Kauppi, 2012). If certain environmental practices are desirable from the organisations’ stakeholders, firms are willing to adopt these sustainability practices in the quest for legitimacy. Therefore, the firms make formal and corrective changes in response to their stakeholders requests (Meyer & Rowan, 1977). In this way, firms secure their position by conforming to the rules and norms of their institutional environment (DiMaggio & Powell, 1983; Meyer & Rowan, 1977). The institutional theory can be used to analyse how certain changes in the institutional environment affect the decisions in terms of sustainability practices.

First, coercive isomorphic drivers occur from formal or informal external pressures exerted by powerful organisations or societies (DiMaggio & Powell, 1983). In this way, these powerful organisations could demand their suppliers to adopt certain practices or policies. According to Kilbourne, Beckmann and Thelen (2002), coercive pressures are important as a driver for environmental management. The coercive pressures mainly come from governmental departments through for example fines, subsidies and trade barriers (Kilbourne et al., 2002).

Secondly, normative isomorphism occurs when organisations feel the need to apply certain practices in order to be perceived more legitimate in the face of their consuming market (Sarkis et al., 2011). Normative pressures are most often related to increasing environmental expectations from customers and the society, as they have increasing environmental awareness (Carter, Kale, & Grimm, 2000). Lastly, the mimetic isomorphism emerge when uncertainty takes place. When an organisation is uncertain how to reach a certain goal or level, they adopt to other organisations who they perceive to be successful in that field (DiMaggio & Powell, 1983). Sancha, Longoni and Giménez (2015) showed that mimetic isomorphism has a positive effect on the adoption of sustainable supplier practices and that the coercive and normative isomorphism have less or no positive effect.

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2.3.2 Resource dependency theory (RDT)

Power could be exerted in order to realise a change at another supply chain actor. It is often described as one party's ability to enforce its will and influence another party in which the dominant organisation pursues to maintain its power over the weaker organisation (Emerson, 2015; Kumar et al.,1995). Power is therefore closely related to resource dependency. The resource dependency theory (RDT) explains the case that if one organisation has the ability to influence another firm’s behaviour. In that way, it has the control over resources on which the other firm is dependent on (Cox, 2004). Dependency refers to a certain degree of power to the organisation controlling the resources that are required by another organisation. (Ulrich & Barney, 1984). Organisations should be dependent and should collaborate with others in order to achieve a higher performance over a longer timeframe instead of thinking in short-term benefits at the expense of other supply chain players (Sarkis et al., 2011). Because of existing power imbalances between supply chain players, the dominant player has the power to require environmentally practices to be adopted by their smaller suppliers (González, Sarkis, & Adenso‐Díaz, 2008).

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3. Methodology

In this section, the research methodology applied in this case study approach is explained. Also, details related to data collection and the data analysis are provided.

3.1 Research design

The purpose of this study is to explore how dairy farmers are influenced by other powerful actors, such as processors and retailers. In order to give answer to the research questions an inductive multiple case study is established as this approach best fits this the exploratory character of the study. Following the methodology of Karlsson (2009), a case study allows to research phenomena in its natural setting. To build up theory in an inductive and exploratory way, the case study approach is a fruitful way of understanding a setting in which variables are still unknown. To research both the power imbalance and environmental sustainability, the food supply chain is excellent to investigate, considering that this sector is characterised by an imbalanced distribution of power (Hingley & Lindgreen, 2010). Also, sustainability in the agricultural sector is recognised as a sector that accounts for a significant part of total environmental burden (EEA, 2015).

3.2 Case selection

The unit of analysis in this research is the farming stage in relation to the food processor within the food supply chain. The farming and food processing stage are part of the larger food supply chain..

Several cases within one specific food supply chain have been studied. Therefore, during the case selection, a literal replication logic has been followed. This implies that each additional case was expected to give the same results (Karlsson, 2009). The cases are selected based on certain selection criteria. First, the cases should have been accessible for this research as there was limited time and resources available. Secondly, in order to measure the sustainability performance in terms of greenhouse gas emissions, a life-cycle assessment of the chain should be available and comparable to the current operations in this chain. Third, the food product group should relatively have a large impact in terms of greenhouse gas emissions in order to make the research more valuable in the contribution to the reduction environmental sustainability.

