Risk and Opportunity Costs for Food Companies

This interview is the second part of a two-part interview. The first describes why companies should start the regenerative transition now and can be found here.

How risky or difficult is it for companies to make the transition to regenerative agriculture within their own supply chains?

If we want to understand the risks food companies face related to the regenerative transition, we first need to differentiate between two types of risk. The risk of transitioning and the risk of not transitioning. Let's first look at the risks and challenges associated with making the regenerative transition.

The most important thing to understand here is that food companies are in control of the level of risk or challenge they are taking in their supply chains. That's because they can define the three key boundary conditions of their regenerative transition: the overall transition targets, the supply chain focus, and the targets for their farmers.

The overall transition targets are the amount of emissions reduction the food company wants to achieve in its supply chain, often set in line with the science based targets initiative (SBTi). These overall targets then need to be translated into targets for their farmers, and a supply chain focus needs to be set, for example on food crops only, or the entire supply chain. 

This optimal translation of the overall targets into farmer targets is the key to a successful regenerative transformation. The targets for the farmers need to be chosen such that the farmers are willing to make a start, stick with the transition process and such that other risks, e.g. of yield loss, are minimized. If, for example, a food company uses an undifferentiated top-down approach to set targets not carefully tuned to a farmer's reality, there is a risk that the transition project will not achieve its goals. And if the farmers are not provided with some form of guidance and expertise, they may either not achieve the full potential, or they may run into problems on their fields and risk yield loss.

Essentially, the ambition of the transition project could either be set too low or too high. If set too low, the food company runs the risk of missing its climate targets, and the opportunity costs of not transitioning fast enough. If set too high, or not compatible with a farmer's reality, there is a risk of low adoption rates amongst farmers and consequently also missed climate targets. 

But as it is possible to set achievable targets, and that's a part of what we do for our partners, there is essentially no significant risk involved in the transition if the process is designed properly.

What do you see as the risk that faces companies if they don't make any transition at all? 

There are many risks and opportunity costs involved in not transitioning or transitioning too slowly.

There’s the risk of relying on a non-regenerative supply chain that becomes increasingly vulnerable towards droughts and climate change induced crop loss, which poses a high risk for supply chain security. One of the main advantages of regenerative agriculture is that it improves the water retention rates of soil and therefore significantly improves the climate resilience of farms. And resilience in the food supply chain and food security are core business goals that any company needs to achieve. 

It’s risky for food companies to not achieve their climate targets because all the other food companies are committing to achieving significant reductions to meet their science based targets. And if you don't do that, you risk losing your customers. For example, if you are selling to a larger food company, they may not want to buy from you anymore - or you won't be able to charge the same price anymore.

Upcoming regulation will be much more demanding for food companies to cut down emissions, and there is a risk in being late on compliance here. At the same time, access to investment capital will be harder for food companies who cannot show a path towards a resilient and sustainable core business.

Additionally, if you are not investing in your supply chain and in your farmers, but all the others are, then your farmers have no reason to stick with you and might as well work with food companies that invest into them. And we have seen already during this crisis that loyalty of your supply chain, loyalty of the farmers, good farmer relationship management is going to be much more important in the future. 

All these risks can create significant opportunity costs for companies, and make it so important to start the regenerative transition early, and set optimal transition targets. 

The right time to start the regenerative transformation of your food supply chain is now. At Klim, we support you in defining the right strategy, translating your targets into actions for your farmers and transitioning your supply chain towards regenerative practices at speed and at scale, depending on your needs. At the same time, we enable you to track your progress towards achieving your targets and climate goals at an aggregated supply chain and farm level. It’s never been easier to kickstart your regenerative transformation, so let's get in touch and we show you how you can make the start!  

Daniela Unsin

Als Marketing und Partner Managerin bei Klim überblickt Dani alle Bereiche, die die Rolle von Regenerativer Landwirtschaft für Unternehmen angeht. Ihre Expertise reicht von der Beratung zur richtigen Strategie für Partner bis zur Kommunikation über regenerative Maßnahmen. Mit der Verbundenheit zur Landwirtschaft, durch ihre Kindheit auf einem eignen Betrieb, weiß sie auch welche Bedeutung die Umstellung auf Regenerative Landwirtschaft für Landwirt:innen bedeutet.

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