Hi, if you are new here, I am Rhishi Pethe and you signed up to this free weekly newsletter (every Wednesday) at the intersection of technology and agriculture/food systems. I currently work as a product manager on Project Mineral within Alphabet X, focused on sustainable agriculture. The views expressed in this newsletter are my personal opinions.
We will look at 3 intertwined topics, with sustainability as the common thread. The first story is about Aldi and its decision to reduce their procurement costs and its ripple effects down to the producers in Latin America. This story highlights tensions between expectations across the value chain, and within food brands and food retailers. The second story is about carbon markets, and associated challenges. Buyers of carbon credits, and other participants want to incentivize producers to adopt sustainable practices and sequester carbon, but significant challenges still lie ahead with the tech as well as the business model. The final story is about the current state of sustainable agriculture in the United States, based on a survey of about 500 row crop farmers. These farmers believe in sustainable practices, but a majority of them need help.
Today’s short takes include: a. scientists push past the yield tradeoff boundary for wheat b. Nutrien’s continued e-commerce dominance in Ag retail c. India’s nod to drone imagery for insurance d. AgTech market size report.
Slipping on a banana peel
😅 tl;dr (too long; didn’t read): Aldi’s decision to cut prices they pay for bananas will have a ripple effect through the supply chain, with Latin American producers questioning their commitment to sustainability.
Aldi is one of the largest retailers in Europe, with a large presence in the US. (Trader Joe’s, Aldis)
Aldi announced that it will cut the price it pays on bananas by € 0.06 / kilo to its suppliers from 2021. Aldi is the largest customer for bananas from Latin America. It sets the benchmark for other retailers who procure bananas from the region. Aldi exporters are out of Ecuador, Colombia, Guatemala, Honduras, Panama, and Costa Rica.
Producers and exporters from the region have accused Aldi of double standards.
Aldi’s public discourse embraces sustainability and yet there is a great discrepancy between its image towards consumers and its actions with producers.
We believe it is essential that the entire value chain must be economically, socially and environmentally sustainable, and to this end, it is necessary to implement an effective shared responsibility that redistributes the costs associated with sustainability among all the actors along the value chain.
Just like any food supply chain, the banana supply chain is complex, with producers and the farm workers on one end and consumers like you and me on the other end.
Image Source (1)
The allegations highlight an interesting dynamic that food brands and retailers face. There is a segment of their customers that demands products be grown / manufactured sustainably. This customer is willing to pay more for this product. Aldi and other EU retailers like ASDA and Lidl had made public commitments in 2016 to source 100% sustainable bananas and became part of the rainforest alliance.
Given that “sustainable” has a non-strict definition, it creates tension between the marketing, supply chain and sustainability functions at these companies.
The marketing department wants to tell a story as to how their products are “sustainable” or “sustainably sourced.”
The supply chain and ops teams want to get the best product at the lowest cost. The sustainability teams want to make a real impact on outcomes around soil health, farmer welfare and profitability, and other social, economic and environmental outcomes.
Different value chain participants have different expectations. Consumers need to pay more attention (which is extremely hard and difficult to do) to these terms, to really understand which of these organizations are aligned with the values that they expect.
💡Key takeaway: Food brands and retailers will have to balance their commitments to sustainability, with customer demands, operating costs, and initiatives that have a true impact throughout the supply chain.
(1) Reference: Roibás, Laura & Elbehri, Aziz & Hospido, Almudena. (2015). Evaluating the sustainability of Ecuadorian bananas: Carbon footprint, water usage and wealth distribution along the supply chain. Sustainable Production and Consumption. 2. 10.1016/j.spc.2015.07.006.
Carbon Markets: The Substack of Ag?
😅 tl;dr: Should your health plan motivate you to eat well and exercise, or provide you incentives if you get to the right weight or do both? What about agriculture and carbon markets? There are many carbon market players, but significant challenges remain with the tech and the business model.
