Sustainability for primary agriculture and agribusiness

KPMG recently published a detailed review of what sustainability actually means to farmers, agribusiness and the wider public in New Zealand. The key findings also have implications for food production in Irerland.

This report highlighted the fact that sustainability means different things to different people. Many feel sustainability for any industry and, in particular, primary agriculture and the associated businesses, is about conserving the environment. However, it is increasingly agreed that sustainability now has a much broader remit.

At its most basic, it evolves around business and farming practices that are sustainable – environmentally, financially, socially and where all aspects of the business and its sustainability plans are intertwined and intimately connected.

This report poses the question: should regulators drive the sustainability agenda or alternatively should industry drive and shape this agenda?

This report comes down on the side of industry itself driving and shaping this agenda, but recognises the innate challenges with this where different companies and interest groups have varying views. Therefore, reaching a common consensus and common goals may be difficult.

In Europe, urban dwellers have an increasing influence on public policy and their perception has an increasing bearing on policy makers and what is deemed sustainable and acceptable.

This is best illustrated by the topic of genetically modified foods, where public perception continues to drive the discussion and sets the agenda rather than science.

Business issues

The following items were identified as fundamental for agribusiness to develop in a truly sustainable manner.

1 Customer requirements: Premium customers are increasingly demanding products that are produced in a sustainable way. This is increasingly influencing food buying decisions of the largest retailers in the world where they are now setting the production standards on behalf of their consumers rather than regulators setting these standards.

Customers increasingly want assurance that the food, fibre or timber they purchase has been produced correctly. Failure to provide and communicate these assurances to customers will result in failure to retain and win premium customers in the future. Origin Green as developed by Bord Bia was cited as an excellent international example that can play a huge role in pulling all elements within food production together.

2 Community Contact: Globally, around 38% of land is used for agriculture. Primary agriculture has more direct contact with its communities than any other industry sector. Therefore, agriculture and agribusinesses must look to engage more with and develop mutually beneficial policies and practices for the wider community as well as their business.

3 Inconsistent regulations: Regulations play a major role in shaping agriculture and agribusiness in New Zealand and this report and its predecessors have highlighted the damaging effect poorly designed and inconsistent regulations can have on the agri sector in particular.

4 Land usage: The loss of biodiversity and the impact this could have on the ecosystem in the long-term has increasingly become an issue.

5 Intensification: Growing production and exports in New Zealand, as in Ireland, lead to an increasingly intensive primary production system. Any such growth needs to be planned and done in a way that does not negatively impact on the environment. This also affects the international reputation of a country.

6 Other factors highlighted: These included inefficient production systems, water quality and the efficient usage of water, even in countries with an abundance of water such as New Zealand or Ireland, and the continued investment in research and development (R&D) by business and also at a national levels.

Fonterra

As New Zealand’s largest dairy company, Fonterra’s policies are coming under increasing scrutiny with regard to sustainability.

Fonterra has recently introduced ‘Supply Fonterra’, which helps farmers to identify ways to improve their on-farm efficiency and environmental performance.

In other areas, Fonterra plans to invest NZ$15-20m to offer free milk to schoolgoing kids, which they see as having multiple long-term benefits in helping to ensure healthy kids and in integrating with the local community from an early age.

Environmental costs

KPMG’s international research has demonstrated that total environmental costs on an annual basis outstrip total profits generated by all food producing companies by a factor of two to one.

Therefore, for every €1m of profits generated by food companies, total environmental costs amount to over €2m, but the taxpayer picks up the vast majority of these costs.

KPMG outlines that this is likely to change in the future, with regulators insisting that food companies and primary producers pick up an increasing percentage of these environmental costs. Therefore, primary producers must strive to reduce its environmental intensity and bear an appropriate proportion of the cost the report concludes.

Access to credit

New Zealand bank ASB has recently launched a rural environmental compliance loan that offers credit to primary producers and smaller scale food producers on a cost-of-funding basis.

Mark Heer, ASB’s general manager, outlined their rational for this credit facility, saying it’s about “getting the balance right between productivity and sustainability”.

R&D

The report outlined the importance of R&D and how we must place a greater focus on increasing the value generated from our production system. It was suggested that science is the only effective response the industry has to some of the blunt regulatory tools being implemented.