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3.2.1 The dairy supply chain

As part of the whole food supply chain, the dairy supply chain follows the same supply chain structure (figure 3.1). The dairy sector is a relative big sector in the Dutch agriculture, in which currently around 18000 dairy farmers are operational in the Netherlands. All together they produced about 14,5 billion kilograms of milk in 2016 (van der Ende, 2016). This Dutch milk production is mainly serving several dairy processors spread over the country. Most farmers (≈ 90%) are affiliated with one processor in a co-operative way, which suggests that those farmers are closely connected to the business and operations of their supply chain actor downstream.

As mentioned before, in this study the focus was on the dairy food processors and the dairy farmers. In order to generate a clear and general view about the relationship, six dairy farmers have been interviewed. In addition, an expert from a feeding company has been interviewed. Farmers were either affiliated to a large cooperative dairy processor or to a non-cooperative dairy processor. This could imply that there are differences between the relationships, and therefore might have result in a theoretical replication logic.

3.3 Data collection

Semi-structured interviews functioned as the main source during the data collection phase. To ensure the interviewees to have freedom in answering the questions, a semi-structured interview protocol (appendix A) was developed, as this approach allows for both focus and flexibility (Karlsson, 2009). The interviews have been conducted by two investigators, which has advantages. Multiple investigators could enhance the creative potential and it increases the confidence in the findings. The questionnaire was based on the constructs elaborated in the theoretical background in section 2. The interviews started general, aimed to have a broad understanding of the firm. Subsequently, the interview questions became more specific in relation to the application of sustainability investments and initiatives and the relation with the dairy processor(s).

The interviews lasted between the 30 minutes and 1,5 hours and have been recorded by phone and transcribed word-for-word afterwards. In order to protect any firm its sensitive data, the interview

18000 dairy farmers

25 dairy processors Feed

producers Dairy farmers

Processors Large multinationals Small processors On-farm processors Retailers/ wholesalers Supermarkets Independent shops Restaurants and other food outlets

Consumers

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transcriptions are kept anonymous. The first interview has served as a pilot interview, which provided input for the reviewing and refining process of the questionnaire before the remaining interviews. During the pilot interview, when filling in the LCA exercise, it appeared that there was confusion about the difference between manure management and enteric methane. The difference has been researched afterwards and is communicated to the interviewee. At that point, the interviewee finished the exercise and sent the LCA form via e-mail.

Secondary data has mainly come from both LCA’s related to the dairy supply chain. Additionally, interview transcripts of van Rijn and Caputi (2018), company documents and existing literature related to this specific research topic.

Interviewing has functioned as the main source in the data gathering phase. In this research, six dairy farmers have been interviewed of which one farmer is operating in an organic way. More farmer interviews would have been superfluous, as data saturation was reached at that moment. Next to that, data from an interview with a director public & cooperative affairs of a feed production company has also functioned as input for the analysis stage. However this study does not focus on the feed stage, the interviewee can be seen as an expert in the field of sustainability given his experience and role(s) in sustainability related committees. Next to this interview data, interview transcripts of the research of van Rijn and Caputi (2018) have been made available for this research. Three of the available interview transcripts have been used during this research, concerning two farmer interview transcripts, of which one is operating in an organic way, and a transcript of a processor. All different data sources are summarised in table 3.1.

Table 3.1 Data sources

In table 3.2, more details about the interviews and the adopted interviews of van Rijn and Caputi (2018) are presented. It was aimed to extend the research with one more dairy processor. Unfortunately, the

Source of data Type of data Use in the analysis

Interviews Seven interviews were executed of

which were six farmers and one expert in the area of sustainability

Part of the coding and analyses process, used as main source

Interview transcripts Three interview transcripts of van Rijn & Caputi (2018) were included in the coding process. Two farmers and one processor

Part of the coding process along the other interview transcripts

Open secondary documentation Public company and organisations documents (CSR reports)

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interview requests towards dairy food-processors have been declined due to different circumstances and reasons. Therefore, to increase the reliability on the processor level, several secondary open documentary of processors and overarching organisations, such as corporate social responsibility(CSR) reports have been used as data input to triangulate with the existing interview transcripts available. In contrast to the processing firms, farming organisations are mostly small sized enterprises and very often family owned, which implies that different and multiple types of human have been interviewed. Additionally, during the interviews it was important to have a clear overview of what kind of innovations are currently on the dairy market. Therefore, a short analysis of the available eco-innovations in relation to dairy farming has been conducted.

