Podcast
Podcast
- 07 Nov 2019
- Climate Rising
Growing Our Food: Making Agriculture More Sustainable
David Perry: Most farmers get paid for the bushels of grain that they produce, bushels of corn or bushels of wheat without regard to how that produce is produced. That, of course, removes the incentive for farmers to focus on those things. They get paid for volume, so they invest in methods and technologies that will enable them to produce more, but not in the things that allow them to produce better or in a more sustainable way.
David Abel: I'm David Abel. This is Climate Rising, a podcast from Harvard Business School that looks at the challenges and opportunities that climate change presents for businesses. Today, we're talking about food, how we grow it and its impact on the climate. Since factory farming took off after the Industrial Revolution, the way we use land and the scale of the work has changed dramatically. Now we have a massive industry that feeds billions of people, but the success of growing food to accommodate an ever-growing population has had consequences. Agriculture is now one of the largest sources of greenhouse gases and about a quarter of all its climate pollution is produced by growing crops and related uses of the land. That includes clear cutting of forests for grazing, methane from cattle, and the vast amounts of fossil fuels and chemicals it often takes to run a farm. At the same time, the warming is changing growing seasons and giving rise to viruses and pests. As these changes take hold, we're now seeing a wave of new efforts to use more sustainable methods to feed the planet's 7.7 billion people. With the population expected to swell by another 2 billion by 2050, there's an increasing urgency for sweeping changes to how we grow our food. Joining us to discuss these new agricultural practices are David Perry, the president and CEO of Indigo Agriculture, a Boston-based firm that calls itself an agricultural technology company, and Harvard Business School professor, David Bell. David Perry, as an entrepreneur who has built businesses in other sectors such as pharmaceuticals and life sciences, take us through how you came to focus on agriculture. What are the primary challenges, and what are the opportunities for your company and others in trying to nudge the industry to more sustainable or climate-friendly practices?
David Perry: I really spent the last 20 years of my life starting and running technology and biotech companies. When my last company was purchased, I had the opportunity to step back and think about what I wanted to do next. I concluded that focusing on the problems of food and agriculture are some of the biggest problems that face us as a society and as a planet and therefore a really worthwhile thing to focus on. It helps that I grew up on a farm, so I was probably biased in that direction to a certain extent. But what I concluded from that time was that there are four big problems facing us from this perspective. One is that the population is growing faster than agricultural production is growing. So if we want to feed 10 billion people by 2050, we need to do something differently. Two is that the current methods of agriculture are consuming a lot more of the earth's resources than we can afford to devote to that. Three is that the current methods of agriculture are producing less and less healthy food. As we focus on volume instead of quality, as one might expect, the quality goes down. Then finally, farmers aren't making any money. About 40% of the people on the planet are somehow involved in agriculture and a surprisingly large number of them live below the poverty line today.
David Abel: David Bell, you've studied all aspects of the food industry from farming to distribution to consumer habits. What's the proverbial low-hanging fruit to cut emissions from the growing of crops to the plating of meals at restaurants?
David Bell: I think the low-hanging fruit for the food system is one is the farmer. When we get to talk further, I don't think the farmer is a bad guy in this, but farming does contribute a whole bunch. The other is the consumer. I'm laying the blame elsewhere, but the other is the consumer operating ovens, driving to restaurants, driving to stores, waste. Huge potential there.
David Abel: David Perry, if there's a growing consensus in the industry that far more needs to be done to make agriculture more sustainable, why is it taking so long for many businesses to act? What should regulators be doing to encourage them?
