In this episode of the Decarbonizing Commerce Podcast, host Keith Anderson delves into the world of supply chain adaptation in the face of climate change. Joining him is Berk Bahceci, Founder and CEO of Heraclea, a family-owned olive oil producer based in Turkey. Berk shares how his company has maintained supply chain stability and quality yield amidst industry challenges caused by climate-related impacts. They discuss the unique agricultural practices Heraclea employs and explore potential scalable solutions for the broader industry. If you've ever wondered about the relationship between climate change and the cost of olive oil or are interested in innovative supply chain strategies, this episode is a must-listen.

TRANSCRIPT BELOW:
Keith Anderson: Welcome to Decarbonizing Commerce, where we explore what's new, interesting, and actionable at the intersection of climate innovation and commerce. I'm your host, Keith Anderson, and together we'll meet entrepreneurs and innovators reinventing retail, e commerce, and consumer products through the lenses of low carbon and commercial viability.

Hey, everyone. We've got a great episode today, and candidly, it's a little different than what we've covered so far. I would say that most of what we've heard on the show to date has been about mitigating emissions. That is, things that we do to prevent or reduce emissions and today's episode, in many ways, is more about adaptation.

The end of September, I listened in on the Goldman Sachs Global Sustainability Conference and one of the more interesting sessions to me was Kathleen McLaughlin, Walmart's Chief Sustainability Officer and EVP. Who made a comment about supply chain impacts of climate change that I want to quote from just to set us up for today's episode.

And quoting, she said, a second impact that we experience is in supply chain in terms of surety of supply and shifts in yields and quality of commodities just based on, again, weather effects and so on. So those are some near and present things. And Kathleen and Walmart are not the first or only retailers to talk about challenges in the supply chain, transcending just the pandemic and some of those disruptions, but spilling over into what's happening as temperatures rise and more volatile weather impacts the supply chain.

And if you're like me, maybe you're a fan of olive oil, and if you are, you've probably noticed some pretty steep inflation over the last year or two. And, candidly, I hadn't thought much about what was driving it until I met and spoke with today's guest, Berk Bahceci of Heraclea. Berk is the founder and CEO of Heraclea, which is a family owned olive oil producer based in Turkey and he and his company are taking a pretty interesting and different approach to agriculture that has helped them maintain surety of supply and quality of yield while the rest of the industry has faced just incredible challenges and really significant drops in supply, at the commodity level. And so, Berk will be the first to tell you that at the scale that he and his company are producing product, some of the approaches and practices that work for them may not work for the industry at large, but he does have some ideas that he thinks will scale.

And, regardless, I certainly found it really fascinating to hear about. What led him to start the company and how he approached the decisions he's made about, how to grow and produce and package and, so many other decisions about the business. So, I'm sure you're going to enjoy hearing from Berk as I did, and let's introduce Berk Bahceci of Heraclea Food Company.

Berk, welcome to the show.

Berk Bahceci: Thank you very much for having me.

Keith Anderson: Great to have you. Well, why don't we start with your story and the story of starting Heraclea.

Berk Bahceci: I'll go back a little bit. I, I was born and raised in Turkey. I moved to the States 12 years ago for college first. And I always had the, intention of becoming, an attorney actually here in the States and I followed that route up to college. I went to law school. You know, took the bar exam, started working in DC, but at some point, and this is like actually my first year in the profession, I realized that it's not going to be, for me, the things that I'm looking for when I wake up and go to work are not, I couldn't find them in the work that I was doing.

And I wanted to, you know, develop something, a business that really reflected, my own self. Maybe it was a search for identity. And then it was that around that time that I started reflecting on my life, and myself and, you know what is it that I can do here in the States that shows a part of me?

So then we got to the olive oil. My family had always owned olive groves, not at the scale that we're currently at, but we did have some land. And I proposed the idea of turning our olive oil thing, family thing, into a for profit business. We started this in November of 2020. We started working on the idea.

Keith Anderson: So three years ago?

