Climate change risks but also opportunities for agribusiness

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This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

Global population is on the rise and expected to reach 9.8 billion in 2050 according to a 2017 United Nations report. Global per capita food consumption rates are at an all-time high (and expected to continue to increase). The demands placed on agribusinesses to meet global needs are significant and growing, making the industry’s role more important than ever. The pressure to keep pace with demand and to do so in a sustainable way sits heavily on the food and agricultural sector.

Agribusiness, as an industry, is especially vulnerable to climate change-related risks. The vulnerability in agribusiness stems from a number of factors. Firstly, agribusinesses rely on specific weather and climate patterns and natural resources at the farm level. Secondly, agribusinesses have a close interdependence and reliance on many other sectors and resources that are themselves exposed to climate change risk. This dual vulnerability results in an amplification of risk for agribusinesses; however, where there is risk, there is also opportunity. Businesses in the agricultural sector have the potential to gain a significant competitive advantage if they proactively address climate change-related risks throughout the farm-to-fork continuum.

Risks

The most significant risks to the agricultural sector with respect to climate change are physical risks (although the sector is necessarily impacted by transition and liability risks, as described in depth in our Cultivate publication). Acute weather events are predicted to become more severe and frequent. On a global scale, this will impact the stability of food supply as food chain disruptions similarly increase in frequency.

Further, the long-term impacts of climate change will inevitably affect food and agribusinesses. The Intergovernmental Panel on Climate Change Report on the Impacts of Global Warming confirmed that the warming of the planet is continuing at a rate of 0.2°C per decade due to emissions. Warming in the past has been, and likely will continue to be, magnified in Canada due to its proximity to the Arctic.

Canada's Changing Climate Report asserts that northern Canada will see a greater increase in temperature than southern Canada. For both, this means that as Canada warms, the growing season will get progressively longer. In addition, soil moisture levels will likely be altered due to changing weather patterns (including droughts and floods) causing both positive and negative impacts along the continuum. This demonstrates just one part of the complexity involved in assessing climate change risks and highlights the potential opportunity for food and agribusinesses to capitalize on and adapt to changing climates.

Transition risks are the risks associated with changes in government climate and energy policies, a shift to low-carbon technologies and liability issues, in addition to consumer and investor expectations related to climate change. Transition risks, like physical risks, will inevitably lead to additional costs for businesses if they do not anticipate and proactively mitigate the risks.

The potential financial impacts of climate change include production and operational disruptions; for example, worker availability, power and transportation issues, supply chain disruptions, physical damage to assets and corresponding increases in insurance premiums, as well as changes to prices charged for needed inputs/resources for production and changes in demand for products.  

Opportunity

Businesses that invest time and money in preparing their organizations to respond to these risks will ultimately increase the resilience of operations and supply chains and find advantages in innovation. Not only will these businesses be more likely to avoid risks (both in terms of preparedness to respond to risks but in avoidance altogether with respect to liability risks), but as investors and regulators become more sustainability-minded, agribusinesses that adapt early will realize value by alleviating transition costs and gaining both private and public investment.

Adaptive measures mitigate risks and can simultaneously reduce the business’ footprint. Businesses that decide to participate in innovation and be at the forefront of the movement to adapt to, rather than contribute to, climate change will shape and lead the future. While transitioning to corporate strategies, policies and procedures that are more resilient and aligned with the transition to a low-carbon economy may seem like a significant upfront investment, the payoff in terms of long-term value and profitability may be well worth the cost.

In a recent letter to CEOs, global investment firm BlackRock’s chairman and CEO Larry Fink, set an agenda that is focused on “the fundamental reshaping of finance” due to climate change risk. In Fink’s view, those companies who address climate risks through corporate purpose and internal governance structures will have a greater opportunity to attract lower cost, patient investment capital — much desired investment in any industry.

Agribusinesses can mitigate climate risks by prioritizing infrastructure projects which can increase resilience to climate change. For an in-depth discussion on infrastructure for climate change resilient agribusiness, see our Cultivate publication. Respecting water management, businesses can build riparian buffers, shelterbelts, grade stabilization systems and retention ponds to protect natural bodies of water, reduce erosion and mitigate the effects of floods and droughts.

Production infrastructure, including organic agriculture, zero tillage or low tilling farming, resilient crops, precision irrigation and vertical agriculture, among others, will improve soil health, reduce water consumption, reduce chemical dependency and reduce the overall effects on climate. Agribusinesses should also focus on technology and funding sources as they relate to resilient infrastructure. Grant programs are available specifically for this purpose.

Investment in agri-food tech startups reached over US$16.9 billion in 2018, which is a 43 per cent increase over 2017. This evidences the interest and rapid rise of innovation in food and agribusiness. Agribusinesses may want to go beyond traditional infrastructure projects and innovate with a low-carbon future in mind. Innovative projects have the potential to increase productivity and profitability and reduce contribution to climate change overall.