November 28, 2014

Brad Clark President & General Counsel Agspring

The topic of sustainability has ascended to a position of prominence inside most substantial consumer packaged goods and retail companies. But the implications of making sustainable, food-related claims also will have significant impact to other members of the supply chain, from farmers to agri-businesses, logistics organizations, non-profits and ultimately investors.

The noble end goals of sensible environmental sustainability measures in agricultural markets initiate positive dialogue about pilot programs, agronomic best practices and data collection/standardization. If agricultural sustainability is to be widely embraced by the investment community, however, economically sustainable incentives must be socialized, tested and refined.

At a high level, the mission of deepening sustainability practices in ag appears deceptively simple. Since agriculture is by its very nature completely dependent on the preservation of quality soil, plentiful inputs such as water and nutrients and the judicious use of fossil fuels, shouldn’t sustainability claims be relatively simple to construct based on current business practices already in place throughout the supply chain? After all, like any business, continuous improvement in operating efficiency typically benefits profitability. Further, climate change should be an intuitive motivator to those whose income depends on predictable, crop-friendly weather.

Unfortunately, when examining these dynamics at a closer level across the supply chain, this high-level clarity quickly becomes replaced by a fog unintentionally created by approaches that fracture the true nature of sustainability. In order for progressive practices, measures and investments to flow into the ag sector and truly take root, they must be not only ecologically sustainable, but also socially and economically so. To fail to appreciate the gravity of this equation risks not necessarily destroying progress in sustainable agriculture, but slowing it down to such an extent that virtually all parties will be left dissatisfied, with only pilots and small increments of measurable impact to show.

Creating and maintaining a socially and economically viable basis inside sustainability initiatives should begin with the producer. At the end of the day, farmers are business people. Asking, pushing or threatening them to follow a sustainability path that does not appreciate their profitability or reward them for additional labor conjures images of Sisyphus. Something worth doing is worth paying for, and growers own a disproportionate part of the sustainability equation. Whether one examines greenhouse gasses, water use and quality or soil erosion, no member of the supply chain has nearly the impact on globally recognized measures that growers do.

Just like many ag investments, sustainability is about long-term positive returns. Investors may positively influence the growers, agri-businesses, food products and retail organizations they invest in by promoting an agenda embracing sustainability holistically—ecologically, socially and economically. For example, passing a small premium per bushel for a sustainably sourced grain through the supply chain allows each member to recognize the financial incentive that would matriculate to a minuscule cost increase to a food product.

Consumer-facing brands will own the promotion of sustainability claims on such products, and test the market to decide what premium, if any, different consumer segments will pay for a sustainably sourced product. However, this will be a separate evolving equation dependent on consumer education, generational shifts in purchasing power, and improved data on sustainability impacts. Regardless, altering the question from “if” financial incentives are critical for the supply chain to “how” to institute them and “how much” can be paid will be a welcome sign for investors that things are headed in a truly sustainable direction.

Brad Clark is a member of the speaking faculty for Global AgInvesting Europe 2014 at the Landmark London, 1-3 December. 

The opinions expressed in this editorial are the author’s own and do not reflect the view of Global AgInvesting.