Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the B and EF podcast. Today, we're going to talk
Speaker 1: about food companies and how they're looking up their value
Speaker 1: chains to meet nature and climate goals because of how
Speaker 1: their value chains are structured where farming is highly fragmented. Meanwhile,
Speaker 1: there are a few influential private companies in the middle
Speaker 1: of the value chain. It can be pretty tricky for
Speaker 1: food companies and the brands you and I recognize to
Speaker 1: tackle their scope three emissions. Scope three being those indirect emissions,
Speaker 1: the ones that aren't a result of their direct business activities,
Speaker 1: but instead the responsibilities of those they're doing business with
Speaker 1: at various points on this value chain. So what are
Speaker 1: agri food companies doing, What are they measuring beyond just
Speaker 1: emissions when it comes to things like nature, and how
Speaker 1: well positioned are they to make a discernible change. To
Speaker 1: tell us more, I get to speak with Helen Ramsbottom
Speaker 1: and Alistair Purdy from bnaf's Food, Agriculture and Nature Team
Speaker 1: VF Clients will be able to access related research at
Speaker 1: BNF go on the Bloomberg Terminal and at BNF dot com.
Speaker 1: The research notes I recommend include corporate sustainability in the
Speaker 1: agrifood system and sustainable and regenerative agriculture company targets. Right now,
Speaker 1: let's talk about agrifood companies and how they're transforming the
Speaker 1: value chains that bring food to your plate. Ellen, thank
Speaker 1: you for joining us today. Hi Dana, thank you, and Alistair.
Speaker 1: Good to have you on the show.
Speaker 2: Thanks Na.
Speaker 1: So we're here to talk about corporate sustainability in the
Speaker 1: agriculture space and food. I mean, this is something that
Speaker 1: we all very much should care about if we don't already,
Speaker 1: it impacts us every single day. And let's set the backdrop.
Speaker 1: Thinking about food in context of emissions is so important.
Speaker 1: So what impacts broadly speaking, does the food system and
Speaker 1: supply chain have on biodiversity and the environment.
Speaker 2: So, as you mentioned, meeting the nutrient requirements of about
Speaker 2: eight billion people is a hugely difficult undertaking. The system
Speaker 2: itself is responsible for about a third of global emissions,
Speaker 2: ninety percent of forestation, almost three quarters of fresh water withdrawal,
Speaker 2: and four of the top five plastic polluters are from
Speaker 2: that space. So ensuring that the system is well prepared
Speaker 2: and managed in its environmental footprint is absolute essential to
Speaker 2: meeting a lot of our climate and nature goals.
Speaker 3: Yeah, some context on what sort of amount of the
Speaker 3: total emissions from the agrifood supply chain come from and
Speaker 3: sort of energy use further downstream. So, if we think
Speaker 3: about emissions in the agrofood supply chain, it comes from
Speaker 3: manufacturing inputs like fertilizers, actual on farm activity, transporting that food,
Speaker 3: manufacturing food, and food waste from consumers. There's a lot
Speaker 3: of different pockets across the whole supply chain. About seventy
Speaker 3: percent of the total emissions produced by the agrifood system
Speaker 3: are generated on farm, so that means things like applying
Speaker 3: fertilizer to the land. A huge chunk of that is
Speaker 3: methane emissions from cows, for instance. Now, naturally we're talking
Speaker 3: about this because you spent the time to put this
Speaker 3: in a report and you had to break down this
Speaker 3: entire agricultural food system into different categories. When you think
Speaker 3: about the value chain, there's a lot of different areas
Speaker 3: that you assessed in this report, and I'd really love
Speaker 3: to better understand which of those you really want to highlight.
Speaker 3: So everything from upstream to downstream, what were the aspects
Speaker 3: that you found most surprising and you know how much
Speaker 3: time did you spend on certain parts of the supply
Speaker 3: chain versus others, depending on what it is that you found,
Speaker 3: and you know what really warranted going into more detail.
Speaker 2: Sure, so there's tens of thousands of public and private
Speaker 2: companies operating in this space, and to look at it
Speaker 2: from a higher level, the system is broken down into
Speaker 2: roughly six segments. Upstream, you have the input providers. These
Speaker 2: are companies that provide chemicals such as fertilizers and pesticides
Speaker 2: as well as seeds, and that they supply them to
Speaker 2: the primary producers, the farmers. The farmers them selves highly fragmented.
Speaker 2: There's one hundreds of millions of people engaged in that
Speaker 2: space and they do what you'd expect. They have soy
Speaker 2: and palm plantations, there is cattle, they grow other forms
Speaker 2: of crops.
