The Future of Food: Balancing Risk and Opportunity

Overview

As climate change has moved to the forefront of many consumers’ minds, the food and agriculture industry has had to contend with historic environmental threats. Agriculture, forestry and land use make up more than 18 percent of the world’s greenhouse gas emissions. Droughts and other extreme weather patterns have made growing seasons for important crops unpredictable. And rising costs and supply chain shortages have motivated countries and consumers alike to seek alternative food options, as evidenced by the UK’s frozen pea resurgence and the rising popularity of more sustainable proteins and nutritionally dense foods, such as seaweed.

Mobilization to transform the food industry is undeniable, but the complexity of the industry has slowed uptake. “Start-ups and agri-foodtech companies have a full list of challenges to solve for, including big challenges across food, farming, food waste, carbon abatement, chemical use, labor shortages, nutritional benefits and more,” says Tami Griffin, national leader of the Food, Agribusiness and Beverage Industry Practice at Aon.

Progress in this space shows no signs of stopping. In 2022, a total of $29.6 billion was invested globally in foodtech and agri-foodtech startups — a promising development for sustainability, the industry and the planet. As leaders across the food and beverage sector adapt to these changing conditions, they must also be aware of the coinciding risks, consumer perceptions and the opportunities at each level of the value chain.

In Depth

The future of food is dependent on the entire value chain of agriculture working together — from farmers cultivating crops to food brands adopting environmentally friendly packaging to grocery stores selling the products.

“It’s about scaling the food system in a sustainable way to feed a growing population,” says Ciara Jackson, Aon’s global Food, Agribusiness and Beverage Practice leader. “Progress has been informed by a mix of technology and innovation working together, but the fragmentation in the food and beverage industry makes risks and business decisions difficult.”

Alternative Agriculture: Methods and Risks

For food producers, alternative growing methods such as controlled environment and advanced farming technology can help reduce the need for fossil fuels, water and land. Yet investors and adopters should be aware of three risks associated with these new methods.

• First, farmers typically incur the risk if they lose the yield or if the technology doesn’t work. If farmers choose to invest in new types of equipment, for instance, they are responsible for the expenses; and if yields are low because of global warming and dry weather patterns, farmers’ profitability suffers along with their ability to offset the costs of these new methods.
  
  “A lot of investment we see right now is focused on climate smart and regenerative ag, but how can we do that and still make it profitable for farmers?” Griffin asks. “They bear the expense and yield risk, so how can we make these new technologies easier to adopt?”


• Second, alternative food cultivation and bespoke technologies are expensive to adopt, which could deter farmers from embracing these strategies. These costs are ultimately reflected in the higher market price of many alternative or regenerative food options — and these higher prices could deter potential customers. For example, one pound of cultured meat could cost at least $17 to produce, which is almost nine times the cost of producing a pound of beef. Add supply chain costs, taxes and restaurant markups, and opting for a lab-grown meat option at a restaurant could cost a customer nearly $100.


• Third, despite their need for less water and space, controlled-environment agriculture and fermented foods use a significant amount of energy. Recent studies have pointed out that vertical farms and commercial greenhouses use large amounts of electricity to create a suitable growing environment, which counteracts the claim that they are typically sustainable farming methods. For these options to be truly sustainable, they would need to be powered by low-carbon energy — which requires more money and infrastructure investments. Griffin also points out that large greenhouses can pose new property market risk because of the structures’ vulnerability to severe climate events.

Food Innovation and the Consumer Perspective

Griffin notes that consumer attitudes about choosing either plant-based or cultivated meats have hindered both options from growing at scale. “We’ve seen some companies start to consider making hybrid items that use part vegetable protein and part meat protein,” she says. This combination could help cut down on the amount of animal product that producers need, but consumers may still view the products as highly processed. Additionally, these options are more expensive than their traditional counterparts, putting them out of reach for many consumers.

Consumers are also facing decisions regarding the ingredients of new foods. While alternative proteins are seen as the next horizon of food creation and consumption, Jackson explains that they’re still new and untested. Some contain up to fifty ingredients, and the long-term health effects of some of these ingredients are unknown.

More than anything, timing could be a critical factor in the success of these advancements. “Today, dairy is a high emitter of carbon and methane,” Jackson notes. “Science and technology could reduce those levels of emissions significantly in five or 10 years, which would change people’s perception that dairy is something bad for the planet.”

The Food, Agriculture and Beverage Industry Looks Ahead

For farmers, technology providers and vendors to succeed in the coming years, it will be important to establish partnerships with each other and combine resources to meet consumers where they are. Companies that are further up the supply chain can collaborate with them to reduce risk and drive change in the industry.

“Downstream, food brands hold a lot of risk from a reputational standpoint,” explains Griffin. “Brands should think about how they can protect the integrity of their product and have a greater understanding of where their products come from and how they can improve them along the way to deliver on their promises.”

Moving forward, considering the uptick in allegations of greenwashing, companies will have to focus on their marketing and ensure that the claims they’re making can be substantiated.

“As the regulatory environment tightens, companies will be under more scrutiny to deliver on their promises, and their progress will be easier to measure and compare over time,” says Jackson. “Investors and consumers will punish or reward companies based on how they are performing, which has prompted more companies to actually change their behaviors to be more climate positive.”