Food companies are betting big on regenerative agriculture. Many of the majors – Mars and Mondelez to PepsiCo and Grupo Bimbo – reference ‘regen ag’ in their communications on sustainability. It is priority number one because the current production system is badly broken.
Some have set targets to expand the amount of land under regenerative farming. PepsiCo this year lifted its target of seven million acres adopting these approaches to ten million. Cargill has set the same acreage goal for North America. The two companies are working together to expand regenerative farming practices across 240,000 acres of Iowa farmland by 2030.
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“PepsiCo is rooted in agriculture, and farmers are at the heart of our food systems,” said chief sustainability officer Jim Andrews as he launched the ‘Step up for Ag’ scheme in September. The initiative will “invest in the organisations that support farmers every day, aiming to ensure they can grow, innovate and lead the transition to more sustainable agriculture”, he added. “When farmers thrive, we all thrive.”
Fine words. But are food companies prepared to put their money where their mouths are, especially now amid weak consumer confidence?
“We are moving from a payment-for-services model to an investment model,” explains Owen Bethell, environment lead on global public affairs, including the sustainability co-financing programme, at Nestlé. Bethell says Nestlé is focusing on “how to use your financial resources and credit status to create more investment opportunities for others to come in and support this transition – and that’s happening”.
However, this is not something one company – even one the size of Nestlé – can do alone. “We need co-financing structures that move beyond the value chain of just a Nestlé or a PepsiCo or a McCain,” says Bethell. “How does a bank look at this as a long-term asset and an investment?” he adds.
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By GlobalDataDeep pockets for the planet
Look at the figures and forecasts and there’s little doubt companies and consumers will have to dig deep. So, too, governments. Global agri-food systems require annual investments of $1.1trn over the next five years to transition to more sustainable and resilient food production models, yet current investment flows account for barely 5% of that, the World Economic Forum (WEF), says.
Deloitte has calculated only around 2-6% of the funding needed for a transition to regenerative agriculture practices in arable farming in Europe are being covered. “To safeguard agricultural supply chains, actors across the value chain and enablers of the system, such as financial services and governments, need to collaborate to de-risk the transition for farmers who are currently bearing more than their fair share,” the consultancy’s experts wrote in their Closing the gap report.
According to their quantitative model for costs, yield impact and investments associated with implementing regenerative agriculture practices for 34 unique country-crop combinations versus conventional practices, farmers are the ones exposed: by applying available incentives, the payback time for this shift in systems can be cut from nine to five years but producers will still be left with a shortfall of between €1,400 and €4,100 ($1,608 and $4,708) a hectare.
“It remains more profitable to extract natural and social capital from the planet and not pay the ‘true costs’ of the damage done … than it does to farm regeneratively,” explained Patrick Holden, the organic farmer and founder of the UK Sustainable Food Trust during a summer webinar run by the Sustainable Food Conference. “I do think we have to find a lot of money [to make the transition],” he added.
This year’s Sustainable Food Conference in London in January hosted many of the brands setting big regen ag targets. The message was the short-term pain on profits may well be severe but nothing compared to that facing them in the long-term if the status quo persists. The system is “valiantly clinging on” warned Sainsbury’s CEO Simon Roberts in his keynote address. “We risk a breakdown in the system.”
The European Commission has just projected €60bn in agricultural losses by 2025, rising to over €90bn by 2050, driven by climate change, input dependency and a failing food system. According to the European Alliance for Regenerative Agriculture (EARA), conventional approaches to agriculture with high chemical inputs actually put Europe at risk due to “ever more fragile yields, rising input quantities and costs”.
Bank on us
Food companies say they are all-in on this shift. Emma Keller, head of sustainability for Nestlé’s operations in the UK and Ireland, compared regenerative agriculture investments to spending on R&D. “You would never question a business’s investment into its research and development to find new products or exciting innovations,” she noted during a recent Innovation Forum event. “That’s exactly what we’re seeing with the investment in regenerative agriculture. It’s a business imperative to face into the climate shocks, the nature shocks that we’re already seeing today.”
Fine words. But this is a concentrated and constrained market suffering from high input costs, limited regulatory steer, concerned consumers and an increasingly concentrated power base.
Consider for example last week’s warning published by a group of whistleblowers from UK food businesses, which put global meat and dairy at a “cliff edge”. Companies are spending money on marketing their supply chains being fed by “hard-working Brits managing their own small plots” but the reality is that such farmers are feeling “deserted by industry”. Producers are ”struggling to make the numbers add up”, the group said, with farmers left to a complex arrangement of subsidies, incentives, debt, investment and seasonal work. The move towards meaningfully regenerative practice at scale is also “failing”.