Carbon markets are the Substack of agriculture. Everyone and their brother has a carbon market. It is easy to get on the bandwagon, but many issues need to be resolved. (I understand the irony of this statement, as I send you this crappy newsletter with Substack! :-) )
The high level idea is simple. Someone will pay farmers to sequester carbon and create a market of suppliers and buyers for carbon. The Food and Agriculture Climate Alliance, which includes organizations like The Nature Conservancy are supporters of this approach. The key question is whether the incentives offered by buyers will be enough for farmers to take action to sequester carbon. Dr. Rattan Lal (2020 World Food Prize winner) says that the price of carbon has to be closer to $ 40 per ton to make an impact on GHG emissions. (For reference the price of carbon today is roughly around $ 15 / ton.)
As can be seen from the chart below (from the State of Sustainability report by Trust in Food), there is healthy skepticism to change practices without financial support from a food, fuel, or fiber company. The banana battles between Aldi and their producers in Latin America on prices are a clear indication of this tension and expectation management on the part of producers and buyers.
A market requires price discovery and transparency. There are a large number of initiatives out today between Indigo Ag (market), Nutrien (recently announced a comprehensive program, with a market), ESMC, Bayer (pay for practices), Nori (market), and some state actors.
There are skeptics too. For e.g. “Scientists with the World Resources Institute argue that many regenerative agriculture practices can in fact improve soil health “and yield some valuable environmental benefits, but are unlikely to achieve large-scale emissions reductions.”
The WRI scientists are not convinced that soil carbon storage is effective, and might have unintended consequences due to conversion of cropland to pasture. It can lead conversion of other lands to production to maintain food production.
There is another school of thought, that farmers should be incentivized for adoption of regenerative / sustainable agriculture practices. Incentives for cover crop seeds etc are available today. A group linked to president-elect Biden’s team released a set of policy memos (do check out this article on The Counter) on how the new administration can work on environmental issues.
Among the major suggestions is to establish and expand programs that encourage farmers, ranchers, and landowners to adapt practices that scientists believe can help draw down atmospheric carbon.
On the tech side, the methods and processes to measure carbon stock and flow are nascent, and need to become much more consistent and reliable, to support an open, transparent and functional market. Based on the survey results of US row crops (see next section), 84% of the farmers did not use any sustainability platform last year, and about 59% have no plans to do so in the next 3 years. This is clearly an opportunity for AgTech companies out there.
Even though I started this section with a bit of tongue in cheek, there are some really good writers on Substack and they create value for their subscribers. Similarly, the high level of interest in carbon markets has spurred tech and business model investments.
💡Key takeaway: Carbon market exuberance is good for the long term, as it has the potential to address multiple issues like farmer profitability, soil health, and climate change and food production systems have a role to play.
The state of sustainable agriculture
😅 tl;dr: Farmers in the US believe in sustainable practices, though there are differences between perceived value of practices and their actual adoption rates. The gap between the two can be closed by knowledge sharing, sustainable agriculture technology platforms, proof points, provable ROI and incentive structures to help producers change their practices.
Trust in Food and the Field to Market initiative recently came out with a report on the state of sustainable agriculture, with analysis and recommendations for adoption of sustainable agriculture practices. The report is based on a survey of 500 row crop farmers in the US.
74% respondents believe farmers should receive monetary incentives to utilize certain production practices that benefit the public good, though only 30% believe they are fairly compensated today for the conservation practices they use.
This ties in very well with my earlier points about the carbon markets discussion, that it might make more sense to incentivize farmers to utilize certain practices. In the long term though, these production practices have to be sustainable to improve profitability and resilience for producers.
62% of them believe conservation practices improve an operation’s profitability in the long-term. This is encouraging, as some of these changes can be self-sustainable in the long term.
It is interesting to compare the current adoption of practices with the perceived value of adoption.
