Innovation and investment are needed to deliver more food production yet cut the industry's greenhouse gas emissions, argue Vincent Nobilet and Frédéric Dubois
It's a startling fact that July 2023 was the hottest month on record. With high temperatures and drought baking farmland across much of southern Europe and the US, a crisis in food production is hitting not just areas of Africa but also parts of the world previously regarded as always fertile.
This means that the problem of malnutrition across much of Africa and Asia may well get worse. Yet the global population is forecast to expand from 8 billion currently to 9.8 billion by 2050 and 11.2 billion in 2100, according to the UN Department of Economic and Social Affairs.
This points to the paradox at the heart of food production. With food shortages already occurring, and the population set to grow, there's an urgent need for more food. However, food production is one of the biggest generators of greenhouse gases, which means an increase in production would likely heat the planet even more, ruining more agricultural land.
To resolve this, what's needed is nothing more than a revolution in how food is produced. That will take innovation and huge amounts of capital to develop and scale up.
Healthy planet equals healthy people
Policymakers recognize the strong link between healthy planet and healthy people, with the EU putting a sustainable food system at the heart of its Green Deal in the farm to fork strategy. It's looking to accelerate the transition to a sustainable food system that both mitigates the effect on climate change and reduces biodiversity loss to ensure the affordability of food for all.
In the US, the Inflation Reduction Act has similar goals, seeking to subsidise climate-smart agriculture.1
The carbon footprint of food production illustrates the need to promote solutions to boost food production while cutting greenhouse gas (GHG) emissions. Agriculture, including livestock and fisheries, currently accounts for approximately a quarter of the global total.
Notably, foods with higher health risks like red meat have the biggest environmental footprint, with healthy fruit and vegetables the smallest.
Despite this, just about 11% of the investments in climate tech start-ups go towards agri-food,2 suggesting there is a huge opportunity in innovation for sustainable food systems. It's estimated that a massive $840 billion in annual capital spending is required for the sector to reach net-zero emissions by 2050.
"It's estimated that a massive $840 billion in annual capital spending is required for the [agri-food] sector to reach net-zero emissions by 2050"
Yet over $500 billion of public spending goes every year to agriculture, according to the UN Environment Programme.3 Much of this could be repurposed towards more sustainable practices, leaving a somewhat smaller gap for private finance to fill.
It's worth noting, though, that food production's environmental and social challenges are not limited to climate change: agriculture is responsible for about 80% of total deforestation (itself partly answerable for climate change) and has many other negative impacts.
Issues include excessive withdrawals of fresh water; pollution of land, rivers and seas; loss of biodiversity; child labour, to name a few. A complex sector, it touches many of the UN's 17 Sustainable Development Goals.
From alternative proteins to regenerative agriculture
Just as animal proteins are in the spotlight as the type of food doing most environmental damage – red meat is worst with white meat not far behind – so too alternative proteins in meat and dairy products have been a focus for investor capital. In 2021, for instance, over $5 billion was invested across plant-based, fermented and lab-grown proteins.
Currently, the market for dairy products like plant-based beverages and yoghurts is sizeable and growing. But the development of alternative meats has disappointed, partly due to problems replicating the taste and texture.
Insect-based proteins are a promising area for alternative proteins, especially due to their merits in the circular economy, where nature is regenerated.
Insect-based proteins can be used to feed livestock like fish and pets. The insects feed on waste and their own waste can then be used for fertiliser. Already, several plants are in operation and the potential market is estimated by some private actors at €25 billion by 2030.
Managing packaging waste, especially plastics, is another area in urgent need of improvement.
Unilever, for example, plans to halve its use of plastic made from raw materials by 2025. It has also become the first corporate to guarantee a corporate-backed impact bond which helps the Nigerian WeCyclers social enterprise to collect plastic waste. Structured by Societe Generale, the bond could pave the way for other companies to guarantee development impact bonds (DIBs).
Equally significantly, we are likely in the coming years to see a big wave of conversion from conventional farming to regenerative agriculture, a revolutionary practice that seeks both to regenerate impoverished soils and naturally sequester carbon from the atmosphere. Innovative tech companies are flourishing in that space, including those specialising in mapping soils and calculating carbon sequestration.
Taking a holistic approach to finance
But if food's sustainability paradox demands nothing short of a revolution in production and waste management, so too the banking sector needs to adapt. At Societe Generale, this means working across the sector's entire value chain and developing ways to accept the risk of financing early-stage companies.
The bank is helping to finance the sector's change through its 'Shift' initiative. For instance, trade and commodity finance specialists now work alongside project financiers and venture tech specialists to take a holistic approach spanning the food and beverage value chain.
Just as food production is in need of a revolution in its methods, so too the financing of the sector must adapt. To provide the capital required, banks must adapt their attitudes to risk and bring together their experts from across the industry and related areas.
Vincent Nobilet is managing director of agribusiness, trade and sustainable commodity finance at Societe Generale. Frédéric Dubois is managing director and co-head of consumer, retail and luxury at Societe Generale.
- https://www.usda.gov/ira
- PwC State of Climate Tech 2022. Overcoming inertia in climate tech investing. November 03, 2022. https://www.pwc.com/gx/en/services/sustainability/publications/overcoming-inertia-in-climate-tech-investing.html
- https://www.unep.org/news-and-stories/press-release/un-report-calls-repurposing-usd-470-billion-agricultural-support
Channels:Natural Capital
Companies:Societe Generale