Ed Bailey, assistant fund manager for the Sarasin Food and Agriculture Opportunities Fund, explores some of the innovations, adaptations and policies that will drive sustainable production growth in the agriculture sector.
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Food and agriculture is a key focal point of the climate change debate – climate change will impact agricultural production but agriculture itself is a major climate change contributor. The industry must continue to adapt to, and mitigate, this challenge.
Climate change villain…
The Intergovernmental Panel on Climate Change (IPCC) estimates that food production contributes over 25% of man-made CO2 equivalent emissions. The bulk of this is generated by nitrogen fertiliser production, deforestation and livestock production, though mechanisation and soil turnover are also contributors.
Nitrogen fertiliser: a revolutionary problem. Nitrogen fertiliser is produced by converting atmospheric nitrogen (through reaction with natural gas) to ammonia, which can then be further processed into urea or other applicable compounds. While this process has revolutionised agriculture, and is estimated to be responsible for sustaining a third of the world’s population, a proportion of the fertiliser reacts with oxygen when applied to a field, forming the greenhouse gas (GHG) nitrous oxide. This GHG has a global warming potential 296 times larger than an equal mass of carbon dioxide.
In the developed world, new formulations of nitrogen fertiliser by companies like Yara and more efficient application through precision farming have already done much to reduce the scale of emissions from nitrous oxide, but there is still considerable scope to reduce the wide use of basic urea and ammonia formulations in emerging market agriculture. It is estimated that a 20-30% reduction in nitrogen fertiliser use in China would save GHG emissions equivalent to Indonesia’s entire power sector.
Deforestation: regulation and industry awareness
Deforestation is often driven by farmers clearing land for pasture or crops. The spread of cattle farming into the Amazon, and the clearing of primary forest in Asia for the production of palm oil (increasingly used in process foods), are perhaps two of the most infamous examples; tropical deforestation is thought to release 1.5 billion tons of carbon each year.
National and international regulations and codes of best practice have been implemented across the world to stop further deforestation, and a number of companies have now committed to sourcing only products certified as sustainable by agencies such as the Roundtable on Sustainable Palm Oil (RSPO). Most large palm oil producers, for example, have now committed to processing only oil produced on sustainably managed land, and many palm oil users are similarly committed to a sustainable product.
Livestock: a meaty challenge
Livestock production is the most significant agricultural GHG emitter, producing 18% of total GHG emissions when land-use change including deforestation and feed production is taken into account. What’s more, emerging market diet change is driving increased demand for protein and livestock production will grow to fill this need. Some innovation is being made in cutting emissions through the use of enzyme based feed additives produced by Novozymes and through breeding animals that emit less methane (Genus) but the livestock industry will continue to be a major GHG emitter.
As such, we expect to see further government policies to regulate and reduce agricultural emissions from these key areas, but the bulk of the future reduction must come from emerging markets where progress lags developed agricultural economies. With emerging market governments reluctant to burden farmers and threaten food security, we see ongoing advantages for those companies finding new ways to provide low cost solutions to these challenges.
Climate change victim…
Agricultural production is highly dependent on localised weather conditions throughout the year, and different crops are suited to a range of climatic conditions. Palm oil, for example, can only be produced in a small tropical band within 20 degrees of the equator, while grains like wheat and corn require a more temperate climate.
Climate change will not affect all regions equally, creating a mixed impact of climate change on agricultural production. An in depth study conducted by the IPCC has concluded that the ideal range for grain production would slowly move North, and that farmers are already adapting to this through altering cultivation and sowing times and crop cultivars. Less work has been done on the impact on tropical crops, but it is possible that more humid conditions near the equator would have a net positive impact on the yields of palm oil and cocoa.
Short term weather extremes are considered a larger threat to annual production than long term climate trends. Over the past two decades, there has been a recordable increase in droughts, floods, heat waves and freezes. While these tend to have localised impacts, weather extremes in the major crop growing regions of the US, Brazil, Eastern Europe or China can send price shocks through the wider food and agriculture markets. While global grain stocks are recovering from record lows, a major disruption in agricultural production would once again strain supplies and food prices would again rise.
Evolution and adaption throughout the food and agricultural industry
Farmers are adapting their planting timings and crop rotations to adjust to the gradual warming of the climate, while also increasing the area of cropland under irrigation. New cultivars (including genetically modified crops) offer some protection against environmental stress and farmers are increasingly focused on improving soil quality. Those companies able to provide the innovation and infrastructure in seeds and inputs (Syngenta), equipment (Agco) and grain handling (Archer Daniels Midland) to facilitate this adaption are the likely beneficiaries of this trend.
At the consumption end of the food and agriculture value chain, leading food processors and retailers like China Mengniu Dairy and Barry Callebaut (chocolate) are also looking at ways to improve the security of their raw material supply. By diversifying sourcing, working with and supporting farmers and reducing waste, companies can reduce the impact of short-term price shocks and longer-term food price inflation.
Our response: engage and evolve
Climate change has the potential to alter the food and agricultural landscape significantly through the introduction of new policies aimed at reducing emissions, the adaption of farming practices and inputs and a greater focus on sustainable sourcing from food processors and retailers.
At Sarasin & Partners we believe that the best way to tackle these changes is through discussion with policy-makers, engagement with companies, and consideration of the impact of climate change on our investee companies. In this way, we are able to identify and monitor those companies driving and adapting to the new reality, and – we hope – those most likely to benefit.
