Tag: Sustainability

How do you win when it’s unclear what winning looks like? ICYMI, that’s the question we tackled last week in Climate + agriculture: noise, or mega trend?

“Climate is a mega trend. There will be winners and losers, the difference will be those who collaborate and find workable solutions. This is a mega trend to engage by looking for the ‘and’ solutions…the places of overlap between what’s good for climate related metrics AND for cattle AND for successful cattle operators AND for food companies AND consumers.”

A few readers pointed out that these things tend to be emotion driven and ag typically loses on emotion driven topics. I don’t disagree. We could point to several topics where farmers are squarely on the side of the Science Angels, yet lost the perception battle.

So let’s talk about why carbon *could* be different. Today we look at 3 questions about how livestock fits into the climate trend:

1. Who is leading who?
2. Why might carbon be more than just another emotion driven marketing fad?
3. What’s missing to enable the mega trend to materialize, pragmatically speaking?

Who’s leading who in climate + ag?

“Consumer wants drive value chain decisions.”

I’ll start by pushing back on the narrative that protein value chains are driven by consumers, on climate or any other topic. Consumers….those nebulous creatures of food commerce who somehow sound like the unknowable inhabitants of an alternative universe when we refer to them. Two flaws with the Consumers-R-In-Control narrative:

1. Consumers are not a monolith. Segments of consumers want certain attributes, sub-segments are willing to pay for those attributes. Variation among consumers is no less nuanced than variation among farming systems. Mis-identifying what consumers want and what they will pay for x is as fatal of a flaw as over-estimating how many consumers will pay for x.
2. Although staggeringly critical to the system, consumers are not everyone’s customers. Consumers don’t transform supply chains or recalibrate industry norms. Food companies do. Food companies are where the power lies. Brand owners make decisions about how to market meat & milk to their customer: retail consumers. Food companies make decisions about how to market meat & milk, and then where needed those same companies use their scale and influence to set product specs & requirements as they procure raw materials or finished product from a certain set of suppliers. No one is talking about the fried chicken wars of Mar Jac vs Wayne Farms chicken, they’re talking about KFC vs Chick Fil A. The two directional power of influence lies with brand holders across foodservice and retail. Leading brands lead consumers by positioning xyz about their brand that is better than competitors. Food brands tap into consumer trends, but they lead consumer segments with differentiated products. Sometimes those changes are then adopted by other food brands & their supply chains. The massive shift in NAE (no antibiotics ever) production in US poultry is my go to example for this dynamic – when 1-2 major food companies said we will buy NAE chicken, then NAE chicken is what suppliers learned to produce, at scale. So then more food co’s buy NAE chicken. It’s a cycle that starts with a food brand, moving vertically in that supply chain and then expanding horizontally as more food brands (and their supply chains) adopt whatever the thing is.

We oversimplify the value chain when we attribute all influence to consumers, and we underweight the actual centers of leverage.

This distinction is slight but crucial. Increasing general interest in climate friendliness is creating a market opportunity for food brands to sell into consumers who care enough about that trend to pay more for it. Who will be the brands that lead with a climate related message about their supply chain? How will participants in those brands’ supply chains respond? Will the premiums awarded be enough to shift supply chains, or some supply chains, or parts of supply chains?

But there’s another influencing group that should not be overlooked: investors. Someday we’ll read the HBS case study about the BlackRock effect as the $9 trillion asset manager has gone all in on making sustainability investing the same as investing. In general, an increasing amount of capital is marked for ESG investments (environmental, social, governance) and protein companies are beginning to access that capital, like Pilgrim’s recently issued $1B sustainability linked bond, tying the interest rate to Pilgrim’s success in achieving their targets of reducing GHG emissions by 30% by 2030.

Food companies influence their supply chains and consumers. Investors influence food companies.

Why is carbon more likely to be a monetizable mega trend than an emotion driven fad?

<insert corporation name> will not be able to buy 2 units of sustainability to offset 2 units of un-sustainabillity. But, <insert corporation name> will likely be able to buy 2 units of carbon sequestration to offset 2 units of carbon emissions.

As more companies make net-zero commitments around carbon and seek to offset carbon in their supply chains, carbon markets are the likely place to turn. To make this carbon economy go, the entire structure will have to be underpinned by rigorous standards of measurement and verification. Sound methodology and precision processes are the only way for carbon markets to deliver on the promise for participants and their investors, customers, and consumers.

Another concept bubbling up is carbon labeling on food. Only high end, niche brands are pursuing carbon labeling now, but will this become a more widely adopted practice? The concept behind these labels is numerical representation of the carbon involved in production….the (potentially) magical word for livestock producers is “numerical”. To the extent that sound methodology and high integrity math drive carbon labeling, it represents an opportunity for livestock producers to win by numerically capturing the net positive carbon impacts of livestock production.

