It’s no secret that industrial companies have historically put sustainability on the back burner, but things have changed. As their work involves longer product life cycles, complex manufacturing processes, demanding customer requirements, and applications that make it more difficult to implement sustainability programs, these obstacles are almost overwhelming incentives for choosing a greener path, especially in traditional food industries.
Profit margins in Agworld and Agtech are small (2-3%) compared to other industries. This means that everyone is competing for 2% returns rather than the larger portion that must be competed and divided among the industry. When food companies reduce food waste by 30% to 40%, this affects everyone and makes innovation more important than an alternative because the margins have the potential to grow – the product is being sold instead of being wasted.
In particular, many companies are becoming “food companies” because the return is great. This means that there are more financial resources to focus on new sustainability efforts. Combined with industry expertise and a startup mindset, agworld and agtech can capitalize on innovation for the future.
Companies are now taking ESG initiatives seriously because the benefits can be enormous. For example, companies with high ESG scores are earning valuation premiums faster. Industrial product manufacturers are also seeing modest benefits. However, due to the low margins of the agworld and agtech industries, traditional food companies can’t just take the reflective idea of ESG and force it into tradition. These companies need to take some time off and make incremental improvements to see real innovation and lasting change. Once these companies embrace new technologies and make improvements in their supply chain, they can fully embrace sustainability and effectively reduce food waste.
Midwest companies that are leading the way in innovation
While traditional food companies have been slow to embrace innovation, there are a few elements that are paving the way to sustainability. Bunge, an agribusiness that connects farmers to consumers, partnered with CoverCress, a Chevron-invested startup that is bringing renewable oilseed and animal feed crops to market.
The partnership also marks a long-term commercial agreement to convert annual field pennycress into a covercress crop that has a smaller footprint and can be incorporated into existing corn and soybean rotations. Adding a new crop to farmland has the potential to provide additional income to farmers, and provides the ecological benefits of cover crops to improve soil health and reduce nitrogen loss.
This new focus on sustainability has highlighted its role in the entire value chain. Sustainability is a long-term goal that will eventually yield profits, but shareholders want an immediate return to ensure the value of their investment. In this way sustainability affects profit and loss. However, to truly innovate, industry leaders need to think outside of conventional profit and loss to see the true impacts of ESG.
For example, agricultural-input manufacturers need to shift their focus from how product sales are affected to solution sales. For as long as anyone can remember, agriculture has operated on an input-output model—specifically, how fertilizers affect a crop’s productivity.
Farmers’ sustainability mindset is investing in ecologically sound but evidence-based clean tools and farming methods. Farmers have always prioritized sustainability, but today the new focus on digital tools and new biological products can lead to more innovation and better results.
Sustainability next steps for Midwest entrepreneurs, investors and business leaders
Because sustainability and traditional food industries don’t always go hand-in-hand, it can be daunting for industry leaders to embrace innovation. However, if leaders can articulate the value of sustainability initiatives, the time and resources are worth it. The key here is, “Should this really be done?” It is to ask. If the initiative adds value and efficiency to your organization, the answer is yes.
Here are a few ways industry leaders in the Midwest are embracing sustainability for years to come:
1. Explore all ways to reduce waste
At the core of all sustainability efforts is waste reduction. Sustainable companies must actively work every day to limit resource consumption and waste. This may require a lot of sloppy work, research, and contemplation. However, when companies regularly take small steps to reduce waste and make better use of their resources, they improve their operations and build value for their investors, audiences and the world.
By extension, everyone involved in food production must be interested in reducing waste to increase profitability. Less wastage in fertilizers, electrical processes and manpower can improve the bottom line of the value chain. In particular, it reduces waste and provides more materials that can be reused and used as fertilizer for crops. Also, there is more food to process, less waste in landfills, and more supplies to meet consumer demand. In addition, investors may feel more comfortable investing in companies that prioritize waste reduction.
2. Strengthen the supply chain through innovation
The transition to more sustainable operations requires more moving parts – especially the more sustainable production of goods. For example, Walmart is working with its suppliers to reduce carbon emissions across the board. Through Project Gigaton, it has provided resources to its suppliers to help reduce 1 gigaton of greenhouse gas emissions from the global value chain. As this example makes clear, sustainability requires the capacity of your suppliers to be truly successful.
Also, the CoverCress partnership will strengthen the supply chain by helping to bring renewable seed and animal feed products to market to meet the demand for renewable fuels. That’s because CoverCress has adopted winter weeds that have been bred and genetically modified to fit into corn and soybean rotations.
Adding new crops to existing land during the winter is not only profitable, but this is especially good for the soil, it provides cover for the land, and reduces nitrogen loss. Farmers can produce more crops throughout the year by using this one time weed, which improves supply.
3. Focus on technological innovations
Without the right technology to put plans in place, sustainability efforts cannot be achieved. Because sustainability really comes down to efficiency, industry leaders must invest in technology to drive innovation in the food industry. In fact, food technology investments will total $13.5 billion by 2021.
While investments slowed in the second quarter, one thing is clear – people are devoting significant resources to technology that helps create a safe and clean food system. Soon, cutting-edge technology will be available in all areas of food packaging, such as smart sensors in food packaging.
These sensors will be important in food sterilization and processes, which will also reduce waste. They are used in most food packaging standards. As the technology improves over time, manufacturers can use it to detect microbial contamination or even changes in the gas composition of sealed packages. Sensors not only support the value chain efficiently, but also support the goal of security. These combinations are integral to sustainability.
When it comes to sustainability in the food industry, there’s a lot to consider, from setting goals to including suppliers in the plan. However, with careful coordination and the right partners, even traditional industries in the Midwest can prioritize sustainability in the coming years. What is needed is a goal and a proper allocation of resources.
With all of these factors in place, companies can work steadily to build a cleaner and safer future for food production.