Ed Bailey is the assistant fund manager for the Sarasin Food and Agriculture Opportunities Fund. He joined Sarasin to provide research overage of food and agriculture in 2008 and assumed fund management responsibilities in 2012.
Photo: CIAT via Flickr
4 Common Items That Can be Reused Again and Again
As a society we are getting much better at taking our obligations to the world and environment around us more seriously. This is undoubtedly a good thing! The effects of climate change are beginning to manifest across the world, and this is turning the issue from an abstract threat into a very real danger. Trying to introduce some greener, more eco-friendly practices into your life isn’t just a great way of doing something beneficial for society and the world around you. It is a wonderful way of engaging positively with the world and carries with it numerous psychological benefits.
Being a greener, more ecologically friendly person doesn’t require any dramatic life changes. Breaking or making a few small habits is all it takes to make your life a greener one. In this article we look at one of the easiest, yet most effective green practices to get into: reusing everyday items.
Jars and Containers
Glass and metal are widely recycled, and recycling is a good thing! However, consider whether any containers you buy, whether it’s a tub of ice cream or a jar of coffee, can be washed out and reused for something else. Mason jars, for example, can be used to store homemade pasta sauce and can be washed for future use. Once you start thinking about it, you will find endless opportunities to reuse your old containers.
An ice-cold soda is a wonderful treat on a hot day, but buying soda can get expensive, and the manufacturing and distribution of the drinks themselves isn’t great for the environment. However, by holding on to your old soda bottles and repurposing them as water bottles, you can save money on drinks, or use them to measure out water for your garden.
Most of the time groceries come in paper bags, which are better for the environment than the plastic alternatives, but they are less durable and thus harder to reuse. Whenever the store places your items in a plastic bag, hang onto it so you can reuse the bags again. If you want to take it one step further, consider looking into buying some personalized recycled bags. These bags are designed to last for a long time and are made of recycled materials. They look striking and unique, they’ll turn heads, and maybe even attitudes!
If you’re a keen gardener, then you will already probably know how to reseed your plants in order to ensure a fresh crop after each plant’s lifecycle. If you have space in your garden, or haven’t yet tried your hand at gardening, then consider planting a small vegetable plot. Growing your own veggies means that you’ll be helping to cut back on the emissions generated by their transport and production. The best part about growing your own food in this way is that, by harvesting properly and saving the seeds, you can be set up with fresh vegetables for life!
Reusing and recycling common household items is an easy way to make your world a little bit greener. Once you start looking for these opportunities you’ll realize that they’re everywhere!
These 5 Green Office Mistakes Are Costing You Money
The sudden interest in green business is very encouraging. According to recent reports, 42% of all companies have rated sustainability as an important element of their business. Unfortunately, the focus on sustainability will only last if companies can find ways to use it to boost their ROI.
Many businesses get so caught up in being socially conscious that they hope the financial aspect of it takes care of itself. The good news is that there are plenty of ways to go green and boost your net income at the same time.
Here are some important mistakes that you will want to avoid.
Only implementing sustainability on micro-scale
The biggest reason that brands are going green is to improve their optics with their customers. Too many businesses are making very minor changes, such as processing paperwork online and calling themselves green.
Customers have become wary of these types of companies. If you want to earn their business, you are going to need to go all the way. Bring in a green business consultant and make every feasible change to demonstrate that you are a green organization from top to bottom.
Not prioritizing investments by long-term ROI
It isn’t realistic to build an entirely green organization overnight. You will need to allocate your capital wisely.
Before investing in any green assets or services, you should always conduct a long-term cost benefit analysis. The initial investment for some green services may be over $20,000. If they don’t shave your cost by at least $3,000 a year, they probably aren’t worth the investment.
Determine which green investments will have the best pay off over the next 10 years. Make these investments before anything else. Then compare your options within each of those categories.
Implementing green changes without a plan
Effective, long-term planning is the key to business success. This principle needs to be applied to green organizations as well.
Before implementing a green strategy, you must answer the following questions:
- How will I communicate my green business philosophy to my customers?
- How will running a green business affect my revenue stream?
- How will adopting green business strategies change my monthly expenses? Will they increase or decrease them?
- How will my company finance green upgrades and other investments?
The biggest mistake that too many green businesses make is being overly optimistic with these forecasts. Take the time to collect objective data and make your decisions accordingly. This will help you run a much more profitable green business.
Not considering the benefits of green printing
Too many companies believe that going paperless is the only way to run a green organization. Unfortunately, going 100% paperless it’s not feasible for most companies.
Rather than aim for an unrealistic goal, consider the option of using a more environmentally friendly printer. It won’t be perfect, but it will be better than the alternative.
According to experts from Doranix, environmental printers have several benefits:
- They can process paper that has been completely recycled.
- They consume less energy than traditional printers.
- They use ink that is more environmentally friendly.
You want to take a look at different green printers and compare them. You’ll find that some will meet your needs as a green business.
Poorly communicating your green business strategy to customers
Brand positioning doesn’t happen on its own. If you want to run a successful green business, you must communicate your message to customers as clearly as possible. You must also avoid the appearance that you are patronizing them.
The best approach is to be clear when you were first making the change. I’ll make an announcement about your company‘s commitment to sustainability.
You also want to reinforce this message overtime by using green labels on all of your products. You don’t have to be blatant with your messaging at this stage. Simply provide a small, daily reminder on your products and invoices.
Finally, it is a good idea to participate in green business seminars and other events. If your community has a local Green Chamber of Commerce, you should consider joining as well.
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