This article originally appeared in the Nov. 18, 2022 issue of The Economist
Globally, the food and agribusiness sector represents 35% of all jobs and close to 10% of GDP, with the world’s farmers producing enough food to feed up to 10bn people. Yet despite this apparent success, food systems are in urgent need of transformation.
Food and agriculture collectively account for more than 30% of greenhouse gas (GHG) emissions and over 80% of deforestation and biodiversity loss around the world. Up to 2.3bn people face moderate or severe food insecurity, but at the same time more than 1bn people are obese, and diet-related diseases are the leading risk factor for death in most countries in the world.
Developed countries are among the most agriculturally productive in the world, but they remain some of the largest emitters of GHGs from agriculture. Diets in higher-income countries also tend to include more animal protein (particularly red meat), which has a high GHG footprint, and are higher in total calories, sugar and processed foods, leading to the obesity and diet-related health issues observed today.
Solving these nature, climate and nutrition challenges will require transforming food systems. “Every country needs to develop and implement an integrated food systems transformation roadmap,” urges the World Economic Forum (WEF) in a January 2023 report co-authored by Bain & Company. The new report highlights examples of successful country-level food system transformations, and identifies repeatable models that could be deployed in countries around the world.
In developed markets, transformations will require changing both how food is produced (using nature-positive and climate-smart agricultural practices for crops and livestock production) and how it is consumed (providing healthier and more sustainable options for consumers). “Both of these need to happen if we’re going to solve the issues that the more developed countries are facing,” says Andrew Keech, expert associate partner in Bain’s Agriculture & Food and Sustainability practices.
When transformed, food systems can even go beyond solving the immediate issues related to food, and help to tackle some of the world’s toughest problems. For example, regenerative, climate-smart farming practices have the potential to sequester within soils a significant share of annual global GHG emissions—between 9% and 23%, the U.N. Food and Agriculture Organization estimated in 2017.
Expanding supply: Supporting farmer adoption of nature-positive and climate-smart practices, inputs and technologies
While no country has fully solved its food-system challenges related to nature, climate and nutrition, a few offer pockets of promise. In Canada in the 1980s, a public-awareness campaign on the importance of soil health led growers to learn about the advantages of sustainable farming practices. They then gained access to better equipment and farming methods. Government funding made purchasing the new equipment affordable enough for farmers to switch to more sustainable practices. By 2016, 82% of Canada’s cropland was under conservation tillage, a regenerative agricultural practice that increases sequestration of carbon in soils and provides vital benefits to soil health such as reducing erosion and retaining more moisture.
Canada’s example illustrates that driving farmer adoption of climate-smart and nature-positive practices, tools and technologies requires four pivotal components: (1) awareness—the knowledge of such practices and technologies and the expertise to implement them; (2) advantage—the confidence that adoption will provide an attractive economic return; (3) access—to the right inputs, equipment and methods when and where they are needed; and (4) affordability—of upfront costs and availability of financing to support initial investments.
Building an economic case for growers is an especially important step towards greater adoption of regenerative agriculture practices. Downstream food companies will have a pivotal role to play in building that economic case for change, by creating demand signals for—and placing a value on—sustainably produced food.
Stoking demand: Helping consumers choose healthy and sustainable diets
Consumers around the world say they value sustainable food offerings. Yet these sentiments aren’t fully expressed at the checkout. This gap between what consumers say versus what they actually do exists because the current selection of healthier or sustainable options requires trade-offs. Consumers want food and beverage products that are delicious, healthy, sustainable, convenient and affordable, says John Blasberg, senior partner and leader of Bain’s Sustainability & Responsibility practice for the Americas, and of Bain’s Food Systems Transformation initiative globally. But consumers encounter three major hurdles to healthier and more sustainable products: higher prices, confusing or unreliable product information, and an inadequate variety of options in the places they shop.
Further complicating matters is consumers’ confusion over what actually is a healthier or environmentally friendly product. A majority (55%) of U.S. consumers are misinformed about the sustainability of individual products—even those who report being more concerned about the environment, according to a study by Bain in June 2022 of U.S. consumers’ shopping behavior regarding environmental sustainability and social responsibility. What’s more, nearly three-quarters of consumers were unable to identify which of two products has a lower carbon footprint.
These barriers—pricing, consumer communication and product availability—are within brands’ and retailers’ control. More than half of consumers expect brands to help them overcome the barriers to consuming healthier products, Bain’s research shows. Globally, at least two-thirds (68%) of more than 23,000 consumers surveyed in 2022 by research firm Ipsos say that if businesses in their country don’t act now to combat climate change, they will be failing their employees and customers. “The food industry is at a pivotal moment where companies can either create value over the next ten years, or they can be fundamentally disrupted,” Mr Blasberg says. “Some companies are going to be the food companies of the future, and some are going to become irrelevant.”
In addition to meeting the needs of the consumer, food companies must also confront other looming factors such as potential government regulation to mitigate diseases such as diabetes and high blood pressure. What’s more, in 2021 venture capital spent $12bn-13bn on healthy and sustainable food and agriculture technology (such as alternative proteins or cell-based meats), compared with $3bn-4bn in R&D expenditures by the top ten global food and beverage companies combined. “That’s either an enabler or a threat to incumbents because the insurgents are solving the problems that face the consumer and environment,” Mr Blasberg says.
Embracing the ecosystem
“Food companies play a pivotal role because of their scale and because they sit in the middle of the value chain,” Mr Blasberg says. “They can influence both the upstream farmers and downstream products and information to consumers. They are in a unique position to influence the system given their scale and scope.”
The implications for the food industry are profound. For some, it may necessitate a reinvention of their portfolio of food offerings. For many, it will require pre-competitive collaborations, where manufacturers that are typically competitors work together with suppliers, retailers, governments and non-profit organizations. Moreover, businesses will need to create demand signals and commitments so that farmers feel confident enough to accelerate the transition towards regenerative agriculture.
Businesses from various sectors have taken steps to lower their carbon footprints, but larger strides are still necessary. For instance, more than 90% of the top 30 food companies have set some net-zero targets. But Bain research shows that only 50% have set goals on all parts of scope 3: upstream, logistics and downstream (consumers). Moreover, health-related commitments account for only 7% of ESG commitments at the largest food and beverage companies. And when it comes to sustainable sourcing, less than one-third (27%) of businesses are on track to reach their targets, and just 30% have a goal to be forest-positive.
The scope and complexity of the challenges facing food systems requires multi-stakeholder action from industry, governments and non-profit organizations, and a pivot in the way companies work internally and externally. “There is a growing recognition of both the impact of food systems globally and the urgent need for change,” Dr. Keech says. “Solving these kinds of challenges is not something that can be done by a single actor. Next-generation coalitions are needed, which bring all of the right players together from across the value chain, collaborating to create the right conditions for change.” The food companies of the future will need to focus not just on creating a product and selling it, but also on working with other players to make the entire food system work more effectively for the planet and its people.