People way smarter than me can go deeper on carbon markets and carbon labeling. My point is simply this:

Carbon could be the real deal for producers because both B2B carbon markets and consumer facing carbon labeling on food would require data driven approaches to drive an actual functioning net zero carbon economy based on measurements.

What gets measured gets managed, and monetized.

So what’s missing to enable the mega trend to materialize? Consider this framing:

“Big shifts are underway for farmers as the larger food companies, for the first time, are starting to reward them with a piece of the elusive “green premium.” In 2020, firms like Cargill, Anheuser-Busch, General Mills, and Walmart started paying farmers to adopt greener practices.

Cargill said it would shift 10 million acres to regenerative practices, paying farmers for the green shift and offering complimentary training. The move kills two birds with one stone. It lowers food companies’ own supply chain emissions while encouraging them to offer differentiated, sustainably sourced food to their end customers—at a premium, of course.

While always stewards of the land, farmers have faced a continuous squeeze over the decades with the real price of food declining, the price of labor increasing by 40 percent, and the price of agricultural inputs increasing by 15 percent since 2010. These forces allowed little flexibility in farmer margins to bear the cost and risk of switching to greener products and practices. But with food companies increasingly offering premiums and upfront risk capital, farmers are starting to see the calculus differently.

The big question remains: what technologies will unlock the ability for farmers to profitably capture the green premiums?”

Right now, there seem to be more questions than answers to what the enabling technologies will be. How will we measure? How will we verify? How will we transact? Will participation be voluntary or mandatory, and for whom? Are we talking net carbon sequestration or only the differential from year 0 to year 1?

There’s a whole host of entrepreneurs innovating in this space and venture investors backing them. It’s nascent but rapidly evolving.

The only certainty is this proven core technology (link) 😁:

The devil will be in the details – methodology, realities of implementation, new capabilities needed, new partnerships, new data streams, and more. The intriguing aspect is that carbon *could* let producers be on the side of the Science Angels and maybe even win the perception battle.

I’m on the Merck Animal Health Ventures team. This newsletter is not representative of anyone’s views but my own. Sometimes it doesn’t even represent my views 🙂

21 tips for 2021 University Graduates (link)

Graduation season is here, so do the grad in your life a favor and share this article by Shane Thomas, creator of Upstream Ag Insights. A few of my favorites:

1. Ask Questions Don’t let the feeling of looking stupid keep you from asking questions. Many others have the same question and you’ll have more confidence in that answer moving forward.

You don’t know everything. You never will (no matter what your degree says). But you can try. In order to do this, you need to ask questions + listen to those more experienced and with different perspectives. You don’t have to agree with others opinions, but sometimes their perspective is what you need.

2. Learn Broadly (Always Be Capturing – ABC) Being done school doesn’t mean you stop learning. It means learning is just beginning. Learning your area is important, but going beyond ag is beneficial in work & in your personal life. The tools to accomplish this today are infinite. Never stop learning.

7. Expand Your Time Horizons 3 years out seems like a long time, but it’s <10% of your working life. Think 15 or 20 yrs out instead when it comes to things like skill development, career moves or how a technology could impact you.

9. Build a Network Make connections. Introduce yourself to people you find interesting and tell them your ideas. Send messages on social media, request a coffee or a phone call.

14. Be Comfortable in the Grey Area We get taught in black and white. The world is grey.

17. Outcome Over Ego The goal shouldn’t be to be right, but to achieve the best possible outcome. That might mean your ideas don’t get used. Accept it and learn from it.

20. Strong Opinions Loosely Held Having conviction in your beliefs is paramount, but you need to be continuously open to changing times and new information…especially early on in your career. Be confident, but be ready to adapt.

Ask 10 people what sustainability means, get 10 different answers.

Ask 10 people what regenerative agriculture looks like in practice; you’re more likely to hear the equivalent of “you’ll know it when you see it” than a clear set of actionable ideas.

The ambiguity in definitions can make producers feel like engaging on climate/sustainability is the equivalent of the Baylor Bears hearing that they did not score enough home runs to win the 2021 NCAA basketball championship. ¯\_(ツ)_/¯

How do you win when it’s unclear what winning looks like?

Additionally, the climate + ag conversation often has a tone problem. Real or perceived, much of it feels condescending to producers…it reeks of coastal elitism and “you’re doing it wrong, silly”. What reaction do you expect to get when you tell a 5th generation rancher that they aren’t using sustainable grazing practices? That rancher predictably says “what is a better definition of sustainability than raising beef for 100+ years on the same land” then follows it up with “no one is more invested in the long term sustainability of this land than we are, the people who derive our livelihoods from the land”. Shot, chaser.

For starters, let’s please welcome nuance to the table. The extreme positions on either end of the sustainability spectrum will not create actionable, consumer-satisfying, carbon-reducing, market-growing solutions. But nuance…that’s how we find the productive middle ground. Nuance acknowledges that one size does not fit all – what works in geographies that get 40+ inches of annual rain fall won’t necessarily work in areas that get <15 inches. Systematic management changes like transitioning from continuous grazing to intensive rotational grazing are complex, as is anything related to managing the biology of plants or animals.

