It’s no secret that industrial companies have historically put sustainability on the back burner, but things have changed. As their operations involve longer product life cycles, complex manufacturing processes, demanding customer requirements and applications that make it difficult to implement sustainability programs, these obstacles have almost outweighed the incentives to choose a greener path, especially in traditional food industries.
In agworld and agtech, profit margins are small (2-3%) compared to other industries. This means that everyone is competing for 2% of returns instead of a larger share that would be 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 rather than optional because margins have the potential to grow: the product is sold instead of get wasted
In particular, more companies are becoming “food companies” because the returns 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 properly leverage innovation for the future.
Companies are now taking ESG initiatives seriously because the benefits can be huge. For example, companies with high ESG values are securing valuation premiums quickly. Manufacturers of industrial products are also seeing modest gains. However, due to the low margins of the agworld and agtech industries, traditional food companies cannot simply take the bright ESG idea and force it into tradition. These companies need to disrupt a little at a time and make incremental improvements to see true innovation and lasting change. Once these companies adopt new technologies and supply chain improvements, they can fully embrace sustainability and minimize food waste more efficiently.
Midwestern companies that are leading the way in innovation
While traditional food companies are slow to adopt innovation, there are some outliers that are paving the way for sustainability. Bunge, an agricultural company that connects farmers with consumers, partnered with CoverCress, a Chevron-backed startup that is bringing a renewable oilseed crop and animal feed to market.
The partnership marked a long-term commercial agreement to convert annual field pennycress into the CoverCress crop that has a smaller footprint and can fit into existing corn and soybean rotations. Adding a new crop to existing cropland has the potential to provide farmers with additional income while providing the ecological benefits of a cover crop to improve soil health and reduce nitrogen losses.
This somewhat new approach to sustainability has emphasized its role in the total value chain. Sustainability is a long-term goal that will eventually yield returns, but shareholders want immediate returns to demonstrate the value of their investment. In this way, sustainability can affect profits and losses. However, to truly innovate, industry leaders must think outside the normal bounds of profit and loss to see the true impacts of ESG.
For example, agricultural input manufacturers should 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, specifically how fertilizers affect the productivity of a given crop.
The sustainability mindset of farmers is to invest in cleaner farming tools and methods that are ecologically sound but evidence-based. Farmers have always prioritized sustainability, but today they can take advantage of the newfound focus on digital tools and new biological products that lead to more innovation and better results.
Sustainability Next Steps for Midwest Entrepreneurs, Investors and Business Leaders
Because sustainability and traditional food industries have not always gone hand in hand, it can be intimidating for industry leaders to embrace innovation change. However, if leaders can articulate the value of sustainability initiatives, it is worth the time and resources. The key here is to ask yourself, “Does this really need to be done?” If the initiative would bring value and efficiency to your company, the answer is yes.
Here are some ways industry leaders in the Midwest can embrace sustainability in the coming years:
1. Explore all avenues to reduce waste
At the heart of all sustainability efforts is waste reduction. Companies promoting sustainability must consciously work every day to limit resource consumption and waste production. This can require a lot of work, research and nuanced thought. 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.
Moving away, everyone involved in food production should be interested in reducing waste to increase profits. Less waste in fertilizers, electrical processes and labor can improve the bottom line of the entire value chain. Specifically, reducing waste provides more material that can be recycled and composted for crops. In addition, there is more food to process, less waste in landfills, and more supplies to meet consumer demand. Additionally, investors are likely to 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, specifically, the manufacture of basic products that promote sustainability. Walmart, for example, is working with its suppliers to reduce carbon emissions across the board. Through its Gigaton Project, it has dedicated resources to its suppliers to help reduce 1 gigatonne of greenhouse gas emissions from its global value chain. As this example makes clear, sustainability requires the ability of your suppliers to truly succeed.
In addition, the CoverCress partnership to bring a renewable seed and animal feed crop to market strengthens the supply chain by helping to meet the demand for renewable fuels. That’s because CoverCress took a winter weed that has been bred and genetically edited to fit in corn and soybean rotations.
Adding new crops to existing land during the winter is not only profitable, but in particular is better for the soil, provides ground cover and decreases nitrogen losses. Farmers can use this weed to grow more crops during the year, which improves supply.
3. Focus on technological innovations
Sustainability efforts could not be achieved without the right technology to put the plans into motion. Because sustainability really comes down to efficiency, industry leaders must invest in technology to innovate in the food industry. In fact, investments in food technology amounted to $13.5 billion by 2021.
Although investments slowed 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 technology, such as smart food packaging sensors, will be found in every aspect of food packaging.
These sensors will be essential in food sterilization and processes, which will also reduce waste. They will be used in most phases 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 containers. Sensors not only support the value chain with efficiency, but also support the security objective; these combined are an important component of sustainability.
When it comes to sustainability in the food industry, there’s a lot to consider, from setting goals to bringing suppliers into the plan. However, even traditional Midwestern industries can prioritize sustainability in the coming years with careful coordination and the right partners. All it takes is a goal and the right allocation of resources.
Once all these things fall into place, companies can work steadily to build a cleaner and safer future for food production.