Table 3.2 Interview overview including interviews of van Rijn & Caputi (2018)

Interview Interviewee(s) Size in dairy cows (Average in the

Netherlands: 99 (CBS, 2017)

Dairy farmer 1 Owner farm Above average (150)

Dairy farmer 2 Owner farm Far above average (275)

Dairy farmer 3 Owner farm Average (105)

Dairy farmer 4 Owner farm, wife & son Below average (75)

Dairy farmer 5 Daughter of owner & son in law Above average (150)

Dairy farmer 6 (organic) Owner farm Significantly below average (57)

Expert Director public & cooperative

affairs feed company N/A

Dairy farmer A Owner farm Slightly above average (≈110)

Dairy farmer B (organic) Owner farm Below average (≈80)

Processor Manager corporate environmental

affairs and sustainability N/A

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3.5 Data analysis

After the interviews, the recordings have been transcribed word-for-word and collected together with the interview transcripts of Rijn van & Caputi (2018) in one database. Afterwards, the transcripts in the database have been coded using the specialised coding software Atlas.ti. First, open coding has been applied in order to take fragments of data apart (Karlsson, 2009). The created open codes were grouped in 43 coding sub-groups. Afterwards, the data has been reduced and put together in new ways based on the method of Gioia, Corley and Hamilton (2013), as this fits the inductive research principle. In this method, three code reducing phases have been conducted, resulting in respectively three ‘groups’ starting with the 1st_{-order concepts, followed by 2}nd_{order themes and finally in aggregate dimensions.}

The complete coding scheme, including quotes and the coding three phases can be found in appendix B. The aim of the first coding phase is to make a little attempt to extract somewhat categories in the data. Those categories, remained closely related to the interviewees’ answers. In the second coding phase, the aim was to combine 1st_{-order concepts in more theoretical concepts, trying to explain the}

phenomena in study. To finish the coding process, the 2nd_{-order themes have been distilled even further}

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4. Findings

In this section, the results and analysis of the acquired data will be given. The results are presented and structured according to the aggregate dimensions. Figure 4.1 shows the data structure and the aggregate dimensions accordingly. The aggregate dimensions are the gap in sustainability knowledge, image building processor, financial pressure, governmental pressure and consumer/society pressure. To have a better understanding of innovation in dairy farming, first a short analysis about the available eco-innovations is presented.

• Sustainability is hard concept to define

• There is confusion between efficiency and sustainability at farming stage

• Sustainability is to operate efficient and to create efficient cows • Sustainability is to think about future and future generations

Hard to give definition to sustainability

Gap in sustainability knowledge

• Lack of knowledge related to the distribution of emissions through the milk supply chain

• Knowledge about manure and enteric methane lacks at farming stage

• Farmer has no awareness of environmental impact • No knowledge about how to decrease methane emissions. • Some farmers have no idea what the sustainability program of

processor includes.

• Organic farmers have some knowledge about methane emissions in farming

• Processors have knowledge about sustainability at farming stage

Knowledge differences in environmental impact

Agricultural studies fall short in sustainability related courses

• Sustainability program encourage farmers to think about sustainability

• With sustainability programs, farmers are able to earn a bonus based on certain sustainability activities

• Processors have certain focus areas to check farmers sustainability performance upon pasture grazing is rewarded in separate bonus system. Bonus money is compulsory input from all farmers • Processor is stimulating pasture grazing to show there operating

sustainable

Education lacks sustainability focus

Financial incentives and penalties through sustainability programs • Investing in sustainability should be financially interesting

• Investing in Eco-innovations should be financially interesting • Investing in Eco-innovations is depending on subsidies • Solar panels or windmills are beneficial from both economic and

environmental perspective

Sustainability investments only interesting in case of financial

benefit

• Processors determine to what sustainability initiatives farmers need to comply to

• Margins between milk price and cost price are small and therefore it is hard to invest in sustainability

Milk prices pressure the investment capacity of farmers

Financial pressure

1st order codes 2nd order themes Aggregate dimensions

The image of dairy sector benefits farmers from financial perspective • Sustainability deployed as selling point in supply chain

downstream

• Initiated by processors and retail, alternative sustainability milk streams are coming up

• Sustainable milk streams are more costly to produce and are therefore more expensive than regular milk pasture grazing would be better for the biodiversity

• Good barn circumstances would be sufficient enough for the cows to be comfortable with

