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FORWARD THINKING | ARTICLE – 3 Min

Why is agriculture such an important focus for the sustainability transition?

In this article:

    Agriculture intersects with several UN Sustainable Development Goals, in particular zero hunger, life on land and life below water, good health and responsible production. Around the world, more than 70% of freshwater supplies is used for agriculture and, according to the Intergovernmental Panel on Climate Change, the industry generates 22% of global greenhouse gas emissions. Without action, capping global warming at 1.5°C will be impossible and biodiversity loss will continue.

    To mark Earth Day 2023, we take a look at regenerative agriculture. We note this form of agriculture has no universal definition, unlike industrial agriculture, which targets crop yield first. Regenerative agriculture focuses on sustainability, more specifically:  

    • Topsoil health and regeneration
    • Biodiversity
    • Water cycle improvements
    • Biosequestration
    • Climate change resilience.

    What are the benefits of regenerative agriculture?

    Farmers can employ various methodsOrganic no-till or low-till farming, for example, minimises soil disturbance that contributes to CO2 emissions when carbon in the soil is exposed to air. It also contributes to a healthy soil microbiome. This cuts the need to use chemical fertilisers that also produce GHG emissions, mainly in the form of nitrous oxide. The method increases the soil’s ability to absorb and filter water, while slowing evaporation and improving irrigation efficiency. The result is more natural food often with a higher nutritious value.

    Source: Food and Agriculture Organisation, AQUASTAT data 2019

    Cover cropping, a key component of organic no-till farming, can help keep soil healthy by protecting against erosion and nutrient loss that would occur if land were left bare between growing seasons. Cover crops can help prevent weed growth, disease and pests, and add nutrients, reducing the need for insecticides, fungicides and herbicides, alongside improving biodiversity and carbon sequestration.

    Agroforestry involves trees, whose roots reach deep underground to release carbon into soil. Trees cycle nutrients and bind soil together, which prevents erosion. There are two main types:

    • Silvo-arable agroforestry where crops are grown beneath trees, meaning the plants occupy different levels above and below ground
    • Silvo-pastoral agroforestry allows livestock to graze under tree stock, which provides them with shelter and foliage, while the trees and soil benefit from nutrients in animal waste.

    Both cover cropping and agroforestry can also help keep local temperatures lower.

    Ultimately, these methods and others, such as compostingcrop rotation and rotational livestock grazing, lead to more efficient resource use. For example, crop yields can be increased with more efficient nutrient use, while more efficient water use leads to a reduction in stress on freshwater supplies.

    Source: Food and Agriculture Organisation, AQUASTAT data 2019

    Where regenerative agriculture practices do result in higher crop yields, it can allow for more natural habitats to be preserved instead of being cleared for agricultural use, thus reducing the industry’s environmental footprint.

    There are potential long-term financial benefits for farmers, resulting from reduced costs of artificial input, a better crop yield and quality in some cases, improved resilience to extreme climate-related events and to market volatility. Farmers could also take advantage of new green revenue streams, including rewards for carbon capture and storage in soil.

    Making it work

    According to the World Economic Forum, regenerative farming practices used on 40% of global cropland could prevent about 600 million tons of emissions – or 2% of the total a year.  However, to limit global average temperature rise to 1.5°C, the growth rate of regenerative agriculture needs to triple from current levels to reach 40% of global cropland by 2030.

    Therefore, the WEF has recommended common metrics be adopted by the entire food industry, which would allow farmers to alter their practices more easily and for rewards to be offered for positive change.

    The WEF also suggests that there needs to be a trustworthy and credible system of payments for environmental outcomes such as carbon removal and reduction that provides a source of income for farmers.

    Mechanisms to share the cost of transitioning to regenerative agriculture with farmers are required as are government policies to enable and reward farmers who chose to do so.

    Conclusion

    The way in which we produce food historically has driven a rise in both carbon emissions and the resource intensity in the agricultural sector. Convincing the world’s consumers to eat different foods at scale (i.e., less meat, dairy and sugar, and more fruits, vegetables, grains and legumes) is challenging. However, farming using regenerative methods could be a more sustainable way to feed the world.

    Technologies such as smart irrigation (using satellite positioning)[1] could also be useful in regenerative agriculture. Companies working on such applications as well as other solutions promoting the efficient use of water, the smart use of fertilisers, better quality food,[2] but also ecosystem restoration[3] and reforestation could present appealing opportunities for investors.

    [1] Also read Investing in water – A raft of solutions (bnpparibas-am.com)

    [2] Also read Transforming our food system to be fit for the future (bnpparibas-am.com)

    [3] Also see Ecosystem restoration: Why should investors be interested? (read or listen) (bnpparibas-am.com)

    Disclaimer

    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
    Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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