America’s Farms: Water Risk and Opportunity in the Agricultural Supply Chain

Dan Meyers

Farmers are the foundation of our $5 trillion global food system, responsible for growing the wheat, corn, soy and other agricultural commodities at the core of global supply chains. However, the agricultural industry is facing an imminent problem that threatens its ability to provide these essential crops: stressed water resources.

Growing and processing food is a thirsty business, consuming more than 70% of the world’s water resources. The intensifying effects of climate change are placing an unprecedented strain on our water supply as the water cycle is inextricably linked to the changing climate. Between 1980 and 2013, the US suffered more than $260B in flood related damages and the 2019 flooding of the Mississippi river alone, which lasted 107 consecutive days, has caused over $2 billion in damages. 2020 has already brought with it record floods in parts of Mississippi.  The future of America’s farms and the global food system is grim without definitive systemic action. In fact, $415 billion in revenue may be at risk for food companies from lack of available water for irrigation or livestock production, and $248 billion is at risk from climate change affecting crop production, according to a recent analysis by MSCI.

Why should food companies invest in their supply chain?

Soil health is arguably the most important indicator of agricultural resilience to drought and floods. As the buyers of key agricultural commodities, food companies have a responsibility to help farmers transition to sustainable farming practices and create resilient agricultural supply chains.  This transition is also a critical component of meeting existing and future corporate sustainable sourcing goals.

While a majority of companies are providing some level of educational support to growers through agronomic tools and training programs, critical direct and in-direct financial support is lacking. Less than half of the 40 food and beverage companies evaluated in the Ceres 2019 Feeding Ourselves Thirsty report, a benchmarking analysis and investor tool on the food sector’s response to water risk, offer financial support to growers to pursue sustainable agricultural practices.  And the support that is offered is often minimal.

Providing financial incentives to farmers for implementing practices such as efficient irrigation, low-till/no-till, cover-cropping, optimized fertilizer application and diverse rotations can go a long way in improving soil health and promoting resilience.  Providing an incentive can help jump-start these sustainable practices, and once farmers see first-hand the benefits, the odds are that they would continue them even if the direct financial incentives are reduced over time.

How can companies support this transition?

Beyond paying farmers directly, there are many ways that companies can support the transition to more sustainable farming. For instance, they can provide low- or no-interest loans to growers to invest in water-saving irrigation technologies, participate in cost-sharing conservation programs and offer growers financial guarantees or long-term contracts if they adopt new practices geared at improving water and climate impacts. Comments made at a recent Ceres event by Mitchell Hora, a 7th generation Iowa farmer, speak to the importance of these incentives: “More investment in the supply chain from food companies is needed. Farmers need to see a real demand signal from the buying companies. Farmers are ready to be part of the solution, however, taking these sorts of improvements to more acres requires a redoubled commitment by all stakeholders, growers, food companies, consumers and investors. In terms of sustainable food and ag systems, we are all going to win, or we are all going to lose.”

Companies whose acreage lies in regions with high water stress are pursuing various types of incentives.  Examples include Archer Daniels Midland, Cargill, PepsiCo and Unilever, all of whom are partnering with Practical Farmers of Iowa facilitate cost-share programs that award premiums to Iowa corn and soy farmers who grow cover crops, which improve soil health and reduce runoff. The Midwest Row Crop Collaborative creates partnerships between farmers, environmental groups and food companies to protect watersheds throughout Nebraska, Illinois and Iowa. The group has pooled resources to expand practices that reduce nutrient runoff into the Mississippi River basin. Participating companies include Cargill, General Mills, Kellogg, PepsiCo and Unilever. In addition, Danone North America has initiated a cost-plus contract for dairy farmers who are transitioning to sustainable systems, wherein Danone covers the input costs and guarantees a margin of return over a specific timeframe.

Collaboration is key to the future of the global food system

We now live in a world where if water and agricultural management practices are not improved significantly, companies will struggle to ensure low-cost, secure access to ingredients and farms will struggle to survive. Farm bankruptcies are up 24% in 2019, which is the steepest rise the farming industry has seen in years, partly due to challenges resulting from weather extremes such as drought and flooding. It’s becoming apparent that water is the new frontier in supply chain disruption, and ongoing collaboration and engagement between farmers and companies is the only way to overcome these challenges. As the farming industry and the largest food companies start to work more closely together, they will begin to see that the transition to more sustainable practices is about much more than risk management — it’s an opportunity to grow and shape the future of the global food system.

Kirsten James is Director of the Water Program at Ceres, a sustainability non-profit working with influential investors and companies to build leadership and drive solutions throughout the economy. Through powerful networks and advocacy, Ceres tackles the world’s biggest sustainability challenges, including climate change, water scarcity and pollution, and inequitable workplaces.