According to a new report we need to urgently change agri-industrial operations, the way over 500 million smallholder farmers operate, and the consumption habits of the world’s 7.7 billion people.
The report, developed by the World Economic Forum with McKinsey & Company, outlines four incentivised routes to achieve the transformation.
It says historic productivity gains in the food sector have come at alarming environmental and health costs. The need for change is increasingly urgent to ensure the world’s population is adequately nourished. The executive summary says:
Transition pathways necessary for food systems transformation
A food systems transformation requires several transitions, including to a healthier diet, sustainable supply chains, more inclusive livelihoods and greater production efficiency. These transitions necessitate a fundamental change in the way our food is produced (including in agri-industrial operations as well as in the practices of more than 500 million smallholder farmers around the world) and in the way food is consumed (including the consumption patterns of 7.7 billion individuals).
We need consumers to adopt healthier diets, reduce waste and place value on more sustainable, healthier food products; we need farmers to adopt more sustainable farming practices, protect and restore natural resources and meet the nutrition needs of a new generation of consumers.
Incentivising food systems transformation
Several hurdles are preventing food system actors from meeting these aspirations. Without a clear economic case to achieve food systems transformation, driving the adoption of a comprehensive approach can be difficult. In addition, behaviour is driven by deeply rooted beliefs and attitudes. Current incentives do not address these hurdles.
For example, governments have provided approximately $570 billion per year in public support for agricultural producers to meet development imperatives related to food security, without sufficient focus on climate, nutrition and health outcomes.
To spur large-scale behavioural shifts requires understanding and identifying the right incentives, which could fund behaviour change costs, while mitigating transition/switching costs and, potentially, ongoing economic costs. We also need to remove incentives that have the perverse effect of preventing those in the food system from changing their behaviour.
This report focuses on four pathways for creating the incentives needed to transform food systems:
- Repurposing public investment and policies pathway: Policies and regulatory frameworks can be reformed to provide positive incentives for those in the food system to produce food that is healthy for people and the planet
- Business model innovation pathway: Companies can redesign business models to prioritize environmental, social and financial outcomes
- Institutional investment pathway: Investors can set higher standards with respect to how companies target environmental and social outcomes alongside financial returns
- Consumer behavioural change pathway: Consumers can shift their demand to environmentally and socially responsible nutritious products
Recent progress has been made along these interconnected pathways; however, much more progress is needed to enable transformational impact.
To highlight how realigning incentives on these pathways can drive positive changes throughout the value chain, this report provides a case study focused on incentivizing farmers to adopt practices that reduce GHG emissions.
Adopting such practices could lead to a reduction of agriculture emissions by around 30% of projected global agriculture emissions, which is equivalent to more than five times the annual emissions of aircraft.
The report estimates that if all the available practices were implemented at full scale, the global food system could see cost savings of more than $50 billion annually. However, all stakeholders in the global food system face a landscape of legacy incentives that do not encourage sustainable production practices.
The case focuses on possible incentive solutions for farmers: funds and carbon markets to encourage investors to invest in required transitions; business model innovations to redirect corporate profit to encourage change; and policy changes to shift farmers’ behaviour.
Realigning incentives is complex
Incentivising food systems transformation will not be straightforward and will require substantial investments and efforts to manage complexities and trade-offs. Several mutually reinforcing actions, sequenced appropriately, are required at the individual actor, country, regional and global level.
In addition, incentive mechanisms in food systems will have a greater impact if they are complemented by incentives from other sectors. For example, some insurers are offering incentives to consumers to make healthier food choices.
Realigning incentives will also involve making calculated trade-offs between numerous diverse yet interconnected outcomes within food systems. For instance, the higher costs of providing environmentally and socially responsible foods may make food more expensive, potentially further exacerbating the current inequities in access to nutritious food.
It will also be important to recognise that there is no one-size-fits- all approach for realigning food system incentives – what works in one country or subsector may not work in another. Each country and region may, therefore, choose a bespoke approach that would involve setting transition goals and choosing incentive pathways and actions that are aligned with these goals.
Governments must balance several important economic, social and environmental development objectives alongside national security objectives while supporting food systems.
Lastly, there may be significant transition costs associated with realigning public investments and making policy shifts, including increased cost of food for the most vulnerable segments of the population and loss of income for growers. Governments need to account for such transition costs as they make decisions regarding repurposing public investment and policies.
Roadmap for incentivising change in food systems
Realigning incentives for food systems using the four pathways requires individual, coordinated and collective action. Five action areas can help the global community incentivize transformation. First, there needs to be alignment from actors on a vision for food systems that meet the needs of people and planet.
Building on this vision, stakeholders need to build a shared consensus on the challenge to be addressed using incentives, the extent of the challenge and the desired pathways. Building such consensus requires a strong analytical foundation.
Second, there needs to be a focus on identifying scalable models and approaches across the four incentive pathways that participants in the food system can rally around for learning and prototyping in the pursuit of improvement and replication.
New analytical tools and approaches could support systemic assessment including diagnosing food system challenges, analysing trade-offs and helping prioritize action across the four incentive pathways.
Third, transformation requires systems leadership and coordinated action by diverse groups of stakeholders to cultivate a shared vision for change, empower widespread innovation and action and enable mutual accountability to accomplish systems change.
Such leadership must be exercised at the country, regional and global level. Fourth, collective country- level actions will be important in establishing and implementing an incentives agenda.
Lastly, this will be complemented by collective action at the global and regional level including building consensus, resolving cross-border challenges and developing new partnerships and business models that manage risk and improve capital flows and investment outcomes.
The full report is here.