E252: Is farm-level environmental impact reporting needed or even possible?

In today's podcast, we're discussing Fast and Furious. But it's not the movie series starring Vin Diesel. Instead, the catchphrase describes rapidly increasing and somewhat confusing food system environmental impact reporting. Food firms, farmers, and governments all have a clear need for more quantitative environmental impact data in order to measure and understand factors such as carbon footprint, sustainable agricultural practices, and food supply chain processes. But there is no single standard for such reporting and different measurement methodologies make it difficult to assess progress. What's more, greater transparency regarding environmental impacts and food systems will affect trade and supply chains. Our guest today is Koen Deconinck from the Trade and Agricultural Directorate of the Organization for Economic Cooperation and Development, or OECD for short.

Interview Summary

You and your colleagues at the OECD recently published a paper called Fast and Furious: The Rise of Environmental Impact Reporting in Food Systems. Can you tell me a little bit about the paper?

Sure. A while ago we were talking to one of the world's experts on sustainability in food systems. He alerted us that there was a major change happening in how people think about sustainability in food systems. He told us in the past, it was thought of almost as a checklist, right? People would say, here's a list of practices that you should or shouldn't use. And then we'll come and confirm whether that's the case on your farm. Then you either get certified or you don't. And he said, you should pay attention because there's a big change underway. We're more and more moving towards actually quantifying things like what is your carbon footprint? What is your water footprint? And so on. He convinced us that this was actually a major change that was happening. Oddly enough, outside of the role of the practitioners, not that many people have been paying attention to it. That is why we wrote this paper.

This is a really important shift because just thinking about this in terms of economics, evaluating outputs versus the methods that you get to those outputs can have really significant implications for the various actors involved. So, this seems like a good move, but it seems also kind of complicated. I would love to hear your thoughts about that particular move. Why did you think, or why did you all realize this was a challenge and opportunity at the same?

That's a great question. It actually gets to the heart of what we're describing in the paper. Starting with the good news, we do think that this has an enormous potential to improve sustainability in food systems. Because we know from the scientific evidence that there are big differences between different kinds of food products in terms of their average environmental impact.

For example, beef tends to have more greenhouse gas emissions per kilogram of products relative to poultry and then definitely relative to plant based alternatives and so on. You can see these kinds of average differences. But then the data also shows that within each kind of product category, there's huge differences between different farmers.

And what you can do if you start quantifying those footprints is it actually unlocks different kinds of levers. The first lever, if you think about carbon footprints, which is maybe the most intuitive example. The first lever is people know the carbon footprint of different kinds of food products. They could shift their diets away from the products that have a higher footprint towards products that have a lower footprint. For example, less beef and more towards poultry or towards plant-based alternatives. That's one lever.

A second lever is that if you can also start to get even more precise and use data that is specific to each producer, not just an average, then also within each product category, people can start shifting towards the producers that have a lower environmental footprint. So, for example, people will still be drinking milk, but then they can shift towards milk producers that have a lower carbon footprint. And the third interesting lever that you can unlock is if you have that data at a supplier level. Suppliers could then say, well, I changed my practices. I changed my inputs. I've done things differently to reduce my impact. You actually can stimulate innovation by each individual farmer, each individual company in the supply chain to lower that impact. And that is something that you can do if you're quantifying those impacts, and that is very difficult or even impossible to do with this previous checklist-based approach. So that's one of the reasons why we're, we think that this has tremendous potential if we get it right.

That's right. Just saying that you're doing sustainable practices isn't sufficient. It's really critical to evaluate what kinds of greenhouse gas emissions or other environmentally problematic outcomes of that producer or firm is what really matters. But I have to ask you just how difficult, how realistic is it to be able to measure the environmental impact of every farm?

That's a really good question. And of course, if you think about agriculture compared to other sectors, one of the big challenges for agriculture is indeed that there's just so many producers, right? I talked to people who work in the steel industry, and they say that their industry is complicated, but there's basically only 1000 steel factories around the world. That's not that many. The latest evidence suggests that there's more than 600 million farmers worldwide. So clearly, we're talking about a completely different order of magnitude, order of complexity.