Speaker 1: So this really is an important part of the value
Speaker 1: chain for us to focus on when you're thinking about
Speaker 1: improving environmental impacts and in some cases also reducing emissions.
Speaker 1: But so we've just talked about improt providers, and you
Speaker 1: are going to come to the next category of companies
Speaker 1: that you looked at when you took a closer look.
Speaker 3: So The next sort of step down the value chain
Speaker 3: would be the wholesalers. So there's really four major agricultural
Speaker 3: wholesalers that control the bulk of the markets. Those would
Speaker 3: be Louis Dreyfus, ADM, Cargill, and Bungie. So there are
Speaker 3: obviously other traders, but this is quite a concentrated group
Speaker 3: of large players that you know, these companies will influence
Speaker 3: a lot of the emissions coming from that group. Some
Speaker 3: of these upstream inputs providers and wholesalers, because there are
Speaker 3: a few degrees removed from the average consumer, may be
Speaker 3: less familiar to people. And then one step down from
Speaker 3: that we have the food manufacturers, so these are large
Speaker 3: publicly traded companies like Nesle, Unilever, donnown and perhaps companies
Speaker 3: that the average consumer is more familiar with. And then
Speaker 3: the final steps sort of connecting the food value chain
Speaker 3: to customers are the retailers, which obviously people are a
Speaker 3: lot more familiar with, being the final step towards the consumer.
Speaker 3: And then also restaurants and food services. So restaurants again
Speaker 3: pretty familiar to us, but food service companies tend to
Speaker 3: serve things like other restaurants or hotels and things like that.
Speaker 3: So these companies are maybe a bit less visible, but
Speaker 3: all companies that have a significant emissions impact in terms
Speaker 3: of their Scope three emissions. So this pesky problem of
Speaker 3: Scope three emissions, so those emissions that actually come from
Speaker 3: not your business activities, but the business activities of those
Speaker 3: in the rest of your supply chain you're either selling
Speaker 3: to or are purchased from.
Speaker 1: How does scope three emissions feature in the agriculture value chain?
Speaker 2: So as we move further downstream, scope three becomes a
Speaker 2: larger proportion of companies emissions inventory. That's because embedded emissions
Speaker 2: stag as you move down. So at the furthest upstream,
Speaker 2: the input providers, they have a small proportion of their
Speaker 2: total emissions comprise the Scope three. Those chemicals are those
Speaker 2: seeds are then sold to the farms, and those emissions
Speaker 2: become part of the farmer's mission. This continues as you
Speaker 2: move further down, so that when you're at the retailers
Speaker 2: or the restaurants, their direct operations are only about one
Speaker 2: percent of their total emissions. That's got a couple of points.
Speaker 2: Those companies are able to claim that they aren't able
Speaker 2: to influence very much.
Speaker 3: I think when you think of it from a margins perspective.
Speaker 3: So we think of every dollar generated from the agrifood
Speaker 3: system in the US, and the biggest sort of proportion
Speaker 3: of the profits made goes to food processors, and the
Speaker 3: second largest proportion goes to retailers. So although these organizations
Speaker 3: are further downstream and may sort of claim they have
Speaker 3: less influence on what's going on on farm, the reality
Speaker 3: is they're making the majority of the profits from the
Speaker 3: food system, and therefore you could argue that they have
Speaker 3: more power and frankly more money to influence change on farms,
Speaker 3: whereas as a lot of us know, a lot of
Speaker 3: farmers are operating on very tight margins and simply do
Speaker 3: not have sufficient income to allow them to implement large
Speaker 3: changes in the way they're farming, implement new technologies, new practices,
Speaker 3: pay for consultants to teach them how to farm in
Speaker 3: a different way. So I think the thing with the
Speaker 3: food system is the companies generating the most profits are
Speaker 3: not the companies with the largest direct emissions footprints. So
Speaker 3: there's a bit of a mismatch which is perhaps a
Speaker 3: big difference between the agrifood system and the energy companies
Speaker 3: have been af thinks about normally.
Speaker 1: So upstream much more emissions intensive, but the margins much tighter.
Speaker 1: So then that brings us to solutions and really thinking
Speaker 1: about that from an upstream perspective, right, because that's where
Speaker 1: you're going to make the biggest gains. So what are
Speaker 1: some of the solutions that exist or are merging as
Speaker 1: being the most promising.
