Exploring the economic benefits and ROI of Regenerative Agriculture Program Investments
A Sustainability and regenerative focus is good for the bottom line of agriculture related businesses, but challenges still loom large including determining what “counts”, and how and when those benefits accrue. New research from Deloitte and NYU Sterns investigated the returns that agriculture and food companies generate from investments in their sustainability programs.Deloitte and NYU Sterns found that business returns and ROI were positive, though variable, depending on the position of the company in the supply chain. [1]
growth and 74% saw cost reductions of at least 2% directly attributable to their sustainability investments.
For ag and food retailers the benefit of investment in sustainability and regenerative ag programs large with 82% of retailers seeing revenue growth and 80% identifying cost reductions. Diggin in, over 50% of their revenue growth came from growing consumer demand for green and sustainable products. Retailers saw benefits from their ability to market verified regenerative claims and sourcing from verified sustainable supply sheds.
Commodity Processors attributed 26% of their revenue growth to investing specifically in soil health and climate smart agricultural practices; a phrase that, in the US, is a catch-all for regenerative and sustainable farming. Cost reductions from Processors were cited as coming from reduced chemical / input usage, the ability to buy and sell carbon credits / offsets, and sustainable supply chain sourcing.
A 2023 study from food processor and commodities company ADM projects expected future business benefit from investment in regenerative programs today. The study shows that an overwhelming majority of agricultural retail and CPG executives believe that investing in and supporting regenerative agriculture programs is a net positive for sales, short and long term growth, consumer perceptions, investor relations, operations, and even stock price / valuation.[2]
According to the study, revenue from regenerative agriculture and related products is expected to grow from $8.7 billion in 2022 to over $32 billion by 2032[3]. Much of that growth is identified as coming from the greening of consumer demand. CPG and retail executives also identify that investment in regenerative agriculture programs creates a competitive advantage for them. They believe that investing in regenerative programs helps to create an additional business benefit. This kind of internal belief in the competitive advantage of investment is important for building internal and cross-functional support for regenerative programs and sustainability strategies..[4]
The study concludes that companies with agriculture in their supply chain understand that “sustainability is fundamental to future growth for companies across the food and agriculture value chain…[e]qually critical, companies must adapt their operations…to ensure their resilience for the future.[5]”
Thinking about Scope 3 and ESG
For CPGs and ag-related businesses, Scope 3, GHG, and supply chain emissions command the most corporate ESG attention and resources. This is because Scope 3 emissions represent as much as 90% of all GHG emissions for CPG and ag retail related organizations[6]. It simply boils down to this: For businesses with agriculture in their supply chain, ESG is material[7].
Risk and Resilience
Investment in sustainability programs has also shown to be an important step in de-risking the business effects of climate change. For ag-related enterprises, the risk of business disruption from climate change, soil degradation, extreme weather events, pests and disease is real. Hardening their agricultural supply chain against climate related yield loss and preserving supply availability is an important risk mitigation strategy.
A recent survey of 100 senior decision-makers at food and agriculture companies found that their supply chains will face long term challenges in adapting to the impacts of climate change[8].
It’s not easy money though. The ROI and accrual of economic benefits from investing in sustainability programs is unevenly distributed across the value chain. Some organizations were better positioned to capture benefits from price premiums or tax credits while others were left in the “have to pay” position. Deloitte found that, …processors and food service providers were the best performers for revenue growth, while retailers, food service providers, and restaurants were the best performers for cost reduction. In contrast, midstream companies such as manufacturers have struggled to realize the same level of return on their investments; they face challenges getting access to upstream supply of inputs and are pulled in multiple directions by various downstream customers who have different needs. In many cases, upstream organizations such as processors reap the benefit of capturing price premiums on sustainable products sold; manufacturers pay this premium to processors but often cannot pass the cost along to their customers[9].
Although most executives believe in sustainability investments, there is still uncertainty around the specifics of an ROI. This challenge stems from the time horizon against which ROI and the financial success of sustainability initiatives are evaluated. In general, businesses are confident that strategies will pay off, but are unsure as to when. That uncertainty makes them hard to predict and factor into annual and strategic budgets. “Withholding investments from longer-term plays can lead to undervaluing and underinvesting at best, and doing so can threaten a company’s license to operate…Better measurement and collaboration can help mitigate risks and boost confidence about future returns.[10]”
When companies with agriculture in their value chain invest in regenerative and sustainability programs, they position themselves to increase business value. However, they must be cognizant of where in the value chain they sit and be careful to set ROI time horizons appropriate to the initiative and invest in high-confidence quantification, monitoring, reporting, and verification capabilities.
CIBO Technologies is climate software for agriculture. Companies who are engaged in the agricultural supply chain choose CIBO because CIBO streamlines sustainable agriculture program design, deployment and delivery––while maximizing program incentives and profitability at the farm level. CIBO captures the data and insights all program sponsors need – from governments to enterprises – to demonstrate and verify success in meeting climate goals and building a resilient food supply chain.
[1] Whelan, Ninio, “Unleashing Sustainable Value in Food & Agriculture”, March 2024, source
[2] Graph citation: Farming for the Future: the state of regenerative agriculture program adoption, Slide 11, Nov 2023, https://www.adm.com/en-us/news/adm-stories/new-report-demonstrates-regenerative-agricultures-value-for-cpgs-and-retailers/
[3] Ibid. slide 3
[4] Ibid. slide 14
[5] Ibid. slide 18
[6] https://www.cibotechnologies.com/pathway/getting-started-on-your-scope-3-journey-in-agriculture/
[7] https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/how-smart-esg-investing-could-boost-portfolio-returns
[8] Parkhurst, R., Moore, L.A., Wright, R, and Perez, M. (2023) Agricultural Carbon Programs: From Chaos to Systems Change [White paper]. Pp 6. Washington, D.C.: American Farmland Trust. p17 https://farmlandinfo.org/publications/ag-carbon-programs-chaos-to-systems-change/
[9] Ibid. p13
[10] Ibid. p15
