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