Farmers' role in food producers overall value chain

Farmers' role in food producers overall value chain

It comes as no surprise that food brands & food-sector companies have large environmental and emissions footprints. Food and agricultural production—the growing, processing and distribution of various crops, animal products and commodities—has a huge emissions intensity and represents the largest land use in the world; half of the world’s habitable land is used for agriculture. Feeding a booming population in a globalised and competitive world is no easy feat; and efficiencies have historically been found in intensification, scale and increased use of inputs—linked of course with downward pressure on margins. Sadly, since agricultural production is directly influenced by local weather patterns, agricultural production stands to be a major victim of, not just a contributor to, forecasted climate change.

Addressing Emissions in the Food Sector

In response to various compliance and consumer pressures to address climate change and emissions, many food sector companies have set ambitious targets to reduce their emissions. You can’t improve what you don’t measure; so typically the first step behind any target is mapping the various sources of emissions within a company’s operations. In the world of emissions accounting (articulated most prominently by the Greenhouse Gas Protocol), corporate emissions are categorised into three scopes. Scope 1 & 2 refer to direct emissions resulting from activities directly within a company’s control, including (respectively) direct combustion of fossil fuels (e.g. coal, gas, oil) or release of emissions, and the consumption of electricity. 

Understanding Scope 3: The Largest Emissions Category

Scope 3, on the other hand, is a behemoth of an emissions category; it refers to all indirect upstream and downstream emissions, typically related to production, processing and transport, as well as product use and end-of-life. Often, these emissions are not within the control of the company but instead are derived by the demand or operations they are influencing. Scope 3 indirect emissions are always Scope 1 and 2 direct emissions for someone else, so the same emission appears on the footprint of every entity within the value chain. A farm’s Scope 1 and 2 are within the Scope 3 of every entity that processes and trades that commodity until it reaches a consumer. 

The Challenge of Scope 3 Emissions in the Food Value Chain

For companies within the food value chain, Scope 3 overwhelmingly represents the largest category of emissions—and the hardest to influence, since many companies sit several degrees of separation away from farms. To give a sense of scale, Nestle’s Scope 3 emissions were reported as 95% of their total emissions, with ingredient sourcing (agriculture and raw material suppliers) responsible for 71% of that—representing 65 million tonnes of carbon dioxide equivalent. In farming systems, emissions come from activities such as fertiliser production and application, fuel and electricity usage for field and animal operations, enteric fermentation from ruminant animals such as cattle and sheep, manure decomposition, carbon release from soils via intensive management practices such as tillage, and processing such as drying or sorting. Naturally then, these emissions have recently come into focus for food-sector companies with emission reduction targets.

Programs Targeting Farm-Level Sustainability

This has fueled the launch of a range of programs focused on farmers, offering various incentives for implementing sustainable practices at the farm-level. These programs are often named “Scope 3”, “Insetting”, or “Value Chain” programs, or may otherwise have a corporate name alluding to sustainable or regenerative agriculture. Incentives range in format from premiums for low-emission crops or payments for units of emissions reduced or removed (“outcome-based payments”), as well as subsidies for equipment, inputs or payments simply for implementing a certain sustainable activity (“practice based payments”). 

Benefits of Farm-Level Sustainability Programs

These programs offer an opportunity for farmers to get financially compensated for their efforts on improving their own farm-level sustainability. Potentially though, the more significant incentives for many farmers are some of the agronomic benefits that can come from improving sustainability; including but not limited to improved soil health (soil organic matter, structure and soil biota) which is linked to productivity, water holding capacity and crop resilience in the face of extreme weather conditions (which of course stands to be exacerbated by climate change). Whichever the motivation, so long as there is adequate compensation and agronomic support, improving farm-level sustainability can be win for the farmer, win for the food company, and win for the climate.

That’s the idea, but it gets complicated. 

Insetting programs are not easy to run. 