Berk Bahceci: Yeah. And then, but we did a lot of things in that three years. We, first we purchased, acquired more land to get it to a scale. We had like around 50 acres, and right now we have around 200 acres of olive groves in Turkey, Milas. And then we built, a processing facility from scratch. For storage of the olive oil, because it's the most important thing in olive oil production, I think, is the way you store your olive oil.

It has to have no contact with oxygen. The temperature must always be maintained at a certain level. There has to be no humidity, you know, a lot of different things. And I, we thought like, if we don't control this part of the business, then, I don't think we can claim that we're producing and selling high quality olive oil.

So we built that facility from ground up in six months. We got it, certified for food safety by international bodies. All of these things took a lot of time. And then we did the branding, of course, photo shootings, like sourcing of the bottles. We got that from Italy. We wanted it to be different, in the look.

So we spend a lot of time forming the business. Those three years were spent, towards that and then we launched on March of this year, 2023. And it's been going great so far.

Keith Anderson: Rocket ship ever since. So in a way you didn't choose olive oil, olive oil chose you. You know, part of the reason I thought it would be so interesting to meet and speak with you is you've already mentioned things like temperature and humidity. And I think we've all seen headlines about inflation in the olive oil category. What has your experience been about, the impacts of erratic weather and, and rising temperatures and how do you think about some of those factors as you're producing and building an olive oil business.

Berk Bahceci: Of course. So like in, in olive cultivation, there are, there are two, a couple of ways to do this. One is the conventional way, which is, you plant, olive trees, in certain distances across a huge land and then, you, do irrigation, you use fertilizers, you use pesticides, whatever you can think of to maximize the yields. And that's how it's done in, I would say, most parts of the world because, you know, at the end of the day, olive oil is kind of like a commodity. People need it. You know, you have to, you have to be producing at a certain level to supply the world's demand. I get it. But I think, and the recent developments in the olive oil industry is showing this, that the current conventional standards of olive cultivation aren't actually working.

And that is why we're seeing this drop happening. supply significantly being impacted. I mean, we're talking about, 80 percent reduction in, the world's biggest producers supply last year. Like, that's a huge number and it's not just about, oh, the weather got like hotter and now we're not able to produce. It's not just about that. It's about the way you treat the soil and the surrounding ecosystem for all the times up until that drop and that, decrease in supply started happening. So you have been using fertilizers, you have been using pesticides to kill the weeds, to beat the bees, bugs, and everything in the soil just for the sake of growing olives at like, you know, inflated amounts.

And now the soil or the ecosystem is basically dead and, a slight, an increase in temperature or a reduction in like water is now causing this huge impact on olive oil. So, we're not doing the same thing. What we're doing is, we, we, our production has remained notably resilient, like, in the face of the severe drought conditions, that, that we're seeing, which I mentioned in Spain and Italy, and I think it's, the way that we've been communicating able to survive is a direct result of our, commitment to sustainable farming practices.

 Not everyone can do it. I mean, if you're working at a scale of thousands of acres, I'm not expecting you to do it, but we're able to do it. Our position enables us to do it. We've focused on, responsible management of our land, paying attention to soil productivity through natural methods.

 Like, instead of using artificial irrigation, we're doing rainwater harvesting. What is rainwater harvesting? We brought, like, a couple professors from a local university and we've identified the paths the water, follows when, you know, there's, significant rain. And at the end of those roads, we built, we dug, big holes so to say , And then we collected that water and used it, as needed instead of just digging a well deep down and exploiting the, well, beneath the surface water resources, which are already scarce, like we're, we, we've treated the environment nicely so that now it's not treating us as badly as it treats, other producers.

I'll give another example. So in olive cultivation, there are certain elements called NPK, nitrogen, phosphorus, and potassium. And there are fertilizers named NPK in different ratios that, you know, farmers use. We don't use any of them. Instead of, like, when we see a deficiency in the soil, we try to take, an alternative approach.

What we did, for example, was to build, close to a hundred bird hives in our olive groves to attract birds. And we fed them and, in return, they're pooping on our land. And we found that this is maybe, a small contribution, but, small contributions like this, when they get together, totally they're impacting the MPK, nutrient levels of our soil, and we don't need to use fertilizers.