David Perry: One is I believe there is that consensus. There's sort of broad recognition in the agricultural industry that things have to fundamentally change. Despite that, agriculture has been really slow to adopt new technologies and methods. In fact, McKinsey every year ranks industries based on their technology adoption. Agriculture is dead last of the large industries there. The “why” is something we've spent a lot of time thinking about. We can easily say what it's not. It's not size of industry. So agriculture is the third or fourth largest industry in the world depending on the year. It's not unimportant. We depend on agriculture multiple times per day to continue our livelihood. It's not the technology itself. The same technologies that are driving other industries like computing power, networking, DNA sequencing, the development of sensors all apply equally well to agriculture. So the technologies are available. They just haven't been applied. It's our belief that a big part of the reason for that is the system itself. Agriculture is a commodity or the agricultural system is set up as a commodity. So most farmers get paid for the bushels of grain that they produce, bushels of corn or bushels of wheat without regard to how that produce is produced or what the quality is, assuming it meets certain specs. That of course removes the incentive for farmers to focus on those things. They get paid for volume, so they invest in methods and technologies that will enable them to produce more, but not in the things that allow them to produce better or in a more sustainable way. I think that system is going to have to change for us to see real progress here, but as soon as it does change, there's a lot of things stacked up that should enable really rapid progress.
David Abel: But are there any actions that you think policy makers, regulators should be taking here to encourage them, to press them?
David Perry:
David Abel: What are some examples of incentives that would be effective?
David Perry: One of the most interesting things here from my perspective is the power that agriculture has to fundamentally impact climate change for the better. So we talked about the way it's contributing to the problem, but the ability of agricultural soils to sequester atmospheric carbon, CO2, is enormous. To put it in perspective, if we could take every acre on earth that's cultivated and get it from where it is today, which is about 1% carbon, up to around 3% carbon, which is probably where it was before we cultivated it, we could capture every molecule of CO2 that human beings have put into the atmosphere since the beginning of the Industrial Revolution. Now, there's a lot of assumptions in there obviously, but it gives you a sense of the size of the potential solution here. Agricultural soils are an enormous potential sink for atmospheric carbon. If we were, for example, to pay farmers to practice agriculture in such a way that it sequestered carbon and we know how to do it, something like $20 per ton of CO2, I think would provide the right incentives. We could see an enormous shift in farming practices towards methods that sequester carbon in the soil.
David Abel: David Bell, do you have any thoughts about how that might actually be translated into some kind of policy, how that would actually work? Any other examples of other ways that you've seen farms doing this the right way?
David Bell: USDA has incentives to get farmers to lay some land fallow or to rotate crops, do things that they haven't been doing of late. Installing barriers to stop erosion of soil. I'm not sure what the uptake of that has been, but it's a step in the right direction to give farmers a financial incentive to treat the land well. I do agree that if we're going to take the carbon out of the atmosphere, it obviously has to go somewhere. At the moment it's going into the oceans or staying in the air. The land is an obvious place. If we could put some of the trees back, a lot have been clear-cut over the last 40 years or whatever, that has obviously another great possible sink. But the land is definitely an opportunity.
David Abel: David Perry, you have mentioned how we need to make the agricultural industry based less on commodities so that farmers aren't just compensated, as you said, for producing a bushel of corn, but that they're making more money by producing that bushel with less impact on the environment. Can you tell us what you mean when you talk about de-commoditizing the industry and how that might happen?
David Perry: Let's start by talking about how we got here. Agriculture is about 10,000 years old. For the vast majority of that time, farmers knew exactly who they were producing food for. It was only about a hundred years ago that we changed that system. So during that time, the turn of the last century, people were moving off of farms and into urban environments. So we had to set up a system that allowed us to grow food far from where it was needed, store it, transport it by rail or ship, and then get it on the table of the consumers. So to do that, we created a commodity system so that every bushel, assuming it met a certain number of certain specs, was worth the same. So it was really effective. That system has worked and fed billions of people, but we've come a long way in the last hundred years. Technologies now allow us to do things like track the way that grain is produced on a field-by-field basis and provide traceability all the way from the farm to its ultimate destination. If we implement those practices, now the buyers of grain, for example, wheat, can specify certain things. Perhaps it's the quality of the wheat. I want a minimum protein spec, or I want wheat that's grown from a certain type of seeds because I believe that will produce better flour. Or I want it grown in a way that sequesters more carbon in the soil than gets emitted. So that's actually carbon positive. Technology now allows that to happen. The direct connection of buyers to farmers and the traceability of the goods from the farm to the buyer. Once we put that in place, we've now de-commoditized agriculture and created the footing for really dramatic change.