Speaker 3: Yes, So one of the primary tools that a lot
Speaker 3: of agrifood companies are relying on to address the on
Speaker 3: farm emissions, so the emissions coming from actually farming crops
Speaker 3: and livestock, is regenerative agriculture. So regenerative agriculture does not
Speaker 3: have an industry standard definition. What companies usually mean by
Speaker 3: this is improving the health of the soil and improving
Speaker 3: the ecosystem as a whole. So having a healthier soil
Speaker 3: on a farm means you're more resilient to drought and floods,
Speaker 3: it increases the biodiversity on your farm, and in theory,
Speaker 3: a healthier soil allows you to sequester more carbon in
Speaker 3: the soil, which is appealing to agrifood businesses obviously in
Speaker 3: a couple of senses. In that if regenerative agriculture achieves
Speaker 3: all its objectives. You have healthier soil that's more resilient
Speaker 3: to drought and floods, so your yields are likely more
Speaker 3: consistent over time. You're sequestering more carbon in the soil,
Speaker 3: which can reduce your Scope three emissions footprint because you
Speaker 3: can say, although we're releasing x amount of carbon, we're
Speaker 3: capturing this amount of carbon and storing it within the soil.
Speaker 3: And in theory, through healthier soil, you should be able
Speaker 3: to decrease the need for things like fertilizers because because
Speaker 3: a healthier soil will allow you to achieve the same
Speaker 3: yields now. In practice, this may not always be the
Speaker 3: case because there's huge variation in the mineral content of
Speaker 3: soils around the world, depending on what crop you're growing,
Speaker 3: depends on how changes in the soil might impact that.
Speaker 3: And from a company perspective, because there's no industry standard
Speaker 3: for regenerative agriculture, there's no specific mandate on the number
Speaker 3: of practices you have to implement, or how long you
Speaker 3: have to implement them for, or what kind of carbon
Speaker 3: sequestration you need to actually achieve in order to be
Speaker 3: able to label your project regenerative. So a lot of
Speaker 3: companies are claiming their operating regenerative agriculture projects, but unless
Speaker 3: they provide external organizations with more details on what they
Speaker 3: are actually doing, there's no real way we as an
Speaker 3: outsider can determine exactly what is going on on that farm,
Speaker 3: and how much carbon soil is actually sequestering, how much
Speaker 3: they're actually impacting biodiversity, and what the climate in nature
Speaker 3: impacts of that project are as all which really brings
Speaker 3: us to the reporting standards part of this, which you
Speaker 3: know are their targets and really clear reporting standards out there.
Speaker 3: I mean, what you're saying is basically know that the
Speaker 3: reporting standards are a little inconsistent, and so right now
Speaker 3: we're seeing information coming out that may not necessarily enable
Speaker 3: us to compare apples to apples or even really fully
Speaker 3: verify what's happening on the ground. But this is a
Speaker 3: space that is being talked about more and more. You're
Speaker 3: definitely hearing about emissions and a focus on the agricultural
Speaker 3: food system as a whole taking a much more prominent
Speaker 3: place in the discussion around climate.
Speaker 1: You saw last year at cop the agriculture and food
Speaker 1: system actually feature in biodiversity feature at the Climate COP
Speaker 1: not just at the Biodiversity COP. So there is the
Speaker 1: COP focused on biodiversity and then the Climate COP which
Speaker 1: is in its twenty ninth year, both with very important
Speaker 1: dialogues that are increasingly starting to converge. So where do
Speaker 1: the back to reporting, where do you core targets feature
Speaker 1: and how does it work presently?
Speaker 2: So there's difference across emissions disclosure and nature biodiversity disclosure.
Speaker 2: Emissions reporting is far more developed than it is for
Speaker 2: nature and biodiversity. That's because a lot of countries and regions,
Speaker 2: namely the EU, have required companies to start disclosing their emissions.
Speaker 2: There's still a lot of inconsistency between companies and how
Speaker 2: they approach this issue. Some are engaged with just with
Speaker 2: pure reporting of information, usually direct emissions, but the more
Speaker 2: progressive players are involved with climate risk and opportunity management,
Speaker 2: which there is report in their annual sustainability reports on nature. However,
Speaker 2: most of this is still voluntary, although things are beginning
Speaker 2: to change in the EU with regulation such as CSRD
Speaker 2: Corporate Sustainability Reporting Directive, and we also have stuff such
Speaker 2: as the EUDR that's the European Union regulation and deforestation
Speaker 2: free products where companies trading in the block now have
Speaker 2: to show that an you have seven soft commodit at
Speaker 2: lease are not connected to deforestation whatsoever, and this will
Speaker 2: apply from December thirtieth this year, and a lot of
Speaker 2: these big food companies are starting to worry along with
Speaker 2: their investors, because there are fairly significant financial poundies for
Speaker 2: companies who don't operate in accordance with the low Up
Speaker 2: to five percent of revenue can be fined per year differences.
