Food for thought: the environmental impact of the food sector

The food sector is mature, with demand historically growing slightly above global population growth, which the UN estimates at +0.7% during 2023-2050 in compound annual growth terms.¹

Incremental growth typically comes from rising incomes in developing countries, where we have often seen a positive correlation between income levels and protein consumption. However, once certain consumption levels are reached, individual appetites tend to peak, and greater portions of incremental income can be allocated to other activities.

There is also growing debate over the emergence of appetite-suppressing GLP-1 weight-loss drugs, which could create some marginal long-term headwinds to overall food demand.

Environmental pressures testing food supply

The global population is still expected to require an expansion in food production of around 60% by 2050, according to the UN.² At the same time, the food value chain already accounts for roughly a third of global greenhouse gas (GHG) emissions. Agriculture alone accounts for 10-12% of GHG emissions.³

Other environmental pressures include land and water scarcity. For instance, agriculture is estimated to use approximately 50% of habitable land⁴ and to account for approximately 70% of global freshwater use.⁵ Roughly 40% of global soils are moderately to highly degraded⁶, partly a consequence of intensive farming practices, overgrazing and deforestation. Soil degradation increases the risk of flooding as soil is less able to absorb and retain water. Soil also helps to mitigate climate change as the second-largest carbon sink after the ocean. The food value chain is also estimated to be responsible for around 80% of global biodiversity loss through chemical pollution and habitat destruction.⁷

As well as being a meaningful contributor to global GHG emissions, the food system is itself directly impacted by climate change. Higher temperatures and more unpredictable rainfall patterns make farming more challenging. The concentration of crop production in certain regions also reduces the overall resilience of the food system in the face of extreme weather events. Climate-induced pressure on agricultural output, coupled with population growth, creates longer-term food supply challenges.

Transforming the food system could support the delivery of key global treaties, such as the Paris Agreement and Kunming Montreal Global Biodiversity Framework. A key challenge to reform is how to incorporate and effectively monitor long, fragmented supply chains within the food system. We’ve explored this topic more detail in our Nature Framework policy document, and in a recent blog we discussed the need for a roadmap for global agriculture and land-use.

Picks and shovels

A blurrier demand picture, a more volatile supply backdrop and environmental pressures (GHG emissions, water, land, biodiversity loss) are ongoing challenges faced by the food value chain.

However, this also creates opportunities for companies offering more sustainable, productivity-enhancing solutions. Examples include digital farming tools that optimise fertiliser use, biofertilisers and sustainable feed additives.

At the same time, food waste is also prevalent along the entire value chain: an estimated one-third of food production is wasted every year. Food waste alone accounts for c.8-10% of GHG emissions.⁸ In theory, reducing food waste by a quarter could feed an additional 900 million people. Food waste can be reduced by using more automated food sorting and processing equipment. Similarly, natural preservatives can be used to deliver healthier, more sustainable shelf-life extension.

The classic ‘picks and shovels’ playbook of focusing on productivity enablers may prove to be particularly relevant in the food industry. This is especially true for an industry facing a cloudier demand and supply outlook.

Subsequent blogs will explore food sustainability in more depth, including an exploration of the potential investment opportunities within the sector.

 

Sources

1. https://www.un.org/en/global-issues/population#:~:text=Our%20growing%20population&text=The%20world's%20population%20is%20expected,billion%20in%20the%20mid%2D2080s

2. https://www.un.org/en/chronicle/article/feeding-world-sustainably

3. https://news.un.org/en/story/2021/11/1105172#:~:text=Tracking%20the%20numbers,according%20to%20the%20new%20analysis

4. https://www.weforum.org/agenda/2019/12/agriculture-habitable-land/

5. https://www.oecd.org/agriculture/topics/water-and-agriculture/

6. https://www.wired.com/story/la-puna-extremophiles-soil-degradation/#:~:text=A%20report%20published%20by%20the,and%20other%20harmful%20practices%20persist

7. https://www.unep.org/news-and-stories/press-release/our-global-food-system-primary-driver-biodiversity-loss

8. https://www.un.org/en/observances/end-food-waste-day#:~:text=the%20consumption%20level.-,An%20estimated%2017%20percent%20of%20total%20global%20food%20production%20is,in%20the%20global%20food%20system