Firstly, individual agricultural products are part of a farming system. Crops rotate through fields, animals eat food grown both on farm or bought in, manures enhance the soils that grow the next crop, farms don’t grow the same crops each year depending on the market or the weather forecast. Improving farm-level sustainability happens gradually and systematically, whether it be optimising inputs, reducing fuel use, improving manure management, incorporating cover crops in the rotation or reducing tillage; all of these interventions happen as part of a system that does not typically benefit just one type of crop or animal. The problem here is that many food companies have a narrow focus on one or a handful of commodities; they might be willing to pay for low-emission wheat, but aren’t so interested in the other products the farms produce. And, if animals are part of the system that adds nutrients to the soil, which product should be assigned the animal’s emissions, the crop or the animal product? It gets complicated quickly, and there aren’t clear protocols for how to tackle this. How then can the farming system as a whole be effectively incentivised? Perhaps one answer lies somewhere in cross-sector collaboration, but these partnerships move slowly or have weak long-term commitments.

Some early-mover programs are taking the approach of addressing a single emission category without going too deep into the system of things. An example of this is fertiliser partnerships. Some food brands have launched partnerships with fertiliser producers to provide functionally equivalent inputs to farmers that have instead been produced with “green” credentials, such as producing ammonia with green hydrogen. The farmer doesn’t have to do much differently, the food brand subsidises the increased cost and the fertiliser company gets to sell more of their new product. Upstream Scope 3 emissions of the food brand and downstream Scope 3 emissions of the fertiliser company go down. This is a quick win, for sure, but the farming system itself hasn’t changed much. Meanwhile, farmers sign contracts that typically restrict them from participating in other emission reduction programs, and if the program doesn’t incentivise further ambition, there is some argument to say that this could stifle more systematic farm-level initiatives in the longer term. 

Currently, “insetting” programs are emerging alongside “offsetting” programs which some farmers may have been recruited into over the past few years. Offsetting (or “carbon credit”) programs typically focus on paying farmers for certified emission reductions or removals (an “outcome-based” payment) using the unit of a tonne of carbon dioxide equivalent (tCO2e). The same sustainability activities on farms can be rewarded by selling offsets. Offsetting markets are more mature than insetting programs and have pioneered the methodologies for quantifying the emission reductions and removals across a wide range of sectors. Offsets are sold to companies from a wide range of sectors and represent a deduction against their carbon footprint, in an effort to neutralise emissions from one place with sequestration or avoidance in another place (since we all share one atmosphere, this works!). A consequence of this logic, however, is a strict rule about avoidance of double counting; each carbon offset credit can only be claimed once. This contradicts the logic that insetting programs use, where an emission appears in the Scope 3 of every actor in the value chain. So, the accounting logic of who can claim the emission reduction or removal has incompatibilities and therefore food companies cannot claim the benefit of sustainable farming if an offset has been sold for it. 

To be clear, neither offsetting markets or insetting programs are “better” than the other - both are helping the climate equally; it’s just a difference in who gets to claim it. At the present moment, offsetting programs—such as those certified by Verra or Gold Standard—present a longer-term opportunity for farmers to get paid than many insetting programs, which at best range from 1-5 years depending on corporate ambition and availability of budgets. I would argue that the best program for any farmer is the one that incentivises him or her in a way that makes practical and financial sense for them, potentially deepening or complementing their relationships with suppliers, whilst receiving tailored agronomic advice and support through the transition.

Last but not least, engaging and supporting tens, hundreds or thousands of farmers is hard, especially for companies that don’t have direct relationships with farmers and whose purchasing contracts change year on year. This is where Scope 3 programs running independently of an individual food company can fill a market need moving forward. Farmers in these programs can benefit from whole-of-farm insights and agronomic support to systematically improve their sustainability performance. These programs can then work with many food sector companies—and offset buyers—to collectivise incentive schemes that in time will ensure full-farm, multiple commodity coverage; reducing the tunnel-vision on a certain crop, product or intervention and enabling farmers to be fairly compensated via insetting and offsetting markets. 

Rhyannon Galea leads value chain and Scope 3 initiatives at eAgronom. Our goal is to provide solutions that encourage farmers to operate smarter and sustainably, with numerous other benefits. eAgronom helps farmers monitor and verify sustainable practices, generate carbon credits, increase agricultural efficiency, and gain better access to financing in the future.