Driving Innovation and Sustainability in More Traditional Industries | purshoLOGY
It’s no secret that industrial companies have historically put sustainability on the back burner, but things have changed. Because their operations involve longer product life cycles, complex manufacturing processes, demanding customer requirements, and applications that make implementing sustainability programs more difficult, these hurdles have almost outweighed the incentives to choose a greener path, especially in traditional food industries.
In agworld and agtech, profit margins are small (2-3%) compared to other industries. This means that everyone is competing for 2% of the returns instead of a larger portion that would be worth competing for and splitting amongst the industry. When food companies reduce food waste by 30% to 40%, this impacts everyone and makes innovation imperative rather than optional because the margins have the potential to grow — the product is selling instead of being wasted.
Notably, more companies are becoming “food companies” because returns are larger. This means that there are more financial resources to focus on innovative sustainability efforts. Combined with industry knowledge and a startup mentality, agworld and agtech can properly leverage innovation for the future.
Companies are now taking ESG initiatives seriously because the benefits can be tremendous. For example, companies with high ESG marks are securing valuation premiums quickly. Industrial product manufacturers are seeing modest benefits as well. However, due to low margins in the agworld and agtech industries, traditional food companies can’t just take the shiny idea of ESG and force it into tradition. These companies have to disrupt a little at a time and make incremental improvements to see true innovation and lasting change. Once these companies embrace new technology and improvements in the supply chain, they can fully embrace sustainability and minimize food waste more efficiently.
Midwest Companies That Are Leading the Way in Innovation
While traditional food companies are slow to adopt innovation, there are a few outliers paving the way toward sustainability. Bunge, an agricultural business that connects farmers to consumers, partnered with CoverCress, a Chevron-invested startup that is bringing a renewable oilseed and animal feed crop to market.
The partnership marked a long-term commercial agreement to convert annual field pennycress into the CoverCress crop that has a smaller footprint and can fit into existing corn and soybean rotations. The addition of a new crop onto existing farmland has the potential to provide farmers with additional revenue while also offering the ecological benefits of a cover crop in improving soil health and lowering nitrogen losses.
This somewhat new focus on sustainability has underscored its role in the total value chain. Sustainability is a long-term goal that will eventually yield returns, but stockholders want immediate returns to prove the value of their investment. In this way, sustainability can impact profits and losses. However, in order to truly innovate, industry leaders have to think outside of the normal confines of profit and loss to see ESG’s true impacts.
For example, agricultural-input manufacturers should shift their focus away from how sustainability impacts sales of products and toward how it impacts sales of solutions. For as long as anyone can remember, farming operated under an input-output model — specifically, how fertilizers affected the productivity of a given crop.
The sustainability mindset of farmers is to invest in cleaner tools and farming methods that are ecologically sound but are grounded in proof. Farmers have always prioritized sustainability, but today they can take advantage of the newfound focus on digital tools and new biological products that lead to further innovation and better results.
Sustainability Next Steps for Midwest Entrepreneurs, Investors, and Business Leaders
Because sustainability and traditional food industries haven’t always gone hand-in-hand, it can be intimidating for industry leaders to embrace an innovation shift. However, if leaders can articulate the value of sustainability initiatives, then they are worth time and resources. The key here is to ask, “Should this really be done?” If the initiative would add value and efficiency to your company, then the answer is yes.
Here are a few ways industry leaders in the Midwest can embrace sustainability for years to come:
1. Explore all avenues to reduce waste
The crux of all sustainability efforts is waste reduction. Companies that tout sustainability must consciously work every day to limit resource consumption and waste production. This may require a lot of nuanced work, research, and reflection. However, when companies consistently take small steps to reduce waste and make the most of the resources they have, they improve their operations and build value for their investors, their audience, and the world.
Zooming out, everyone involved in food production should be interested in reducing waste to increase profits. Less waste in fertilizer, electrical processes, and manpower can improve the bottom line down the entire value chain. Specifically, reducing waste provides more material that can be recycled and composted for crops. Also, there is more food to process, less waste in landfills, and more supplies to meet consumer demand. Additionally, investors will likely feel more comfortable investing in companies that prioritize waste reduction.
2. Fortify the supply chain through innovation
The transition to more sustainable operations requires a lot of moving parts — specifically, the manufacturing of commodities that further sustainability. Walmart, for example, is working with its suppliers to cut carbon emissions across the board. Through its Project Gigaton, it has dedicated resources to its suppliers to help reduce 1 gigaton of greenhouse gas emissions from its global value chain. As this example makes clear, sustainability requires the capacity of your suppliers to truly succeed.
Also, the CoverCress partnership to bring a renewable seed and animal feed crop to market fortifies the supply chain by helping to meet the demand for renewable fuels. That’s because CoverCress took a winter weed that has been bred and gene-edited to fit into corn and soybean rotations.
Adding new crops on existing land during winter is not only profitable, but this in particular is better for the soil, provides cover for the ground, and decreases nitrogen losses. Farmers can use this once-weed to grow more crops during the year, which improves supply.
3. Focus on tech innovations
Sustainability efforts would not be achievable without the right technology to put plans in place. Because sustainability really boils down to efficiency, industry leaders must invest in technology to innovate in the food industry. In fact, food technology investments totaled $13.5 billion in 2021.
While the investments did decrease in the second quarter, one thing is clear — people are dedicating significant resources toward technology that helps create a safer, cleaner food system. Soon, cutting-edge technology, like food packaging smart sensors, will be found in every aspect of food packaging.
These sensors will be essential in food sterilization and processes, which will also reduce waste. They will be used in most phases of food packaging. As the technology continues to improve over time, manufacturers will be able to use it to detect microbial contamination and even changes in the gas composition of sealed packages. Not only do the sensors support the value chain with efficiency, they also support the goal of safety; these combined are a major component to sustainability.
When it comes to sustainability in the food industry, there is a lot to consider, from outlining goals to getting suppliers in on the plan. However, even traditional industries in the Midwest can prioritize sustainability in the coming years with careful coordination and the right partners. All it takes is a goal and the right allocation of resources.
Once all of these things come into place, companies can work consistently to build a cleaner, safer future for food production.