And the second difficulty is that when we talk about measurements, for a steel factory, in theory, you could put sensors in the chimney and sort of measure that. For agriculture, that's really not practical. Scientists would sometimes do that because, you know, otherwise it's hard to know what greenhouse gas emissions you have in agriculture. But it's clearly not something that you're going to do on 600 million farms.

So, what people do instead is, scientists would do the primary research. There are different ways of doing that, to try and estimate which kinds of practices have which kinds of environmental impacts. If you have a cow and it has this kind of diet, how much methane is it burping and how is it affected by differences in the kinds of feed that you give the animal and whether it's inside or outside and so on. And then based on that very detailed research, that then gets simplified into a simpler model, a simpler tool, so that the farmer can plug in some key performance indicators from their farm. I can say ‘I have these many cows, this is the feed rations that I'm giving to them. These are the kinds of manure management options that I have.’ And then that tool is a simplified tool that basically gives you an estimate of those emissions. And once you have a tool like that, of course, the challenge is already a lot easier. Because then, if your tool is user friendly and you can sort of focus on just a couple of key parameters that farmers would know, then, of course, you can scale it up. And there are actual examples like that. In Ireland, there is a scheme called Origin Green, which is an initiative by the Irish government to promote exports of Irish Agri food products. They cover something like 90 percent of all the beef and dairy farms in the country. And as part of the initiative, they do the audits anyway, but as part of that initiative, they also quantify the carbon footprint. They basically have farm level data for 90 percent of the farmers. New Zealand similarly has had a big campaign called Know Your Numbers, where they've convinced farmers to use these kinds of calculation tools to get a good insight on how much the emissions are on their farm.

So, it is definitely not straightforward. But at the same time, we do see that it is actually happening. It is actually feasible.

Thank you for sharing that. This is really impressive work that's happening in the European context and in New Zealand. I have to ask, how challenging is this for small or medium sized producers? I mean, both in a European or Northern context, but particularly when we start thinking about the fact that Agri food chains are global and, and so there can be production practices in the Southern countries that would be of concern. How do you think about this in this context?

It is a really important issue. And actually, we've been here before. If you go back something like 20 years ago, and I think you actually did some research on this yourself back in the days, Norbert. There was a big increase in food safety standards, food quality standards. And these were not necessarily public standards. It was quite often retailers who started to impose that on their suppliers. And we did have all those concerns, right? Because on the one hand, it was making food safer and higher quality for consumers. But on the other hand, there was this risk that it would actually exclude, especially the poor producers, the small and medium sized enterprises from those supply chains. There's been a lot of research about that and it turns out that in the end, it was more nuanced than what people feared initially. But of course, we definitely have the same concern now. And there's a few elements to it. One is simply the difficulty of actually quantifying those things. I mentioned a few of these calculation tools and a few of these initiatives. So far, most of the investment in these things has been in high income countries. And even if you look at the underlying science, most of the research has happened in richer countries. So, if you go to tropical agriculture, we even have less scientific evidence that you would use to build a simplified tool like that. Then there's, of course, the challenge of actually getting farmers to use that. So, governments in developing countries typically don't have the same kind of capacity that the government of New Zealand, or the government of Ireland has to help farmers do that. So, there's definitely a role there for development cooperation, technical assistance, things like that.

But there's also another concern, which is that one of the important drivers of the environmental impacts of food products is actually your productivity. There are many parts of the food system where your environmental impacts might be roughly the same, no matter whether you are actually very productive or not. So, if you have the type of variety of rice or wheat that you're using that just has relatively low yields, then, of course, you divide the total environmental impact by a smaller number. So, automatically, your relative impact is bigger. And typically, that is what we find in the Global South. So, typically, the producers there will have much lower productivity levels. And studies do find that they tend to have higher environmental impacts, all else equal. So even if they were able to quantify it, there is actually an additional risk that then they would still get excluded.

What that means is that this rise of quantified environmental impact reporting is something that we need to pay close attention to. And development corporation agencies and everybody else should be thinking hard about how we are going to make sure that producers in the Global South are not only able to quantify, but also able to improve those environmental impacts. For example, through sustainable productivity growth.