Speaker 1: So it seems like there's a fair amount of regulation.
Speaker 1: But because of the way that the market is structured,
Speaker 1: with a number of companies in particular in the wholesaler
Speaker 1: space not publicly listed, you don't have necessarily the same
Speaker 1: movement around financial reporting that you have in other places. So,
Speaker 1: staying on this topic of emissions and acknowledging that this
Speaker 1: is inexact, how closely aligned are those companies that do
Speaker 1: have targets to Paris Agreement goals which are really aiming
Speaker 1: to limit warming to two degrees centigrade from pre industrial
Speaker 1: levels or less. Are they aligned or is it really
Speaker 1: too an exact for them to fall in line with
Speaker 1: what the Paris Agreements actually outlined for the future.
Speaker 2: So It's a really good question, and it's got a
Speaker 2: range of different answers depending on what kind of target,
Speaker 2: the ambition and the scope of those targets. Broadly as
Speaker 2: a whole sector is not aligned with the Paris Agreement. Firstly,
Speaker 2: if we take emissions as a whole, that's including the
Speaker 2: direct and indirect emissions, and we apply all of the
Speaker 2: targets that all of these companies have set to their
Speaker 2: current emissions going all the way up to twenty fifty,
Speaker 2: we'll see only about forty percent decreasing those emissions, and
Speaker 2: that is not in line with the Paris Agreement. However,
Speaker 2: there's some issues here with indirect emissions double counting, like
Speaker 2: we discussed before, as emissions stag up as you move
Speaker 2: down the value chain, so we take away those indirect
Speaker 2: emissions and only look at the direct emissions and scope
Speaker 2: two emissions, which is from companies generating the energy or
Speaker 2: energy procremment. We've seen many companies roll back on their emissions.
Speaker 2: They were over zalous when they set them in twenty
Speaker 2: nineteen and twenty twenty, and the standard realize that it's
Speaker 2: very easy to set them, but in practice it's very
Speaker 2: difficult to design a roadmap and tangibly reduce them.
Speaker 3: Part of the reason it's so difficult to implement these
Speaker 3: targets is some of these companies further downstream have a
Speaker 3: huge umber of supplieres. So Cargo we mentioned before, a
Speaker 3: large wholesaler. According to their website, they have more than
Speaker 3: two hundred and fifty thousand suppliers. Unilever, big packaged foods
Speaker 3: company we've all heard of, has fifty four thousand suppliers.
Speaker 3: That's a huge number of different companies that in some
Speaker 3: cases it's very difficult to even locate these companies because
Speaker 3: you know, you've got a bunch of small hold of farmers.
Speaker 3: If you're talking a commodity like coffee and cocoa selling
Speaker 3: to a trading house, which then sells onto a wholesaler,
Speaker 3: which then sells on to Unilever, and that's about as
Speaker 3: short as the chain is likely to be. So even
Speaker 3: geolocating exactly which farm they're sourcing from is really challenging
Speaker 3: for companies, let alone trying to influence what types of
Speaker 3: farming practices are going on there. So it is a
Speaker 3: massive challenge for these companies to address their in direct emissions.
Speaker 3: So transparency is not just about it being difficult to
Speaker 3: provide transparency outwardly on what they're doing, but actually have
Speaker 3: transparency within their company on all of the different suppliers
Speaker 3: that they're dealing with because the market is so fragmented. Okay, well,
Speaker 3: then how about the energy part of the pie, which
Speaker 3: is something that we talk of about at BNF quite frequently.
Speaker 3: How much of a role in their emissions footprint comes
Speaker 3: from the energy system. And really where I'm getting to is,
Speaker 3: as we're seeing these climate and biodiversity cops converge and
Speaker 3: the different things that they're both involved in, is greening
Speaker 3: the energy system going to have a positive impact on
Speaker 3: greening the agricultural system.
Speaker 2: It's definitely going to have and it is having a
Speaker 2: positive impact. Although, as we alluded to before, these scope
Speaker 2: to emissions which come from the company's energy comprise a
Speaker 2: very small part of their emissions inventory depending on jurisdiction,
Speaker 2: and we've seen depending on the brand visibility of the
Speaker 2: company commitment, some renewable energy differ significantly. About twenty eight
Speaker 2: of the companies that we looked at at members of
Speaker 2: something called are one hundred and which is a pledge
Speaker 2: to ensure that all of your electricity is sourced from
Speaker 2: renewable sources, usually by twenty twenty twenty five or twenty thirty,
Speaker 2: and so many of these companies are doing well. A
Speaker 2: lot of retailers, restaurants and food services have already achieved
Speaker 2: one hundred percent renewable energy in the UK. We can
Speaker 2: see Sainsbury's and Tescos, two of the largest retailers, reached
Speaker 2: those targets a couple of years ago. So definitely they
Speaker 2: are reducing their emissions, but because it's such a small
Speaker 2: part of their total, how meaningful that is of debate.