David Abel: David Bell, agriculture may be the most subsidized industry with all kinds of government support for crops and investments. Why shouldn't we effectively be paying farmers to be reducing their emissions?
David Bell: Well, again, I challenge the premise a bit that agriculture is heavily subsidized. The subsidy is relative to the amount of money we are talking about. Farmers by and large are not wealthy people. The subsidies historically came in the form of crop insurance. So if you had a terrible year, farmers can’t afford a terrible year and so you have subsidies from the government. But the (World Trade Organization) WTO, 20 years ago, whenever it was, said this, "Governments cannot subsidize particular crops." You can't give subsidies in a way that make farmers want to grow one crop or another. So you have to be agnostic. One way of being agnostic is to give farmers subsidies to help the farm be more sustainable. Much of the land in the United States and across the world is being operated by farmers. These are the people that are in charge of our environment by and large. So I think that it depends on government priorities, but I think that the government giving incentives to farmers to make their land sustainable is a good thing. The other incentive is from manufacturers as David was saying. Manufacturers who want to deliver to their customers certain types of wheat or certain products with certain characteristics can contract with farmers or give incentives to farmers to produce what it is they want. That's probably a more powerful incentive.
David Abel: David Perry, your company, Indigo Agriculture, has plans to use microbes to replace pesticides and other natural means to reduce the need for artificial fertilizers. Can you tell us about those efforts? What's new about them and how viable they are in the near future and on a large scale?
David Perry: It's important to recognize that what we think of today as modern or conventional agriculture is also relatively recent. It was only post World War II. The last time we were worried about a growing population exceeding our ability to produce food resulted in what's now known as the Green Revolution, perhaps somewhat ironically. The result of the Green Revolution was a focus on plant breeding and the resulting improved seeds. Fertilizer production, especially nitrogen fertilizer production, which was a relatively new technology created in World War II, and the use of chemical pesticides: insecticides, fungicides and herbicides. So these methods really took hold in the mid-1900s and are practiced widely today. Again, they were effective. So the adoption of the methods advocated for in the Green Revolution probably allowed us to feed a billion people we couldn't have fed otherwise. But technology has come a long way since then. Specifically, we now understand that a lot of those techniques and tools aren't very good for either us as consumers or the environment. Nitrogen produces runoff that's causing algae blooms in lakes and streams and dead zones and oceans. We've got CO2 that we just talked about. We've got pesticide residue on our food. We've gotten new alternatives. So microbiology is one of those. Really just in the last 10 or 15 years, largely through focus on human health, we've realized that every single organism has microbes inside of it. Those microbes are necessary for the larger organism to both reproduce and thrive. That's true in humans and it's true in plants. In fact, over the last 200 million years, plants and organisms have evolved so that there are microorganisms that protect plants against pretty much every stress that plant might encounter. Whether it's drought or sort of environmental stresses, or whether it's disease or insects. So what Indigo and other scientists like us are doing is identifying those microbes in nature that have already evolved the capability to protect plants against these things and using these natural solutions that are already in the environment. They're already in our food supply. All we have to do is concentrate them and apply them where the stresses are to be able to improve the yields of plants, protect them against stress in a healthier and more sustainable way.
David Abel: Can you give us some sense of how this actually works in practice and how far along you are?
David Perry: We now have microbes commercialized and coating seeds on over a million acres in the world. So we've made a lot of progress. We expect that number to be close to four million by the end of 2019.
David Bell: It is quite a revolution really that the old technology, use of spray fertilizer over the field willy-nilly, but you're putting it actually on the seed so that you're not wasting... It's like drip irrigation where you're bringing the water to exactly where it's needed. You're bringing the fertilizer and other vehicles precisely to the seed.
David Abel: Are there any adverse reactions that you're finding to the introduction of microbes?
David Perry: No, is the short answer. A big part of that is we're not really introducing them. Again, everything we're using, we're finding in nature. So these are things that are already found in these crops and already found in our food supply. Really, all we're doing is concentrating them where they're necessary and where they're needed. So we do a lot of safety testing, but the presumption of safety is pretty strong because we're not creating anything, modifying anything, or introducing anything into the environment that's not already there.