This is really helpful. And thank you for sharing that. And you're right. I did think about these issues. I was influenced rather by the experience of increasing food safety standards. I would say one of the differences that we saw with food safety standards was how safe can food be? I mean, we want our food to be extremely safe, but there are always these tradeoffs. With environmental impacts, I think it feels a little different. And I really appreciate the concern of the difference between these small and medium sized enterprises, particularly out of a developing country context. I've got to ask sort of a broader question. Why is all of this happening now? This increase of environmental sustainability measures, both in terms of the technical work and the demand. I mean, what's bringing all of this together?

It is actually a pretty interesting story because it appears that, the way we look at it, there's been some changes on the demand side and on the supply side, so to speak, right? So, there's this growing demand for more information. Consumers are increasingly conscious about these things, even though it's not clear yet if this really translates into their shopping behavior. Civil society organizations, of course, have long been asking for more information on that. Governments, in some cases, are also pushing for that. One clear example there is in the European Union. There is this new rule in the EU. It's called the Corporate Sustainability Reporting Directive. That's quite a mouthful. And one of the things it does is it requires all large companies to report not only their own emissions and the emissions from the energy that they're purchasing, but also their emissions upstream and downstream in their supply chain. People sometimes call this Scope Three Emissions. This has huge ramifications because it means that for the supermarkets, a large part of their Scope Three Emissions are the emissions from food. They would then probably ask the food manufacturers 'well, give us more information on your carbon footprints.' And in turn, for the food manufacturers, a large part of their carbon footprint comes upstream from the agricultural sector. So, everybody would be turning around and asking their supplier and all the way up the supply chain for more information. All the way, not only to the farmer, but even further up to the fertilizer companies and so on.

So, there's definitely this push on the demand side. And, I guess governments and citizens and civil society, those are sort of the usual suspects, so to speak. There's also unexpectedly a lot of pressure from investors. We see organizations of investors pushing hard for more transparency. Their logic is that sooner or later, stricter regulations on the environmental side are going to come. For some of the companies that we're currently investing in, we have no idea how hard that would hit them. So, those companies need to disclose more information because we as investors need to know how much money is at risk if we invest in a business that is, for example, linked to deforestation and things like that.

So, that's the demand side. But what is really interesting is that at the same time on the supply side, it's also becoming easier to actually provide that information compared to five or 10 years ago. Some of this is because people have been working in obscurity for a long time, trying to develop certain methods and databases. A lot of that work has been coming to fruition in just the last few years. For example, there's been development of new reporting standards, there's been development of new databases, there's been development of new methods, people are now using satellites and so on to try and quantify things like land use change, deforestation impacts and so on. A lot of these things are now converging and blending with each other. We do think that the combination of this greater demand and greater supply that is driving what we're seeing now. And of course, some of these initiatives are still at a relatively early stage. At the same time, I think the direction of travel is clear. So, we think that demand is not going to go down. It will keep getting easier to supply that information. We think that this is what explains this fast increase that we're seeing.

This is really intriguing, and it makes me wonder how global value chains are going to be realigned. Going back to this idea of small and medium sized producers who may not be able to have the monitoring, or if you think of even larger firms who feel uncomfortable with having some outside agency evaluating the carbon emissions or other greenhouse gas emissions from their farm. I can imagine that this could realign value chains. Is this a fair assessment? Is this a concern?

I agree with you that this is something people should be looking at. At the moment, there's not yet any data on that. I don't think anybody has really researched that. We see in general that many researchers aren't really paying attention to this trend, which was actually one of the reasons we wrote this paper. But what you're describing is exactly one of the questions we have as well. There are a few ways that this could play out. You could imagine that if it's only some markets that are getting very interested in this kind of information, you might have a situation where companies in a producing country decide to just send the sustainable stuff to the countries that care about sustainability. But they keep producing the unsustainable stuff for all the other markets. In that case, the total impact for the environment might actually be limited. But there could also be other cases where companies think, well, since a large part of our customer base is asking for more sustainability, we might as well make everything sustainable just to be on the safe side. You might have other cases where companies start working backwards because they want to make sure that what they are selling is sustainable. So, you might actually have situations where a retailer starts working with suppliers or where a food manufacturer starts working with suppliers to make sure that their production is sustainable.