Speaker 3: So whilst ari one hundred pledgures, et cetera, great and
Speaker 3: a lot of companies further downstream have made significant progress
Speaker 3: with respect to deploying renewables, switching away from using gas, etc.
Speaker 3: That's seventy percent chunk of on farm emissions other than
Speaker 3: deploying these regenerative agriculture projects here, and there're some investment
Speaker 3: into green fertilizers and things like that. Broadly, these emissions
Speaker 3: are not really being tackled. So the seventy percent of
Speaker 3: the whole system's emissions that are not really accounted for
Speaker 3: when thinking about deployment of renewable electricity. Obviously On some farms,
Speaker 3: things like solar panels are being installed anaerobic digestors which
Speaker 3: take the manure and can be used to make fuel sources.
Speaker 3: That's another way you can sort of green some of
Speaker 3: your on farm energy use. But applying fertilized to the land,
Speaker 3: and just the fact that cows, through their existence through living,
Speaker 3: produce a lot of methane, it's a lot more difficult
Speaker 3: to tackle from of those emissions, and obviously with renewab
Speaker 3: electricity won't help you tackle those. So that's where different
Speaker 3: technologies need to be deployed.
Speaker 2: Definitely, on the electrification of the system. If you look
Speaker 2: at a palm producer in Indonesia, how do you electrify
Speaker 2: your operations? But if your TESCO much of your emissions
Speaker 2: is just the store, refrigeration, transport, you can easily either
Speaker 2: procure renewable energy from local sources by evs. It's a
Speaker 2: relatively simple undertaking compared to those primary producers.
Speaker 1: And there's also this degree of our understanding of the
Speaker 1: complexity of the system. And so I'd actually like to
Speaker 1: pivot to the biodiversity question, which is where there is
Speaker 1: so much complexity. So one of the things that comes
Speaker 1: to mind is this meme that I see at least
Speaker 1: in the climate space, of these waves kind of crashing
Speaker 1: in on each other and slowly developing into a tsunami,
Speaker 1: and the tsunami at the very back much more impactful
Speaker 1: than climate because it's going to hit us potentially quite sooner.
Speaker 1: Is this biodiversity loss and species extinction on this plan?
Speaker 1: I mean, we are a part of nature. We are
Speaker 1: living organisms here and very much dependent upon food, as
Speaker 1: we highlighted at the very beginning.
Speaker 2: Of the show.
Speaker 1: So why is it that biodiversity is so important and
Speaker 1: why is it being talked about so much more now?
Speaker 2: From an economic perspective, which is why we're here, one
Speaker 2: hundred percent of economic value generation is to some extent
Speaker 2: dependent on ecosystem services or nature. Around half of that
Speaker 2: is moderate or high dependence. So that means these companies
Speaker 2: will all companies have some reliance and their revenue relies
Speaker 2: on ecosystem services. When they degrade through nature loss or
Speaker 2: biodiversity loss, it means these revenue streams are imperiled. And
Speaker 2: that's what we call physical nature related risk, very similar
Speaker 2: to climate sides, where you have increasing instances of wildfires
Speaker 2: or floods or droughts that can likewise imperil company cash flow.
Speaker 2: At the same time, we're seeing shifting regulation. And when
Speaker 2: companies operations, and the interaction with nature are misaligned with
Speaker 2: shifting regulation, then that also puts future cash flows at risk.
Speaker 2: So through these two different understandings of nature, we can
Speaker 2: see companies need to be better aware of their impacts
Speaker 2: and dependencies on nature and manage the risks and opportunities
Speaker 2: that stand from them.
Speaker 3: And Agrifood businesses are an example of companies that are
Speaker 3: obviously highly dependent on nature. If our soils are degraded
Speaker 3: to the point that we can no longer grow crops
Speaker 3: with them due to application of fertilizers reducing the bio
Speaker 3: diversity in the soil, that generally means the soil structure
Speaker 3: is less compacted and it can be more easily effectively
Speaker 3: blown away by the wind for lack of a better word,
Speaker 3: leading to things like desertification. But you know, if we
Speaker 3: are no longer able to grow crops in the ground,
Speaker 3: that is obviously a big problem for food systems, and
Speaker 3: then all the animals that eat the crops we grow
Speaker 3: in the ground, and so on and so on, And
Speaker 3: in examples of marine systems. We can quite easily see
Speaker 3: how ocean acidification and ocean warming will reduce fish populations.
