Written by Shin Furaya, Director of Impact Strategy and Mary Cobble, Investment Analyst
Short interview conducted in June 2023 also available here
Despite the rapid changes and burgeoning innovations happening in real time around us, one cornerstone of our society has failed to keep pace: our food systems. The world’s population surpassed eight billion in 2022, and by 2050, it is expected to reach nearly 10 billion. Yet, simultaneously, one in ten people worldwide presently suffer from hunger while one in three lack regular access to adequate food.
We believe that no system acts in isolation from the rest of our economy and planet, and our modern food systems are no exception. Half of the world’s habitable land is currently used for agriculture, and consequently, agriculture and its contingent practices have become the single most significant cause of deforestation and severe degradation worldwide. While the relationship between forests and the food on your plate may not be an obvious one, consider the fact that livestock alone accounts for 77% of global farming land but only produces 18% of the world’s calories. We can begin to see more clearly the tangible effects of a meat-reduced diet, for example, that frees up land for other, more “valuable” crops to grow.
Bettering the system does not stop at simply repurposing the land, of course. While the evolution of alternate diets, organic fertilizers, or recycled rainwater use is significant in the fight for better farming, so too is the innovation surrounding controlled environment agriculture (CEA) or high-rise farming, among other areas, which could ultimately help prevent further deforestation. If we are to undertake the challenge and exploration of how we can rethink these systems, these solutions and their respective implications are crucial to understand, both as consumers and as investors. In addition, we must also understand the critical functions forests perform.
The Benefit of Forests
Forests reduce soil erosion, improve water retention, and can even physically protect the land itself from rain, wind, or flooding. They also present a wealth of biodiversity by providing an ideal habitat for critical agricultural players like pollinators or pest-killing natural predators. Additionally, forests can function to keep soil in its most suitable condition for food production, in part by helping regulate the biogeochemical cycle of nitrogen (a key nutrient for plants that needs to remain balanced) and by cleaning nitrogen oxide from the air. While nitrogen oxide is a known key pollutant which can deplete the ozone, it simultaneously can greatly damage crops, and subsequently crop sales. Taken together, each of these detrimental factors can reduce crop yields – but by preserving our forests, and biodiversity, these systems remain intact. Lastly, through trees, other plants, and the soil beneath them, intact, old-growth forests can act as one of the most powerful carbon storage systems on terrestrial earth, capable of absorbing almost 30% of annual anthropogenic GHG (Greenhouse Gas) emissions. This feature alone plays a crucial role in regulating our climate, which makes sense, because climate systems, forests, and agriculture are closely interconnected.
The Intersectionality between Climate Systems, Forests, and Agriculture
At the larger system level, agricultural yields rely heavily on stable climate and weather patterns. The irony is decades of large-scale industrial agricultural practices with a primary focus on increased yield have contributed greatly in severely damaging our climate systems. This has now forced frequent disruption and continual yield declines in many countries. As it relates to weather, climate change increases the frequency of acute, extreme weather events. However, it also creates long-term changes in the climate, many of which are found to be detrimental to agriculture. Furthermore, such practices have destroyed biodiversity, forests, and soil – three critical safeguards for agriculture from the kinds of extreme weather events we have already started to witness.
While biodiversity and forests may be the more well-known or understood of these three safeguards, forest soil is an equally powerful carbon storage system capable of helping maintain a suitable climate. Like forest soil, cropland too has significant carbon storage capacity if sustainably practiced such as regenerative agriculture. However, soil disturbance through deforestation, as well as large-scale industrial agriculture with aggressive tillage, has degraded and eroded vast areas of topsoil where most carbon and nutrients are stored. Large-scale ranching, necessarily accompanied by massive monocrop production for animal feed, has only further accelerated this deforestation and soil degradation. Palm oil plantations, as well, are another leading and driving force of deforestation. These practices have severely deteriorated earth’s ability to sequester GHGs, thus contributing to broader climate change.
Aside from direct deforestation impact, large-scale industrial agriculture itself is also a significant source of GHG emissions throughout its value chain, from significant use of agricultural chemicals to fuel for large-scale farm equipment, to transportation for large-scale monoculture farm products (which are forced to be transported great distances given their lack of relationship or correspondence to local food demands). Each of these factors contributes to an increase in fossil fuel demand, further accelerating climate change. Excessive use of agricultural chemicals on its own can generate enormous amounts of runoff pollutants like phosphate or nitrogen into nearby bodies of water, destroying the aquatic systems by adding excessive nutrients in a phenomenon known as eutrophication. This causes explosive algal bloom and accelerated decomposition, depriving oxygen from the water in another phenomenon called hypoxia, killing fish and other aquatic life. All in, the resulting effect can be a loss of biodiversity or an increase in methane emissions, a powerful greenhouse gas.