• Pasture grazing affects the milk production of the cows and is therefore not profitable enough

Good image benefits the farmers financially

Processor stimuli not effective in terms of sustainability

• Pasture grazing is part of marketing, aimed to improve image • Sustainability is marketing argument

• Processor has program in cooperation with farmers for solar panel investments

• Cows belongs outside from a sentimental and nostalgic perspective

Sustainability deployed as marketing instrument

Image building processor

• Farmers believe and acknowledge that governmental pressures have effect on sustainability practices

• Increasing sustainability needs external stimuli in order to speed up the process

• Processor encounters carbon footprint to be dealt with before governmental force will applied

Governmental pressure

effectiveness Governmental pressure Processors have an influence on the consumers' knowledge and buying

behaviour

• Consumers have increased indirect influence and expectations on farming without being informed

• Power of market is limited in order to achieve real sustainability

Processors have influence on consumers knowledge

Indirect pressures by consuming market

Consumer/society pressure

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4.1 Eco-innovations in dairy farming

As discussed in section 2.1.2, the definition of the ECODRIVE project (Huppes et al., 2008) is leading in this research as it is comprehensive and specifically includes ‘exploitation’ and ‘adoption’ of the eco-innovation. Recalling the definition: “Eco-innovation is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resources use (including energy use) compared to relevant alternatives”.

In this sense, several common and maybe less common eco-innovations in dairy farming are presented in the table below (table 4.1). From the interview data it appeared that farmers are mainly interested and mostly informed about the more common applied solar panels, wind turbines from and somewhat about heat recovery systems from a financial perspective. On the other side, the dairy processors, have more knowledge about manure digesters, manure segregation systems and sustainability assessment tools. Table 4.1 Available farming related eco-innovations including descriptions

Eco-innovation Description

Solar panels “A panel exposed to radiation from the sun, used to heat water or, when

mounted with solar cells, to produce electricity direct for powering instruments in satellites” (Dictionary.com, 2018)

Wind turbine (windmill) “A tall structure with blades that are blown round by the wind and produce power to make electricity” (Dictionairy.cambridge.org, 2018)

Manure/methane digester system

“Collect manure and convert the energy stored in its organic matter into methane, which is used to produce energy (gas or electricity) for on-farm or off-farm use”(Department of Agriculture, 2018)

Manure segregation system A system that separates the urine and feces from each other aiming to reduce odours and gases emissions (Harmon, Hoff, Andersen, & Rieck-Hinz, 2014)

Sustainability assessment tools

“Indicator-based sustainability assessment tools vary widely in their scope. Although many stress the importance of integrating environmental, economic and social themes in sustainability assessment tools” (De Olde et al., 2016: 391)

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4.2 Gap in Sustainability knowledge

The knowledge in terms of sustainability is assessed based upon the perceived definition of sustainability, the knowledge concerning available sustainability practices and on the perceived greenhouse gas emissions within the food supply chain.

4.2.1 Sustainability definition

Dairy farmers seem to have problems in defining sustainability as many interviewees counter sustainability related questions in the first place. Most farmers confuse sustainability with efficiency. “I think big farmers confuse efficiency with sustainability. They think efficiency is the same as sustainability and that is good for the environment” – Farmer B. This statement of the organic farmer is being endorsed by “What I try in relation to sustainability is to produce as efficient as possible. Therefore, I use my resource capacity optimally” – Farmer 4.

From a definitional perspective, this confusion can be explained by the fact that the sustainability has two different definitions which are both applicable in the case of entrepreneurship. The oxford dictionaries (“Sustainability,” 2018) defined sustainability as ‘the ability to be maintained at a certain rate or level” , referring to sustainability or durability in terms of economic growth. The same dictionary also states the following definition of sustainability as the ‘avoidance of the depletion of natural resources in order to maintain an ecological balance”, referring to environmental sustainability. It seems that farmers refer to sustainability as explained in the first definition. Hence, they address sustainability with regard to efficiency and continuing on the same foot at a certain level: “I hope we can create a more sustainable cow… in a way that the cow could live longer with less problems” – Farmer 2.

