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Sustainability emerging in agribusiness

Sustainability is transcending traditionally scrutinized industries to become a central issue in agribusiness, according to a new report from Fitch Solutions Macro Research.

Consumer facing industries are rapidly adapting to shifts in public environmental consciousness and engagement, propelling faster government and corporate action. Legislation on plastic bags has had a major impact on mass grocery retail in recent years. Sixty-six per cent of countries worldwide have enacted some form of national legislation addressing plastic bags, with a growing number of local governments doing the same, according to the United Nations Environmental Program.

 
Governments also are turning their attention to single-use plastics, with dozens of countries enacting bans on single-use packaging and other sources of plastic pollution. Global CPG companies have a history of implementing sustainability strategies, and a push is emerging from within these companies to set their own goals for tackling environmental issues, according to the report.

Longer supply chains have so far kept the agribusiness industry insulated from consumer-driven pressure to alter practices and government policy. The political sensitivity surrounding farms means it takes governments time to develop and implement new policies, and on-the-ground challenges of improving sustainability on the farm level have translated into less aggressive goals.

Two global trends will make sustainability a central issue for agribusiness companies in coming years, the report said.

First, agriculture accounts for a significant share of the world’s global greenhouse gas (GHG) emissions. The sector is responsible for nearly a quarter of all anthropogenic GHG emissions and is the world’s largest contributor of non-carbon dioxide emissions, according to the Intergovernmental Panel on Climate Change. Second, consumers’ concerns over health, sustainability and animal welfare continue to rise, adding to a sense of urgency.

Some countries already are looking at implementing stricter environmental policies. New Zealand’s plan to strengthen its carbon trading scheme will most likely include agriculture, and the country is planning to reduce methane emissions from livestock by at least 10% by 2030. In China, the government is making efforts to stabilize the use of fertilizers, which have depleted soil quality after decades of overapplication.

Most governments in developed markets will be slower to act, according to the report.

“Reform is going to come, but I think it might be relatively slow and it’s not necessarily guaranteed to come right away,” said Cole Martin, senior agribusiness analyst at Fitch Solutions Macro Research. “Overtime, it ultimately is going to increase.”

As governments delay acting, consumers will have the biggest impact on sustainability issues surrounding agribusiness.

“What we are seeing already are structural changes to people’s diets,” Martin said. “People are eating less meat, for example.”

While meat consumption is forecast to remain on a slow uptrend for now, the report predicted a reversion in consumption in the next two decades, driven by both health and environmental concerns.

“It’s not just meat,” Martin said. “Things like sugar free drinks, smart fertilizers and precision agriculture are all things companies are going to have to adapt to.”

Social media and easy access to information also are driving consumer interest in sustainability, making it easier to expose companies and sectors that aren’t adopting best practices.

Palm oil is one of the first agribusiness sectors to face clear sustainability challenges. As public awareness about deforestation to expand plantations grows, pressure is feeding through the supply chain.

Food companies like Unilever, Nestle, Kellogg, Hershey and Mondelez are putting pressure on suppliers to change their practices. Retailers, including Target, Walmart, CVS, Albertsons Cos., Aldi, Lidl, Costco and Ahold Delhaize also are adopting policies regarding sustainable palm oil sourcing, as are restaurant brands such as Krispy Kreme, Starbuck’s, McDonald’s, Sodexo and Restaurant Brands International.

“What we’re seeing is a lot of palm oil companies making sustainability a lot bigger part of their platform compared to other sectors, because of demand from consumers and from companies that are part of the supply chain,” Martin said. “They’re looking at things like improving traceability, reducing deforestation and reinvesting in plantations. It’s a multitude of things they’re going to have to do.”

The challenges faced by palm oil players could be a clue to what lies ahead for other sectors with problematic sustainability records like beef and pork, sugar, chocolate, fishing and soybean production in Brazil, according to the report.

“The downstream food companies are pretty big,” Martin said. “They have pricing power relative to their suppliers, but not relative to consumers. If they can get suppliers to improve sustainability, that helps them. A lot of them are getting squeezed by supermarkets, by other parts of the supply chain, by competitors. This is part of what’s forcing them to look at the sustainability angle from suppliers.”


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