Five changes agri-businesses need to make if they want to survive
Businesses are becoming greener than ever thanks to increasing consumer demands for fairer, more socially responsible corporate practices. And with the substantial purchasing power of millennials, who are willing to pay a premium for sustainable products, this shows no sign of slowing down.
But sustainability in business is not just about hitting the right image of corporate responsibility or jumping on the environmental bandwagon to make more profit. It's also essential for the very life expectancy of corporations and companies themselves.
And when it comes to businesses that rely on natural resources, especially agri-business, environmental risks are synonymous with business risks.
Food and biomass production is today the world's single largest driver of environmental degradation. Some 40 percent of the world's land and more than 70 percent of water withdrawals is diverted to agriculture. Meanwhile, our means of artificially enhancing soils and waterways for productivity gains are limited; we can only rely on fertilizer to replace nutrients and maintain profit margins for so long.
Yet it is possible to change production systems so that landscapes act as carbon sinks, to halt the expansion of agricultural land and ecosystem degradation, and to stop the pollution of water and soil caused by excessive fertilizer use. By doing so, agri-business not only mitigates environmental risks and achieves greater food security but also becomes more sustainable in itself.
It is possible to change production systems so that landscapes act as carbon sinks, to halt the expansion of agricultural land and ecosystem degradation, and to stop the pollution of water and soil caused by excessive fertilizer use.
By transforming agri-food systems, businesses can achieve the real triple bottom line: profitability; social sustainability; and securing their — and the planet's — survival. Ahead of the Economist's Sustainability Summit this week, here are five critical ways of thinking that deal with environmental risks and meet consumer demands in one go:
1. Adapt to local context
Technology can drive innovation and new solutions, but these must be appropriately managed and incentivized to avoid creating trade-offs in other areas.
For instance, using solar power to pump groundwater for agriculture production is, in theory, a great green alternative to electric or diesel pumps. But making groundwater pumping cheaper can have the adverse effect of depleting groundwater resources and degrading water quality.
The International Water Management Institute (IWMI) and the Tata Trust have been testing a solution in India that gives farmers the option to sell excess power from solar pumps back to the grid. The guaranteed buy-back scheme means farmers only pump the water they need. The result is a "triple win": farmers gain income; the state gains electricity reserves; and the water source is conserved by curbing usage.
2. Seek new business opportunities
Contrary to concerns that going green is bad for business, the green economy is opening up many new opportunities. Agri-business companies can dig down across the supply chain to find new ways to make money, in the least expected places.
For instance, the growing population will need innovative solutions to deal with, among other things, more and more waste. A new report by ING estimates that the circular economy alone can save up to 11 percent of annual global water demand and create new business opportunities. Meanwhile, scientists have analyzed a variety of business models for reusing sewage, for example, for reuse in irrigation or recovering nutrients for fertilizers, thus closing the gap in loss of phosphorous.
3. Share risks
Achieving sustainable, healthy food systems will require more than just changes in agricultural production: it requires innovative solutions that bring in new financing and governance arrangements. In Africa and Latin America, water funds and other multi-institutional schemes are redefining how water infrastructure is paid for and how water resources are governed. In Kenya, the Tana Water Fund became Africa's first public-private water partnership. It is a new way to balance the water and ecosystem needs of different actors in the Tana basin, including water for agriculture, beverages, electricity and urban use. Overall, a $10 million investment in Water Fund (PDF) interventions by breweries and even Coca-Cola is expected to return $21.5 million in economic benefits over the 30-year timeframe.
4. Work with nature, not against it
There is a strong business case for companies to invest in nature-based solutions to supplement or replace large scale traditional man-made infrastructure. It can reduce costs, improve operations, generate financial gains and improve relations with surrounding communities.
In the Tana Basin, a range of natural solutions were identified to reduce sedimentation and erosion such as vegetation buffer zones along riverbanks, terracing along hill slopes, grass strips in farmlands and road erosion mitigation. This case for doing so was good enough for a number of multinational companies, including Coca-Cola, to invest in.
5. Mitigate risk
Farming is one of the riskiest businesses on the planet — and farmers, particularly in the developing world, often lack access to timely insurance. One way to help smallholder producers bounce back after disasters is to help improve insurance schemes for farmers.
Still in its infancy, the Index Based Flood Insurance (PDF) is a unique product which has the potential to scale-up to reach millions of smallholder farmers in some of the poorest areas of the world, many of which were previously considered uninsurable due to the high costs associated.
So "going green" is no longer just something companies do as part of their corporate social responsibility commitments but is fast becoming the core of their own business strategies. It is no longer enough to focus on maximizing production, or minimizing impact. Building resilience and sustainability is the only way to underpin not only your business, but also our societies, communities and ecosystems as they respond to change, bounce back and transform in situations of crisis.
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