Next to this definitional perspective, another alternative cause for this believe could be the fact that dairy processors and overarching organisations stimulate efficient farming in both feed and land use and to extend the lifespan of cows (Koninklijke Frieslandcampina, 2017; Nederlandse zuivel organisatie, 2018; Royal A-ware, 2016). Although the farmers confuse sustainability with efficiency it does not directly imply that efficiency is not benefitting sustainability. More efficient cows have a higher production rate in litres milk. In that sense it lowers the greenhouse gas emissions as less manure and enteric methane is being produced.

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4.2.2 Knowledge differences in environmental impact

Not only defining sustainability is experienced to be difficult for farmers. Knowledge related to the environmental impact in the dairy supply chain also appears to fall short. Especially knowledge in terms of manure management and enteric methane lacks as “I really did not know that methane and manure were this polluting” – Farmer A. This is in contrast to the processors, who appear to know much more about the distribution of the greenhouse gas emissions of each stage in the dairy supply chain. Also, the processor is more thoroughly informed about what exactly contributes the most in greenhouse gas emissions.

The results of the LCA exercise carried out by the farmers show exactly their lack of knowledge in terms of greenhouse gas emissions in the dairy supply chain. The results of all farmers are combined in one average outcome and can be found in Table 4.2. Additionally, table 4.3 shows respectively the perceived distribution of environmental impact at the farming stage. More detailed tables can be found in appendix C.

Table 4.2 Distribution of environmental impact throughout the dairy supply chain in CO2 according the LCA (Thoma et al., 2013) and according the farmers including the difference between both

Feed production

Farming Processing Transport Retail Consumer

LCA 19% 53% 9% 8% 6% 5%

Farmer 20% 25% 21% 11% 9% 15%

Difference 1% -28% 12% 3% 3% 10%

Table 4.2 shows the distribution of the environmental impact across the dairy supply chain of both in percentages determined by the LCA of Thoma et al. (2013) and the percentages believed by the farmers. The differences between both numbers show that farmers believe that they are less harmful compared to the results of the LCA. After the LCA results were revealed, the respond was very often like “well, we are not that environmentally minded as we thought, not so sustainable” – Farmer 2. The second large difference between the perceived impact and the LCA impact is that the dairy processor was expected to be more harmful in regard to their contribution in greenhouse gas emissions. “The contribution of the processor is also less than expected” – Farmer 3.

Table 4.3 Distribution of environmental impact at farming stage in CO2 according the LCA (Thoma et al., 2013) and according the farmers including the difference between both

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In table 4.3, the distribution of environmental impact at a farming level is presented. Again, the figure shows the percentages of the LCA (Thoma et al., 2013) and the believed percentages of the farmers. Noteworthy is that the most harmful sources of greenhouse gas emissions at the farming stage are expected to be less harmful by the farmers compared to the LCA results. Although, the farmers are aware that manure and methane have significant impact.

As mentioned above, processors have compared to their supplying farmers much more knowledge about the environmental impact. Not only about the greenhouse gas emissions distribution in the dairy chain but also with regard to what causes the emissions in farming and related sustainability practices. For example, when you talk about environmental footprint, you see that 75-80% of the environmental footprint is at farm level”- Processor. Also in relation to sustainability investment and eco-innovation related applications, processors seems to have the knowledge. “Manure management we are doing with the manure digesters, sequestration, and so on. We can handle all the others. But etheric methane it is very difficult”- Processor. In addition, the overarching organisation NZO acknowledges the need for carbon footprint reduction. Therefore, a climate module has been developed and made available, which enables each farmer to calculate their own firm specific footprint (Nederlandse zuivel organisatie, 2018). Contradictory to the available knowledge in the dairy food-processing sector is the lack of knowledge in the dairy farming stage. By means of sustainability programs, the processors aim to improve the sustainability performance, the awareness and knowledge of the farmer through stimulating financial incentive systems (Koninklijke Frieslandcampina, 2017; Royal A-ware, 2016). The sustainability programs enable farmers to earn points if they are able to show that certain sustainability activities are applied within their farm. Even though, it is questionable whether farmers improve their sustainability knowledge through these programs as “you have to follow a sustainability program, actually I don't really know what it is all about, except that you have to have your cows in the meadow” (– Farmer 5). On the other hand, it seems to have a positive effect on the farmers’ awareness, as “the sustainability program of the processor stimulates of course, but it is not really like a cooperation. But still, it is a good development, you will think about it” – Farmer 3.