Spread between perceived benefits and actual adoption
The spread between adoption on all acres and perceived financial and environmental benefits of conservation crop rotation, integrated pest management, conservation planning with NRCS is within 10%. For 100% no-till, conservation tillage, and cover crops the spread is larger. No-till can be risky, whereas adoption of cover crops requires additional investment.
It is quite clear that local context is very important as improvement strategies must be tailored to the operation and the operator.
Conservations practices are continuous improvement strategies and so extension services, and knowledge sharing is critical for success.
A supportive community which tells stories and shares information about successes and failures, case studies can be an effective change agent.
Producer support to get started on the journey with financial support by the marketplace (or other avenues), will be critical.
59% of the producers have no plan to begin use of a sustainability platform to collect farm-level data in the next three years. In the last year, about 84% of the respondents did not use any sustainability platform. It speaks to the lack of options that address specific issues related to sustainability, and also an opportunity for AgTech companies.
Now more than ever, the value chain should consider creative financing mechanisms that support farmers to transition to conservation practices with more sustainable outcomes. A ripe opportunity exists to evolve with continuous improvement, with a need for bottom-up transformation of food systems that empower farmers to accelerate change.
💡Key takeaway: The adoption of sustainable practices have a long way to go. There is room for sustainability focused technology platforms to exist and thrive.
Scientists push past the yield trade-off zone for wheat
Wheat provides a fifth of the all human calories and protein. A small increase in wheat yield globally will have a big impact on the overall amount of food grown. (e.g. wheat was a prime driver of the green revolution in India in the 1960s led by Dr. Borlaug)
There has been a tradeoff in the efforts to increase yield for wheat between grain size and the number of wheat grains. Yield is a function of the product of grain size and number of grains. The inverse relationship between these two variables has been a drag on higher wheat yields.
Scientists recently showed that proteins like expansin play an important role “by enhancing stress relaxation in the cell wall.” By targeting an overexpress of expansion early, led to a significant increase in grain size without a drag on the number of grains. This resulted in a grain yield of 11.3% in field experiments.
Reference: Calderini, D.F., Castillo, F.M., Arenas‐M, A., Molero, G., Reynolds, M.P., Craze, M., Bowden, S., Milner, M.J., Wallington, E.J., Dowle, A., Gomez, L.D. and McQueen‐Mason, S.J. (2020), Overcoming the trade‐off between grain weight and number in wheat by the ectopic expression of expansin in developing seeds leads to increased yield potential. New Phytologist. Accepted Author Manuscript. https://doi.org/10.1111/nph.17048
Nutrien delivers improved results
Nutrien continued its run of solid results, with an impressive growth of orders through their digital platform. They are leaving behind other players, when it comes to adoption of digital tools, their omnichannel experience and their continued investments of up to $ 100 million per year in their digital platform.
“Total sales through our leading digital retail platform exceeded $1.0 billion in the first nine months of 2020, more than double our annual goal of $500 million. Digital sales in the first nine months of 2020 accounted for 43 percent of North American sales of products that were available for purchase online.”
India seeks approval to use drones for crop insurance purposes
“The agriculture ministry has sought civil aviation regulator DGCA's nod for allowing shortlisted private agencies operate drones to capture images of rice fields in 100 districts to assess crop yields”
The use of drones will make crop damage valuations after insurable events like floods, drought or pest faster, more accurate and reliable. The program is launched in 10 states. If the pilot program is successful, it will be scaled up in subsequent years, though it is not clear what are the success criteria for the program. About 25 million hectares (or 60 million acres) of farmland has been insured for the kharif 2020 season.
AgTech will reach $ 22.5 billion by 2025
A new study from Juniper Research has found that the total value of the Agtech market (Agricultural Technology) will reach $22.5 billion by 2025; rising from $9 billion in 2020. The CAGR for the next 5 years is expected to be 150%, which is quite an insane number for any market. Agtech includes sensors, GPS field mapping, and supply chain management. yields and reducing costs through connectivity and data insight.
So, what do you think?
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