Cows, crops and carbon costing - the future of farming?

The farming of crops and animals for food accounts for an estimated 24 per cent of all greenhouse gas emissions, more than all industry combined – and second only to electricity and heat production.

Large-scale agriculture is also one of the biggest causes of deforestation, which, in turn, is a leading factor behind climate change. Soya production alone, which has more than doubled over the past two decades, is consuming forests and natural habitats the world over – from the Brazilian Amazon and Cerrado regions to central Asia’s natural grasslands.

Yet, with increasing pressure to feed a global population expected to reach 9.7bn by 2050, compared with about 7.8bn today, according to the United Nations, agriculture lies at the centre of one of the world’s biggest questions, and one posed during the recent UBS European Conference: “How can farming help to address climate change and protect biodiversity while continuing to feed an expanding population?”

Even with heightened attention on the impact of climate change at the recent COP26 conference, Andrew Stott, Head of European Chemicals Equity Research at UBS, says that there is a disconnect between policy goals and results on the ground.

For example, the European Union (EU) has set targets of a 20 per cent reduction in the use of artificial fertilisers by 2030, and a 50 per cent reduction in the use of antibiotics for livestock. It also wants to see a 25 per cent increase in organic farming, as well as the planting of 3bn trees – all by 2030.

Yet crop protection, which includes the use of fertilisers and pesticides, has changed very little in the bloc over the past five years. Stott, who spoke on a panel at the UBS European Conference entitled “How do we decarbonise agriculture?”, comments: “The EU talks about wholesale decarbonisation in agriculture as though you can wave a magic wand. The reality is that actual change has moved at a snail’s pace.”

Gene editing can help to improve crop harvests by developing strains that are more resistant to drought and other challenges related to climate change. It can also help to refocus farming on the per-unit nutritional value of food, pushing back against the decades-old pursuit of increased quantity at the expense of nutritional content. Gene editing can even play an important role in reducing waste in animal farming, for example by identifying and removing male eggs of chickens prior to incubation.

Meanwhile, bio-sequestration techniques, such as no-tilling to lock carbon into the soil, and using more and enhanced hedgerows to remove carbon from the atmosphere, can help to put agriculture back on a more sustainable path, reducing carbon emissions and protecting biodiversity.

But Hudson points out that employing such techniques effectively requires knowledge and investment – inputs that current laws and regulations do little to encourage or propagate. “There are two big schools of thought on the future of agriculture, with industrial agriculture on one side and regenerative agriculture on the other,” says Hudson. “The problem when it comes to government leadership and policy is that little thought has gone into how to balance one against the other.”

Vicki Kalb, Head of EMEA ESG Research, UBS, points out that nature-based solutions to agricultural challenges, as well as for protecting against climate change, are often cheaper and more effective than rectifying a problem after it has happened – or creating a “hard infrastructure” approach to solving problems.

One example is diversifying crops to counteract monoculture agriculture, which is heavily reliant on chemicals to protect against disease that could affect the entire crop. Regarding climate change, mangrove forests can both sequester carbon from the atmosphere and provide effective protection for coastal areas against flood damage.

Yet, just as in the case of bio-sequestration, Kalb believes today’s government policies largely fail to give these more sustainable resources the financial value required to start changing habits among farmers and the wider agricultural industry. “In fact, nature-based solutions are not generally properly valued from an economic perspective” she says.

Political pressures inevitably have a huge effect on policy, nowhere more so than in agriculture, which feeds directly into areas as core as food inflation and food security. But Julie Hudson argues that governments need to put a “meaningful” price on carbon so that emissions carry a financial cost that will influence and change the processes and practices that lie behind them. “When the financial cost of carbon becomes fully attached to the activity that produces emissions, that’s when you really know you’re getting somewhere,” she says.

Today, many countries lack a carbon-pricing system – and the US has neither a carbon tax nor a so-called Emissions Trading System (ETS), which caps the total level of emissions while allowing low emitters to sell their allowances to bigger emitters. But Andrew Stott argues that the EU’s ETS, which directly affects sectors such as the chemicals industry, has already forced many companies to start accounting for carbon – a fact that leaves them already geared up for an eventual, fully fledged carbon-pricing system.

Ultimately, argues Hudson, fixing a price for carbon in the agricultural sector would be an important step in a wider – and necessary – switch to carbon accounting in which the cost of emissions is fully embedded in all products, including the food we eat. As she puts it, “carbon pricing in agriculture could act like an engine that would start to pull a lot of things along with it, including sustainability and biodiversity”.