Speaker 3: That in many cases means that young fish can't survive.
Speaker 3: So if you think about it in terms of where
Speaker 3: do we source our food from, the agrifood system is
Speaker 3: highly dependent on nature, but the emissions resulting from agriculture
Speaker 3: are incredibly damaging to nature, as well as the land
Speaker 3: use change that results from agriculture.
Speaker 1: What are the data points then that people are rallying behind,
Speaker 1: because if we think about climate, it's about carbon emissions
Speaker 1: and everything is then put into carbon equivalent, so we
Speaker 1: can all get behind this one data point within biodiversity.
Speaker 1: What are the leading data points that are focused on
Speaker 1: the most so that companies have something to focus on
Speaker 1: when they think about their impact.
Speaker 2: That's a really good point and a question that's often
Speaker 2: brought up in this nature discussion pointing to climate and
Speaker 2: the center. The universal metric of CO two E is
Speaker 2: relatively quantifiable. When you consider nature, it's very multifaceted, so
Speaker 2: there's several different approaches. One is to look at the
Speaker 2: five different drivers of nature loss, our biodiversity loss, and
Speaker 2: one of those is climate change. So we can consider
Speaker 2: all the work being done on climate as part of
Speaker 2: a broader nature space. Another pretty famous or respected framework
Speaker 2: is as something called the planetary boundaries framework. Whether essentially
Speaker 2: nine different indicators that show the state of Earth systems,
Speaker 2: and presently six of these have been transgressed. These are
Speaker 2: things like land use change, the integrity of the biosphere
Speaker 2: as Helen mentioned, ocean acidification. These are indicators of how
Speaker 2: healthy the Earth is. So any indicators or any metrics
Speaker 2: which show how this underlying state of earth system is
Speaker 2: is something worth measuring. Organizations such as the Task Force
Speaker 2: on Nature Related Financial Disclosures or TNFD have up to
Speaker 2: a thousand different metrics that companies are able to use
Speaker 2: to assess both the dependence and impacts on nature.
Speaker 1: So I definitely asked that question around what numbers we're
Speaker 1: looking at much more from a policy and potentially even
Speaker 1: financial player perspective on you know, what do I need
Speaker 1: to think about? What if I'm a farmer, what are
Speaker 1: the sort of things that I'm looking at to really
Speaker 1: try and improve and push the boundaries of a more
Speaker 1: environmentally and sustainable practice that I'm running within my business
Speaker 1: which is so closely tied to nature.
Speaker 2: It's very dependent on many things, the scale of the farm,
Speaker 2: what region it's located in, and also things like the
Speaker 2: generation that the farmers from all farmers of different understanding
Speaker 2: and different opinions on the best way for them to
Speaker 2: run their operations. Farmers understand that the farm depends so
Speaker 2: much on nature and that maintaining soul quality or managing
Speaker 2: their resources is good for the long term viability of
Speaker 2: the farm, especially with climate change putting so much of
Speaker 2: cropping at risk. Also, it's very dependent on subsidies. So
Speaker 2: in the EU and the UK and the US, a
Speaker 2: huge proportion of farm income comes directly from government support,
Speaker 2: and that can either be direct payments which increase or
Speaker 2: decrease the price, depending on whether it's producer or consumer subsidies.
Speaker 2: For example, in the UK we've seen things like ELMS,
Speaker 2: which is.
Speaker 3: The environmental land management schemes.
Speaker 2: Yeah, and that's where farmers receive payment not for the
Speaker 2: amount of crops they produce or the size of their farm,
Speaker 2: but changes they make that cause biodiversity uplift. And in
Speaker 2: the few years since it's been going it's hard a
Speaker 2: positive result, as studies showed over the last couple of months,
Speaker 2: which is very encouraging, but it needs to be larger
Speaker 2: scale and needs to roll out in areas beyond the
Speaker 2: UK to be meaningful on a global scale.
Speaker 3: Yeah, And we just did a piece of work regarding
Speaker 3: agricultural subsidies and in that work we found across the
Speaker 3: G twenty more than half of subsidies have the potential
Speaker 3: to be environmentally harmful. So these agricultural subsidies, whilst in
Speaker 3: many cases they are essential to keep the farm economically viable,
Speaker 3: the subsidies are not necessarily structured around what is most
Speaker 3: environmentally beneficial. Often across the G twenty it is more
Speaker 3: focused on maintaining a domestic market for a specific crop, which.