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4.2.3 Educational focus lacks sustainability

The lack of knowledge in the farming stage could to a certain degree be caused by a lack of environmental sustainability focus within the agricultural education. Despite the fact that sustainability in the Netherlands is part of the curriculum, it remains in general terms: “some courses are focused on sustainability, but not really specific focused on dairy farming, that is a pity”- Farmer 6. As more and more young farmers have studied an agricultural or dairy farming related education on either higher educational level or vocational education level, more focus on environmental sustainability could contribute the sustainability knowledge of future famers.

4.3 Financial pressure

4.3.1 Sustainability and financial benefit

The financial perspective in committing to the sustainability programs remains the most important factor in considering to invest in sustainability activities. “I am not really inspired with sustainability, but I want to do my part as long as it is economically responsible” – Farmer 1. Though, making profits is not always leading in considering sustainability practices. Farmers show willingness to invest in sustainability practices, they believe that “there always should be a financial benefit, but look, if the investment will result in break even and it is really benefitting sustainability I also don't mind” – Farmer 6. Logically, if an investment does not pay back the cost price, nobody would be interested.

Sustainability investments such as eco-innovations, should be profitable in order to be interesting for farmers. For example, “if a bio-digester does not pay back the investment, it is not interesting for me… also such an installation requires more time to spend on” – Farmer 3. Also, subsidised investments seem to be distrusted by farmers, “as long as you can have subsidies it is not profitable, those investments should be profitable on their own” – Farmer 2. This statement could be seen as a contradiction to reality, as many farmers consider to invest in either solar panels or windmills when addressing sustainability, while these investments are subsidised likewise that. Nevertheless, the farmers’ interest in solar panels can be explained by the stimuli of the sustainability programs offered by the processors. “They are doing something with windmills. For example, if we are going to generate electricity, then they are going to use that. .. Then you can earn extra points for that” – Farmer 2.

4.3.2 Financial incentives and penalties

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important reason for farmers to commit to the programs, as it pressures their financial situation. Not only do enough ‘sustainability points’ lead to a financial bonus , a shortage of ‘sustainability points’ could result in a financial penalty. “They (processors) created a jar of money to reward the farmers who perform well, the farmer who don't perform are filling that same jar. They use a points system for that. – Farmer 4.

The fact that farmers commit adopt the sustainability practices set by the processors from a financial perspective could cause the situation that farmers are not really familiar with the content of the sustainability programs: “You could earn different kind of points, for animal wellbeing, and so forth, there are more. I do not even know it by heart. Also something with nature management” – Farmer 1. As the sustainability programs are deployed for knowledge transfer towards farmers as argued earlier, the actual effect with regard to farmers’ sustainability knowledge is limited.

Next to the sustainability programs, processors also actively deploy a pasture grazing policy in which farmers are being rewarded by a financial bonus on their regular milk price.

4.3.2 Milk price pressure

As a result of the small margins on milk sales, farmers still experience the pressure to decrease costs and to increase production, because “if we look at the milk prices, we earn the same amount per litre as 30 years ago. That explains something, that is causing the urge to grow and expand”- Farmer 1. Due to these milk price pressures encountered by the farmers, the room for investment in other than core-business related applications is small. Therefore, costs related to a sustainability investment need to be compensated financially, which is also realised via the sustainability programs of the processors. On the other hand, the food processor have to deal with their competitive position in terms of product pricing. “Farmers generally are willing, but are forced as they are competing against the world market prices. So, it is not really the market that restrains sustainability, but the economic system, which is based on maximising profitability and not on sustainable value development” – Expert.

4.4 Image building

Despite the presumably good intentions of the processors’ sustainability programs, most of the farmers have a different feeling about the aim of the programs as they consider it to be part of the marketing instrument. “What I do understand from the processor is that many clients, the big retailers or industries, think that sustainability is of paramount importance to use a selling point” – Farmer 3.

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“With pasture grazing you have less control over the feeding of the cows, resulting in fluctuating values. Also for the cows it is not always the best, if it is raining they rather be inside” – Farmer 4.

It is believed that pasture grazing is the example of the urge to improve the image of the (Dutch) dairy sector as “pasture grazing has nothing to do with sustainability if you ask me, but it is about the image” – Farmer 3. This believe can be confirmed by the fact that processors actively stimulate their supplying farmers to apply pasture grazing in “the cow characterises the Dutch landscape and civilians appreciate the cows in the pasture”(Nederlandse zuivel organisatie, 2017) and in order to “contribute to a positive image and the visibility of the dairy sector”(Koninklijke Frieslandcampina, 2017). Even the general director of a processor which stimulates pasture grazing agrees: “At that time, pasture grazing is positioned wrong. Pasture-milk does not stand for sustainability, but is purely for the image”(Veeteelt.nl, 2018).