So things like this, green manure for nitrogen fixing. If there's a nitrogen deficiency, we use green manure. We plant it, we mow it, and then, we fix that problem. That's how we treat the soil. That's how we treat the environment, the ecosystem, I say. And I really seek to protect it. And in return, I think it's treating us well too.

 But this is something specific to the way we position the company. If we were a producer that supplied like 20 percent of the world's olive oil, we wouldn't be able to do any of this. So I agree, I understand those who do it that way, but we do it this way.

Keith Anderson: Well, you've mentioned the contrast in scale a few times. Is the ambition to grow the business to a larger scale? And how do you anticipate having to evolve some of these practices as you do get bigger?

Berk Bahceci: It is, I mean, it is never our intention to supply 50 percent of the world's olive oil needs, like, that, we're not talking about a scale at that level, but I, envisage Heraclea to be, an accessible, household brand in the States, providing, traceable, number one, and, sustainably, produced, olive oil throughout the United States.

And I think, we're able to do the things that we do this way. And scale our business by acquiring more lands and working with local farmers who also already own, those, huge acreage of lands and bring them up to our standards by being able to purchase their products from them at a premium so that they are incentivized to change the way they do business, the way they do farming and just, help us, grow our supply chain.

So I don't think, we're, we're able to, we're, we're able to scale, our business the way we do it. Of course, we can't do it in the way to supply the world's need of olive oil, but, we can, have ourselves a target market and, expand this business by the ways that I mentioned, and still be profitable because like, if you go to a grocery store, you're going to find an olive oil for 16.

9 ounce selling for. 10 or like 12. We won't, we will never be able to do that, because, you know, our costs can afford it, but at the level that we're selling the price point that we're selling, we're able to, scale this business to supply, you know, needs of people in the States looking for a high quality, traceable and sustainable olive oil.

Keith Anderson: Taking a bit of a step back. I, I knew there were supply issues over the last year or two. I didn't realize how profound they were. Was it really such an abrupt, precipitous drop from those leading producers? And well, I mean, you may not have the answer, but is that something that the industry anticipates is going to be, an ongoing supply issue?

What's the, how are the big players responding to something like that?

Berk Bahceci: So, this issue has been going on for two years. It's not new, first of all. Last year, this was also the case in Spain and Italy. And actually, in Spain, there are co ops that are, like, the biggest producers of olive oils. And, these co ops, because they're supplying, like, off the top of my head, I don't remember, but like, I am going to, I'm inclined to say like 40 percent of the world's olive oil needs, when they experience, a crisis like this in their supply chain, they look elsewhere.

I mean, they have to still be able to produce that olive oil. When I say produce, I mean, bottle it and then ship it to whatever customers they have. So they go and look out to places like Turkey, Tunisia, Morocco, Greece, and they talk directly with producers in these countries to purchase their olive oil in bulk, ship it to Spain or wherever their, bottling facilities are, and then, produce their, continue producing their bottles.

So, that's how they're, that's how they're, trying to, manage this issue with, to, to, with minimal damage to their business. But I think this, this is not a solution. The, the real solution is, actually in the way, we treat the, the soil, and it's been treated badly for generations now.

 So I think it's going to take time for it to heal. And we really, have to, not we, I mean, those people who are experiencing this really have to think about, the way they do all of cultivation and maybe change their farming practices. Perhaps this is going to be reflected in increasing olive oil prices. We will keep on seeing this because there's a, there's a mismatch right now between supply and demand. And I, I see all about pricing, prices keep increasing, this year, next year. And I think until this problem is, resolved.

Keith Anderson: You've mentioned changing some of the agricultural practices. One concept that I see mentioned more and more frequently by a lot of the major global brands that rely on agriculture as regenerative agriculture. Is that something that you consider yourself to be doing?