There are few successful examples of scaling more sustainable production – especially if this costs more. As WEF noted in a briefing paper – Putting Food on the Balance Sheet: Financing Strategies to Scale Investment in Food Systems Transformation – published in June: “The financial-services industry has every reason to become more invested in the transformation of food systems but unlocking action at scale has proven challenging.”
Expanding, changing and reimagining how food is produced, means expanding, changing and reimagining how food production is financed. “Most current finance flows are built around a single KPI – maximsing single-crop yield per hectare,” explains Ivo Degn, co-founder at Climate Farmers, a Germany-based training group focused on regenerative agriculture. That approach, Degn says, is “strategically brittle. ‘Sustainable finance’ has to reorient around a different subset of farmers and different subset of metrics”.
Alternatives are starting to emerge – like the Regenerating Full Productivity Index designed by EARA – showing that farmers previously viewed to be ‘risky because they are farming regeneratively because “exactly the profile that long-term financiers and buyers should seek if they care about resilience”, says Degn.
Who pays?
Failing to flip things on their head could buy us a few more years but no more, insist the likes of Degn. Attempts to answer questions like ‘how to pay’ and ‘who pays’ often lead to the boardrooms of major food companies. The conversations are uncomfortable but happening, according to some of those consulted by Just-Food.
“What we know is that price elasticity has reached its limit on the consumer side,” explains Charlotte Bande, global food and beverage lead at consultancy Quantis. “We also know retailers have really thin margins, so we expect a part of these costs to be carried by the CPGs, another part by the supply chain and then maybe a little bit by the consumer.”
What we should not be doing now is arguing over definitions anymore […] let’s get on with implementing that
Emma Keller, Nestlé
Bande says CPGs are figuring out potential premium payments for low-carbon products, for example, and looking to “crack” the co-financing option to help decarbonise and de-risk their supply chain. Are companies prone to talk rather than walk on sustainability now putting their money where their mouths are?
“It’s taken nearly 11 or 12 years to get to this consistent definition of regenerative agriculture and that’s a long time; it takes a lot of patience because you have nearly 160 of the world’s largest food companies trying to agree on something,” Nestlé’s Keller tells Just Food, in reference to the Sustainable Agriculture Initiative platform agreement on a global framework for regenerative agriculture in 2023. “What we should not be doing now is arguing over definitions anymore […] let’s get on with implementing that.”
The KitKat maker has just released 100m reais ($18.5m) in green credit with Banco do Brasil to help decarbonise milk production in the country through the adoption of regenerative practices. Nestlé will act as a bridge between the bank and producers. The project “won’t change the world”, Bethell admits “but it’s a great start. We want to do this in more places”.
Food companies are being forced to think outside the box in order to release the big bucks needed to fix a system many acknowledge they have helped to break. The SFr1.2bn ($1.48bn) Nestlé has invested since 2020 into regenerative approaches has kicked off hundreds of pilots but the next stage is to scale them and it is the world’s largest companies that have the power catalyse change.
Bethell senses the start of “significant change in our relationship with banks and finance organisations”. He told a recent webinar: “There is still a tendency to value flexibility and agility when it comes to procurement. Profitability and security of investment will decline rather than increase [if we continue with this approach] and we are having honest conversations about that.”
Katrina Hayter, global head of sustainable land use and supply chain at HSBC, who was also involved in the discussion, said the unpredictability of the weather is “causing pain for everyone in the system”, adding: “We know the answer is to move away from more extractive systems… and that [they are not] more profitable in the longer term.”
According to Hayter, lenders understand yields under regenerative approaches may drop in the near-term but are more reliant – and profitable – in the medium and long-term. This is borne out in evidence presented by EARA this year, demonstrating the profitability of regenerative farms in the medium-term. This has taken years, however, and with little in the way of financial incentives from governments.
Politicians may talk of subsidies for nature-friendly farming but, when it comes to the crunch, the ambition tends to be squashed by those reliant on the status quo. Copa-Cogeca, which represents more than 22 million European farmers, remains “resistant” to the changes required to accelerate regenerative production, explains one industry source. “They are not ‘in’ yet,” they add.
