Report | April 2024

Grow, move, eat, repeat

Agri-food faces a tricky road ahead, shaped predominately by sustainability goals which it is structurally unprepared to deliver. A plausible path forward is to deploy mature and investable solutions today, while experimenting with nascent ones over the longer term. We explore solutions across the value chain—Grow, Move, Eat—and the role of finance in facilitating their development and deployment.

  • By William Nicolle

Executive summary

The Green Revolution confounded Malthusian predictions of widespread food scarcity, but revolutions are rarely black and white. Today the food system generates detrimental impacts on health, climate, and nature—creating negative externalities to the tune of USD 15tr every year (2020 USD), or 12% of global GDP.1 The agri-food industry is now entering a new phase—what we call, Green Revolution 2.0. This report analyzes the solutions that characterize it, and the role of capital providers in facilitating their development.

Green Revolution 2.0

A critical phase in the agri-food industry is emerging from the interaction of three macro trends:

  1. Global sustainability targets: No industry substantially impacts both the climate and nature like agri-food, which drives up to 30% of emissions and at least 90% of deforestation.2 The Paris Agreement and the Global Biodiversity Framework imply significant changes for the industry, and transition risks—like reducing fertilizer use or reforming subsidies—already exist.

  2. Food security: The “global supply chain reset” and sustainability targets mean two things for food security. The first is doing more with less. For instance, recent spikes in energy prices raised fertilizer and food costs in many countries, putting pressure on farms to increase input efficiency. The second is a shift to closely scrutinizing how food is sourced. Countries that rely on only a few sources might face risks from failed harvests or geopolitical conflicts.

  3. Just transition: The transition will be politically unsustainable if it comes at the cost of livelihoods, which could be adversely affected as farms improve productivity and reduce their need for labor. Recent modeling suggests sustainability goals could increase food prices by 30% by 2050 compared to current trends,3 creating a dangerous tradeoff between sustainability and social goals, such as zero hunger by 2030 (Sustainable Development Goal 2).

These pressures imply fundamental changes regarding how the world grows, moves, and consumes food. Global sustainability goals will most likely act as the driving force behind how and what food is produced, given they require an immediate end to agricultural land expansion and a rapid shift to plant-based diets.

Structurally unprepared

Yet, the agri-food industry is structurally unprepared to deliver sustainability goals smoothly—it is risk averse, cautious, and fragmented.4 Its cash flow cyclicality; intensely price-driven dynamics; and uncertain, weather-dependent production cycles brew a general reluctance to invest in more efficient productive assets as well as research and development, keeping innovation rates low. Solutions are available, but enacting them to achieve a Net Zero, Nature Positive agri-food industry requires new dynamics: Calculated risk taking in a stable commercial environment; high innovation rates; and a willingness to adopt new technologies. Embracing these dynamics means farmers and companies can position themselves ahead of unfolding trends, capturing premiums as the industry transitions.

Solutions across three stages of the value chain: Grow, Move, Eat

Many solutions exist to improve sustainability across the three stages of the agri-food value chain—Grow, Move, Eat—but there are no silver bullets. A plausible path for the industry to achieve progress on sustainability goals is to deploy mature and investable solutions that provide a meaningful impact over the next decade and continue experimenting to bring other solutions to market.

The Grow stage generates most of the emissions and environmental impacts of the industry, which means it also presents a significant opportunity to improve sustainability. Solutions are grouped into improving on-farm efficiency, changing the production model, and adopting advanced tools. Precision agriculture offers the most substantial near-term benefits: It can dramatically increase input efficiency, yields, and is investable today—a “no brainer” if financing is available and affordable.

Improving sustainability in the Move stage centers on injecting flexibility into the supply chain, by either increasing the shelf life of food, or enabling food to move in response to demand, ultimately reducing food waste. Solutions include edible coatings and films, expanded and more efficient cold storage, and digital screening tools.

Finally, the decisions made by consumers and retailers in the Eat stage drive significant changes throughout the entire value chain. They do so by providing better information to each other, such as through dynamic pricing, or by encouraging better consumption habits, such as via nudges.

The role of capital markets

The financial industry’s role in facilitating the agri-food industry’s transition is the same as usual: Convening users of capital across the value chain and matching them with capital providers based on their risk-return preferences. However, what could change is how capital markets fulfill this function. We propose a three-pronged framework (finance, convene, engage) to provide a wide range of financial tools, such as UBS’s partnership in Tanzania to deploy Outcome-based Nature Finance; convene stakeholders across the value chain to tackle information barriers, such as the FAIRR initiative, in which UBS is a member;5 and leverage engagement with strategic stakeholders in the value chain (i.e., those occupying oligopolistic market positions, like large food companies and food commodity traders) to deliver sustainability priorities.

While capital markets can take more action, they are only an enabler and require public support. Traditional economic models assume that governments act when a market produces negative externalities; they should sit in the driver’s seat to transform the agri-food industry.

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