Berk Bahceci: Yeah, I mean, regenerative is a very popular name these days, especially in the United States. And yes, I mean, when I say, they have to change the way they do things, it doesn't necessarily have to be doing like regenerative agriculture only. I mean, it can be like over 50 percent of the carbon emissions associated with olive oil production from farm to mill until it reaches your table, comes from the use of fertilizers and pesticides.

The problem here is, that the producers are doing. What is called super high density farming. Super high density farming is let's say if just making this number up, but like if 100 trees could go into an acre, 100 olive trees, what super high density farmers do is they they plant 800 trees in that one acre and it is too many olive trees for that piece of soil to handle And then, to make it work, they pump fertilizers, they use artificial irrigation, and then, because the trees are so close to each other,

there are fruit flies, different kind of bugs, weeds, and to tackle that, then they use pesticides, you know what I'm saying?

And then, this is a cycle that keeps on repeating, and with every piece of chemical you use, your contributing another damage to the soil. I'm saying, maybe olive oil shouldn't be produced at this level, at this amount. You know, it's, unfortunately, it's something that requires a lot of time, care, and if you use these things, fertilizers, pesticides, or other chemicals, you know, we see, you know, in the long run, yields decreasing, drops happening, and output significantly being impacted, why, and I'm saying why not, like, let's use less aggressive, methods in our agriculture.

You know, let's not plant 800 trees in one acre. Let's plant like 300 trees and try to use less of these chemicals. And yes, the price will increase because supply will decrease, but maybe that that's the price that olive oil should be at for a sustainable production. And, I think, in time, I don't know how long this is going to take, but people will realize that. , The conventional methods have been working so far, but now with the drop and, impact on olive oil supply, we're seeing the mother nature is telling us you know, it's responding, it's saying, you know, like, I'm hurt and I don't want to, like, I can't continue doing this. And that's, that's like a very maybe romantic way of explaining this, but this is the truth. Like, the soil can't take it anymore. And this is not about like, olive cultivation only. This is something that we're seeing in other parts of, other areas of agriculture as well. But olive cultivation is kind of what I do, and I can speak for it. I, we're not observing any of the problems, that are being observed in other parts of the world in our own groves.

I mean, the, ecosystem is lively, there are bugs, bees, beads, we're not cutting anything out, you know, it's, it's, it's working great so far for us.

Keith Anderson: You mentioned some of these same issues are happening in other agricultural sectors. Where else do you see it being an issue?

Berk Bahceci: I mean, like I said, I, I'm not an expert in those areas. I'm just seeing inflated prices across, different commodities. And I think this is due to a general trend in the methods that are being used are supposed to be decreasing prices, increasing yields. That's why they're doing all of this, but I'm seeing lower output, higher prices, and part of it is due to global inflation, of course, but I think, we as like stakeholders in agriculture should also be looking and reflecting back on the ways we do things and assess, our, performance and try to, you know criticize ourselves and find ways. Is there anything that we're doing wrong that's contributing to this? Not just it's inflation, prices are increasing. That's a very easy explanation. Okay. I think, you know, more in depth explanation will include, answers to the ways we do farming as well so.

Keith Anderson: Yeah, again, part of the reason that I thought it would be so interesting to speak with somebody from the olive oil industry is I think one of the impacts that's a little under discussed is how some of these things are already impacting yields, quality. There was a with Walmart's global head of sustainability at a Goldman Sachs sustainability forum a few weeks ago, and she was pretty direct about mentioning that there are already issues with yield and surety of supply and I think it's pretty notable to have, among the world's largest retailers increasingly directly mentioning this isn't only something that we're trying to do, from a, it's the right thing, for from a mitigation point of view, it's increasingly becoming an issue of keeping the products that people want on the shelf and I, I see a couple of different philosophies about how to approach it.