Speaker 1: Presents an incredible opportunity for policy makers given that they
Speaker 1: have the opportunity to touch so much of the value
Speaker 1: chain for agriculture specifically this important part upstream, the farming
Speaker 1: part of things. So there's the opportunity for policy makers.
Speaker 1: But then where is the innovation really coming from and
Speaker 1: who are the players that are involved in actively making
Speaker 1: changes beyond government where they are and are not necessarily
Speaker 1: getting involved here? Is there innovation from the VC community,
Speaker 1: Are there technology solutions coming out? Are there different offshoots
Speaker 1: within some of the bigger players, you know, investing further
Speaker 1: upstream to reduce their scope three emissions. In the long term,
Speaker 1: you know, where do we see glimmers of innovation and
Speaker 1: one one might even say hope that we revolutionize.
Speaker 2: The system two points. Firstly, you would think it's an
Speaker 2: opportunity for policy makers. However, as we seem from the
Speaker 2: EU and even the UK, when you try and mass
Speaker 2: with farm policy and take away farm support for rural communities,
Speaker 2: you'll see huge resistance and we've had tractors on the
Speaker 2: streets in the Netherlands and Franz seven in the UK.
Speaker 2: Discussion of this issue is very tense, yeah, very tense
Speaker 2: in the US as well, as they move to releasing
Speaker 2: their updated farm build. It's a risky maneuver and generally
Speaker 2: policymakers like to stay away from that. Although we are
Speaker 2: seeing some hope in terms of the VC community and
Speaker 2: tech or food tech as two of the examples of
Speaker 2: emerging technology called there's a lot of innovation. Some of
Speaker 2: the most promising things are quite well known to many consumers.
Speaker 2: You've got plant based burgers such as Beyond and Impossible Foods,
Speaker 2: although that's not quite there. It's somewhere in the trough
Speaker 2: of despair on the fundraising stage, but there is a
Speaker 2: lot of opportunity. Slightly more successful examples include things like
Speaker 2: precision fermentation where you can grow proteins in a bioreactor,
Speaker 2: genetically engineered microbes that are able to take a feedstock
Speaker 2: and turn it into a molecularly identical protein which can
Speaker 2: be used to make meat or milk products, and these
Speaker 2: are being used, and the collaboration between many retailers and
Speaker 2: consumer packaged good companies and these startups.
Speaker 3: So obviously Alice has spoken a bit about some of
Speaker 3: the food tech innovations that could help change the system.
Speaker 3: In terms of agricultural technologies, we have things like precision
Speaker 3: application of agrochemicals like pesticides or fertilizers, methane inhibitors so
Speaker 3: feed additives or injections for cows to reduce the amount
Speaker 3: of methane they produce, and green fertilizers so using green
Speaker 3: hydrogen to make fertilizers. These specific technologies. Whilst as Alistair
Speaker 3: alluded to, venture capital and private equity investment for things
Speaker 3: like holt Hernet meats has dropped fairly significantly in twenty
Speaker 3: twenty three. Investment in these agricultural technologies has remained relatively stable,
Speaker 3: particularly as well things like biologicals. So a biological is
Speaker 3: it's a pretty broad term for anything sort of biologically
Speaker 3: based that you can use on a farm, be it
Speaker 3: to enhance crop growth, to tackle pests. There's a whole
Speaker 3: range of different things. But obviously, unlike pesticize and fertilizers
Speaker 3: made from fossil fuels, they have much lower emissions footprints
Speaker 3: that would be the benefit of using them. So we're
Speaker 3: seeing a lot of further downstream companies collaborating with further
Speaker 3: upstream companies to deploy some of these technologies. And I guess,
Speaker 3: looping back to regenerative agriculture we talked about earlier, we're
Speaker 3: seeing a lot of cross value chain collaboration, so you'd
Speaker 3: see the likes of Nesle and Cargill collaborating on regenerative
Speaker 3: agriculture projects, or General Mills and Walmarts Walmart big supermarket chain,
Speaker 3: General Mills and our big manufacturing company ADM, one of
Speaker 3: the big traders we mentioned, and Buyer, a big agrochemical producer.
Speaker 3: So a lot of these companies are now working together
Speaker 3: on regenerative agriculture projects, which could be a sort of
Speaker 3: more optimistic sign of these companies working together to get
Speaker 3: a better sense of the on farm emissions that are
Speaker 3: contributing to both of their Scope three emissions footprints and
Speaker 3: thinking about how they can tackle these collaboratively.
