It’s no secret that industrial companies have historically placed a premium on sustainability, but things have changed. As their operations involve longer product life cycles, complex manufacturing processes, demanding customer requirements and programs that make it difficult to implement sustainability programs, these obstacles have almost outweighed the incentives to choose a greener path, especially in the traditional food industry.
Profit margins in agworld and agtech are small (2-3%) compared to other industries. This means that everyone is competing for the 2% of revenue instead of a larger share that is worth competing for and dividing across the industry. When food companies reduce food waste by 30% to 40%, it affects everyone and makes innovation imperative, not optional, because margins have the potential to increase;
Notably, more companies are becoming “food companies” because revenues are higher. This means more financial resources are available to focus on innovative sustainability efforts. Combined with industry knowledge and a startup mindset, agworld and agtech can harness innovation for the future.
Companies are now taking ESG initiatives seriously because the benefits can be huge. For example, companies with high ESG scores quickly secure valuation premiums. Manufacturers of industrial products also see modest gains. However, due to low margins in the agworld and agtech industry, traditional food companies cannot simply take a brilliant ESG idea and force it into tradition. These companies need to disrupt a little and make incremental improvements to see real innovation and lasting change. When these companies embrace new technologies and improvements in the supply chain, they can fully embrace sustainability and minimize food waste more effectively.
Midwest companies leading the way in innovation
While traditional food companies are slow to embrace innovation, there are several outliers that are paving the way for sustainability. Bunge, an agribusiness that connects farmers to consumers, is partnering with CoverCress, a Chevron-invested startup that markets renewable oilseed and animal feed crops.
The co-op entered into a long-term commercial agreement to develop annual field pennywort into a CoverCress crop that has a smaller footprint and can fit into existing corn and soybean rotations. Adding a new crop to existing land has the potential to provide additional income to farmers while offering the ecological benefits of cover crops by improving soil health and reducing nitrogen losses.
This somewhat new focus on sustainability has emphasized its role in the overall value chain. Sustainability is a long-term goal that will eventually yield returns, but shareholders want immediate returns to prove the value of their investment. In this way, stability can affect profit and loss. However, to truly innovate, industry leaders must think beyond conventional profit and loss to see the true impact of ESG.
For example, agricultural producers need to shift their focus from how sustainability affects product sales to how it affects solution sales. For as long as anyone can remember, agriculture has operated under an input-output model, namely how fertilizers affect the productivity of a given crop.
Farmers’ sustainability mindset is to invest in cleaner tools and farming methods that are environmentally sound but evidence-based. Farmers have always prioritized sustainability, but today they can benefit from a newfound focus on digital tools and new biological products that are leading to further innovation and better results.
Sustainability Next Steps for Midwest Entrepreneurs, Investors and Business Leaders
Because sustainability and the traditional food industry have not always gone hand-in-hand, it can be daunting for industry leaders to embrace the shift to innovation. However, if leaders can articulate the value of sustainability initiatives, they are worth the time and resources. The main thing here is to ask. “Does it really have to be done?” If the initiative would add value and efficiency to your company, then the answer is yes.
Here are some ways industry leaders in the Midwest can embrace sustainability for years to come:
1. Identify all ways to reduce waste
At the heart of all sustainability efforts is waste reduction. Companies that support sustainability must consciously work every day to limit resource consumption and waste production. This can require a lot of nuanced work, research and reflection. However, when companies consistently take small steps to reduce waste and make the most of the resources they have, they improve their operations and create value for their investors, their audiences and the world.
Everyone involved in food production should be interested in reducing waste to increase profits. Less waste in fertilizer, electrical processes and labor can improve the bottom line of the entire value chain. In particular, reducing waste provides more materials that can be recycled and composted for crops. There is also more food to recycle, less waste in landfills and more supplies to meet consumer demand. Additionally, investors will likely feel more comfortable investing in companies that prioritize waste reduction.
2. Strengthen the supply chain through innovation
The transition to more sustainable operations requires many moving parts, particularly product manufacturing, which further stabilizes it. Walmart, for example, is working with its suppliers to reduce carbon emissions across the board. Through its Project Gigaton, it has committed resources to its suppliers to help reduce 1 gigaton of greenhouse gas emissions from its global value chain. As this example makes clear, sustainability requires the capabilities of your suppliers to truly succeed.
Also, CoverCress’ partnership to bring renewable seeds and animal feed to market strengthens the supply chain, helping to meet the demand for renewable fuels. That’s because CoverCress took a winter weed that was bred and gene-edited to fit into a corn and soybean rotation.
Adding new crops to existing land in the winter is not only beneficial, but especially better for the soil, providing ground cover and reducing nitrogen losses. Farmers can use this one-time weed to grow more crops throughout the year, improving supply.
3. Focus on technological innovation
Sustainability efforts will not be achieved without the right technology to implement the programs. Because sustainability really comes down to efficiency, industry leaders must invest in technology to innovate in the food industry. In fact, food technology investments are expected to reach $13.5 billion in 2021.
Although investment declined in the second quarter, one thing is clear. people are devoting significant resources to technology that helps create a safer and cleaner food system. Soon, cutting-edge technologies like smart food packaging sensors will appear in all aspects of food packaging.
These sensors will be critical in food sterilization and processes, which will also reduce waste. They will be used in many stages of food packaging. As the technology continues to improve over time, manufacturers will be able to use it to detect microbial contamination and even changes in the gas composition of sealed packages. Sensors not only effectively support the value chain, but also support the security objective; together they are a key component of sustainability.
When it comes to sustainability in the food industry, there’s a lot to consider, from outlining goals to getting suppliers involved in the program. However, even traditional Midwestern industries can prioritize sustainability in the coming years with careful coordination and the right partners. All you need is a goal and the right allocation of resources.
Once all these things are in place, companies can work consistently to build a cleaner and safer future for food production.