This is again something that we have seen in the wake of these food safety standards about 20 years ago. This was a really surprising development and there was a lot of investment from other companies in the supply chain to help farmers start meeting these stricter food safety standards. So, one possibility is that something like that might happen for environmental sustainability as well. At the moment, these are all really just hypotheses. And so I really hope people will start to investigate this more seriously, because I think it is very important also for policymakers to understand what has happened.

I'm really appreciative of you making the point that there is just a great deal of uncertainty in this space and that there is a need for researchers to explore this issue. And I agree the food safety concerns of 20 or so years ago is a good example. But I think there are going to be some differences and I'll be intrigued to see how that plays out. I am interested to understand, are there any risks besides the ones that we've kind of touched on, any other risks or downsides to this movement that we're seeing?

Yes, there are actually. Because the story I told so far was maybe a little bit on the optimistic side. I was explaining how it's becoming easier to supply the information in part because we now have better reporting standards. That is one part of the story. That's sort of the glass half full view of it.

The glass half empty view is that actually, at the same time, there's also a fragmentation. There are also many different initiatives, and this is why we call it fast and furious. So, there's lots of different initiatives that are competing for attention. And you do end up with situations where you might have different ways of calculating certain environmental impact. Different ways of reporting it. And then it's not necessarily clear when somebody is reporting something what exactly they were using as methods. And so that poses an enormous risk, because if every supermarket or every country starts coming up with its own way of doing things, its own way of reporting, then the end result is just going to be confusion and frustration and transaction costs. And then the benefits for the environment won't even be there.

So, it is really important if you want this to go well, that people get together, stakeholders, governments, researchers, to get together and try to align as much as possible on common reporting standards, common methodologies, etc. So that it's clear for everybody that the data that we're looking at is comparable. This is important, and I can imagine if we think about international accords on addressing climate change and how it takes a lot of effort to get agreement on those, you can imagine that when we're talking about these kinds of measures and getting concordance on that, there could be some real challenges.

We've already touched on this, but I'm interested to know, are there other policy implications of the work that this paper is doing? Is there something we should be paying attention to?

Well, one idea that I hope people would start taking seriously is I want people to start thinking in timelines and cycles. And let me explain what I mean by that. There's a lot of different initiatives out there. And you can even start to see a little bit of a hierarchy, how different things, some of these standards are building on other standards. Some of these databases are then in turn using some of those other standards. There's a kind of a logic that is emerging there. One of the problems that happens now is that it's not really clear when all of these elements are going to get updated. So, suddenly one of those standards might get updated and then now all of these other standards that build on that or those databases that build on that are suddenly no longer consistent with that original standard. And then there's some confusion and then it's not really clear whether the data you are using is actually still consistent with the original standard. One idea that I'm advocating for is that people should all explicitly define a certain iteration cycle where they say, look, every four years, for example, or every three years, every five years, we are going to review the standard. We'll give everybody 12 months of warning, and we'll have a stakeholder process, and we'll have a scientific process behind that so it's clear for everybody what we're changing and why. But this way, you know well in advance when each of these building blocks is going to get updated. Then that would make it a lot easier for everybody to make sure that what they're doing is aligned with those standards. And an additional benefit of doing it like that, I think, is these things are moving so fast and there's still so much new science and new technology coming in, that we have to keep the possibility open to keep improving and updating those methods and those standards as well. If you announce in advance that we'll do this on a three year cycle or a four year cycle or whatever it may be, I think that could help us strike a balance between the need for that flexibility, but at the same time that need for stability. Because of course, if things keep changing all the time, then you're never quite sure whether the numbers you're looking at make sense or can be compared. I think that idea would be very helpful. And that will probably require quite a bit of coordination between all the different stakeholders who work in that space. And I think that would be a very good thing to do.

BIO

Koen Deconinck is an economist in the Trade and Agriculture Directorate of the OECD (Organization for Economic Co-operation and Development) in Paris. He was lead author of the OECD report “Making Better Policies for Food Systems” (2021) and has worked on market concentration, seed markets, evidence gaps, resilience, and environmental impacts of food systems. He holds a PhD in Economics from the University of Leuven and has published research in the American Journal of Agricultural Economics, the European Review of Agricultural Economics, Food Policy, and Business History, among others. He currently works on measurement of carbon footprints and other environmental impacts of food.