In the UK, the government is – slowly – introducing subsidies to back more sustainable practices but critics argue these merely tinker around the edges of what is required. There is currently no intention to subsidise regen ag, according to a June parliamentary report, because the “available evidence on RA [regenerative agriculture] is inadequate to inform policy. Others suggest policies or regulations would slow the positive momentum that RA has gained as a farmer-led social and cultural movement.”
Investing in the inevitable
It’s up to the market – at least in the short-term. “Could we get 50% of all the major buyers of ingredients in Europe saying we are going all-in on rege nag […] that would be a kind of unstoppable level of momentum to get over some of these political hiccups,” says Bethell.
Fairr, the collaborative investor network representing over $80trn in combined assets, this year summed up the need to mobilise private investment in order to ensure a “well-planned and just transition in the agri-food sector [that] will support resilient food systems that benefit all stakeholders, from companies to financial institutions and governments, as well as the one billion employed in agriculture globally”.
There’s no longer a place for short-term contracts in a world of shared environmental responsibility
Rich Clothier, Wyke Farms
Rich Clothier is one of those. The managing director at UK cheese supplier Wyke Farms suggests the whole of the food chain needs a longer-term approach. Transactional short-term contracts, in these complex supply chains, should be “consigned to history. There’s no longer a place for them in a world of shared environmental responsibility”.
Tilda, the rice supplier that’s part of Spain’s Ebro Foods, works directly with more than 3,000 commercial farmers across northern India. “Through our own responsible growing programme, we are demonstrating how private enterprise can take and work with both publicly and privately funded research breakthroughs and apply them at scale,” managing director Jean-Philippe Laborde says.
From dairy producers in the west of England, beef farmers in Australia, soya growers in Brazil to rice farmers in India, there is a sense that change is happening – albeit not at the scale or speed some stories or spokespeople may suggest.
Collaboration between companies to deliver change – and cash – is growing. HSBC, in partnership with the sustainable farming charity LEAF, is offering discounts to businesses that obtain the LEAF Marque certification. Rabobank has helped farmers through blended finance options: “Significant investments are needed for the transition to regenerative practices, while it can take seven to eight years for these practices to become profitable. The farmer therefore needs a loan with a long repayment schedule,” the agro-bank explains.
Get on my land
Farmers are keen to join a movement that has quickly gathered pace, yet are understandably concerned about the risks involved – especially if yields fall in the first few years as they shift their systems from the constant application of chemical inputs, like fertilisers and pesticides.
“A transition from a lower-priced, higher-quantity equilibrium to one with higher prices and lower quantities underscores the need for adaptive policies, such as subsidies or investments in sustainable alternatives, to mitigate economic vulnerabilities and ensure stability,” the Autonomy Institute warned in July.
Many of the new financing models include leverage de-risking strategies ranging from tranching and loan guarantees to carbon credit generation, deployed in various combinations. De-risking can occur in two ways, noted WEF: by directly lowering the risk exposure for capital providers, or by indirectly enhancing the business case for farmers, thereby improving their capacity to repay investors.
HSBC’s Hayter notes that can be “incredibly complicated” to do in sprawling, complex agricultural supply chains but, if it can be done, then “maybe finance can flow to places it wouldn’t have done at a reduced rate”. She sees lots of potential in using carbon and nature markets to funnel finance towards farms, too.
Waitrose is among a number of retailers and brands financing nature-friendly and low-carbon agriculture through its supply chain. In September, Tesco announced that 400 British farmers across the supermarket’s sustainable farming groups will benefit from additional financial incentives and data collection support to achieve key environmental and animal welfare goals.
Foodservice businesses are also forking out to finance what they claim are massive shifts in the production of key ingredients. McDonald’s has just announced its largest investment in regenerative agriculture in the US.
The $200m Grassland Resilience and Conservation Initiative involves the National Fish and Wildlife Foundation (NFWF), the US Department of Agriculture’s Natural Resources Conservation Service (NRCS) and McDonald’s suppliers like Cargill, Golden State Foods, Lopez Foods, OSI and The Coca-Cola Company, which are also providing funds. According to a statement, the seven-year project will “ help promote and accelerate regenerative grazing practices, habitat restoration, water and wildlife conservation on cattle ranches spanning four million acres across up to 38 states”.
“As a brand that serves more than 90% of Americans every year, we recognise the responsibility we have to help safeguard our food systems for long-term vitality,” says McDonald’s chief supply chain officer Cesar Piña.
Maybe that realisation of responsibility and the role of regenerative farming in fixing the problems of the past is hitting home among the world’s biggest hitting food companies.