David Bell: Can I go back to something David was talking about earlier, which is commoditizing food? In the same period that production has taken off over the last hundred years, yield has taken off over the last hundred years. The price of food, or put it another way, the percent of household expenditures going on to food has gone down from 40% to 10%. Nobody wants to pay more for anything. Nobody wants to pay more for food. But if people did pay more for food, this could allow farmers to have the luxury of spending more on their farms. Again, I'm not really talking about subsidies or farms, but there is a trend these days for people to be more educated about food. I think as people become more educated about food, there'll be more discerning and be more willing like other things. Willing to pay more for foods they like, the foods they think are healthy, that money will get passed down the chain.
David Abel: David Perry, your company has been building a digital marketplace to connect farmers directly to buyers allowing farmers to get paid more for catering to the buyers' specific requests. Can you tell us how that works and why you see this as a means of promoting sustainability and reducing emissions? You had mentioned that the makers of Budweiser were involved in this as well. Tell us a little bit about that.
David Perry: Well, we talked earlier about the promise of de-commoditizing agriculture and what that would mean if farmers could get paid for producing things of higher quality and more sustainably. So our hypothesis was that if you directly connect the buyers who already want these things with farmers who are capable of producing it for a price, then you effectively are de-commoditizing agriculture. You're allowing every farmer to produce what the consumer wants, which means instead of a commodity, it's a specialty product with a greater margin. So we set up an e-commerce platform that we call Indigo Marketplace. We launched this in September of last year, so just about six months ago. We now have about 8,000 farmers who've put up for sale almost $12 billion worth of crop. We have thousands of buyers representing about $16 billion worth of current demand in marketplace. We're doing tens of millions of transactions each week. It's literally the fastest growing thing I've ever been associated with.
David Abel: How unique is this, David Bell? I mean, is there any example of this kind of thing?
David Bell: So one example we wrote about this year is on Zespri. It's the New Zealand Kiwi Growers Association. Like all farmers, not all farmers, most farmers are very small. They're in the middle of the United States or in the middle of New Zealand or wherever it is. The history of the Kiwi fruit industry has been bad. Low prices, farmers competing as well. Anyway, they set up a full profit co-op run by people with marketing experience. The front end marketing organization is now passing back to farmers what it is that consumers want. They pay farmers according to whether they're producing that. The farmers are right on this. Now they're producing fruits earlier or sweeter or this, that, and the other. The commodity cycle that David was talking about cuts off the farmer from the consumer. So they have no incentive. They have no knowledge to grow anything but what they're growing. I think as retailers, as food companies start to realize that the consumer is more educated, they will be passing on to the farmer more precise requirements, which will start to eat away at the commodity business.
David Perry: We're seeing this with Anheuser-Busch today to continue in the beer thing. About two or three weeks ago, we announced that Anheuser-Busch will be buying 2.2 million bushels of rice from us through marketplace. Specifically, they're looking for rice that's produced with less nitrogen fertilizer, using less water, and having fewer greenhouse gas emissions. They're paying about a 15% premium for that. So it's a perfect example of a consumer focus brand, a blue collar consumer focus brand recognizing a need and being willing to pay farmers for producing them.
David Abel: Why is Anheuser-Busch and other companies, why are they willing to spend more money on something that maybe their customers don't care about or know about?
David Bell: Well, it goes back to Heineken. One possibility is that they really do care about... I mean, they probably do care about the ingredients but really do care from an environmental point about the ingredients. But I bet it's really a consumer interest. As I certainly know as a beer drinker that the craft beer business is taking off like crazy. People are always looking for an edge in appealing to consumers that the beer is different because of... I mean, Budweiser has produced a mainstream beer for as far as I know, long as I know. But now the game is different and the game is moving towards custom foods, custom beers. You need to find an edge. You can often find the edge with a farmer.
David Abel: For your company, Indigo Agriculture, what is your ultimate goal? What are you trying to do? Where do you hope to be in a few years?