Speaker 1: I've spent a lot of time trying to actually draw
Speaker 1: this back to climate and a lot of what I'm
Speaker 1: hearing is that it is very much a conversation then
Speaker 1: to itself and what are some of the ways that
Speaker 1: you really think about the agricultural food system, in particular
Speaker 1: sitting here in Bena, before we talk about emissions so much,
Speaker 1: what are some of the things that you think about
Speaker 1: that are completely separate from that that make it so
Speaker 1: incredibly important. I mean, the.
Speaker 3: UN a few years ago at Copp said they thought
Speaker 3: there were around sixty years left before our soils became
Speaker 3: so degraded in many places around the world that we
Speaker 3: can no longer farm in them. In some places of
Speaker 3: the world, people think that's as little as thirty years
Speaker 3: before our soil becomes so degraded and that we can't
Speaker 3: farm there anymore. So, if you're an agri food business,
Speaker 3: that is your supply chain potentially depleting. You know, irrespective
Speaker 3: of the emissions benefits of some of these changes in
Speaker 3: farming practices, in order to ensure we can keep farming
Speaker 3: in certain locations, there will need to be a change
Speaker 3: in the way we do things in the amount of
Speaker 3: plowing and fertilizer use that is going on, which is
Speaker 3: degrading the soil so much so, I do think that,
Speaker 3: irrespective of the emission's footprint of farming, the way we
Speaker 3: are degrading nature in sort of modern intensive agriculture is
Speaker 3: just not a sustainable way of farming. Going to come
Speaker 3: a point where we can no longer grow food if
Speaker 3: we continue as we are.
Speaker 1: So in this world of things that are so incredibly
Speaker 1: important to life on this planet, one thing that is
Speaker 1: intrinsically linked to the agriculture and food systems water And
Speaker 1: when we think about a warming planet and climate change,
Speaker 1: one of the things we know is happening is a
Speaker 1: disrupted water system. This does lead us down a path
Speaker 1: to another show someday on climate adaptation and how water
Speaker 1: features in that space. But before we get to the
Speaker 1: adaptation angle, what are some of the ways that agriculture
Speaker 1: across this entire value chain are thinking about water and
Speaker 1: water use and really the important role that water plays,
Speaker 1: whether it's relating specifically to climate or it's just relating
Speaker 1: to water use and better farming practices.
Speaker 2: Well. As we noted at the start, about three quarters
Speaker 2: of all global freshwater withdrawal is a result of the
Speaker 2: agricultural system, largely through irrigation, which is used to grow
Speaker 2: crops which are then use to feed livestock. So it's
Speaker 2: a massively inefficient system in terms of water. Of the
Speaker 2: one hundred and thirty or so companies that we assessed,
Speaker 2: about sixty percent of them have a concrete target for water,
Speaker 2: and that's not an aspirational Targets are hard time bound
Speaker 2: commitment to do something either in terms of their water use,
Speaker 2: water pollution, recycling intensity, or efficiency. But there's massive discrepancy
Speaker 2: between different segments of that value chain. About forty five
Speaker 2: percent of upstream companies, namely the input producers, have targets
Speaker 2: on water use, and that's because it's such a material
Speaker 2: issue for them. They use the most of it, so
Speaker 2: it matters in terms of their strategic and financial decision making.
Speaker 2: Only about five percent of the cohort that we assessed
Speaker 2: have targets and water recycling reuse, which is very surprising.
Speaker 2: We found generally that as you move further downstream, water
Speaker 2: becomes less material in your operations, especially in terms of
Speaker 2: water intensity, which is the amount of water use per
Speaker 2: unit of revenue that you earn. These companies have a
Speaker 2: smaller water footprint, so they don't need to factor it
Speaker 2: in so much in their decision making. Obviously, water scarcity
Speaker 2: becomes more of a pressing concern. These companies are increasingly
Speaker 2: open to water risk, and we anticipate that more investors,
Speaker 2: policymakers and consumers will put pressure in these companies to
Speaker 2: integrate water strategy into their decision making. We did see
Speaker 2: that about ninety five percent of companies acknowledge the importance
Speaker 2: of water in their annual or sustainability reports, but far
Speaker 2: few have a dedicated strategy to address it.
Speaker 1: So we just barely touched upon that topic, and I
Speaker 1: know that we will be able to revisit a number
Speaker 1: of things you brought up today, including what's happening at
Speaker 1: the biodiversity cop coming up. Thank you so much for
Speaker 1: joining today, Helen Alistair. It was great having you here.
Speaker 1: Today's episode of Switched On was produced by Cam Gray
Speaker 1: with production assistants from Kamala Shelling. Bloomberg NEF is a
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