The same seems to count for the recently launched special sustainable milk streams, in which farmers can take part of. In order to deliver milk as being a separate sustainable milk stream, farmers must meet several requirements set by the processor. A farmer who is supplying as part of the sustainable milk stream says the following about it “So it is for the image. So the feed is sustainable, but all other things is just image. And you can doubt if it is really better for the cow” – Farmer 4. The other things consist of herbal rich grassland, good conditions for the cow, land-based dairy farming and use of green energy. Although, all initiatives contribute to the increase of sustainability at the farming stage in a certain way, a real contribution to the reduction of greenhouse gasses seems to be very limited. Again, the main reason for the farmers to produce this special sustainable milk is because of the financial benefit. Summarising the processors’ focus areas in terms of sustainability, we can see that many of the current sustainability initiatives can be visually seen by the local society and potential consumers. For example, pasture grazing, windmills, solar panels, herbal rich grassland are all observable by the people and assumed to be good for the environment.

4.5 Consumer/society pressure

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Although the consuming market is more aware of what they consume and what the environmental impacts in industries are, it does not directly imply that they have the complete picture clear. It is not said that the information on which the customer decisions are based, is the right information because “I doubt it if consumers are always informed correctly” – Farmer 5. This perspective is somehow explained by the expert. He states that consumers can have an effect on organisational change and product development, but only in the case when consumers could easily connect the products to the related primary sector or supplying industry. Therefore, “the power of the market is limited in that perspective. They play an important role, but in general, you should not expect more than 15-20 percent effect of the Dutch consumer market in improving sustainability” - Expert. This phenomena can be illustrated with the discussion concerning the pasture grazing and the sustainable milk streams discussed earlier, “I believe that processors could play a big role in how they bring something to the market. Just like pasture grazing, that is promoted in a way that the consumer thinks that if you keep the cows inside, it is not good for the cows” – Farmer 3. As the development of products is depending on the customer demand, true sustainability not always benefits from this, because customer demand could be a result of inaccurate knowledge. Farmers believe that next to the media, the processor need to take a role in providing this information.

4.6 Governmental pressure

In general, organisational change related to sustainability practices could be a result of governmental pressure and stimuli, which is in the dairy farming sector demonstrated in a way that “we try to make our cows older by a longer life with lesser medicine and antibiotics. This is largely due to the politics, which regulated that the amount of medicine use, should be reduced” - Farmer A. In addition, “you see that becoming sustainable and the speed of becoming sustainable is depending on the stimuli of the government. Very often those are financial stimuli”- Expert. This encounters the significance of an effective governmental measure in order to increase sustainability in the farming stage.

Due to the milk price pressures, dairy farmers experience higher risk to be a front runner in the investment of more expensive sustainability practices, and therefore need more external pressure or stimuli. One of the farmers reinforces this by the following statement: “We need to be steered on that by the government, you are not going to do that by yourself if other colleague competitors are not doing, …sometimes a bit of pressure is good” – Farmer 3. Though, as discussed in section 4.3, financial stimuli are usually addressed through subsidies, which are being distrusted by a part of the farmers. In that sense, the effectiveness of the governmental financial stimuli at the farming stage could be doubted or should be exploited in a different way.

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relation to the sustainability of feed: “So we see that if we don't act, the pressure on reduction of animal protein in a sustainable diet will be more and more. So therefore we want to prepare us to that discussion and realise that if we don't decrease our carbon footprint, don't reduce our environmental footprint, the pressure of the governments to reduce animal protein in the sustainable diet will be more and more” – Processor. This implies that governmental pressure not only could have a direct influence on improving sustainability in the farming stage, but also indirectly through the processors.

4.7 Dynamic model

To embody the results in one visual overview gives the following dynamic model of figure 4.2. The model shows the five aggregate dimensions and its influence on the adoption of sustainability at dairy farming level. It reveals how the five elements together explain what, how and why certain pressures have influence on the adoption of sustainability practices.