You know, one thing that I've seen, you mentioned nitrogen and some of the fertilizers, there are companies like. Kula Bio and Nitricity. Kula is close to us. They're based in Natick, Massachusetts. Nitricity is in the Bay Area in California. These are companies that are developing decarbonized or more sustainable nitrogen fertilizers, and I'm sure there are others. And I think on that end of the solution spectr the idea is basically we can continue producing in a essentially conventional way, just with a decarbonized substitute for how we were getting to the same outcome. And then you, you said something that I think is pretty interesting, but really potentially controversial, which is, and these are my words, not yours, but effectively the managed decline of the category, which I, I find interesting because, again, I'm starting to see certain retailers for different reasons, sometimes because they're having these ongoing supply chain issues, and sometimes because they're on a net zero path that they don't see a way to get to while continuing to sell the same volumes of certain types of products that they've historically sold, but how do you think about maybe not just for your own business, but for the industry? How do you think the industry is and how do you think they should be approaching the sort of scale side of reinventing itself, both to adapt to some of these supply issues and to lower the footprint?

Berk Bahceci: First of all the concept of and this is not just about olive oil, but in general, for any business that is involved in production, the concept of doing your production and then if there are any carbon emissions, buying credits to offset and become a net zero is a concept that I'm very against, because I don't think the solution is you know, just offsetting your carbon emissions with credits elsewhere, the solution is, you know, really looking at your own production and mitigating and finding ways to make sure you are not emitting the carbons that you're already emitting.

Well, in our case, that is not using fertilizers, not using pesticides. We just, completed the project of putting solar panels above, our, storage and bottling facility. So the AC that's working inside the bottle, bottling machine when it's turned on, or, you know, even like the electricity that we're using, everything is solar powered now.

We haven't made any assessments of these because we're still in the stage of developing the brand, the company, and its, total, chain of, production. But once we finalize those things, we will do an assessment. And what, if there is, if there's a, if there's still a positive, carbon left, yes, I mean, we, we may buy credits, but like the, the real way that we're going to do is like, what else more can we do to make sure that this is not result producing, positive carbon emissions.

So I think with the, olive cultivation and olive oil industry, I think, these, producers that are producing at scale, first of all, should look into the fertilizers and other chemicals that they use. The ones that the companies that you mentioned, I haven't heard many of them. Probably because we're mostly reliant on the companies that are available in the region where we produce.

And, you know, we're not dealing with those companies too much because there's really no purchase, happening because we're not using any of this. But those that are doing this at like global scale, should, should really reconsider, the things they use, and the ways that they use it. But, and, if this is going to result in a lower output, so be it.

And I don't think it will result in an output, like last year, the drought caused 80 percent decline in the supply, okay? I think, if producers switch to, more environmentally friendly alternatives and the chemicals that they use and change the ways, like instead of doing super high density farming, if they choose to do high density farming, like not 800 but like 500 trees, still not 100, like

Keith Anderson: You're negotiating with yourself. It was 300 a few minutes ago.

Berk Bahceci: Or like, I mean, as I'm saying, like try to find a balance that is still going to make this business be at a scale, but not at the scale that it's currently at, because the decline of 80% is going to be much less, in my opinion. If you switch to these health, more environmentally conscious alternatives, maybe it's gonna be 20%, 30% decline in your deal, but it's not gonna be all of a sudden one year 80% decline and the prices.

I've tripled, like since 2020, I'm following olive oil prices every day. There's an international olive council that is, releasing daily, prices, from the major producing regions, high end in Spain is one of them. And if you, if you look at the graph since, 2020, all you're going to see is it's going up and it doesn't look like it's going to go down. So, I mean, we're at the same point. I mean, output is lower, prices are higher. What the things that you were doing was supposed to keep the output high, prices low, but obviously they're not working. I mean, they have been, have been working, but now we're seeing backlash from, from the earth.

Keith Anderson: Hey folks, this is the part of the show where we say thank you and see you soon to the general audience, plus and higher tier members of decarbonize.co, stay tuned for the rest of the episode. Thanks for listening. I'm Keith Anderson, the executive producer and host of Decarbonizing Commerce. Sonic Futures handles audio, music, and video production. If you enjoyed the show, we'd really appreciate it if you took a moment to subscribe and leave a review or share it with a colleague. For the full episode and more member exclusive insight and analysis, join the Decarbonizing Commerce community at Decarbonize.co. Thanks for listening and we'll see you on the next episode of Decarbonizing Commerce.