Agriculture depends on its surrounding ecosystems, thus it is directly impacted by changes in climate – changes that can be exacerbated all over the world by deforestation. Forests have the ability to regulate weather patterns, even for geographically remote regions. For example, a growing body of evidence suggests that deforestation in the tropics, including the Congo Basin in Africa, Southeast Asia, or the Brazilian Amazon, could have significant impact in North America, China, and India by reducing precipitation, therefore affecting the severity of drought. Drought then can add to wildfire conditions, which can affect agricultural production through extreme events or deteriorate crop yields as a part of long-term climatic shift, affecting farm revenue.
The final element often overlooked in the relationship between agricultural systems and climate is the sheer importance of agricultural communities and their inhabitants remaining healthy. Deforestation has been linked in multiple studies to a rise in infectious diseases as it changes the migrations and behavioral patterns of disease-carrying (known as vectors) species whose habitats have been destroyed. This then exacerbates the health issues of farmers and their rural communities, which can further disrupt food production. All in, these health-related issues in agriculture and deforestation of course have system-level implications. These infections can spread far beyond rural communities, and there are even concerns about carcinogenicity and mutagenicity of pesticides and herbicides linked to various health issues affecting farmers, local communities, and customers. Emerging concerns regarding excessive use of antibiotics for farm animals have been linked to antimicrobial resistance (AMR), which leads to drug resistant bacteria, or pan-drug resistant (PDR) organisms whose bacteria or viruses are resistant to all available antimicrobial drugs. It has been estimated that AMR could cost the global economy $100 trillion by 2050, while the projected annual AMR associated death rates could reach 10 million annually. Furthermore, there have been observed trends that climate change has increased AMR, thus exacerbating the crisis.
So, all in all, agriculture is both connected to and in interaction with these larger systems of climate, forests, and biodiversity while simultaneously affecting these systems’ ability to function as guardians of climate, food, and health. The challenges the agricultural and food sectors are facing are as complex as the systems they are a part of.
Finding Opportunities in the Challenges Facing Forests and Food
Due to significant anticipated population growth, there will be a substantial demand increase expected for agricultural and food products in the coming decades. Simultaneously, because of climate change, prolonged pollution, and disturbances to the soil, it is currently projected that crop yields will only continue to fall. Furthermore, arable land has been declining each year across the globe, driven by residential and commercial development accompanied by population growth combined with loss of livelihoods for farmers. If not insurmountable, it is at minimum an enormous, unprecedented challenge facing our agricultural and food sectors.
Large-scale, industrial agriculture contributed to many of these issues over the past several decades. However, this is now the space where we’ve seen some of the most notable trends – one of which being regenerative agriculture. In regenerative agriculture farming, the soil is not tilled, and a cover crop is used to keep more natural nutrients in the soil instead of using chemical fertilizers. A lot of the basic tenants of regenerative agriculture also inevitably promote organic farming: no agricultural chemicals, enhanced soil fertility, and restoration and preservation of biodiversity. In addition, regenerative agricultural practice can enhance the soil’s ability to store significant amount of carbon as various studies have concluded.
While large food companies semi-recently started to promote regenerative agriculture as a “new trend,” Indigenous Peoples have been practicing this method for thousands of years. They respect the role of forests while also understanding their potential. Even in the last few years, what began as a shift back towards organic farming really broadened into regenerative farming practice as growers and companies realized they needed to do more for restoration of the soil and surrounding ecosystems, and for the building of resiliency into their farms and local communities. But again, this “innovation” is in effect a return to traditional farming practices at its core value. The question is, how can it work if land availability is dwindling?
Vertical farming: a solution to urban land scarcity
The lack of land availability is a critical issue for farming. By 2050 the UN projects that over 80% of individuals worldwide will live in urban areas. One solution that has gained popularity is the practice of urban, vertical, indoor farming. Geographically, it makes sense to produce products close to customers, which significantly reduces the carbon footprint and costs associated with transportation. Vertical farms yield 10-20 times more per acre than conventional farms and can offer meaningful supplements to fill gaps related to food demand increases or yield challenges of regenerative and organic farming.
Being indoors in a controlled environment increases the predictability of crop yields, while hydroponic or aeroponic systems can help reduce or remove agricultural chemical use. In comparison to regenerative agriculture, these technology-driven approaches, while also intending to address similar challenges, are vastly different. While regenerative agriculture enhances farms’ connection to surrounding ecosystems, indoor and vertical farms (that often utilize hydroponics or aeroponics) focus on containing agricultural activities within a specific space, aiming to mitigate agricultural impact on ecosystems while addressing the challenge of declining available farmland. Vertical and indoor farms have been shown to successfully reduce water use by as much as 90% per pound of production as compared to conventional farms, and can feature designs optimizing daylight over LEDs, significantly improving the operational energy efficiency of farms.
