The global food system would be insolvent if the costs of its negative impacts were priced in, writes Simon Zadek
The global food system would be insolvent if it was a business or country where the polluter pays. Its annual economic value of about $8 trillion would be overwhelmed by the internalized costs of its negative impacts, estimated by the World Bank to be $12 trillion annually.
Today’s global food system delivers industrial scale, cheap food to billions, and has remained largely intact in the face of the recent pandemic. At the same time, it is in a vicious spiral that threatens food security and livelihoods, and ultimately much more.
It is a major contributor to climate change as well as being increasingly battered by our changing climate. It draws on nature in producing cheap food, and in so doing is the single biggest cause of biodiversity loss that is undermining our capacity to produce food and sustain viable economies. It is the livelihood source for hundreds of millions of people, but offers, in the main, low quality, low paid jobs. And whilst delivering cheap food stacked high, it fails in its ultimate purpose of delivering affordable nutrition to all.
Love it or hate it, today’s food system is fundamentally unviable. It has to transition; the challenge is how, and to what, and how best to manage the transition risks along the way.
We all agree, for example, that we should internalize nature-related risks in financial decision making, the raison d’etre of Finance for Biodiversity (F4B). Yet although we need such moves to shift investments towards the food system we want, to do so too quickly and without mitigating associated risks could lead to widespread bankruptcy, devastate rural employment, and drive up food prices, poverty, and inequality.
Like the clean energy revolution, we need to ensure a rapid, fair and sustainable transition of the food system to one that is climate-, nature- and people-friendly, delivering affordable nutrition for all. The clean energy transition has been a bumpy ride but the food system transition is more complex and more risky by an order of magnitude.
“Today’s food system is fundamentally unviable. It has to transition; the challenge is how, and to what”
Perhaps not surprising, then, that there are so many counter-productive public disputes in the lead up to the forthcoming UN Food Systems Summit later this month.
Regenerative farming advocates, for example, are primarily opposed to soilless food production e.g. lab-grown ‘alternative protein’ and vertical farming. Yet regenerative farming is in practice difficult to scale rapidly, and the most recent scientific research casts doubt on its potential for soil-based carbon sequestration. Soilless systems will therefore have to be a major part of the solution, offering up to 95% reduction in water use, dramatic reductions in emissions and the potential for delivering cheap, healthy food at scale.
Indeed, regenerative and soilless farming can be complementary. Alternative protein growth, for example, is likely to lead to the release of land for repurposed use, probably more cheaply, whilst regenerative farming can be a source of ingredients for vegetable-based alternative protein.
By far the biggest dispute, however, is about the role and impact of private capital, the focus of F4B’s most recent report ‘Getting the Financialisation of Food Right – Financing the Transition to a Sustainable Food System‘.
There is little doubt that the food system is increasingly financialised, that is, being shaped by the logic of risk-adjusted financial returns. Just 10 companies own half of the world’s seed market; four agribusiness companies control 90% of the global grain trade; and 65% of farmland is owned by 1% of farming businesses. Agribusiness is the US’s second most profitable sector, made possible by leaving others to pay for environmental and health costs, and by being the recipients of considerable government subsidies.
“The clean energy transition has been a bumpy ride but the food system transition is more complex and more risky by an order of magnitude”
As a community dedicated to sustainable finance, we need to face the facts that financialisation can be a major driver of the food system’s negative impacts and unpaid-for costs. Much of today’s core, commercial food system is at least complicit in:
- Concentrating the unequal distribution of economic benefits, squeezing rural incomes of increasingly dependent small farmers and communities.
- Delivering an under-supply of healthy, affordable food, an over-supply of salt, sugar, fat, and carbohydrates.
- Supporting lobbying that externalises public health costs, maintains perverse agricultural subsidies, and ensures that nature and climate costs do not diminish financial bottom lines.
Set against this harsh view is that we still require private capital to invest in the food system we need. In fact, it is inconceivable that we can effectively manage the inevitable transition without tapping global financial markets at scale.
F4B’s report, prepared in association with the Food System Economics Commission (FSEC), is an attempt to get beyond two false views about finance: one that we can do without private capital in transitioning to the food system we need, and the second that we have to accept private capital on any terms.
“Now is the time to apply more broadly what we have learnt in reshaping our global food system to ensure a rapid, fair, and sustainable transition”
We can learn from the last decade’s efforts in better aligning global finance with the clean energy revolution. We have made advances in shaping global finance to deliver a low-carbon future, through improved risk pricing and financial regulation, shifts in central bank behaviour, through extraordinary financial innovation, and increasingly through shareholder and citizen action in demanding values and impact alignment in financing and corporate behaviour.
Drawing on this experience, F4B’s report sets out an agenda for shaping global finance in ways that deliver investments in the transition to an inclusive, healthy, sustainable food system, highlighting four clusters of possible actions.
- Financial policies and regulation – reinforced by shareholder and public activism – must drive the inclusion of nature and climate impacts into financing decisions, stranding dirty assets and accelerating green-friendly investments, triggering a shift towards more nutritious food production.
- Financial innovation needs to accelerate investments in, and drive down costs of, healthy food produced by climate- and nature-friendly forms of farming. We need an equivalent to the feed-in tariffs that were used to great effect in catalysing renewables investments, rapidly bringing down costs to affordable levels.
- Policy and public finance are needed most of all to protect and retool those whose rural livelihoods, food security and economic strengths are eroded during the transition, by the provision of technology, skill development and capital to enable them to own and operate commercially viable regenerative and soilless food production.
- We need to support citizen action as the ultimate owners and intended beneficiaries of much of the world’s financial assets and flows, in demanding that their money is used to deliver the food system they need, harnessing digital opportunities to empower and nudge them, as consumers of food, savers, pension policy holders and voting tax-payers.
This agenda should be familiar to us all, made up of instruments and actors that have underpinned our collective efforts in shaping finance to support the many facets of sustainable development. Now is the time to apply more broadly what we have learnt in reshaping our global food system to ensure a rapid, fair, and sustainable transition.
Dr Simon Zadek is the chair of Finance for Biodiversity.