Nuance also matters in the context of beef’s perceived “market position” around climate change. While methane emissions are a target, cattle have the superpower to up-cycle grasses and support soil health, a key factor in carbon sequestration. Russ Conser of Blue Nest Beef explains that he left a career in venture investing at Shell to launch a cattle business when he realized that “effectively grazing cattle is the other half of the carbon cycle” via carbon sequestration. 🤯

The language, tone, and lack of nuance in sustainability speak sometimes makes the whole topic sound like mere noise…so the volume gets turned down. To turn this mega trend into opportunity, we’ve got to break the language logjam in order to unlock the meaningful ways agriculture can show off its uniquely powerful climate chops.

And this issue matters, right now. A significant amount of capital has been invested into cell based meat with much of the enthusiasm centered around the reduced environmental impact compared with animal grown (?) meat.

As a result, the livestock industry has a time sensitive imperative to demonstrate, dial up, and deliver on the wide ranging net climate benefits that livestock alone can deliver.

So here we go. Where is the opportunity for producers to take steps towards delivering what a carbon-conscious market wants?

“One in five of the world’s 2,000 largest publicly listed companies have now committed to a “net-zero” emissions target to help tackle climate change.”

If you believe:

(1) the undeniable trend is towards food companies (retailers & food service) making net/near zero claims about their supply chains, and

(2) the likely trend is towards more coordinated/aligned/virtually integrated beef supply chains (e.g. the venture between 44 Farms & Walmart)

Then, it is not a difficult leap to assume that in the not too distant future there will be an increasing number of coordinated supply chain initiatives that will incentivize – or select – producers to adopt (or continue) and verify certain production practices. Clearly aligned incentives throughout a supply chain to realize greater commercial outcomes for all (<—key word) participants, and measurable carbon outcomes that make meat attractive even to carbon conscious consumers? Interesting…

In the interim, some companies are learning how to work with their supply chains, e.g. Sysco & Cargill’s program to “invest $5 million to support ranchers in the Southern Great Plains with the implementation of sustainable grazing practices” by “targeting 1 million acres to sequester as much as 360,000 tons of carbon annually.” Some of the practices that the grants will support include rotational grazing, improvements to infrastructure, control of invasive vegetation, or a combination of interventions appropriate for the landowner, wildlife, soil type, and climate. Presumably everyone involved will learn a lot through this project from the how’s to the why’$.

Brief aside on Amazon: One of the company’s core tenants is improving customer experience. A few years in, they began to focus on fulfillment errors as a key metric. Less errors in customer orders meant happier customers. But less errors also meant reduced cost to fulfill the order. Improving the metric had good impact on customer experience AND on company profits.

Applying that to our topic: can what’s good for carbon sequestration be good for the land AND for cattle AND for cattle producers? Or must producers who set out to improve carbon related metrics do so at the expense of their business?

Take intensive rotational grazing – a practice that carbon sequestration enthusiasts love to love, and a practice that many cattle producers generally accept as a way to better manage grass and therefore increase carrying capacity. It’s hard to execute because of the labor and hassle factor, but how can technology change that? How can properly aligned incentives recalibrate the cost/benefit equation? What needs to be true in order to increase adoption of this practice that is widely accepted is beneficial on every outcome??

Anyone grazing livestock effectively is closely managing two inventories: cattle AND grass. What’s good for grass tends to be good for cattle, and the producer. Sustainable grazing enthusiasts want to promote biodiversity and healthy vegetation and reduce water consumption….these sound a lot like things cattle producers want too, right? Perhaps this whole thing is as simple, not easy but simple, as looking at new ways to achieve age old objectives, of finding the overlap in operator objectives and carbon objectives….there’s almost always middle ground to be found.

It takes a healthy dose of humility on all sides when it comes to tackling this topic because there’s still *SO* much unknown…including how to measure carbon sequestration in soil, how to quantify its impacts, and how/when/if carbon markets will pan out.

Regardless of the abundant unknowns about how things will evolve, this whole “climate thing” is not a topic where producers can look away and hope it will disappear. This is a mega trend. There will be winners and losers – my hypothesis is that the difference will be those who collaborate and find workable solutions…or don’t. This is a mega trend to engage, to lead by looking for the ‘and’ solutions…the places of overlap between what’s good for climate related metrics AND for cattle AND for successful cattle operators AND for food companies AND consumers. This is a place to ask questions like, what if? What needs to be true? What opportunities will be created in this mega trend?

Consider this framing on the value of engaging:

Producers will produce what the market signals, and the market signals around this mega trend are dialing up.

Where there’s a market there’s a way.

Heads up – I’m now part of the Merck Animal Health Ventures team. This newsletter is not representative of anyone’s views but my own. Sometimes it doesn’t even represents my views 🙂