David Perry: We describe our mission as: harnessing nature to help farmers sustainably feed the planet. There's three key pillars to that. Improving farmer profitability, improving environmental sustainability, and improving consumer health. If we're successful and by “we” I mean the bigger “we,” I think in five or six years, we could reduce fertilizer usage by half on Indigo farms. We can reduce insecticide and fungicide use by over 90%. We can improve farm profitability by billions of dollars.
David Bell: I'm going back to these yield graphs. If you look at the yield of corn per acre in the United States, it was flat from when records started in 1866 through 1920. It's taken off like a rocket since then. The US government had a policy of trying to increase food production, get people to eat more. If you look at photographs from the 1910s, 1920s, people look very thin and that's changed. To a certain extent in the United States anyway, there's over food production. Now the emphasis from the government is on healthy eating rather than caloric eating. I think that in the same way that science solved the yield problem, the statistics are unbelievable, I think science is now turning to the other question, which is how to be most sustainable at how we grow crops. How do we grow healthier foods in healthier ways? I think science will take up this challenge and be ever more productive.
David Abel: What would you say, David Perry, to folks who would be skeptical that you can do what you're promising here?
David Perry: Jeff Bezos has a quote that he uses a lot, which is something along the lines of, "If you want to be understood, you probably shouldn't do anything innovative." We're seeking to do things differently because we think there's an opportunity to make a significant positive change in the world. To skeptics, we don't really pay much attention. We just ask them to watch.
David Abel: And now a story from Harvard Business School Professor Mike Toffel.
Mike Toffel: The agriculture sector has adopted lots of technology in terms of seeds, fertilizers, and pesticides over the past decades to become much more productive. But as David Perry indicated, a McKinsey report reveals that the agriculture sector has been a laggard in adopting information technology. That represents a huge opportunity to make the sector even more efficient throughout the supply chain. Agriculture supply chains are complicated, but let's simplify it into four stages where IT and biotech innovations can dramatically reduce its climate impact. What we eat, the seeds that get planted, how they're grown, and how crops are shipped. Along each step of this chain, there are really exciting innovations going on that could reduce the climate impact of the agriculture industry.
First, we're seeing some shifts in the foods we're seeking to eat. Plant based meat alternatives like those sold by Beyond Meat and Impossible Foods or scaling at rapid rates with the backing of venture capital in a widely publicized IPO. Think of the Impossible Whopper served at Burger King. The number of people engaging in meatless days or who are vegan are also on the rise.
What about seeds? As David Perry mentioned, some seeds are being developed to thrive with less carbon-based fertilizer. Also, seeds are being developed to be more resilient to drought or seawater incursion as Syngenta is working on.
On the growing side, regenerative agriculture practices like no-till farming have the potential to increase carbon content in soils, which would enable agriculture to become a massive engine of carbon sequestration. Finally, in the supply chain, we lose nearly 30% of our food as waste, which is a massive problem. Food waste is the third largest source of greenhouse gas emissions. We need lots of innovation here. One example is the organization called Daily Table which provides a B2C solution that brings nutritious food that would otherwise be wasted to markets in low income areas. Another company, Full Harvest, provides a B2B solution that delivers imperfect and surplus produce that would otherwise be wasted directly from farms to businesses like markets and restaurants. So agriculture lagging in the use of information technology means there are tons of opportunities to improve efficiency and to create new businesses and business models that can be profitable while also dramatically reducing the climate impacts of food in agriculture.David Abel: That's it for Climate Rising this week. In our next episode, we'll look at where and how we buy food.
Nicole Johnson-Hoffman: My customers are generally agnostic about what they put on their menus. If the consumer wants pickled beets, they will sell pickled beets. They may be today tied up with their brand, with the certain products that they sell, but they know that those brands can evolve and have evolved over the histories of these companies. They're able to adapt.
David Abel: Thanks for joining us. I'm your host, David Abel. This is Climate Rising, a podcast produced by Harvard Business School. You can subscribe on Apple Podcasts or wherever you listen, and please leave us a review. We appreciate the feedback.
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