Does Organic Farming Increase Biodiversity?
May 22, 2020
Is Gene Editing the End of GMO’s?
July 24, 2020
Written by Guest Contributor Tobias Bandel, Soil and More International BV
Which type of agriculture can feed the world considering the planetary boundaries? Can we do without glyphosate and genetic engineering? Is organic something for the rich only or is it a meaningful and scalable solution?
There are many controversial and not always objectively discussed questions. The requirement for an answer however, is becoming ever clearer: Agriculture is required and should already today produce food for everyone at affordable prices. It must do one thing above all else, it must be able to deal with the changing climate. Ingredients of sustainable agriculture must therefore include high water stress tolerance, nutrient efficiency through humus preservation and humus build-up, disease resistance through biological diversity, etc. Farming practices such as wide crop rotations, green manuring, under sowing, composting, mulching, reduced tillage etc. are ingredients to such a climate resilient agriculture. It is a company ‘s, the economy‘s at large and a nations own invested interested to promote such agricultural practices in order to secure food supply, reduce economic risks and save jobs.
The financial sector is pushing for regenerative farming practices:
In June 2016, the Capitals Coalition, an organization within the World Business Council for Sustainable Development, launched the Natural Capital Protocol. Natural capital was defined as biodiversity, soil, climate and water. The Natural Capital Protocol is intended to serve as a guideline for organizations, especially companies, to define and ideally reduce their own influence on, but also dependencies on natural capital. A Social Capital Protocol was launched soon after.
Interestingly, the Big 4 (Deloitte, Ernst & Young, KPMG and PWC) were significantly involved in the process of creating the Natural Capital Protocol. The Big 4 conducted case studies to assess how e.g. a company’s result or entire sector performance would change, applying the logic of the Natural Capital Protocol. Below shows a KPMG case study of an Indian Brewery:
In company valuations, EBITDA denotes earnings before interest, taxes, depreciation and amortization. In the case of a sample brewery in India, the EBITDA for the valuation using our current accounting method 5.3% of sales. According to auditors’ new understanding of risk in line with the Natural Capital Protocol, additional; costs for water,
Buzz Builder Sustainability Through Regenerative Organic Agriculture CO2 price and the respective price for energy and barley would also have to be taken into account. This would result in a corrected actual EBITDA, which would now be negative. If these risks are not taken into account in the annual audit, investors could join a supposedly profitable company and realize afterwards that they have been misinformed.
In June 2018, another player of the financial sector published a report, stating the importance of including natural capital in corporate risk management: the Allianz insurance group. Assessing the natural capital risk of the food and beverage sector and it’s agricultural commodities, they state: „Local flora and fauna suffers as a result of excessive fertilization and pesticides used at a supplier’s plantations. At the same time, the area becomes less fertile and more vulnerable to external environmental impacts. The supply from the plantation becomes more expensive and volatile, creating regular interruptions in the supply chain. Enterprise risk management addressing the supplier’s plantation management practices from an environmental sustainability perspective is necessary.“
In summary:
Agricultural businesses that e.g. take care of humus build-up as a measure to improve nutrient and water retention capacity and thus prevent yield variability and business continuity, will be better assessed in monetary terms e.g. in case of credit rating.
Taking the Allianz approach, the same applies to traders, who obtain their raw materials from sustainably producing companies. This “new” logic follows a simple assumption and is shown in the following graphic:
If we apply agriculture practices, or if we pursue a purchasing strategy that incentivizes a type of agriculture, that causes humus breakdown, production costs will rise as a result of worse input/output ratios and instable yields. From a business risk perspective, it is therefore more sensible to provide agricultural producers with incentives to operate a somewhat more cost-intensive but humus-preserving agriculture that stabilizes agricultural yields and supply, keeping production costs and food prices at an affordable level. This logic was fundamentally never different, but the changing climate makes the need for action more obvious. In other industry sectors, this is called preventive maintenance, which somehow was never applied to natural capital e.g. soil.
At Soil & More Impacts, we conducted more than hundred so called True Cost Assessments, assessing the natural capital impact and risk for various crops from different origins worldwide. The results very much depended on the agricultural practice applied.
“Net positive” farming is possible if e.g. farmers sequester more CO2 than they emit. This
doesn‘t only slow down climate change but increases the resilience of the farm, as every additional tonne of CO2 in the soil builds up humus and improves the ability to deal with
e.g. water stress reducing economic risks. Regenerative organic farming in that sense supports the new logic of the financial sector, affecting creditworthiness, insurance and company ratings.
About Tobias Bandel:
After graduating in agricultural sciences at University of Hohenheim, Germany, Tobias Bandel worked as cultivation and export manager for fresh fruits and vegetables at the Sekem Group, Egypt. Apart from his trading activity, he was involved in various agribusiness projects in cooperation with the IFC/Worldbank and USAID such as traceability and communication tools to link small-scale farmers to export markets.
In 2007 Tobias Bandel was co-founder and is since then managing partner of Soil & More International BV, a company offering natural soil fertility advisory services and impact assessments including true cost accounting. Since January 2018, Soil & More International was renamed to Soil & More Impacts.
Learn more about Soil & More Impacts here.