Adoption of Sustainability practicesin dairy farming stage Farmers are sensitive for economic benefit Consumer/society pressure Based on insufficent knowledge Image building processor Sustainability practices deployed for marketing

Financial pressure By processors financial incentive systems

Based on marketing practices Governmental pressure Legislation Financial stimuli Potentially effective Ineffective Negative Partly effective Gap in sustainability knowledge Reinforces Negative Negative Negative

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5. Discussion

This research identified different elements that affect the adoption of sustainability practices at the dairy farming stage by analysing several data sources. Instead of taking a focal firm perspective, this study adopted a supply chain view in which the focus was mainly on the dairy farming and the processing stage. From the analysis, a dynamic model has been created which explains why there is a lack of adoption of sustainability practices in the dairy farming stage.

First, the gap of knowledge between farmers and the food-processors shows that the processors are not able to transfer its valuable knowledge in relation to sustainability and sustainability practices towards the farmers effectively. As sustainability awareness and a sufficient knowledge level are the starting point of improving sustainability, it is essential to establish a more effective knowledge transfer towards the dairy farmers (Meixell & Luoma, 2015). The results confirm that a lack of knowledge affects the decision-making process in relation to sustainability adoption negatively and is therefore a barrier (Long et al., 2016). It appears that the processors are not yet effective in the role of transferring the necessary environmental sustainability knowledge towards their associated farmers. Not only should the food processor have a role in this knowledge transfer process, also agricultural education should have more in-depth focus on sustainability practices in the first place.

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Therefore, the normative pressure from consumers and society does not have a positive influence as it causes processors to focus on practices that not really benefit the reduction of greenhouse gas emissions. Lastly, in order to improve the environmental sustainability at farming level, governmental pressures and stimuli could be effective and could speed up the sustainability process in the farming stage. This confirms Kilbourne et al. (2002), that the coercive pressure from governmental organisations can have a positive effect on the adoption of sustainability . It also confirms the claim of Wognum et al. (2011), that an governmental impulse activates to invest in sustainability practices. On the other hand, this research is therefore contradictory to Sancha et al. (2015), as they state that coercive pressure have little or no positive effect. Though, governmental support still partly fails in encouraging the adopting of sustainable practices as farmers distrust the current subsidised innovations as it the subsidy suggest that it would not be an profitable investment independently. Again, the lack of knowledge and the instrumental logic both play a significant negative role, and should therefore be considered by the governmental institutions.

The study is limited due to the fact that an interview with one more processor was not possible within the given time frame. Therefore, the role of processors and their view about how sustainability is being stimulated at a farming stage could be further researched. In addition, only farmers from the northern part of the Netherlands have been interviewed. It might be case that farmers in other areas of the Netherlands or outside the Dutch borders would have result in different opinions and perspectives. As most European countries are in the European Union and compete with each other on dairy products, it might be interesting to take this perspective in several other European countries in order to look for differences and similarities.

As this study also aimed to investigate how innovations are stimulated at the farming stage, eco-innovation has not been encountered very often during the research. Although, eco-eco-innovations are part of sustainability practices, and therefore the results of this study also apply to eco-innovation in that sense. It seems that the investment cost, the long payback periods and the marginal profitability of these eco-innovations are the main causes that many of these investments are not considered. Therefore, further research could focus on how eco-innovations could be made more interesting to farmers and other players in the food supply chain.

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there are practices benefitting for example biodiversity and simultaneously forms a barrier in the reduction of greenhouse gas emissions.

Next to the main findings related to the research questions, this study showed that agricultural education need to increase focus in environmental sustainability as it could improve the farmers’ sustainability knowledge. Further research should attempt to find out how this lack in educational sustainability focus leads to a lower performance in environmental sustainability in the farming stage.

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6. Conclusions

This study aimed to investigate how the adoption of environmental sustainability practices in the farming stage is influenced by means of pressure and power within a food supply chain. Therefore it addressed the dairy supply chain, focusing on the Dutch dairy market by focusing on the adoption of eco-innovation in the farming stage. The analysis provided a dynamic model, which explains the different pressures and influences and its effect on the adoption of sustainability practices in the most harmful stage of the dairy food supply chain, the farming stage. A gap of knowledge and a lack of knowledge transfer between the processor and dairy farmer plus the urge to improve the image and the legitimacy of dairy products are the core problems in the attempt to increase the environmental performance of the farming stage and therefore for a large part the whole supply chain.

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When Sustainability is Abused as Marketing Instrument

Master’s Thesis