While farmers are making great progress, the participation of non-agricultural, but food-related companies is crucial as well. There is a growing awareness among stakeholders that agriculture must consider more than the narrow and short-term pursuit of yield and profits given the challenges we face today, and farmers cannot be the only ones to shoulder all the burdens. We must reduce the adverse impacts of modern industrial agriculture to achieve low-carbon and sustainable practices since we know that restoring, preserving, and enhancing our surrounding ecosystems (including forests, soil, and biodiversity) are the only ways to mitigate growing challenges. Carrying on “business as usual” will only continue to threaten farmers’ livelihoods while also affecting the long-term value creation ability of companies.
Globally, organic and regenerative farming still represents only a fraction of food production. However, organic products are among the fastest growing segments in foods. Between 2009-2019, global organic agricultural land expanded over 557%, primarily driven by consumers and farmers. So, within the corporate sector, there is a significant opportunity regarding the adoption and expansion of organic products. It is critical to shift away from fossil-fuel-dependent agricultural practices to mitigate ongoing impact on climate change, biodiversity, and health. Beyond that, as with any large company undergoing significant operational change, we must remember that oftentimes this could entail an entire business-model shift, rather than just a small, one-off project.
To achieve such ambitious goals, companies need to set multi-year, forward-looking, timebound targets in order to successfully integrate new agricultural practices for their supply chains. Already, there have been some encouraging shifts in agricultural and food sector companies. A growing number have started to support farmers within their respective supply chains to incorporate organic and regenerative agriculture, while others have managed to get over half of their products produced with organic or non-GMO produce. While companies may take years to reach the 50% threshold, even incremental changes can protect farmers’ future revenues and product resiliency. Mitigating risks is key.
A Vision for the Future, Inspired by Practices of the Past
Our current challenges require multifaceted approaches to find solutions. In addition, all key stakeholders must acknowledge the seriousness of the challenges and consider potential actions to mitigate and address.
Regenerative agriculture is often described as ‘climate-smart’ agriculture since its focus on restoring soil health increases the resiliency of farmland against natural disasters while also enhancing its ability to store carbon. However, one outstanding concern regarding regenerative (and organic) agriculture has been potential yield decline as studies have indicated its lower yield compared with conventional large-scale industrial agriculture. That said, studies have also shown that regenerative farming practices over time increased profitability due to the significant reduction in input costs like pesticides and chemical fertilizers. Farms with regenerative agricultural practices also tend to generate more consistent yield, reducing gaps year-over-year, especially when combined with crop diversification. As major food companies begin to recognize the importance of regenerative agriculture within their businesses in the long term, we’re seeing them offer capital for farmers to align their practices in this manner – amounting to billions of dollars.
Beyond large companies, national governments also began to pledge capital towards these emerging processes. Over the summer, the Biden Administration announced $22 billion in funding through the Department of Agriculture to promote regenerative agriculture, and the Chinese government has announced a five-year plan integrating agricultural ecology as one of its four core strategies. Private sector banks and insurers can also play a role by offering loans with lower interest rates or crop insurance with lower premiums due to lower climate risk exposures. Some banks have already started using innovative financial products such as sustainability-linked loans and green bonds at a lower cost of capital to support the transition to regenerative agriculture.
In addition to this influx of capital, another pivotal change has been the sheer amount of data now accessible to farms transitioning to regenerative or precision agriculture. This knowledge-sharing has allowed farmers to share critical data reflecting their real-world experiences to help make better decisions regarding numerous farms’ daily operations. Through this lens, farms connected through stable broadband or satellite-based communications for collecting and sharing data could play a key role in a smoother transition to regenerative agriculture.
Solar electricity generation too has emerged as a strategy for farmland utilization in many countries and is particularly interesting when combined with the transition to regenerative agriculture. Solar can generate diversified revenue streams for farms, which tend to lose some revenue during the transitional phase to regenerative agriculture. This is particularly important for farms’ resiliency and long-term sustainability. Above all, the hope is that this accumulated data and invaluable wealth of shared knowledge can effectively be passed on to other farmers and promote significantly shorter lead times than in the past.
When it comes to food production, it is imperative to take comprehensive, integrated approaches by expanding the scope beyond traditional farming. The current food sector generates significant amounts of waste before products even reach consumers due to poor sorting, processing, storing and transportation. The UN has estimated that about 14% of total food produced is lost between harvest and retail, while an additional 17% is further wasted between retail purchase and consumer consumption (or lack thereof). Conventional practices can be wasteful and cost millions of dollars in the long run, but the innovations around waste reduction are unrelenting – something as simple as switching produce peelers to more efficient equipment, for example, would save a significant amount of food loss while increasing long-term revenue.
At the end of the day, if we don’t change, the earth will force us to – and with likely catastrophic consequences. Now more than ever, we must find resilience to persevere through the climate crisis while ensuring access to affordable food, and not just through a single approach – it must come from multiple, shared critical ways of thinking, inspired by practices of the past and visions of the future.