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June 27, 2003

McDonald's Phases Out Animal Growth Promotion Antibiotics from Global Supply Chain
    by William Baue

McDonald's, which is often the first in its sector to introduce sustainable practices, will end use of animal growth promotion antibiotics, but does this make the company socially responsible?

SocialFunds.com -- Last summer The Onion, a satirical website, published a mock article entitled, "US Children Getting Majority of Antibiotics from McDonald's Meat," lampooning the practice of feeding antibiotics to food animals to promote growth. McDonald's (ticker: MCD) recent actions sap the humor from this piece, as it vowed to phase out human medicine antibiotics in its meat products by the end of 2004.

Last week, the fast food chain issued a Globa l Policy on Antibiotics Use in Food Animals , which includes a set of "Guiding Principles for Sustainable Use." Besides eliminating human medicine antibiotics as growth promoters in food animals, the policy also sets standards for sustainable antibiotic use by direct suppliers. Enforcement mechanisms include supplier certification, assurance, and auditing. Compliance with the standards cannot be applied to indirect suppliers, but it will factor into purchase decisions.

"As a company committed to social responsibility, we take seriously our obligation to understand the emerging science of antibiotic resistance, and to work with our suppliers to foster real, tangible changes in our own supply community, and hopefully beyond," said Frank Muschetto, McDonald's senior vice president of worldwide supply chain management.

The policy, which resulted from deliberations between McDonald's and a multi-stakeholder Antibiotics Coalition, will affect some 2.5 billion pounds of chicken, beef and pork purchased annually by the fast food giant. Coalition participants include Environmental Defense, an environmental nongovernmental organization (NGO), Brigham and Women's Hospital physician Dr. Thomas O'Brien, and Oxford University animal welfare expert Dr. Marian Dawkins.

"I commend McDonald's in taking a significant step forward for the whole industry," said Steve Lippman, senior social research analyst at Trillium Asset Management. "McDonald's consistently does things first within its category."

"You don't ever hear about Burger King or Wendy's (WEN) or any other players in the fast food industry being the first to do things like pollution prevention, recycling, or looking genetically modified organisms," Mr. Lippman told SocialFunds.com.

Trillium co-filed a shareowner resolution asking McDonald's to apply the high standards it sets on animal welfare in the US and UK to all of its global operations and supply chain. Trillium had "weighed in and helped influence them when they first developed those standards in 1994," according to Mr. Lippman. The resolution received only 4.8 percent of the vote, though, falling short of the threshold necessary to refile the resolution for a third year. However, Trillium will remain in dialogue with McDonald's over this issue.

In addition to praising the move, Mr. Lippman also invoked the counterargument advanced by Paul Hawken, author of Natural Capitalism, which promotes an uncompromising vision of sustainability. Mr. Hawken contends that if a company is based on an unsustainable business model, then its actions that seem socially and environmentally responsible are moot in the larger analysis.

"If McDonald's is getting people to eat higher on the food chain, which is inherently unsustainable, and focused on advertising that gets kids to be obese, then who cares if they have 100 percent recycled paper wrappers or whatever," said Mr. Lippman, paraphrasing Mr. Hawken's line of reasoning.

However, Mr. Lippman pointed out that McDonald's, and the business model on which it is based, is probably not going to disappear tomorrow, so its responsible actions do generate concrete change for the better.

"McDonald's has a huge amount of leverage in its global supply chain that can raise the bar for the whole industry through this kind of innovation," he said.

Earlier this year, McDonald's implemented other innovative measures that promote sustainability globally. In January it opened the world's first hydrofluorocarbon-free restaurant in Denmark, and in the same month it announced that it will sell only organic milk in the UK. These announcements were met with praise tinged with skepticism in the environmental and organic foods communities.

"The trend towards healthy eating and ethical purchasing suggests that McDonald's will have to do much more than offer organic milk to strengthen its image," stated an opinion piece in the Organic Monitor, which provides of business intelligence on the international organic food industry. "Marketing organic milk is a step in the right direction; however consumers will not patronise the restaurant just to buy organic milk."

Nor will social investors necessarily invest in McDonald's based on a single sustainability initiative, though they may be won over by an overall profile that prioritizes sustainability.

© SRI World Group, Inc. All Rights Reserved.

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